First American Financial Reports Results for the Fourth Quarter and Full Year of 2017
—Reports Earnings of
—Includes
Current Quarter Highlights
- Total revenue of
$1.5 billion , down 2 percent compared with last year- Closed title orders down 19 percent, driven by a 41 percent decline in refinance orders
- Average revenue per order up 23 percent, driven by the shift in the mix to higher-premium purchase and commercial transactions
-
Title Insurance and Services segment pretax margin of 12.2 percent - Commercial revenues of
$196.2 million , up 6 percent compared with last year -
Specialty Insurance segment pretax margin of 9.2 percent- Property and casualty loss rate of 108.1 percent impacted by
California wildfires
- Property and casualty loss rate of 108.1 percent impacted by
- Debt-to-capital ratio of 17.4 percent as of
Dec. 31, 2017 - Net tax benefit of
$114.1 million , or$1.01 per diluted share, related to tax reform
Full Year 2017 Highlights
- Total revenue of
$5.8 billion , up 4 percent compared with last year -
Title Insurance and Services segment pretax margin of 12.1 percent - Closed acquisitions totaling
$91 million - Completed termination of pension plan, resulting in annualized savings of
$22 million - Raised common stock dividend 12 percent to an annual rate of
$1.52 per share - Cash flow from operations of
$632.1 million , up 29 percent from last year - Return on equity of 13.0 percent
Selected Financial Information
($ in millions, except per share data)
Three Months Ended | Full Year Ended | |||||||||||||||
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2017 | 2016 | 2017 | 2016 | |||||||||||||
Total revenue | $ | 1,481.3 | $ | 1,504.3 | $ | 5,772.4 | $ | 5,575.8 | ||||||||
Income before taxes | 159.3 | 81.5 | 445.3 | 477.6 | ||||||||||||
Net income | $ | 221.1 | $ | 81.0 | $ | 423.0 | $ | 343.0 | ||||||||
Net income per diluted share | 1.96 | 0.73 | 3.76 | 3.09 | ||||||||||||
Total revenue for the fourth quarter of 2017 was
This quarter’s effective tax rate of negative 38.5 percent includes a net benefit of
Total revenue for the full year of 2017 was
“The company had strong results in 2017, achieving earnings per share of
“In 2018, we will maintain our efforts to develop innovative solutions for our customers and acquire companies that strengthen our core business. In addition, we believe the company will continue to benefit from the ongoing improvement in housing and the general economy. We will remain focused on operating efficiently and strategically deploying our capital in ways that create shareholder value.”
($ in millions, except average revenue per order)
Three Months Ended | |||||||||||
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2017 | 2016 | ||||||||||
Total revenues | $ | 1,356.0 | $ | 1,384.0 | |||||||
Income before taxes | $ | 165.6 | $ | 150.1 | |||||||
Pretax margin | 12.2 | % | 10.8 | % | |||||||
Direct open orders | 231,500 | 265,800 | |||||||||
Direct closed orders | 204,200 | 252,700 | |||||||||
|
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Total revenues | $ | 196.2 | $ | 185.5 | |||||||
Open orders | 30,300 | 30,000 | |||||||||
Closed orders | 20,600 | 21,100 | |||||||||
Average revenue per order | $ | 9,500 | $ | 8,800 | |||||||
Total revenues for the
Information and other revenues were
Investment income was
Personnel costs were
Other operating expenses were
The provision for policy losses and other claims was
Depreciation and amortization expense was
Pretax income for the
($ in millions)
Three Months Ended | |||||||||||
|
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2017 | 2016 | ||||||||||
Total revenues | $ | 121.1 | $ | 118.6 | |||||||
Income before taxes | $ | 11.1 | $ | 21.3 | |||||||
Pretax margin | 9.2 | % | 18.0 | % | |||||||
Total revenues for the
Teleconference/Webcast
First American’s fourth-quarter and year-end 2017 results will be discussed in more detail on
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
About First American
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
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; impairments in the company’s goodwill or other intangible assets; failures at financial institutions where the company deposits funds; changes in applicable laws and 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; 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; 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; inability to realize the benefits of, and challenges arising from, the company’s acquisition strategy; and other factors described in the company’s quarterly report on Form 10-Q for the quarter ended
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, and success ratios. 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.
