First American Financial Corporation Reports Results For The Second Quarter of 2010

—Reports Earnings Per Diluted Share of 32 Cents—


August 3, 2010, SANTA ANA, Calif.

                                                                Download the release as a PDF (PDF 73 KB)

First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance and settlement services for real estate transactions, today announced financial results for the second quarter ended June 30, 2010.

 

Selected Financial Information
($ in millions, except share data)
                                          For the Three Months
                                                 Ended
                                                June 30
                                                -------
                                           2010             2009
                                           ----             ----
    Total revenues                       $969.9         $1,025.1
    Income before taxes                    57.0             64.5

    Net income                            $33.8            $28.6
    Earnings per diluted share             0.32             0.27

 

Total revenues for the second quarter of 2010 were $969.9 million, a decrease of 5 percent relative to the second quarter of 2009. Net income was $33.8 million, or 32 cents per diluted share, compared with $28.6 million, or 27 cents per diluted share, in the second quarter of 2009. The current quarter results include net realized investment gains of $3.2 million, or 2 cents per diluted share, compared with net realized investment losses of $23.2 million, or 13 cents per diluted share, in the second quarter of 2009.

Current Quarter Highlights

  • Commenced operations as an independent public company with the completion of the spin-off on June 1, 2010
  • Title Insurance and Services segment pretax margin of 6.9 percent
  • Commercial title revenue of $61.5 million, up 17 percent relative to the prior year
  • Specialty Insurance segment pretax margin of 15.0 percent, the highest in three years
  • Debt-to-total-capital ratio of 14.1 percent as of June 30, 2010

 

"I am pleased with the progress we are making in the face of difficult market conditions," said Dennis J. Gilmore, chief executive officer of First American Financial Corporation. "The completion of the spin-off transaction on June 1, 2010, was a substantial accomplishment for First American and its shareholders. We've come out of the spin-off solidly profitable, with a strong balance sheet and well positioned to continue to execute on our strategy of improving the efficiency of our business while pursuing selective, profitable growth opportunities.

"Our Title Insurance and Services segment delivered a pretax margin of 6.9 percent, despite a 30 percent decline in closed orders compared with the second quarter of 2009. Average revenue per order increased 20 percent relative to the second quarter of last year as the order mix shifted to higher premium resale transactions. However, as the second quarter progressed and record-low mortgage rates emerged, new title orders for refinance transactions began to increase. This trend accelerated in July, with open orders per day up approximately 8 percent over June. Also in the second quarter, the commercial business performed well as the level of transactions picked up across a broad range of markets. Commercial revenues were $61.5 million on closed orders that were up 17 percent from the prior year.

"Our Specialty Insurance segment revenues were $70.7 million in the second quarter and pretax margins were strong at 15 percent. Both our home warranty and property and casualty lines posted good results with favorable loss experience in the quarter."

Gilmore continued: "We expect real estate and mortgage markets to continue to be volatile, but they seem to be gradually improving. More specific to the title business, today's low mortgage rates have improved the residential refinance market and the commercial pipeline appears to be building as the third quarter progresses."

   
Title Insurance and Services
($ in millions, except orders)
                                          For the Three Months Ended
                                                   June 30
                                                   -------
                                              2010              2009
                                              ----              ----
    Total revenues                          $903.0            $961.9

    Income before taxes                      $62.0             $76.0
    Pretax margin                              6.9%              7.9%

    Direct open orders                     410,000           566,300
    Direct closed orders                   309,000           438,100

    Commercial*
         Total revenue                       $61.5             $52.3
         Open orders                        16,158            14,401
         Closed orders                       8,380             7,058
    
    *Includes commercial activity from the National Commercial Services
    division only

 

 

During the second quarter of 2010, total revenues from the Title Insurance and Services segment were $903.0 million, a 6 percent decline from the same quarter of 2009. The lower revenues were driven by a 30 percent decline in the number of title orders closed and were partly offset by higher average revenue per order and an increase in our agency title premiums written. Average revenue per direct title order was $1,565, an increase of 20 percent relative to the second quarter of 2009 primarily due to the increase in the mix of higher premium resale transactions.

