—Reports Earnings of $1.64 per Diluted Share
or $1.58 per Diluted Share Excluding Net Realized Investment
Gains—
First American Financial Corporation (NYSE: FAF), a leading
global provider of title insurance, settlement services and risk
solutions for real estate transactions, today announced financial
results for the second quarter ended June 30, 2019.
Current Quarter Highlights
- Total revenue of $1.5 billion, up 1 percent compared with last
year
- Title Insurance and Services segment pretax margin of 17.0
percent
- 16.5 percent excluding net realized investment gains
- Commercial revenues of $180.4 million, down 2 percent compared
with last year
- Title Insurance and Services segment investment income of $71.0
million, up 37 percent compared with last year
- Specialty Insurance segment pretax margin of 12.8 percent
- 11.8 percent excluding net realized investment gains
- Debt-to-capital ratio of 18.4 percent
- Cash flow from operations of $266.7 million, compared with
$210.9 million last year
Selected Financial Information ($ in millions, except per
share data)
Three Months Ended
June 30,
2019
2018
Total revenue
$
1,498.6
$
1,491.2
Income before taxes
229.5
202.0
Net income
$
186.7
$
155.1
Net income per diluted share
1.64
1.37
Total revenue for the second quarter of 2019 was $1.5 billion,
an increase of 1 percent relative to the second quarter of 2018.
Net income in the current quarter was $186.7 million, or $1.64 per
diluted share, compared with net income of $155.1 million, or $1.37
per diluted share, in the second quarter of 2018. Net realized
investment gains in the current quarter were $8.4 million, or 6
cents per diluted share, compared with net realized investment
gains of $5.5 million, or 4 cents per diluted share, last year. The
current quarter’s effective tax rate of 18.4 percent includes a
benefit of $12.0 million, or 11 cents per diluted share, primarily
due to the resolution of state tax matters from prior years. During
the quarter, expenses totaling $1.7 million related to the
previously disclosed information security incident were recorded in
the corporate segment.
“The company delivered outstanding financial results in the
second quarter, including a record 17.0 percent pretax title
margin,” said Dennis J. Gilmore, chief executive officer at First
American Financial Corporation. “Low interest rates continue to
strengthen the purchase market, drive substantial growth in
refinance activity and sustain a healthy commercial market. This
quarter’s performance again benefited from effective expense
management and higher investment income.
“Looking to the second half of 2019, we are optimistic in light
of current market trends. So far in July, refinance activity
continues its robust growth and purchase open orders are trending
positively. Moreover, we expect to see continued strength in our
commercial business. Although the anticipated reduction of the Fed
funds rate will impact our investment income, given current
business conditions and the efficiency of our operations, we expect
to deliver strong financial results in the second half of the
year.”
Title Insurance and Services ($ in millions, except
average revenue per order)
Three Months Ended
June 30,
2019
2018
Total revenues
$
1,371.9
$
1,369.0
Income before taxes
$
232.8
$
209.6
Pretax margin
17.0
%
15.3
%
Title open orders(1)
296,200
276,800
Title closed orders(1)
196,600
196,200
U.S. Commercial
Total revenues
$
180.4
$
184.8
Open orders
33,000
36,000
Closed orders
19,300
19,900
Average revenue per order
$
9,400
$
9,300
(1) U.S. direct title insurance orders
only.
Total revenues for the Title Insurance and Services segment
during the second quarter were $1.4 billion, flat compared with the
same quarter of 2018. Direct premiums and escrow fees were higher
by 1 percent compared with the second quarter of 2018, driven by a
1 percent increase in the average revenue per direct title order
and closed orders that were essentially flat compared with last
year. The growth in the average revenue per direct title order to
$2,620 was primarily due to higher residential real estate values,
partially offset by a shift in the mix of direct revenues to lower
premium refinance transactions. Agent premiums, which are recorded
on approximately a one-quarter lag relative to direct premiums,
were down 3 percent in the current quarter as compared with last
year.
Information and other revenues were $197.8 million this quarter,
down $8.3 million, or 4 percent, compared with the same quarter of
last year. The decline was primarily due to lower revenues from the
company’s centralized lender businesses and international
operations.
Investment income was $71.0 million in the second quarter, up
$19.2 million, or 37 percent, benefiting from both an increase in
average balances and rising short-term interest rates that drove
higher interest income in the company’s investment portfolio and
cash balances. Net realized investment gains totaled $6.9 million
in the current quarter, compared with gains of $3.6 million in the
second quarter of 2018.
