First American Financial Corporation Reports Results for the First Quarter of 2011

— Reports a Loss of 15 Cents per Diluted Share, Including a $45 Million Reserve Strengthening Adjustment in the Company’s Canadian Operations —


April 28, 2011, SANTA ANA, Calif.

Download the complete release as a PDF (PDF 255kb)

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 first quarter ended March 31, 2011.
 

Selected Financial Information

($ in millions, except per share data)


 
 

 

For the Three Months Ended

March 31

 

 

2011


 

2010

 

Total revenues

$931.7


 

$908.4

 

(Loss) income before taxes

(23.4)


 

24.5

 

 

 

 

 
 

Net (loss) income

$ (15.3)


 

$  13.8

 

Net (loss) income per diluted share

(0.15)


 

0.13

 
       


Total revenues for the first quarter of 2011 were $931.7 million, an increase of 3 percent relative to the first quarter of 2010. Net loss in the current quarter was $15.3 million, or 15 cents per diluted share, compared with net income of $13.8 million, or 13 cents per diluted share, in the first quarter of 2010. The current quarter loss includes a $45.3 million reserve strengthening adjustment in the company's Canadian operations, which is $27.2 million on an after-tax basis, or 26 cents per diluted share.

Current Quarter – Key Points

  • Reserve strengthening adjustment of $45.3 million in the company's Canadian operations
  • Title segment loss provision of 13.8 percent of premiums and escrow fees, or 7.3 percent excluding the 6.5 percent attributable to the reserve strengthening adjustment in Canada
  • National Commercial Services division revenues of $67.3 million, up 34 percent compared with the prior year
  • Specialty Insurance segment pretax margin of 17.8 percent
  • Authorization of a $150 million share repurchase program


 

"We are disappointed that our first quarter results were impacted by a reserve strengthening charge we took in connection with a guaranteed valuation product we sell exclusively in Canada," said Dennis J. Gilmore, chief executive officer at First American Financial Corporation. "We are cancelling the product in its current form and are looking to reinsure a modified version. If we cannot reinsure all or most of the risk, we will terminate the product.

"Increased claims in our domestic title operations also negatively impacted Title Insurance and Services segment results. However, our commercial business and national lender operations continued to perform well. In addition, our Specialty Insurance segment continued its strong performance in both the home warranty and property and casualty insurance business lines, achieving a pretax margin of 17.8 percent in the quarter.

"March open orders per day were up 4 percent from February, and April open orders are coming in just below March. Given the slow start to the year, we continue to actively manage expenses. However, we will be prudent in our expense management efforts, as we believe mortgage and real estate markets are near a bottom."  

Title Insurance and Services

($ in millions, except average revenue per order)


 
 

 

For the Three Months Ended

March 31

 

 

2011


 

2010

 

Total revenues

$  861.4


 

$   837.8

 

 

 

 

 
 

(Loss) income before taxes

$  (18.6)


 

$     27.2

 

Pretax margin

(2.2)%


 

3.2%

 

 

 

 

 
 

Direct open orders

285,100


 

339,600

 

Direct closed orders

222,200


 

241,200

 

 

 

 

 
 

Commercial*


 

 

 
 

  Total revenue

$   67.3


 

$     50.0

 

  Open orders

17,383


 

15,548

 

  Closed orders

8,359


 

6,886

 

  Average revenue per order

$  6,300


 

$   5,800

 

 
 

* Includes commercial activity from the National Commercial Services division only

 
       


Total revenues for the Title Insurance and Services segment were $861.4 million, a 3 percent increase from the same quarter of 2010. The increase in total revenues was driven by a 7 percent increase in agent premiums and a 3 percent increase in information and other revenues, partly offset by lower investment income. The relative strength in agent revenues was primarily due to the normal reporting lag of approximately one quarter. As a result, agent revenues in the first quarter were consistent with the increase in the company's direct premiums and escrow fees in the fourth quarter of 2010 as compared to 2009. Direct revenues were flat, driven by an 8 percent decline in the number of direct title orders closed in the first quarter that was essentially offset by higher average revenue per order. Average revenue per direct title order was $1,337, an increase of 8 percent, compared with the first quarter of 2010, primarily due to the increase in the mix of higher premium commercial transactions. The increase in information and other revenues from the same quarter of last year reflected higher demand for title plant information, partly offset by lower demand for the company's default and international information products.

Personnel costs were $263.6 million in the first quarter, an increase of $2.3 million, or 1 percent, compared with the first quarter of 2010. This increase was primarily due to higher commissions as a result of improved commercial activity, partially offset by a reduction in U.S. headcount and lower healthcare-related expenses in the current quarter. Compared with the fourth quarter of 2010, personnel costs were down $35.7 million in the current quarter, or 12 percent.