Salary and other personnel costs and other operating expenses were $469.0 million in the second quarter, down $48.1 million, or 9 percent, compared with the second quarter of 2009. These lower expenses were primarily due to a decline in title production costs from lower order counts, salary and other employee expense reductions, and other cost initiatives.

The loss provision in the current quarter was 5.8 percent of title premiums, escrow and other related fees, compared with 6.5 percent in the second quarter of 2009. The current rate reflects an expected claims rate of 4.8 percent for policy year 2010 and a net increase in the loss reserve estimates for policy years prior to 2010.

Pretax income for the Title Insurance and Services segment was $62.0 million in the second quarter of 2010, compared with $76.0 million in the second quarter of 2009, or a decline of 18 percent. Pretax margin was 6.9 percent in the second quarter, compared with 7.9 percent in the second quarter of 2009. The current quarter includes net realized investment gains that improved the pretax margin by 40 basis points, while the second quarter of 2009 includes net realized investment losses that reduced the pretax margin by 150 basis points.

Specialty Insurance
$ in millions)
                                          For the Three Months Ended
                                                    June 30
                                                    -------
                                              2010               2009
                                              ----               ----
    Revenues                                 $70.7              $64.4

    Income before taxes                      $10.6               $2.0
    Pretax margin                             15.0%               3.1%


Total revenues for the Specialty Insurance segment were $70.7 million in the second quarter of 2010, up 10 percent compared with the second quarter of 2009. The improvement in revenues was largely driven by investment impairment of approximately $6.3 million in the second quarter of 2009, while expenses were lower due to favorable loss experience. Pretax margin was 15.0 percent, up from 3.1 percent in the second quarter of 2009, and up from 14.0 percent in the first quarter of 2010.

Teleconference/Webcast

First American's second quarter results will be discussed in more detail on Tuesday, Aug. 3, 2010, at 11 a.m. ET, via teleconference. The toll-free dial-in number is (800) 779-9311.Callers from outside the United States may dial (212) 519-0823. The pass code for the event is FIRST AMERICAN.

The live audio webcast of the call will be available on First American's website atwww.firstam.com/investor. An audio replay of the conference call will be available through Aug. 10, 2010, by dialing (203) 369-0678. An audio archive of the call will also be available on First American's investor website.

About First American
First American Financial Corporation (NYSE: FAF)
 is a leading provider of title insurance and settlement services to the real estate and mortgage industries, that traces its heritage back to 1889. First American and its affiliated companies also provide title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; and banking, trust and investment advisory services. With revenues of $4 billion in 2009, the company offers its products and services directly and through its agents and partners in all 50 states and in more than 60 countries. More information about the company can be found at www.firstam.com.

Forward-Looking Statements

Certain statements made in this press release and the related management commentary and responses to investor questions, including but not limited to those related to volatility and improvement in the real estate and mortgage markets; the commercial title insurance pipeline; the expected claims rate in 2010 and the loss reserve estimates for prior policy years; the company's execution of its strategic plan; monetization of the company's investment in CoreLogic, Inc.; recovery in the commercial title insurance market; the company's approach to capital management; the outlook for the third quarter; improved efficiency and pursuit of growth opportunities following the spin-off; the effect on the company's financial results of a lower loss provision rate; projected dividends and cash payments at the holding company; continued movement of capital to the holding company; the combination of First American Title Insurance Company of New York into the company's primary underwriter and the effect thereof; increases in the company's investment returns in the second half of the year and a continued shift in the investment mix; expected statutory capital at the company's title insurance underwriters at the end of the quarter; and potential share repurchases, are forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may contain the words "believe," "anticipate," "expect," "plan," "predict," "estimate," "project," "will be," "will continue," "will likely result," or other similar words and phrases. Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements. Factors that could cause the anticipated results to differ from those described in the forward-looking statements include: interest rate fluctuations; changes in the performance of the real estate markets; limitations on access to public records and other data; general volatility in the capital markets; changes in applicable government regulations; heightened scrutiny by legislators and regulators of the company's title insurance and services segment and certain other of the company's businesses; the inability to realize the benefits of the spin-off transaction as a result of the landscape of the real estate and mortgage credit markets, market conditions, increased borrowing costs, competition between the company and CoreLogic, Inc., unfavorable reactions from employees, the inability of the company to pay the anticipated level of dividends, the triggering of rights and obligations by the transaction or any litigation arising out of or related to the separation; increases in the size of the company's customers; unfavorable economic conditions; impairments in the company's goodwill or other intangible assets; losses in the company's investment portfolio; expenses of and funding obligations to the pension plan; weakness in the commercial real estate market and increases in the amount or severity of commercial real estate transaction claims; regulation of title insurance rates; and other factors described in the company's information statement attached as Exhibit 99.1 to the company's current report on Form 8-K dated May 26, 2010, as updated in part I, Item 1A of the company's quarterly report on form 10-Q for the quarter ended March 31, 2010, each as filed with the Securities and Exchange Commission. The forward-looking statements speak only as of the date they are made. The company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