Personnel costs were $422.7 million in the second quarter, down
$4.4 million, or 1 percent, compared with the same quarter of 2018.
This decline was primarily attributable to lower salary expense
driven by lower average headcount, partially offset by higher
incentive compensation expense.
Other operating expenses were $194.1 million in the second
quarter, down $8.3 million, or 4 percent, compared with the second
quarter of 2018. The reduction was driven by a number of expense
categories, including lower production-related costs and a decline
in office-related purchases, partially offset by higher software
expense.
The provision for policy losses and other claims was $43.8
million in the second quarter, or 4.0 percent of title premiums and
escrow fees, compared with a 4.0 percent loss provision rate in the
second quarter of 2018. The current quarter rate reflects an
ultimate loss rate of 4.0 percent for the current policy year and
no change in the loss reserve estimates for prior policy years.
Depreciation and amortization expense was $31.1 million in the
second quarter, an increase of $1.7 million, or 6 percent, compared
with the same period last year. The increase was primarily
attributable to higher amortization expense associated with
software development.
Pretax income for the Title Insurance and Services segment was
$232.8 million in the second quarter, compared with $209.6 million
in the second quarter of 2018. Pretax margin was 17.0 percent in
the current quarter, compared with 15.3 percent last year.
Excluding the impact of net realized investment gains and losses,
the pretax margin was 16.5 percent this year, compared with 15.1
percent last year.
Specialty Insurance ($ in millions)
Three Months Ended
June 30,
2019
2018
Total revenues
$
123.0
$
120.2
Income before taxes
$
15.7
$
10.1
Pretax margin
12.8
%
8.4
%
Total revenues for the Specialty Insurance segment were $123.0
million in the second quarter, an increase of 2 percent compared
with the second quarter of 2018. The home warranty business
benefited from lower claim losses driven by both lower claim
frequency and severity, due in part to milder weather and
improvements in claim cost management. The loss ratio for the
segment improved to 56.4 percent this quarter, compared with 61.4
percent in the prior year. Pretax margin for the segment was 12.8
percent in the current quarter, compared with 8.4 percent in the
second quarter of last year. Excluding the impact of net realized
gains and losses, the segment’s current quarter pretax margin was
11.8 percent, compared with 7.0 percent last year.
Teleconference/Webcast
First American’s second-quarter 2019 results will be discussed
in more detail on Thursday, July 25, 2019, at 11 a.m. EDT, via
teleconference. The toll-free dial-in number is 877-407-8293.
Callers from outside the United States may dial
+1-201-689-8349.
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 August 8, 2019, by
dialing 201-612-7415 and using the conference ID 13692064. 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, settlement services and risk
solutions for real estate transactions that traces its heritage
back to 1889. First American also provides title plant management
services; title and other real property records and images;
valuation products and services; home warranty products; property
and casualty insurance; banking, trust and wealth management
services; and other related products and services. With total
revenue of $5.7 billion in 2018, the company offers its products
and services directly and through its agents throughout the United
States and abroad. In 2019, First American was named to the Fortune
100 Best Companies to Work For® list for the fourth consecutive
year. 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 U.S. direct title insurance
operations, which are posted approximately 10 to 12 days after the
end of each month.
Forward-Looking Statements
Certain statements made in this press release
and the related management commentary contain, and responses to
investor questions may contain, 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 can be identified by the
fact that they do not relate strictly to historical or current
facts and may contain the words “believe,” “anticipate,” “expect,”
“intend,” “plan,” “predict,” “estimate,” “project,” “will be,”
“will continue,” “will likely result,” or other similar words and
phrases or future or conditional verbs such as “will,” “may,”
“might,” “should,” “would,” or “could.” These forward-looking
statements include, without limitation, statements regarding future
operations, performance, financial condition, prospects, plans and
strategies. These forward-looking statements are based on current
expectations and assumptions that may prove to be incorrect. 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, without
limitation: interest rate fluctuations; changes in the performance
of the real estate markets; volatility in the capital markets;
unfavorable economic conditions; failures at financial institutions
where the company deposits funds; changes in applicable laws and
government regulations, including data privacy laws; heightened
scrutiny by legislators and regulators of the company’s title
insurance and services segment and certain other of the company’s
businesses; use of social media by the company and other parties;
regulation of title insurance rates; limitations on access to
public records and other data; changes in relationships with large
mortgage lenders and government-sponsored enterprises; changes in
measures of the strength of the company’s title insurance
underwriters, including ratings and statutory capital and surplus;
losses in the company’s investment portfolio; material variance
between actual and expected claims experience; defalcations,
increased claims or other costs and expenses attributable to the
company’s use of title agents; any inadequacy in the company’s risk
management framework; systems damage, failures, interruptions and
intrusions or unauthorized data disclosures; innovation efforts of
the company and other industry participants and any related market
disruption; errors and fraud involving the transfer of funds; the
company’s use of a global workforce; inability of the company’s
subsidiaries to pay dividends or repay funds; and other factors
described in the company’s quarterly report on Form 10-Q for the
quarter ended March 31, 2019, 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 and related management
commentary contain certain financial measures that are not
presented in accordance with generally accepted accounting
principles (GAAP), including personnel and other operating expense
ratios, success ratios, adjusted revenues, adjusted pretax income,
adjusted earnings per share, net operating revenues, and adjusted
pretax margins for the company, its title insurance and services
segment and its specialty insurance segment. The company is
presenting these non-GAAP financial measures because they provide
the company’s management and investors with additional insight into
the operational efficiency and 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.
