First American Financial Reports Third Quarter 2018 Results
—Reports Earnings of
Current Quarter Highlights
- Total revenue of
$1.5 billion , up 1 percent compared with last year - Investment income of
$67.9 million , up 53 percent compared with last year -
Title Insurance and Services segment pretax margin of 14.6 percent - Purchase revenues up 1 percent compared with last year
- Average revenue per order up 6 percent
- Closed orders per day down 4 percent
- Commercial revenues of
$183.5 million , up 5 percent compared with last year -
Specialty Insurance segment total revenues up 5 percent, with a pretax margin of 5.0 percent - Cash flow from operations of
$230.8 million , up 4 percent compared with last year
Selected Financial Information |
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Three Months Ended | |||||||
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2018 | 2017 | ||||||
Total revenue | $ | 1,542.2 | $ | 1,519.6 | |||
Income before taxes | 195.6 | 18.0 | |||||
Net income | $ | 151.5 | $ | 21.4 | |||
Net income per diluted share | 1.34 | 0.19 | |||||
Total revenue for the third quarter of 2018 was
“Our strong financial results continued this quarter, as we achieved a pretax margin of 14.6 percent in the title business,” said Dennis J. Gilmore, chief executive officer at
“Despite the softening purchase market, our keen focus on operating efficiency, along with rising investment income and an overall healthy economy will enable us to maintain strong financial performance. Longer term, we are also well positioned given our market leadership, unique assets, investment in innovation and strong balance sheet.”
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Three Months Ended | |||||||||
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2018 | 2017 | ||||||||
Total revenues | $ | 1,413.8 | $ | 1,397.3 | |||||
Income before taxes | $ | 206.5 | $ | 181.2 | |||||
Pretax margin | 14.6 | % | 13.0 | % | |||||
Direct open orders | 249,100 | 278,300 | |||||||
Direct closed orders | 184,500 | 214,300 | |||||||
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Total revenues | $ | 183.5 | $ | 175.5 | |||||
Open orders | 32,100 | 31,200 | |||||||
Closed orders | 18,600 | 19,400 | |||||||
Average revenue per order | $ | 9,900 | $ | 9,000 | |||||
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
Pretax income for the
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Three Months Ended | |||||||||
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2018 | 2017 | ||||||||
Total revenues | $ | 124.2 | $ | 118.5 | |||||
Income before taxes | $ | 6.2 | $ | 6.2 | |||||
Pretax margin | 5.0 | % | 5.2 | % | |||||
Total revenues for the
Teleconference/Webcast
First American’s third quarter 2018 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; 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; process automation; technological developments that change the way real estate transactions are conducted and related documents are processed; 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
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 | Nine Months Ended | ||||||||||||||||
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2018 | 2017 | 2018 | 2017 | ||||||||||||||
Total revenues | $ | 1,542,186 | $ | 1,519,568 | $ | 4,330,731 | $ | 4,291,040 | |||||||||
Income before income taxes | $ | 195,587 | $ | 17,962 | $ | 490,620 | $ | 285,996 | |||||||||
Income tax expense (benefit) | 44,126 | (3,224 | ) | 107,896 | 84,846 | ||||||||||||
Net income | 151,461 | 21,186 | 382,724 | 201,150 | |||||||||||||
Less: Net loss attributable to noncontrolling interests | (19 | ) | (197 | ) | (123 | ) | (772 | ) | |||||||||