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Summary of Consolidated Financial Results and Selected Information | |||||||||||||||||
(in thousands, except per share amounts and title orders, unaudited) | |||||||||||||||||
Three Months Ended | Year Ended | ||||||||||||||||
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|
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2017 | 2016 | 2017 | 2016 | ||||||||||||||
Total revenues | $ | 1,481,323 | $ | 1,504,257 | $ | 5,772,363 | $ | 5,575,846 | |||||||||
Income before income taxes | $ | 159,335 | $ | 81,451 | $ | 445,331 | $ | 477,581 | |||||||||
Income taxes | (61,378 | ) | 490 | 23,468 | 134,105 | ||||||||||||
Net income | 220,713 | 80,961 | 421,863 | 343,476 | |||||||||||||
Less: Net (loss) income attributable to noncontrolling interests | (414 | ) | (62 | ) | (1,186 | ) | 483 | ||||||||||
Net income attributable to the Company | $ | 221,127 | $ | 81,023 | $ | 423,049 | $ | 342,993 | |||||||||
Net income per share attributable to stockholders: | |||||||||||||||||
Basic | $ | 1.98 | $ | 0.73 | $ | 3.79 | $ | 3.10 | |||||||||
Diluted | $ | 1.96 | $ | 0.73 | $ | 3.76 | $ | 3.09 | |||||||||
Cash dividends declared per share | $ | 0.38 | $ | 0.34 | $ | 1.44 | $ | 1.20 | |||||||||
Weighted average common shares outstanding: | |||||||||||||||||
Basic | 111,904 | 110,740 | 111,668 | 110,548 | |||||||||||||
Diluted | 112,846 | 111,464 | 112,435 | 111,156 | |||||||||||||
Selected Title Insurance Segment Information |
|||||||||||||||||
Title orders opened(1) | 231,500 | 265,800 | 1,069,000 | 1,281,400 | |||||||||||||
Title orders closed(1) | 204,200 | 252,700 | 823,700 | 958,400 | |||||||||||||
Paid title claims | 51,262 | 51,149 | 200,350 | 210,241 | |||||||||||||
(1) |
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Selected Balance Sheet Information | ||||||||
(in thousands, unaudited) | ||||||||
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2017 | 2016 | |||||||
Cash and cash equivalents | $ | 1,387,226 | $ | 1,006,138 | ||||
Investments | 5,378,303 | 5,140,699 | ||||||
|
1,212,918 | 1,096,315 | ||||||
Total assets | 9,573,222 | 8,831,777 | ||||||
Reserve for claim losses | 1,028,933 | 1,025,863 | ||||||
Notes and contracts payable | 732,810 | 736,693 | ||||||
Total stockholders’ equity | $ | 3,479,955 | $ | 3,008,179 | ||||
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Segment Information | ||||||||||||||||||
(in thousands, unaudited) | ||||||||||||||||||
Three Months Ended | Title | Specialty | Corporate | |||||||||||||||
|
Consolidated | Insurance | Insurance | (incl. Elims.) | ||||||||||||||
Revenues | ||||||||||||||||||
Direct premiums and escrow fees | $ | 642,661 | $ | 530,126 | $ | 112,535 | $ | — | ||||||||||
Agent premiums | 602,863 | 602,863 | — | — | ||||||||||||||
Information and other | 190,035 | 187,469 | 2,832 | (266 | ) | |||||||||||||
Net investment income | 45,293 | 38,258 | 2,595 | 4,440 | ||||||||||||||
Net realized investment gains (losses)(1) | 471 | (2,679 | ) | 3,150 | — | |||||||||||||
1,481,323 | 1,356,037 | 121,112 | 4,174 | |||||||||||||||
Expenses | ||||||||||||||||||
Personnel costs | 439,623 | 414,206 | 17,973 | 7,444 | ||||||||||||||
Premiums retained by agents | 475,748 | 475,748 | — | — | ||||||||||||||
Other operating expenses | 231,692 | 208,590 | 17,225 | 5,877 | ||||||||||||||
Provision for policy losses and other claims | 116,715 | 45,285 | 71,430 | — | ||||||||||||||
Depreciation and amortization | 31,761 | 30,068 | 1,655 | 38 | ||||||||||||||
Premium taxes | 17,274 | 15,572 | 1,702 | — | ||||||||||||||
Interest | 9,175 | 950 | — | 8,225 | ||||||||||||||
1,321,988 | 1,190,419 | 109,985 | 21,584 | |||||||||||||||
Income (loss) before income taxes | $ | 159,335 | $ | 165,618 | $ | 11,127 | $ | (17,410 | ) | |||||||||
Three Months Ended | Title | Specialty | Corporate | |||||||||||||||
|