                         
                            First American Financial Corporation
                    Summary of Financial Results and Selected Information
                  (in thousands, except per share amounts and title orders)
                                         (unaudited)
                            For the Three Months          For the Six Months
                                    Ended                        Ended
                                  June 30                      June 30
                                  -------                      -------
                             2010             2009       2010            2009
                             ----             ----       ----            ----


    Total revenues       $969,924       $1,025,085 $1,878,349      $1,913,459

    Income before income
     taxes                $56,995          $64,535    $81,535         $74,679
    Income taxes           22,855           31,143     33,666          33,919
                           ------           ------     ------          ------
    Net income             34,140           33,392     47,869          40,760
    Less: Net income
     attributable to
     noncontrolling
     interests                307            4,800        267           7,267
    Net income
     attributable to the
     company              $33,833          $28,592    $47,602         $33,493
                          =======          =======    =======         =======

    Net income
     attributable to
     stockholders:
         Basic              $0.33            $0.27      $0.46           $0.32
         Diluted            $0.32            $0.27      $0.45           $0.32

    Cash dividends per
     share                  $0.06              n/a      $0.06             n/a

    Weighted average
     common shares
     outstanding:
         Basic            104,014          104,006    104,010         104,006
         Diluted          106,128          104,006    106,124         104,006




    Selected Title
     Information
    --------------

    Title orders opened   410,000          566,300    799,100       1,129,300

    Title orders closed   309,000          438,100    595,500         807,300

    Paid title claims     $81,019          $78,173   $150,666        $148,908

                    First American Financial Corporation
                     Selected Balance Sheet Information
                               (in thousands)
                                (unaudited)
                                                 June 30,      December 31,
                                                      2010             2009
                                                      ----             ----

    Cash and cash equivalents                     $578,978         $583,028
    Investment portfolio                         2,483,283        2,476,613
    Goodwill and other intangibles assets          872,054          879,878
    Total assets                                 5,486,238        5,530,281
    Reserve for claim losses                     1,158,410        1,227,757
    Notes payable                                  308,224          119,313
    Allocated portion of The First American
     Corporation ("TFAC") debt                           -          140,000
    Total stockholders' equity/TFAC's
     invested equity                             1,866,459        2,019,800

                              First American Financial Corporation
                                       Segment Information
                                         (in thousands)
                                           (unaudited)
    For the Three
     Months Ended                        Title     Specialty   Corporate
                                                                (incl.
    June 30, 2010       Consolidated   Insurance   Insurance    Elims.)
    -------------       ------------   ---------   ---------   -------
    Revenues
    Direct operating
     revenues                $578,237    $510,180     $68,057          $-
    Agent operating
     revenues                 366,003     366,003           -           -
    Investment and
     other income              22,520      23,205       3,037      (3,722)
    Net realized gains
     and losses                 3,164       3,566        (408)          6
                                -----
                              969,924     902,954      70,686      (3,716)
                              -------     -------      ------      ------
    Expenses
    Salaries and other
     personnel costs          300,783     285,591      13,444       1,748
    Premiums retained
     by agents                294,069     294,069           -           -
    Other operating
     expenses                 202,289     183,373      10,362       8,554
    Provision for title
     losses and other
     claims                    83,004      49,276      33,728           -
    Depreciation and
     amortization              19,685      17,834       1,437         414
    Premium taxes               9,258       8,149       1,109           -
    Interest                    3,841       2,644           5       1,192
                              912,929     840,936      60,085      11,908
                              -------     -------      ------      ------