First American Financial
Corporation
Summary of Consolidated
Financial Results and Selected Information
(in thousands, except per
share amounts and title orders, unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
Total revenues
$
1,498,620
$
1,491,157
$
2,802,201
$
2,788,545
Income before income taxes
$
229,497
$
201,968
$
371,167
$
295,033
Income tax expense
42,226
46,877
74,092
63,770
Net income
187,271
155,091
297,075
231,263
Less: Net income (loss) attributable to
noncontrolling interests
616
(49
)
845
(104
)
Net income attributable to the Company
$
186,655
$
155,140
$
296,230
$
231,367
Net income per share attributable to
stockholders:
Basic
$
1.65
$
1.38
$
2.62
$
2.06
Diluted
$
1.64
$
1.37
$
2.61
$
2.05
Cash dividends declared per share
$
0.42
$
0.38
$
0.84
$
0.76
Weighted average common shares
outstanding:
Basic
113,050
112,556
112,881
112,406
Diluted
113,498
113,117
113,366
113,093
Selected Title
Insurance Segment Information
Title orders opened(1)
296,200
276,800
524,000
530,300
Title orders closed(1)
196,600
196,200
347,500
369,800
Paid title claims
$
40,518
$
44,731
$
81,287
$
81,356
(1) U.S. direct title insurance orders
only.
First American Financial
Corporation
Selected Consolidated Balance
Sheet Information
(in thousands,
unaudited)
June 30,
December 31,
2019
2018
Cash and cash equivalents
$
1,411,965
$
1,467,129
Investments
6,631,871
6,225,520
Goodwill and other intangible assets,
net
1,246,690
1,253,538
Total assets
11,443,178
10,630,635
Reserve for claim losses
1,042,208
1,042,679
Notes and contracts payable
729,614
732,019
Total stockholders’ equity
$
4,084,889
$
3,741,881
First American Financial
Corporation
Segment Information
(in thousands,
unaudited)
Three Months Ended
Title
Specialty
Corporate
June 30, 2019
Consolidated
Insurance
Insurance
(incl. Elims.)
Revenues
Direct premiums and escrow fees
$
668,018
$
552,358
$
115,660
$
—
Agent premiums
543,847
543,847
—
—
Information and other
200,669
197,779
3,153
(263
)
Net investment income
77,711
70,970
2,700
4,041
Net realized investment gains
8,375
6,920
1,455
—
1,498,620
1,371,874
122,968
3,778
Expenses
Personnel costs
447,027
422,664
19,884
4,479
Premiums retained by agents
429,086
429,086
—
—
Other operating expenses
222,348
194,129
18,236
9,983
Provision for policy losses and other
claims
109,130
43,848
65,282
—
Depreciation and amortization
32,884
31,061
1,785
38
Premium taxes
16,740
14,699
2,041
—
Interest
11,908
3,574
—
8,334
1,269,123
1,139,061
107,228
22,834
Income (loss) before income taxes
$
229,497
$
232,813
$
15,740
$
(19,056
)
Three Months Ended
Title
Specialty
Corporate
June 30, 2018
Consolidated
Insurance
Insurance
(incl. Elims.)