Other operating expenses were $172.6 million in the first quarter, down $7.8 million, or 4 percent, compared with the first quarter of 2010. This decrease is primarily due to reduced office-related expense resulting from the consolidation and closure of certain title offices and a decline in bad debt expense at the company's default division. These expense reductions were partially offset by an increase in production-related expenses as a result of increased commercial activity and a shift to lower margin products in the company's default business. Compared to the fourth quarter of 2010, other operating expenses were down $14.1 million in the current quarter, or 8 percent.

The provision for policy losses and other claims was $96.4 million in the first quarter, or 13.8 percent of title premiums and escrow fees, up $57.0 million compared with the same quarter of the prior year. The current quarter provision includes a $45.3 million reserve strengthening adjustment related to a guaranteed valuation product offered in Canada.  The loss provision rate, excluding 6.5 percent attributable to the $45.3 million charge, was 7.3 percent for the current quarter and 5.9 percent for the same quarter of the prior year. The current quarter rate reflects an ultimate loss rate of 5.2 percent for the current policy year and adverse development for certain prior policy years, primarily policy year 2007.  

Specialty Insurance

($ in millions)


 
 

 

For the Three Months Ended

March 31

 

 

2011


 

2010

 

Revenues

$68.8


 

$68.6

 

 

 

 

 
 

Income before taxes

$12.2


 

$ 9.6

 

Pretax margin

17.8%


 

14.0%

 
       


Total revenues for the Specialty Insurance segment were $68.8 million in the first quarter of 2011, essentially flat, compared with the first quarter of 2010. Slightly higher revenues in the home warranty business were offset by lower revenues in the property and casualty business. Pretax margin was 17.8 percent, up from 14.0 percent in the first quarter of 2010. Pretax margin was higher compared with the prior year as the home warranty business had higher expenses in 2010 associated with its move to a new call center, partly offset by moderately higher claim losses.

Teleconference/Webcast

First American's first quarter results will be discussed in more detail on Thursday, April 28, 2011, at 11 a.m. ET, via teleconference. The toll-free dial-in number is (877) 784-3230. Callers from outside the United States may dial (517) 308-9093. The pass code for the event is "First American."

The live audio webcast of the call will be available on First American's website at www.firstam.com/investor. An audio replay of the conference call will be available through May 5, 2011, by dialing (203) 369-1842. 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 $3.9 billion in 2010, the company offers its products and services directly and through its agents and partners in all 50 states and abroad. More information about the company can be found at www.firstam.com.

Website Disclosure

First American posts information of interest to investors at www.firstam.com/investor. This includes opened and closed title insurance order counts for its direct title insurance operations, which are posted approximately 15 days after the end of each month.

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 cancellation of the guaranteed valuation product in its current form, reinsurance of a modified form thereof, termination of such product if reinsurance is not available, expense management, the bottoming of mortgage and real estate markets, the market share of the company's national lender business, maintenance of a conservative balance sheet, taxes in connection with the sale of CoreLogic stock and the timing of future sales thereof, repurchases of the company's common stock and future corporate expense levels, 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; volatility in the capital markets; unfavorable economic conditions; impairments in the company's goodwill or other intangible assets; changes in measures of the strength of the company's title insurance underwriters, including ratings and statutory surpluses; failures at financial institutions where the company deposits funds; 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; reform of government-sponsored mortgage enterprises; limitations on access to public records and other data; regulation of title insurance rates; inability of the company's subsidiaries to pay dividends or repay funds; 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; material variance between actual and expected claims experience; systems interruptions and intrusions; inability to realize the benefits of the company's offshore strategy; product migration; increases in the size of the company's customers; losses in the company's investment portfolio; and other factors described in the company's annual report on Form 10-K for the year ended Dec. 31, 2010, 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.

Use of Non-GAAP Financial Measures

This news release contains certain financial measures that are not presented in accordance with generally accepted accounting principles (GAAP), including an adjusted loss provision rate. The company is presenting these non-GAAP financial measures because they provide the company's management and investors with additional insight into the operational performance of the company relative to earlier periods and relative to the company's competitors. The company does not intend for these non-GAAP financial measures to be a substitute for any GAAP financial information. In this news release, these non-GAAP financial measures have been presented with, and reconciled to, the most directly comparable GAAP financial measures. Investors should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures.

Media Contact:

Carrie Navarifar
Corporate Communications
First American Financial Corporation
(714) 250-3298

Investor Contact:

Craig Barberio
Investor Relations
First American Financial Corporation
(714) 250-5214

(Additional Financial Data Follows)

First American Financial Corporation

 

Summary of Consolidated Financial Results and Selected Information

 

(in thousands, except per share amounts and title orders)

 

(unaudited)

 

 

 

 

 
 

 

For the Three Months Ended

 

 

March 31

 

 

2011


 

2010

 

 

 

 

 
 

Total revenues

$        931,700


 

$        908,426

 

 

 

 

 
 

(Loss) income before income taxes

$         (23,449)


 

$          24,540

 

Income tax (benefit) expense

(8,208)


 

10,811

 

Net (loss) income

(15,241)