Net income attributable to the Company | $ | 151,480 | $ | 21,383 | $ | 382,847 | $ | 201,922 | |||||||||
Net income per share attributable to stockholders: | |||||||||||||||||
Basic | $ | 1.34 | $ | 0.19 | $ | 3.40 | $ | 1.81 | |||||||||
Diluted | $ | 1.34 | $ | 0.19 | $ | 3.38 | $ | 1.80 | |||||||||
Cash dividends declared per share | $ | 0.42 | $ | 0.38 | $ | 1.18 | $ | 1.06 | |||||||||
Weighted average common shares outstanding: | |||||||||||||||||
Basic | 112,722 | 111,799 | 112,541 | 111,578 | |||||||||||||
Diluted | 113,365 | 112,575 | 113,213 | 112,254 | |||||||||||||
Selected Title Insurance Segment Information | |||||||||||||||||
Title orders opened(1) | 249,100 | 278,300 | 779,400 | 837,500 | |||||||||||||
Title orders closed(1) | 184,500 | 214,300 | 554,300 | 619,500 | |||||||||||||
Paid title claims | 41,073 | 50,317 | 122,429 | 149,088 | |||||||||||||
(1) |
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Selected Consolidated Balance Sheet Information | ||||||||
(in thousands, unaudited) | ||||||||
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2018 | 2017 | |||||||
Cash and cash equivalents | $ | 2,205,319 | $ | 1,387,226 | ||||
Investments | 6,138,808 | 5,378,303 | ||||||
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1,256,733 | 1,212,918 | ||||||
Total assets | 11,380,127 | 9,573,222 | ||||||
Reserve for claim losses | 1,026,959 | 1,028,933 | ||||||
Notes and contracts payable | 735,258 | 732,810 | ||||||
Total stockholders’ equity | $ | 3,674,215 | $ | 3,479,955 | ||||
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Segment Information | |||||||||||||||||
(in thousands, unaudited) | |||||||||||||||||
Three Months Ended | Title | Specialty | Corporate | ||||||||||||||
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Consolidated | Insurance | Insurance | (incl. Elims.) | |||||||||||||
Revenues | |||||||||||||||||
Direct premiums and escrow fees | $ | 649,375 | $ | 532,769 | $ | 116,606 | $ | — | |||||||||
Agent premiums | 615,113 | 615,113 | — | — | |||||||||||||
Information and other | 198,680 | 195,963 | 2,981 | (264 | ) | ||||||||||||
Net investment income | 67,874 | 60,871 | 2,573 | 4,430 | |||||||||||||
Net realized investment gains | 11,144 | 9,125 | 2,019 | — | |||||||||||||
1,542,186 | 1,413,841 | 124,179 | 4,166 | ||||||||||||||
Expenses | |||||||||||||||||
Personnel costs | 449,839 | 425,565 | 19,416 | 4,858 | |||||||||||||
Premiums retained by agents | 485,621 | 485,621 | — | — | |||||||||||||
Other operating expenses | 227,670 | 200,932 | 18,705 | 8,033 | |||||||||||||
Provision for policy losses and other claims | 122,196 | 45,916 | 76,280 | — | |||||||||||||
Depreciation and amortization | 31,729 | 29,978 | 1,713 | 38 | |||||||||||||
Premium taxes | 18,774 | 16,910 | 1,864 | — | |||||||||||||
Interest | 10,770 | 2,380 | — | 8,390 | |||||||||||||
1,346,599 | 1,207,302 | 117,978 | 21,319 | ||||||||||||||
Income (loss) before income taxes | $ | 195,587 | $ | 206,539 | $ | 6,201 | $ | (17,153 | ) | ||||||||
Three Months Ended | Title | Specialty | Corporate | ||||||||||||||
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Consolidated | Insurance | Insurance | (incl. Elims.) | |||||||||||||
Revenues | |||||||||||||||||
Direct premiums and escrow fees | $ | 651,104 | $ | 538,063 | $ | 113,041 | $ | — | |||||||||
Agent premiums | 629,186 | 629,186 | — | — | |||||||||||||
Information and other | 201,819 | 199,271 | 2,814 | (266 | ) | ||||||||||||
Net investment income | 44,460 | 37,901 | 2,468 | 4,091 | |||||||||||||
Net realized investment (losses) gains | (7,001 | ) | (7,159 | ) | 158 | — | |||||||||||
1,519,568 | 1,397,262 | 118,481 | 3,825 | ||||||||||||||
Expenses | |||||||||||||||||
Personnel costs | 443,992 | 421,892 | 18,478 | 3,622 | |||||||||||||
