First American Financial Reports Second Quarter 2011 Results

—Reports Earnings of 30 Cents per Diluted Share—


July 28, 2011, SANTA ANA, Calif.

Download the complete release as a PDF (PDF 253kb)

 

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, 2011.

Current Quarter Highlights

  • Title Insurance and Services segment pretax margin of 6.6 percent
  • National Commercial Services division revenues up 28 percent compared to last year
  • Executed on an expense reduction program to yield $40 million in annualized cost savings 
  • Specialty Insurance segment pretax margin of 14.3 percent 

Selected Financial Information

($ in millions, except per share data)

 

For the Three Months Ended

June 30

 

2011

 

2010

Total revenues

$ 927.3

 

$ 969.9

Income before taxes

 49.2

 

57.0

Net income

$   32.3

 

$   33.8

Net income per diluted share

0.30

 

0.32

 

Total revenues for the second quarter of 2011 were $927.3 million, a decline of 4 percent relative to the second quarter of 2010. Net income in the current quarter was $32.3 million, or 30 cents per diluted share, compared with net income of $33.8 million, or 32 cents per diluted share, in the second quarter of 2010. The current quarter results include net realized investment losses of $2.9 million, or 2 cents per diluted share, compared with net realized investment gains of $3.2 million, or 2 cents per diluted share, in the second quarter of 2010.

“We earned 30 cents per share in the second quarter, driven by strong results from our National Commercial Services division and continued actions to optimize the company’s cost structure,” said Dennis J. Gilmore, chief executive officer at First American Financial Corporation.

“Given the outlook for mortgage and real estate markets, we executed on an expense reduction program that is expected to yield $40 million in annualized cost savings beginning in the third quarter. The program is primarily directed toward shared service functions in the Title segment.

“Going forward, we will continue to focus on operational efficiency and on maintaining a conservative balance sheet while we pursue opportunities for organic growth and strategic investment in our core business.”

 

Title Insurance and Services

($ in millions, except average revenue per order)

 

For the Three Months Ended

June 30

 

2011

 

2010

Total revenues

$   857.3

 

  $    901.6

Income before taxes

$     56.9

 

$     60.9

Pretax margin

6.6%

 

6.8%

Direct open orders

     302,400

 

    361,000

Direct closed orders

     215,600

 

    263,200

 

 

 

 

Commercial*

 

 

 

   Total revenues

$     84.5

 

$      66.2

   Open orders

18,200

 

15,500

   Closed orders

   Average revenue per order

9,500

$   7,400

 

8,100

$    6,800

* Includes commercial activity from the National Commercial Services division only

Total revenues for the Title Insurance and Services segment were $857.3 million, a 5 percent decline from the same quarter of 2010. The lower total revenues were driven by a decline in both direct and agent title premiums and lower net realized investment gains, partly offset by higher information and other revenues.

Direct premiums and escrow fees were down 8 percent, compared to the second quarter of 2010, due to an 18 percent decline in the number of direct title orders closed in the quarter that was partly offset by higher average revenue per order. Average revenue per direct title order was $1,548, an increase of 12 percent, compared with the second quarter of 2010, primarily due to a change in the mix toward higher-premium commercial transactions. Agent premiums were lower by 4 percent in the current quarter, reflecting the normal reporting lag of approximately one quarter.

Information and other revenues were $157.4 million this quarter, up 3 percent as compared to the same quarter of last year, reflecting higher demand for title plant information and other non-insured title products. Total investment income was down 21 percent in the second quarter, or $4.6 million, compared to last year, as a result of net realized investment losses.

Personnel costs were $274.7 million in the second quarter, a decrease of $10.4 million, or 4 percent, compared with the second quarter of 2010. This decline was primarily due to a reduction in U.S. headcount, reduced incentive compensation and lower healthcare-related expenses, partially offset by higher severance costs. Total severance costs in the Title segment were $6.3 million as a result of the various expense management efforts completed in the quarter, compared with $1.5 million in the second quarter of 2010.