 

13,729

 

Less: Net income (loss) attributable to noncontrolling interests

94


 

(40)

 

Net (loss) income attributable to the Company

$         (15,335)


 

$          13,769

 

 

 

 

 
 

Net (loss) income per share attributable to stockholders:


 

 

 
 

    Basic

$             (0.15)


 

$              0.13

 

    Diluted

$             (0.15)


 

$              0.13

 

 

 

 

 
 

Cash dividends per share

$              0.06


 

$                    -

 

 

 

 

 
 

Weighted average common shares outstanding:


 

 

 
 

    Basic

104,660


 

104,006

 

    Diluted

104,660


 

104,006

 

 

 

 

 
 

Selected Title Information


 

 

 
 

 

 

 

 
 

Title orders opened

285,100


 

339,600

 

 

 

 

 
 

Title orders closed

222,200


 

241,200

 

 

 

 

 
 

Paid title claims

$          81,357


 

$          69,647

 
       


First American Financial Corporation

 

Selected Balance Sheet Information

 

(in thousands)

 

(unaudited)

 

 
 

 

March 31, 2011


 

December 31, 2010

 

 

 

 

 
 

Cash and cash equivalents

$        755,277


 

$           728,746

 

Investment portfolio

2,712,965


 

2,648,818

 

Goodwill and other intangible assets

880,044


 

882,081

 

Total assets

5,906,477


 

5,821,826

 

Reserve for claim losses

1,122,315


 

1,108,238

 

Notes payable

290,799


 

293,817

 

Total stockholders' equity

1,974,386


 

1,980,017

 
       


First American Financial Corporation

 

Segment Information

 

(in thousands)

 

(unaudited)

 

 

 

 

 

 

 

 

 
 

For the Three Months Ended


 

 

Title


 

Specialty


 

Corporate

 

March 31, 2011

Consolidated


 

Insurance


 

Insurance


 

(incl. Elims.)

 

Revenues


 

 

 

 

 

 

 
 

Direct premiums and escrow fees

$       363,010


 

$       297,018


 

$         65,992


 

$                   -

 

Agent premiums

399,921


 

399,921


 

-


 

-

 

Information and other

148,842


 

148,840


 

-


 

2

 

Investment income

20,771


 

17,082


 

2,508


 

1,181

 

Net realized investment (losses) gains*

(844)


 

(1,423)


 

331


 

248

 

 

931,700


 

861,438


 

68,831


 

1,431

 

Expenses


 

 

 

 

 

 

 
 

Personnel costs

285,163


 

263,563


 

11,603


 

9,997

 

Premiums retained by agents

319,987


 

319,987


 

-


 

-

 

Other operating expenses

188,525


 

172,559


 

9,840


 

6,126

 

Provision for policy losses and other claims

129,512


 

96,376


 

33,136


 

-

 

Depreciation and amortization

19,099


 

17,168


 

1,016


 

915

 

Premium taxes

9,043


 

8,039


 

1,004


 

-

 

Interest

3,820


 

2,311


 

4


 

1,505

 

 

955,149


 

880,003


 

56,603


 

18,543

 

 

 

 

 

 

 

 

 
 

(Loss) income before income taxes

$        (23,449)


 

$        (18,565)


 

$         12,228


 

$        (17,112)

 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 
 

For the Three Months Ended


 

 

Title


 

Specialty


 

Corporate

 

March 31, 2010

Consolidated


 

Insurance


 

Insurance


 

(incl. Elims.)

 

Revenues


 

 

 

 

 

 

 
 

Direct premiums and escrow fees

$       362,641


 

$       297,205


 

$         65,436


 

$                   -

 

Agent premiums

373,992


 

373,992


 

-


 

-

 

Information and other

144,668


 

144,668


 

-


 

-

 

Investment income

24,876


 

19,269


 

3,144


 

2,463

 

Net realized investment gains (losses)*

2,249


 

2,688


 

(6)


 

(433)

 

 

908,426


 

837,822


 

68,574


 

2,030

 

Expenses


 

 

 

 

 

 

 
 

Personnel costs

283,187


 

261,236


 

13,372


 

8,579

 

Premiums retained by agents

301,568


 

301,568


 

-


 

-

 

Other operating expenses

196,311


 

180,385


 

11,353


 

4,573

 

Provision for policy losses and other claims

70,981


 

39,372


 

31,609


 

-

 

Depreciation and amortization

20,253


 

17,907


 

1,699


 

647

 

Premium taxes

9,264


 

8,299


 

965


 

-

 

Interest

2,322


 

1,860


 

5


 

457

 

 

883,886


 

810,627


 

59,003


 

14,256

 

 

 

 

 

 

 

 

 
 

Income (loss) before income taxes

$         24,540


 

$         27,195


 

$           9,571


 

$        (12,226)

 

 

 

 

 

 

 

 

 
 

*Includes other-than-temporary impairment (OTTI) losses recognized in earnings.

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