Premiums retained by agents | 497,911 | 497,911 | — | — | |||||||||||||
Other operating expenses | 374,347 | 196,412 | 16,537 | 161,398 | |||||||||||||
Provision for policy losses and other claims | 120,349 | 46,689 | 73,660 | — | |||||||||||||
Depreciation and amortization | 36,000 | 34,363 | 1,599 | 38 | |||||||||||||
Premium taxes | 19,900 | 17,871 | 2,029 | — | |||||||||||||
Interest | 9,107 | 925 | — | 8,182 | |||||||||||||
1,501,606 | 1,216,063 | 112,303 | 173,240 | ||||||||||||||
Income (loss) before income taxes | $ | 17,962 | $ | 181,199 | $ | 6,178 | $ | (169,415 | ) | ||||||||
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Segment Information | |||||||||||||||||
(in thousands, unaudited) | |||||||||||||||||
Nine Months Ended | Title | Specialty | Corporate | ||||||||||||||
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Consolidated | Insurance | Insurance | (incl. Elims.) | |||||||||||||
Revenues | |||||||||||||||||
Direct premiums and escrow fees | $ | 1,854,835 | $ | 1,515,537 | $ | 339,298 | $ | — | |||||||||
Agent premiums | 1,701,831 | 1,701,831 | — | — | |||||||||||||
Information and other | 596,090 | 588,079 | 8,807 | (796 | ) | ||||||||||||
Net investment income | 167,000 | 154,009 | 7,561 | 5,430 | |||||||||||||
Net realized investment gains | 10,975 | 8,891 | 2,084 | — | |||||||||||||
4,330,731 | 3,968,347 | 357,750 | 4,634 | ||||||||||||||
Expenses | |||||||||||||||||
Personnel costs | 1,312,455 | 1,246,240 | 57,234 | 8,981 | |||||||||||||
Premiums retained by agents | 1,341,808 | 1,341,808 | — | — | |||||||||||||
Other operating expenses | 675,085 | 594,164 | 56,184 | 24,737 | |||||||||||||
Provision for policy losses and other claims | 336,395 | 128,700 | 207,695 | — | |||||||||||||
Depreciation and amortization | 92,534 | 87,438 | 4,981 | 115 | |||||||||||||
Premium taxes | 51,837 | 46,401 | 5,436 | — | |||||||||||||
Interest | 29,997 | 5,031 | — | 24,966 | |||||||||||||
3,840,111 | 3,449,782 | 331,530 | 58,799 | ||||||||||||||
Income (loss) before income taxes | $ | 490,620 | $ | 518,565 | $ | 26,220 | $ | (54,165 | ) | ||||||||
Nine Months Ended | Title | Specialty | Corporate | ||||||||||||||
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Consolidated | Insurance | Insurance | (incl. Elims.) | |||||||||||||
Revenues | |||||||||||||||||
Direct premiums and escrow fees | $ | 1,819,193 | $ | 1,492,258 | $ | 326,935 | $ | — | |||||||||
Agent premiums | 1,757,796 | 1,757,796 | — | — | |||||||||||||
Information and other | 586,179 | 578,549 | 8,427 | (797 | ) | ||||||||||||
Net investment income | 117,109 | 99,181 | 7,118 | 10,810 | |||||||||||||
Net realized investment gains | 10,763 | 9,335 | 1,428 | — | |||||||||||||
4,291,040 | 3,937,119 | 343,908 | 10,013 | ||||||||||||||
Expenses | |||||||||||||||||
Personnel costs | 1,287,570 | 1,222,180 | 53,632 | 11,758 | |||||||||||||
Premiums retained by agents | 1,387,608 | 1,387,608 | — | — | |||||||||||||
Other operating expenses | 820,540 | 579,528 | 50,588 | 190,424 | |||||||||||||
Provision for policy losses and other claims | 333,695 | 130,037 | 203,658 | — | |||||||||||||
Depreciation and amortization | 96,292 | 91,471 | 4,697 | 124 | |||||||||||||
Premium taxes | 52,527 | 46,973 | 5,554 | — | |||||||||||||
Interest | 26,812 | 2,576 | — | 24,236 | |||||||||||||
4,005,044 | 3,460,373 | 318,129 | 226,542 | ||||||||||||||
Income (loss) before income taxes | $ | 285,996 | $ | 476,746 | $ | 25,779 | $ | (216,529 | ) | ||||||||
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Consolidated Net Realized Investment Gains (Losses) | ||||||||||||||||||||||||||||||||
($ in thousands, except per share amounts, unaudited) | ||||||||||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||