Other operating expenses were $179.4 million in the second quarter, down $5.5 million, or 3 percent, compared with the second quarter of 2010. This decrease is primarily due to reduced office-related expense resulting from the consolidation and closure of title offices and a reduction in consulting expenses. These reductions were partially offset by an increase in production-related expenses in the company’s commercial and default businesses and by higher legal expenses.

The provision for policy losses and other claims was $40.3 million in the second quarter, or 5.9 percent of title premiums and escrow fees, down $9.0 million compared with the same quarter of the prior year. The current quarter rate of 5.9 percent reflects an ultimate loss rate of 6.0 percent for the current policy year, and minor favorable development for prior policy years.

Pretax income for the Title Insurance and Services segment was $56.9 million in the second quarter, compared with $60.9 million in the second quarter of 2010, or a decrease of 7 percent. Pretax margin was 6.6 percent in the current quarter, compared with 6.8 percent in the second quarter of 2010.

Specialty Insurance

($ in millions)

 

For the Three Months Ended

June 30

 

2011

 

2010

Total revenues

 $   71.6

 

 $   70.9

Income before taxes

 $   10.2

 

 $   10.6

Pretax margin

14.3%

 

15.0%

 

Total revenues for the Specialty Insurance segment were $71.6 million in the second quarter of 2011, an increase of 1 percent, compared with the second quarter of 2010. Pretax margin was 14.3 percent, down from 15.0 percent in the second quarter of 2010. The overall loss ratio in the Specialty Insurance segment was 54 percent in the current quarter, compared with 49 percent in the prior year.

Teleconference/Webcast
First American’s second quarter results will be discussed in more detail on Thursday, July 28, 2011, at 11 a.m. ET, via teleconference. The toll-free dial-in number is (866) 803-2143. Callers from outside the United States may dial (210) 795-1098. 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 Aug. 5, 2011, by dialing (203) 369-1939. 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 expense management and anticipated savings, continued focus on operational efficiency, maintenance of a conservative balance sheet, pursuit of organic growth and strategic investment in our core businesses, the outlook for our commercial business, and closed orders trends, 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, wire transfer errors or unauthorized data disclosures; 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 quarterly report on Form 10-Q for the quarter ended March 31, 2011, 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. 

 

(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


 

For the Six Months Ended

 

 

June 30


 

June 30

 

 

2011


 

2010


 

2011


 

2010

 

 

 

 

 

 

 

 

 
 

Total revenues

$  927,343


 

$   969,924


 

$ 1,859,043


 

$ 1,878,349

 

 

 

 

 

 

 

 

 
 

Income before income taxes

$    49,215


 

$     56,995


 

$      25,766


 

$      81,535

 

Income tax expense

17,068


 

22,855


 

8,860


 

33,666

 

Net income

32,147


 

34,140


 

16,906


 

47,869

 

Less: Net (loss) income attributable to noncontrolling interests

(194)


 

307


 

(100)


 

267

 

Net income attributable to the Company

$    32,341


 

$     33,833


 

$      17,006


 

$      47,602

 

 

 

 

 

 

 

 

 
 

Net income per share attributable to stockholders:


 

 

 

 

 

 

 
 

    Basic

$        0.31


 

$         0.33


 

$          0.16


 

$          0.46

 

    Diluted

$        0.30


 

$         0.32


 

$          0.16


 

$          0.45

 

 

 

 

 

 

 

 

 
 

Cash dividends per share

$        0.06


 

$         0.06


 

$          0.12


 

$          0.06

 

 

 

 

 

 

 

 

 
 

Weighted average common shares outstanding:


 

 

 

 

 

 

 
 

    Basic

105,222


 

104,014


 

104,953


 

104,010

 

    Diluted

106,838


 

106,128


 

106,802


 

106,124

 

 

 

 

 

 

 

 

 
 