Consolidated | Insurance | Insurance | (incl. Elims.) | ||||||||||||||
Revenues | ||||||||||||||||||
Direct premiums and escrow fees | $ | 640,424 | $ | 533,347 | $ | 107,077 | $ | — | ||||||||||
Agent premiums | 632,640 | 632,640 | — | — | ||||||||||||||
Information and other | 197,415 | 188,938 | 8,483 | (6 | ) | |||||||||||||
Net investment income | 33,417 | 29,368 | 2,391 | 1,658 | ||||||||||||||
Net realized investment gains (losses)(1) | 361 | (287 | ) | 648 | — | |||||||||||||
1,504,257 | 1,384,006 | 118,599 | 1,652 | |||||||||||||||
Expenses | ||||||||||||||||||
Personnel costs | 517,504 | 424,019 | 16,584 | 76,901 | ||||||||||||||
Premiums retained by agents | 497,733 | 497,733 | — | — | ||||||||||||||
Other operating expenses | 230,846 | 205,247 | 19,047 | 6,552 | ||||||||||||||
Provision for policy losses and other claims | 122,128 | 63,667 | 58,461 | — | ||||||||||||||
Depreciation and amortization | 28,142 | 26,560 | 1,485 | 97 | ||||||||||||||
Premium taxes | 17,666 | 15,976 | 1,690 | — | ||||||||||||||
Interest | 8,787 | 749 | — | 8,038 | ||||||||||||||
1,422,806 | 1,233,951 | 97,267 | 91,588 | |||||||||||||||
Income (loss) before income taxes | $ | 81,451 | $ | 150,055 | $ | 21,332 | $ | (89,936 | ) | |||||||||
(1) Includes impairment losses recorded in earnings, except for impairments on investments accounted for under the equity method, which are recorded in net investment income. |
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Segment Information | |||||||||||||||||
(in thousands, unaudited) | |||||||||||||||||
Year Ended | Title | Specialty | Corporate | ||||||||||||||
|
Consolidated | Insurance | Insurance | (incl. Elims.) | |||||||||||||
Revenues | |||||||||||||||||
Direct premiums and escrow fees | $ | 2,461,854 | $ | 2,022,384 | $ | 439,470 | $ | — | |||||||||
Agent premiums | 2,360,659 | 2,360,659 | — | — | |||||||||||||
Information and other | 776,214 | 766,018 | 11,259 | (1,063 | ) | ||||||||||||
Net investment income | 162,402 | 137,439 | 9,713 | 15,250 | |||||||||||||
Net realized investment gains(1) | 11,234 | 6,656 | 4,578 | — | |||||||||||||
5,772,363 | 5,293,156 | 465,020 | 14,187 | ||||||||||||||
Expenses | |||||||||||||||||
Personnel costs | 1,898,551 | 1,636,483 | 71,604 | 190,464 | |||||||||||||
Premiums retained by agents | 1,863,356 | 1,863,356 | — | — | |||||||||||||
Other operating expenses | 880,874 | 788,020 | 67,813 | 25,041 | |||||||||||||
Provision for policy losses and other claims | 450,410 | 175,322 | 275,088 | — | |||||||||||||
Depreciation and amortization | 128,053 | 121,540 | 6,351 | 162 | |||||||||||||
Premium taxes | 69,801 | 62,545 | 7,256 | — | |||||||||||||
Interest | 35,987 | 3,526 | — | 32,461 | |||||||||||||
5,327,032 | 4,650,792 | 428,112 | 248,128 | ||||||||||||||
Income (loss) before income taxes | $ | 445,331 | $ | 642,364 | $ | 36,908 | $ | (233,941 | ) | ||||||||
Year Ended | Title | Specialty | Corporate | ||||||||||||||
|
Consolidated | Insurance | Insurance | (incl. Elims.) | |||||||||||||
Revenues | |||||||||||||||||
Direct premiums and escrow fees | $ | 2,416,039 | $ | 2,004,686 | $ | 411,353 | $ | — | |||||||||
Agent premiums | 2,286,630 | 2,286,630 | — | — | |||||||||||||
Information and other | 723,990 | 713,137 | 10,877 | (24 | ) | ||||||||||||
Net investment income | 126,134 | 110,757 | 9,476 | 5,901 | |||||||||||||
Net realized investment gains(1) | 23,053 | 18,915 | 4,138 | — | |||||||||||||
5,575,846 | 5,134,125 | 435,844 | 5,877 | ||||||||||||||
Expenses | |||||||||||||||||
Personnel costs | 1,756,633 | 1,578,244 | 67,733 | 110,656 | |||||||||||||
Premiums retained by agents | 1,801,571 | 1,801,571 | — | — | |||||||||||||
Other operating expenses | 853,841 | 764,388 | 62,610 | 26,843 | |||||||||||||
Provision for policy losses and other claims | 488,601 | 235,661 | 252,940 | — | |||||||||||||