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2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||||
Amount |
Per |
Amount |
Per |
Amount |
Per |
Amount |
Per |
|||||||||||||||||||||||||
Change in fair value of equity securities held(1) | $ | 14,081 | $ | 0.10 | N/A | N/A | $ | 15,890 | $ | 0.11 | N/A | N/A | ||||||||||||||||||||
Other net realized investment (losses) gains | (2,937 | ) | (0.02 | ) | (7,001 | ) | (0.04 | ) | (4,915 | ) | (0.03 | ) | 10,763 | 0.06 | ||||||||||||||||||
Net realized investment gains (losses) | $ | 11,144 | $ | 0.08 | $ | (7,001 | ) | $ | (0.04 | ) | $ | 10,975 | $ | 0.08 | $ | 10,763 | $ | 0.06 | ||||||||||||||
(1) 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. | ||||||||||||||||||||||||||||||||
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Expense and Success Ratio Reconciliation | ||||||||||||||||
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($ in thousands, unaudited) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
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2018 | 2017 | 2018 | 2017 | |||||||||||||
Total revenues | $ | 1,413,841 | $ | 1,397,262 | $ | 3,968,347 | $ | 3,937,119 | ||||||||
Less: Net realized investment gains (losses) | 9,125 | (7,159 | ) | 8,891 | 9,335 | |||||||||||
Net investment income | 60,871 | 37,901 | 154,009 | 99,181 | ||||||||||||
Premiums retained by agents | 485,621 | 497,911 | 1,341,808 | 1,387,608 | ||||||||||||
Net operating revenues | $ | 858,224 | $ | 868,609 | $ | 2,463,639 | $ | 2,440,995 | ||||||||
Personnel and other operating expenses | $ | 626,497 | $ | 618,304 | $ | 1,840,404 | $ | 1,801,708 | ||||||||
Ratio (% net operating revenues) | 73.0 | % | 71.2 | % | 74.7 | % | 73.8 | % | ||||||||
Ratio (% total revenues) | 44.3 | % | 44.3 | % | 46.4 | % | 45.8 | % | ||||||||
Change in net operating revenues | $ | (10,385 | ) | $ | 22,644 | |||||||||||
Change in personnel and other operating expenses | 8,193 | 38,696 | ||||||||||||||
Success Ratio(1) | -79 | % | 171 | % | ||||||||||||
(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) | |||||||||||||||||||||
Q318 | Q218 | Q118 | Q417 | Q317 | |||||||||||||||||
Open Orders per Day | |||||||||||||||||||||
Purchase | 2,067 | 2,315 | 2,027 | 1,686 | 2,156 | ||||||||||||||||
Refinance | 937 | 998 | 1,173 | 1,239 | 1,379 | ||||||||||||||||
Refinance as % of residential orders | 31 | % | 30 | % | 37 | % | 42 | % | 39 | % | |||||||||||
Commercial | 509 | 562 | 509 | 489 | 495 | ||||||||||||||||
Default and other | 441 | 450 | 380 | 321 | 387 | ||||||||||||||||
Total open orders per day | 3,954 | 4,325 | 4,089 | 3,734 | 4,417 | ||||||||||||||||
Closed Orders per Day | |||||||||||||||||||||
Purchase | 1,647 | 1,718 | 1,313 | 1,550 | 1,724 | ||||||||||||||||
Refinance | 674 | 729 | 850 | 1,035 | 985 | ||||||||||||||||
Refinance as % of residential orders | 29 | % | 30 | % | 39 | % | 40 | % | 36 | % | |||||||||||
Commercial | 295 | 311 | 306 | 333 | 309 | ||||||||||||||||
Default and other | 313 | 308 | 330 | 376 | 384 | ||||||||||||||||
Total closed orders per day | 2,929 | 3,066 | 2,800 | 3,294 | 3,402 | ||||||||||||||||
Average Revenue per Order (ARPO) | |||||||||||||||||||||
Purchase | $ | 2,473 | $ | 2,483 | $ | 2,356 | $ | 2,389 | $ | 2,336 | |||||||||||
Refinance | 1,045 | 985 | 936 | 962 | 928 | ||||||||||||||||
Commercial | 9,886 | 9,277 | 8,059 | 9,508 | 9,024 | ||||||||||||||||
Default and other | 389 | 314 | 282 | 203 | 230 | ||||||||||||||||
Total ARPO | $ | 2,667 | $ | 2,599 | $ | 2,303 | $ | 2,411 | $ | 2,298 | |||||||||||
Business Days | 63 | 64 | 62 | 62 | 63 | ||||||||||||||||
(1) |
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Totals may not add due to rounding. |
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