Form 8-K First American Financial For: Jul 23

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

 

Date of report (Date of earliest event reported) July 23, 2015

 

 

FIRST AMERICAN FINANCIAL CORPORATION

(Exact Name of the Registrant as Specified in Charter)

 

 

 

Delaware		001-34580		26-1911571
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)
1 First American Way, Santa Ana, California				92707-5913
(Address of Principal Executive Offices)				(Zip Code)

Registrant’s telephone number, including area code (714) 250-3000

Not Applicable.

(Former Name or Former Address, if Changed Since Last Report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Item 2.02 Results of Operations and Financial Condition.

On July 23, 2015, First American Financial Corporation issued a press release announcing its financial results for the quarter ended June 30, 2015. The full text of the press release is attached hereto as Exhibit 99.1.

The information in this Item 2.02, including Exhibit 99.1 hereto, is being “furnished” in accordance with General Instruction B.2 of Form 8-K. As such, this information is not deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filings with the SEC unless it shall be explicitly so incorporated in such filings.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit No.		Description
99.1		Press Release, dated July 23, 2015.

 

2

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

 

				FIRST AMERICAN FINANCIAL CORPORATION
Date: July 23, 2015				By:		/s/ KENNETH D. DEGIORGIO
						Name:  Kenneth D. DeGiorgio
						Title:    Executive Vice President

 

3

Exhibit 99.1

 

		NEWS		FOR IMMEDIATE RELEASE

FIRST AMERICAN FINANCIAL REPORTS SECOND QUARTER 2015 RESULTS

—Reports Earnings of 85 Cents per Diluted Share—

SANTA ANA, Calif., July 23, 2015 – 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, 2015.

Current Quarter Highlights

 

•

Total revenue of $1.3 billion, up 15 percent compared with last year

- Direct title orders closed were up 15 percent

- Average revenue per direct title order closed was up 7 percent

 

•

Title Insurance and Services segment pretax margin of 12.6 percent

 

•

Commercial revenue of $170.1 million, up 29 percent compared with last year

 

•

Specialty Insurance segment total revenue was up 7 percent, with a pretax margin of 10.8 percent

 

•

Cash flow from operations of $233.3 million compared with $149.5 million last year

Selected Financial Information

($ in millions, except per share data)

 

		For the Three Months Ended June 30
		2015				2014
Total revenue		$	1,323.8			$	1,150.0
Income before taxes			141.6				76.5
Net income		$	93.3			$	50.6
Net income per diluted share			0.85				0.47

Total revenue for the second quarter of 2015 was $1.3 billion, an increase of 15 percent relative to the second quarter of 2014. Net income in the current quarter was $93.3 million, or 85 cents per diluted share, compared with net income of $50.6 million, or 47 cents per diluted share, in the second quarter of 2014. The current quarter results include net realized investment gains of $3.9 million, or 2 cents per diluted share, compared with gains of $6.3 million, or 4 cents per diluted share, in the second quarter of last year.

“Our strong second quarter results were driven by a healthy spring selling season, continued growth in our commercial business and elevated refinance activity,” said Dennis J. Gilmore, chief executive officer at First American Financial Corporation. “Our steady focus on operating efficiency enabled us to deliver strong margins and earnings in this favorable market environment.

“We expect that an improving economy will continue to bolster the housing market. Moving forward, we remain focused on creating shareholder value by growing our core title business, leveraging our unique collection of data assets and prudently managing our capital.”

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First American Financial Reports Second Quarter 2015 Results

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Title Insurance and Services

($ in millions, except average revenue per order)

 

		For the Three Months Ended June 30
		2015				2014
Total revenue		$	1,227.1			$	1,055.4
Income before taxes		$	154.7			$	84.8
Pretax margin			12.6	%			8.0	%
Direct open orders			335,200				318,200
Direct closed orders			246,500				214,200
U.S. Direct Commercial
Total revenue		$	170.1			$	132.1
Open orders			34,800				33,800
Closed orders			20,800				19,600
Average revenue per order		$	8,200			$	6,700

Total revenue for the Title Insurance and Services segment was $1.2 billion, a 16 percent increase from the same quarter of 2014. Direct premiums and escrow fees were up 20 percent from the second quarter of 2014, driven by a 15 percent increase in the number of direct title orders closed in the quarter and a 7 percent increase in the average revenue per direct title order to $1,953. The increase in revenue per direct title order closed was primarily attributable to an increase in the average size of commercial deals closed in the quarter and higher real estate values, partially offset by a shift in the mix toward lower-premium refinance transactions. Agent premiums were up 17 percent in the current quarter compared with last year.