Depreciation and amortization | 99,047 | 93,069 | 5,593 | 385 | |||||||||||||
Premium taxes | 66,358 | 59,464 | 6,894 | — | |||||||||||||
Interest | 32,214 | 2,856 | — | 29,358 | |||||||||||||
5,098,265 | 4,535,253 | 395,770 | 167,242 | ||||||||||||||
Income (loss) before income taxes | $ | 477,581 | $ | 598,872 | $ | 40,074 | $ | (161,365 | ) | ||||||||
(1) Includes impairment losses recorded in earnings, except for impairments on investments accounted for under the equity method, which are recorded in net investment income. |
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Expense and Success Ratio Reconciliation | ||||||||||||||||||
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($ in thousands, unaudited) | ||||||||||||||||||
Three Months Ended | Year Ended | |||||||||||||||||
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2017 | 2016 | 2017 | 2016 | |||||||||||||||
Total revenues | $ | 1,356,037 | $ | 1,384,006 | $ | 5,293,156 | $ | 5,134,125 | ||||||||||
Less: Net realized investment (losses) gains | (2,679 | ) | (287 | ) | 6,656 | 18,915 | ||||||||||||
Net investment income | 38,258 | 29,368 | 137,439 | 110,757 | ||||||||||||||
Premiums retained by agents | 475,748 | 497,733 | 1,863,356 | 1,801,571 | ||||||||||||||
Net operating revenues | $ | 844,710 | $ | 857,192 | $ | 3,285,705 | $ | 3,202,882 | ||||||||||
Personnel and other operating expenses | $ | 622,796 | $ | 629,266 | $ | 2,424,503 | $ | 2,342,632 | ||||||||||
Ratio (% net operating revenues) | 73.7 | % | 73.4 | % | 73.8 | % | 73.1 | % | ||||||||||
Ratio (% total revenues) | 45.9 | % | 45.5 | % | 45.8 | % | 45.6 | % | ||||||||||
Change in net operating revenues | $ | (12,482 | ) | $ | 82,823 | |||||||||||||
Change in personnel and other operating expenses | (6,470 | ) | 81,871 | |||||||||||||||
Success Ratio(1) | 52 | % | 99 | % | ||||||||||||||
(1) Change in personnel and other operating expenses divided by change in net operating revenues. |
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Supplemental Direct Title Insurance Order Information (1) | |||||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||||
Q417 | Q317 | Q217 | Q117 | Q416 | |||||||||||||||||||||
Open Orders per Day | |||||||||||||||||||||||||
Purchase | 1,686 | 2,156 | 2,313 | 1,977 | 1,623 | ||||||||||||||||||||
Refinance | 1,239 | 1,379 | 1,319 | 1,236 | 1,777 | ||||||||||||||||||||
Refinance as % of residential orders | 42 | % | 39 | % | 36 | % | 38 | % | 52 | % | |||||||||||||||
Commercial | 489 | 495 | 506 | 507 | 484 | ||||||||||||||||||||
Default and other | 321 | 387 | 544 | 468 | 403 | ||||||||||||||||||||
Total open orders per day | 3,734 | 4,417 | 4,681 | 4,187 | 4,287 | ||||||||||||||||||||
Closed Orders per Day | |||||||||||||||||||||||||
Purchase | 1,550 | 1,724 | 1,718 | 1,298 | 1,504 | ||||||||||||||||||||
Refinance | 1,035 | 985 | 910 | 1,030 | 1,758 | ||||||||||||||||||||
Refinance as % of residential orders | 40 | % | 36 | % | 35 | % | 44 | % | 54 | % | |||||||||||||||
Commercial | 333 | 309 | 324 | 310 | 340 | ||||||||||||||||||||
Default and other | 376 | 384 | 390 | 448 | 475 | ||||||||||||||||||||
Total closed orders per day | 3,294 | 3,402 | 3,342 | 3,085 | 4,076 | ||||||||||||||||||||
Average Revenue per Order (ARPO) | |||||||||||||||||||||||||
Purchase | $ | 2,389 | $ | 2,336 | $ | 2,319 | $ | 2,215 | $ | 2,206 | |||||||||||||||
Refinance | 962 | 928 | 907 | 912 | 899 | ||||||||||||||||||||
Commercial | 9,508 | 9,024 | 8,589 | 7,617 | 8,808 | ||||||||||||||||||||
Default and other | 203 | 230 | 201 | 238 | 199 | ||||||||||||||||||||
Total ARPO | $ | 2,411 | $ | 2,298 | $ | 2,294 | $ | 2,035 | $ | 1,958 | |||||||||||||||
Business Days | 62 | 63 | 64 | 62 | 62 | ||||||||||||||||||||
(1) |
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Totals may not add due to rounding. | |||||||||||||||||||||||||
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