Revenues
Direct premiums and escrow fees
$
661,582
$
548,616
$
112,966
$
—
Agent premiums
559,004
559,004
—
—
Information and other
208,752
206,095
2,924
(267
)
Net investment income
56,334
51,737
2,401
2,196
Net realized investment gains
5,485
3,588
1,897
—
1,491,157
1,369,040
120,188
1,929
Expenses
Personnel costs
448,974
427,049
19,066
2,859
Premiums retained by agents
439,550
439,550
—
—
Other operating expenses
228,935
202,383
18,062
8,490
Provision for policy losses and other
claims
113,619
44,304
69,315
—
Depreciation and amortization
31,058
29,343
1,677
38
Premium taxes
17,049
15,102
1,947
—
Interest
10,004
1,667
—
8,337
1,289,189
1,159,398
110,067
19,724
Income (loss) before income taxes
$
201,968
$
209,642
$
10,121
$
(17,795
)
First American Financial
Corporation
Segment Information
(in thousands,
unaudited)
Six Months Ended
Title
Specialty
Corporate
June 30, 2019
Consolidated
Insurance
Insurance
(incl. Elims.)
Revenues
Direct premiums and escrow fees
$
1,182,220
$
955,114
$
227,106
$
—
Agent premiums
1,045,384
1,045,384
—
—
Information and other
373,561
367,870
6,219
(528
)
Net investment income
159,979
141,023
5,432
13,524
Net realized investment gains
41,057
34,665
6,392
—
2,802,201
2,544,056
245,149
12,996
Expenses
Personnel costs
858,639
803,795
39,504
15,340
Premiums retained by agents
825,693
825,693
—
—
Other operating expenses
418,795
362,770
38,054
17,971
Provision for policy losses and other
claims
206,842
80,020
126,822
—
Depreciation and amortization
65,818
62,223
3,519
76
Premium taxes
31,403
27,678
3,725
—
Interest
23,844
7,057
—
16,787
2,431,034
2,169,236
211,624
50,174
Income (loss) before income taxes
$
371,167
$
374,820
$
33,525
$
(37,178
)
Six Months Ended
Title
Specialty
Corporate
June 30, 2018
Consolidated
Insurance
Insurance
(incl. Elims.)
Revenues
Direct premiums and escrow fees
$
1,205,460
$
982,768
$
222,692
$
—
Agent premiums
1,086,718
1,086,718
—
—
Information and other
397,410
392,116
5,826
(532
)
Net investment income
99,126
93,137
4,989
1,000
Net realized investment (losses) gains
(169
)
(234
)
65
—
2,788,545
2,554,505
233,572
468
Expenses
Personnel costs
862,616
820,675
37,818
4,123
Premiums retained by agents
856,187
856,187
—
—
Other operating expenses
447,415
393,232
37,479
16,704
Provision for policy losses and other
claims
214,199
82,785
131,414
—
Depreciation and amortization
60,805
57,460
3,269
76
Premium taxes
33,063
29,492
3,571
—
Interest
19,227
2,651
—
16,576
2,493,512
2,242,482
213,551
37,479
Income (loss) before income taxes
$
295,033
$
312,023
$
20,021
$
(37,011
)
First American Financial
Corporation
Reconciliation of Pretax
Margins and Earnings per Diluted Share
Excluding Net Realized
Investment Gains and Losses ("NRIG(L)")
(in thousands, except margin
and per share amounts, unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
Consolidated
Total revenues
$
1,498,620
$
1,491,157
$
2,802,201
$
2,788,545
Less: NRIG(L)
8,375
5,485
41,057
(169
)
Total revenues excluding NRIG(L)
$
1,490,245
$
1,485,672
$
2,761,144
$
2,788,714
Pretax income
$
229,497
$
201,968
$
371,167
$
295,033
Less: NRIG(L)
8,375
5,485
41,057
(169
)
Pretax income excluding NRIG(L)
$
221,122
$
196,483
$
330,110
$
295,202
Pretax margin
15.3
%
13.5
%
13.2
%
10.6
%
Less: Pretax margin impact of NRIG(L)
0.5
%
0.3
%
1.2
%
---
%
Pretax margin excluding NRIG(L)
14.8
%
13.2
%
12.0
%
10.6
%
Earnings per diluted share (EPS)
$
1.64
$
1.37
$
2.61
$
2.05
Less: EPS impact of NRIG(L)
0.06
0.04
0.29
---
EPS excluding NRIG(L)
$
1.58
$
1.33
$
2.32
$
2.05
Title Insurance and Services
Segment
Total revenues
$
1,371,874
$
1,369,040
$