Selected Title Information


 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 
 

Title orders opened

302,400


 

361,000


 

589,500


 

702,500

 

 

 

 

 

 

 

 

 
 

Title orders closed

215,600


 

263,200


 

441,200


 

506,300

 

 

 

 

 

 

 

 

 
 

Paid title claims

$    80,257


 

$     81,019


 

$    161,614


 

$    150,666

 
               


First American Financial Corporation

 

Selected Balance Sheet Information

 

(in thousands)

 

(unaudited)

 

 
 

 

June 30, 
2011


 

December 31, 
2010

 

 

 

 

 
 

Cash and cash equivalents

$      600,695


 

$      728,746

 

Investment portfolio

2,767,583


 

2,648,818

 

Goodwill and other intangible assets

877,849


 

882,081

 

Total assets

5,784,087


 

5,821,826

 

Reserve for claim losses

1,083,946


 

1,108,238

 

Notes payable

286,205


 

293,817

 

Total stockholders' equity

2,014,539


 

1,980,017

 
       


First American Financial Corporation

 

Segment Information

 

(in thousands)

 

(unaudited)

 

 

 

 

 

 

 

 

 
 

For the Three Months Ended


 

 

Title


 

Specialty


 

Corporate

 

June 30, 2011

Consolidated


 

Insurance


 

Insurance


 

(incl. Elims.)

 

Revenues


 

 

 

 

 

 

 
 

Direct premiums and escrow fees

$    402,311


 

$ 333,837


 

$  68,474


 

$              -

 

Agent premiums

348,441


 

348,441


 

-


 

-

 

Information and other

157,377


 

157,376


 

-


 

1

 

Investment income

22,094


 

19,499


 

2,567


 

28

 

Net realized investment (losses) gains*

(2,880)


 

(1,832)


 

605


 

(1,653)

 

 

927,343


 

857,321


 

71,646


 

(1,624)

 

Expenses


 

 

 

 

 

 

 
 

Personnel costs

295,468


 

274,745


 

12,787


 

7,936

 

Premiums retained by agents

279,812


 

279,812


 

-


 

-

 

Other operating expenses

194,758


 

179,424


 

9,377


 

5,957

 

Provision for policy losses and other claims

77,237


 

40,267


 

36,970


 

-

 

Depreciation and amortization

18,867


 

16,952


 

1,077


 

838

 

Premium taxes

9,913


 

8,707


 

1,206


 

-

 

Interest

2,073


 

536


 

5


 

1,532

 

 

878,128


 

800,443


 

61,422


 

16,263

 

 

 

 

 

 

 

 

 
 

Income (loss) before income taxes

$      49,215


 

$   56,878


 

$  10,224


 

$   (17,887)

 

 

 

 

 

 

 

 

 
 

For the Three Months Ended


 

 

Title


 

Specialty


 

Corporate

 

June 30, 2010

Consolidated


 

Insurance


 

Insurance


 

(incl. Elims.)

 

Revenues


 

 

 

 

 

 

 
 

Direct premiums and escrow fees

$    431,574


 

$ 363,271


 

$  68,303


 

$              -

 

Agent premiums

362,640


 

362,640


 

-


 

-

 

Information and other

153,450


 

153,450


 

-


 

-

 

Investment income

19,096


 

18,695


 

3,037


 

(2,636)

 

Net realized investment gains (losses)*

3,164


 

3,566


 

(408)


 

6

 

 

969,924


 

901,622


 

70,932


 

(2,630)

 

Expenses


 

 

 

 

 

 

 
 

Personnel costs

300,771


 

285,103


 

13,920


 

1,748

 

Premiums retained by agents

292,298


 

292,298


 

-


 

-

 

Other operating expenses

203,637


 

184,969


 

10,114


 

8,554

 

Provision for policy losses and other claims

83,004


 

49,276


 

33,728


 

-

 

Depreciation and amortization

20,120


 

18,264


 