    Income before
     income taxes             $56,995     $62,018     $10,601    $(15,624)
                              =======     =======     =======    ========




    For the Three
     Months Ended                        Title     Specialty   Corporate
                                                                (incl.
    June 30, 2009       Consolidated   Insurance   Insurance    Elims.)
    -------------       ------------   ---------   ---------   -------
    Revenues
    Direct operating
     revenues                $663,789    $596,439     $67,350          $-
    Agent operating
     revenues                 351,048     351,048           -           -
    Investment and
     other income              33,483      29,917       3,348         218
    Net realized gains
     and losses               (23,235)    (15,524)     (6,296)     (1,415)
                            1,025,085     961,880      64,402      (1,197)
                            ---------     -------      ------      ------
    Expenses
    Salaries and other
     personnel costs          313,111     293,725      14,213       5,173
    Premiums retained
     by agents                278,604     278,604           -           -
    Other operating
     expenses                 238,222     223,354      10,288       4,580
    Provision for title
     losses and other
     claims                    96,004      60,020      35,984           -
    Depreciation and
     amortization              19,985      18,404         865         716
    Premium taxes               8,650       7,593       1,057           -
    Interest                    5,974       4,190          10       1,774
                              960,550     885,890      62,417      12,243
                              -------     -------      ------      ------

    Income before
     income taxes             $64,535     $75,990      $1,985    $(13,440)
                              =======     =======      ======    ========


                             First American Financial Corporation
                                      Segment Information
                                        (in thousands)
                                          (unaudited)
    For the Six Months
     Ended                                Title     Specialty   Corporate
                                                                 (incl.
    June 30, 2010        Consolidated   Insurance   Insurance    Elims.)
    -------------        ------------   ---------   ---------   -------
    Revenues
    Direct operating
     revenues               $1,080,076    $946,583    $133,493          $-
    Agent operating
     revenues                  742,050     742,050
    Investment and other
     income                     50,811      47,294       6,181      (2,664)
    Net realized gains
     and losses                  5,412       6,254        (414)       (428)
                             1,878,349   1,742,181     139,260      (3,092)
                             ---------   ---------     -------      ------
    Expenses
    Salaries and other
     personnel costs           584,344     547,191      26,825      10,328
    Premiums retained by
     agents                    596,577     596,577           -           -
    Other operating
     expenses                  397,717     362,885      21,706      13,126
    Provision for title
     losses and other
     claims                    153,986      88,649      65,337           -
    Depreciation and
     amortization               39,505      35,309       3,135       1,061
    Premium taxes               18,522      16,448       2,074           -
    Interest                     6,163       4,503          11       1,649
                             1,796,814   1,651,562     119,088      26,164
                             ---------   ---------     -------      ------

    Income before income
     taxes                     $81,535     $90,619     $20,172    $(29,256)
                               =======     =======     =======    ========




    For the Six Months
     Ended                                Title     Specialty   Corporate
                                                                 (incl.
    June 30, 2009        Consolidated   Insurance   Insurance    Elims.)
    -------------        ------------   ---------   ---------   -------
    Revenues
    Direct operating
     revenues               $1,216,300  $1,081,858    $134,442          $-
    Agent operating
     revenues                  649,366     649,366           -
    Investment and other
     income                     69,605      61,348       6,875       1,382
    Net realized gains
     and losses                (21,812)    (14,046)     (6,699)     (1,067)
                             1,913,459   1,778,526     134,618         315
                             ---------   ---------     -------         ---
    Expenses
    Salaries and other
     personnel costs           610,436     572,055      27,973      10,408
    Premiums retained by
     agents                    518,163     518,163           -           -
    Other operating
     expenses                  461,831     431,489      22,326       8,016
    Provision for title
     losses and other
     claims                    179,060     109,482      69,578           -
    Depreciation and
     amortization               40,795      37,546       1,820       1,429
    Premium taxes               16,416      14,273       2,143           -
    Interest                    12,079       8,869          10       3,200
                             1,838,780   1,691,877     123,850      23,053
                             ---------   ---------     -------      ------

    Income before income
     taxes                     $74,679     $86,649     $10,768    $(22,738)
                               =======     =======     =======    ========


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