Information and other revenue was $169.7 million this quarter, up 3 percent compared with the same quarter of last year. Excluding the impact of a recent acquisition, information and other revenue was essentially flat. The quarter benefitted from higher demand for certain non-insured products and services, reflecting growth in transaction activity, largely offset by lower demand for the company’s default information products.

Investment income was $26.0 million in the second quarter, up 34 percent from the second quarter of 2014. The increase was primarily due to higher interest income driven by growth in average invested balances in the debt securities portfolio and higher earnings in investments accounted for using the equity method. Net realized investment gains totaled $4.2 million in the current quarter, compared with gains of $4.3 million in the second quarter of 2014.

Personnel costs were $370.5 million in the second quarter, an increase of $43.2 million, or 13 percent, compared with the same quarter of 2014. This increase was primarily attributable to higher incentive compensation expense driven by higher revenue and profitability in the current quarter.

 

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First American Financial Reports Second Quarter 2015 Results

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Other operating expenses were $205.3 million in the second quarter, up $8.3 million, or 4 percent, compared with the second quarter of 2014. This increase was primarily due to higher production-related expenses and temporary labor costs driven by the increase in order volumes in the current quarter.

The provision for policy losses and other claims was $66.7 million in the second quarter, or 6.5 percent of title premiums and escrow fees, a decline of $10.4 million compared with the same quarter of the prior year. The current quarter rate includes an ultimate loss rate of 6.0 percent for the current policy year.

Pretax income for the Title Insurance and Services segment was $154.7 million in the second quarter, compared with $84.8 million in the second quarter of 2014. Pretax margin was 12.6 percent in the current quarter, compared with 8.0 percent last year.

Specialty Insurance

($ in millions)

 

		For the Three Months Ended June 30
		2015				2014
Total revenue		$	97.7			$	91.2
Income before taxes		$	10.6			$	11.0
Pretax margin			10.8	%			12.1	%

Total revenue for the Specialty Insurance segment was $97.7 million in the second quarter of 2015, an increase of 7 percent compared with the second quarter of 2014. The increase in revenue was driven by higher premiums earned in both the home warranty and the property and casualty business lines. The loss ratio in the Specialty Insurance segment was 59.5 percent in the current quarter, compared with 58.5 percent in the prior year. The increase in the loss ratio was primarily attributable to higher weather-related claims in the home warranty business. As a result, the pretax margin in the current quarter declined to 10.8 percent from 12.1 percent in the second quarter of 2014.

Teleconference/Webcast

First American’s second quarter 2015 results will be discussed in more detail on Thursday, July 23, 2015, 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 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 6, 2015, by dialing 201-612-7415 and using the conference ID 13614230. An audio archive of the call will also be available on First American’s investor website.

 

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First American Financial Reports Second Quarter 2015 Results

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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; and banking, trust and investment advisory services. With revenues of $4.7 billion in 2014, the company offers its products and services directly and through its agents throughout the United 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 U.S. direct title insurance operations, which are posted approximately 12 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 an improving economy; the outlook for the housing market, including refinance transaction volumes and sustained growth in the purchase market; creating shareholder value, including through growth in the core title business, leveraging data assets and managing capital; expense management; the outlook for the commercial market; the company’s ability to capitalize on an improving housing market; the effects of the Consumer Financial Protection Bureau’s integrated disclosure rules; and the expected normalized tax rate, 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; 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; the Consumer Financial Protection Bureau’s exercise of its broad rulemaking and supervisory powers; compliance with the Consumer Financial Protection Bureau’s integrated disclosure rules; regulation of title insurance rates; reform of government-sponsored mortgage enterprises; 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; expenses of and funding obligations to the pension plan; 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 mitigation efforts; systems damage, failures, interruptions and intrusions, wire transfer errors or unauthorized data disclosures; inability to realize the benefits of the company’s offshore strategy; 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 March 31, 2015, 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.

 

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First American Financial Reports Second Quarter 2015 Results

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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.