1,442


 

414

 

Premium taxes

9,258


 

8,149


 

1,109


 

-

 

Interest

3,841


 

2,644


 

5


 

1,192

 

 

912,929


 

840,703


 

60,318


 

11,908

 

 

 

 

 

 

 

 

 
 

Income (loss) before income taxes

$      56,995


 

$   60,919


 

$  10,614


 

$   (14,538)

 

 

 

 

 

 

 

 

 
 

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

 
               


First American Financial Corporation

 

Segment Information

 

(in thousands)

 

(unaudited)

 

 

 

 

 

 

 

 

 
 

For the Six Months Ended


 

 

Title


 

Specialty


 

Corporate

 

June 30, 2011

Consolidated


 

Insurance


 

Insurance


 

(incl. Elims.)

 

Revenues


 

 

 

 

 

 

 
 

Direct premiums and escrow fees

$    765,321


 

$  630,855


 

$ 134,466


 

$              -

 

Agent premiums

748,362


 

748,362


 

-


 

-

 

Information and other

306,219


 

306,216


 

-


 

3

 

Investment income

42,865


 

36,581


 

5,075


 

1,209

 

Net realized investment (losses) gains*

(3,724)


 

(3,255)


 

936


 

(1,405)

 

 

1,859,043


 

1,718,759


 

140,477


 

(193)

 

Expenses


 

 

 

 

 

 

 
 

Personnel costs

580,631


 

538,308


 

24,390


 

17,933

 

Premiums retained by agents

599,799


 

599,799


 

-


 

-

 

Other operating expenses

383,283


 

351,983


 

19,217


 

12,083

 

Provision for policy losses and other claims

206,749


 

136,642


 

70,107


 

-

 

Depreciation and amortization

37,966


 

34,119


 

2,093


 

1,754

 

Premium taxes

18,956


 

16,747


 

2,209


 

-

 

Interest

5,893


 

2,847


 

9


 

3,037

 

 

1,833,277


 

1,680,445


 

118,025


 

34,807

 

 

 

 

 

 

 

 

 
 

Income (loss) before income taxes

$      25,766


 

$    38,314


 

$   22,452


 

$   (35,000)

 

 

 

 

 

 

 

 

 
 

For the Six Months Ended


 

 

Title


 

Specialty


 

Corporate

 

June 30, 2010

Consolidated


 

Insurance


 

Insurance


 

(incl. Elims.)

 

Revenues


 

 

 

 

 

 

 
 

Direct premiums and escrow fees

$    794,215


 

$  660,274


 

$ 133,941


 

$              -

 

Agent premiums

736,632


 

736,632


 

-


 

-

 

Information and other

298,118


 

298,118


 

-


 

-

 

Investment income

43,972


 

37,964


 

6,181


 

(173)

 

Net realized investment gains (losses)*

5,412


 

6,254


 

(414)


 

(428)

 

 

1,878,349


 

1,739,242


 

139,708


 

(601)

 

Expenses


 

 

 

 

 

 

 
 

Personnel costs

583,958


 

546,178


 

27,453


 

10,327

 

Premiums retained by agents

593,866


 

593,866


 

-


 

-

 

Other operating expenses

399,946


 

365,273


 

21,546


 

13,127

 

Provision for policy losses and other claims

153,986


 

88,649


 

65,337


 

-

 

Depreciation and amortization

40,373


 

36,167


 

3,145


 

1,061

 

Premium taxes

18,522


 

16,447


 

2,075


 

-

 

Interest

6,163


 

4,503


 

11


 

1,649

 

 

1,796,814


 

1,651,083


 

119,567


 

26,164

 

 

 

 

 

 

 

 

 
 

Income (loss) before income taxes

$      81,535


 

$    88,159


 

$   20,141


 

$   (26,765)

 

 

 

 

 

 

 

 

 
 

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

 


Download the complete release as a PDF (PDF 253kb)

 

 

 

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