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Share Name | Share Symbol | Market | Type |
---|---|---|---|
First American Corp | NYSE:FAF | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.29 | 0.54% | 54.38 | 55.545 | 54.35 | 55.12 | 524,366 | 01:00:00 |
—Reports Earnings of $1.64 per Diluted Share or $1.58 per Diluted Share Excluding Net Realized Investment Gains—
First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today announced financial results for the second quarter ended June 30, 2019.
Current Quarter Highlights
Selected Financial Information ($ 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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