2,544,056
$
2,554,505
Less: NRIG(L)
6,920
3,588
34,665
(234
)
Total revenues excluding NRIG(L)
$
1,364,954
$
1,365,452
$
2,509,391
$
2,554,739
Pretax income
$
232,813
$
209,642
$
374,820
$
312,023
Less: NRIG(L)
6,920
3,588
34,665
(234
)
Pretax income excluding NRIG(L)
$
225,893
$
206,054
$
340,155
$
312,257
Pretax margin
17.0
%
15.3
%
14.7
%
12.2
%
Less: Pretax margin impact of NRIG(L)
0.5
%
0.2
%
1.1
%
---
%
Pretax margin excluding NRIG(L)
16.5
%
15.1
%
13.6
%
12.2
%
Specialty Insurance Segment
Total revenues
$
122,968
$
120,188
$
245,149
$
233,572
Less: NRIG(L)
1,455
1,897
6,392
65
Total revenues excluding NRIG(L)
$
121,513
$
118,291
$
238,757
$
233,507
Pretax income
$
15,740
$
10,121
$
33,525
$
20,021
Less: NRIG(L)
1,455
1,897
6,392
65
Pretax income excluding NRIG(L)
$
14,285
$
8,224
$
27,133
$
19,956
Pretax margin
12.8
%
8.4
%
13.7
%
8.6
%
Less: Pretax margin impact of NRIG(L)
1.0
%
1.4
%
2.3
%
0.1
%
Pretax margin excluding NRIG(L)
11.8
%
7.0
%
11.4
%
8.5
%
Note: Beginning in the first quarter of
2018, the company adopted new accounting guidance, which requires
investments in equity securities to be measured at fair value, with
changes in fair value recognized through net income rather than
through the balance sheet as previously required. Totals may not
sum due to rounding.
First American Financial
Corporation
Expense and Success Ratio
Reconciliation
Title Insurance and Services
Segment
($ in thousands,
unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
Total revenues
$
1,371,874
$
1,369,040
$
2,544,056
$
2,554,505
Less: Net realized investment gains
(losses)
6,920
3,588
34,665
(234
)
Net investment income
70,970
51,737
141,023
93,137
Premiums retained by agents
429,086
439,550
825,693
856,187
Net operating revenues
$
864,898
$
874,165
$
1,542,675
$
1,605,415
Personnel and other operating expenses
$
616,793
$
629,432
$
1,166,565
$
1,213,907
Ratio (% net operating revenues)
71.3
%
72.0
%
75.6
%
75.6
%
Ratio (% total revenues)
45.0
%
46.0
%
45.9
%
47.5
%
Change in net operating revenues
$
(9,267
)
$
(62,740
)
Change in personnel and other operating
expenses
(12,639
)
(47,342
)
Success Ratio(1)
136
%
75
%
(1) Change in personnel and other
operating expenses divided by change in net operating revenues.
First American Financial
Corporation
Supplemental Direct Title
Insurance Order Information(1)
(unaudited)
Q219
Q119
Q418
Q318
Q218
Open Orders per Day
Purchase
2,251
1,907
1,611
2,067
2,315
Refinance
1,408
1,001
763
937
998
Refinance as % of residential orders
38
%
34
%
32
%
31
%
30
%
Commercial
515
491
471
509
562
Default and other
454
335
368
441
450
Total open orders per day
4,628
3,734
3,213
3,954
4,325
Closed Orders per Day
Purchase
1,626
1,205
1,413
1,647
1,718
Refinance
854
605
603
674
729
Refinance as % of residential orders
34
%
33
%
30
%
29
%
30
%
Commercial
301
271
330
295
311
Default and other
291
392
456
313
308
Total closed orders per day
3,072
2,474
2,802
2,929
3,066
Average Revenue per Order
(ARPO)
Purchase
$
2,560
$
2,430
$
2,446
$
2,473
$
2,483
Refinance
1,128
1,119
1,093
1,045
985
Commercial
9,356
8,960
11,153
9,886
9,277
Default and other
358
223
245
389
314
Total ARPO
$
2,620
$
2,475
$
2,824
$
2,667
$
2,599
Business Days
64
61
63
63
64
(1) U.S. operations only.
Totals may not sum due to rounding.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190725005208/en/
Media Contact: Marcus
Ginnaty Corporate
Communications First
American Financial Corporation 714-250-3298
Investor Contact: Craig Barberio Investor Relations First
American Financial Corporation 714-250-5214
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