 

Media Contact:				Investor Contact:
Marcus Ginnaty Corporate Communications First American Financial Corporation 714-250-3298				Craig Barberio Investor Relations First American Financial Corporation 714-250-5214

(Additional Financial Data Follows)

 

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First American Financial Reports Second Quarter 2015 Results

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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 June 30								For the Six Months Ended June 30
		2015				2014				2015				2014
Total revenues		$	1,323,789			$	1,149,969			$	2,434,873			$	2,162,768
Income before income taxes		$	141,622			$	76,458			$	200,570			$	111,711
Income tax expense			48,043				25,770				69,195				39,171
Net income			93,579				50,688				131,375				72,540
Less: Net income attributable to noncontrolling interests			232				94				396				222
Net income attributable to the Company		$	93,347			$	50,594			$	130,979			$	72,318
Net income per share attributable to stockholders:
Basic		$	0.86			$	0.47			$	1.21			$	0.68
Diluted		$	0.85			$	0.47			$	1.19			$	0.67
Cash dividends declared per share		$	0.25			$	—			$	0.50			$	0.36
Weighted average common shares outstanding:
Basic			108,459				106,878				108,102				106,522
Diluted			109,796				108,647				109,586				108,423
Selected Title Information
Title orders opened			335,200				318,200				672,200				589,400
Title orders closed			246,500				214,200				454,100				394,300
Paid title claims		$	66,234			$	69,466			$	155,402			$	147,396

 

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First American Financial Reports Second Quarter 2015 Results

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First American Financial Corporation

Selected Balance Sheet Information

(in thousands)

(unaudited)

 

		June 30, 2015				December 31, 2014
Cash and cash equivalents		$	1,269,660			$	1,190,080
Investment portfolio			4,628,262				4,033,892
Goodwill and other intangible assets,net			1,024,048				1,015,757
Total assets			8,353,552				7,666,100
Reserve for claim losses			956,786				1,011,780
Notes and contracts payable			584,538				587,337
Total stockholders’ equity		$	2,656,409			$	2,572,917

 

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First American Financial Reports Second Quarter 2015 Results

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First American Financial Corporation

Segment Information

(in thousands, unaudited)

 

For the Three Months Ended June 30, 2015		Consolidated				Title Insurance				Specialty Insurance				Corporate (incl. Elims.)
Revenues
Direct premiums and escrow fees		$	628,425			$	534,111			$	94,314			$	—
Agent premiums			493,102				493,102				—				—
Information and other			170,530				169,681				856				(7	)
Net investment income			27,864				25,996				2,215				(347	)
Net realized investment gains (losses) (1)			3,868				4,168				268				(568	)
			1,323,789				1,227,058				97,653				(922	)
Expenses
Personnel costs			396,616				370,459				16,560				9,597
Premiums retained by agents			394,828				394,828				—				—
Other operating expenses			223,110				205,314				11,373				6,423
Provision for policy losses and other claims			122,870				66,735				56,135				—
Depreciation and amortization			21,463				20,164				1,177				122
Premium taxes			16,012				14,194				1,818				—
Interest			7,268				626				—				6,642
			1,182,167				1,072,320				87,063				22,784
Income (loss) before income taxes		$	141,622			$	154,738			$	10,590			$	(23,706	)
For the Three Months Ended June 30, 2014		Consolidated				Title Insurance				Specialty Insurance				Corporate (incl. Elims.)
Revenues
Direct premiums and escrow fees		$	531,123			$	443,365			$	87,758			$	—
Agent premiums			423,209				423,209				—				—
Information and other			165,703				165,222				487				(6	)
Net investment income			23,659				19,332				1,842				2,485
Net realized investment gains (1)			6,275				4,267				1,097				911
			1,149,969				1,055,395				91,184				3,390
Expenses
Personnel costs			354,133				327,218				15,487				11,428
Premiums retained by agents			338,271				338,271				—				—
Other operating expenses			214,121				197,050				10,359				6,712
Provision for policy losses and other claims			128,466				77,089				51,377				—
Depreciation and amortization			19,780				17,623				1,338				819
Premium taxes			14,254				12,666				1,588				—
Interest			4,486				641				—				3,845
			1,073,511				970,558				80,149				22,804
Income (loss) before income taxes		$	76,458			$	84,837			$	11,035			$	(19,414	)

 

(1)	Includes impairment losses recorded in earnings, except for impairments on investments accounted for under the equity method, which are recorded in investment income.

 

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First American Financial Reports Second Quarter 2015 Results

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First American Financial Corporation

Segment Information

(in thousands, unaudited)

 

For the Six Months Ended June 30, 2015		Consolidated				Title Insurance				Specialty Insurance				Corporate (incl. Elims.)
Revenues
Direct premiums and escrow fees		$	1,146,929			$	962,462			$	184,467			$	—
Agent premiums			919,429				919,429				—				—
Information and other			317,178				315,564				1,628				(14	)
Net investment income			48,422				47,770				4,216				(3,564	)
Net realized investment gains (losses) (1)			2,915				1,605				1,878				(568	)
			2,434,873				2,246,830				192,189				(4,146	)
Expenses
Personnel costs			754,616				701,830				31,929				20,857
Premiums retained by agents			737,288				737,288				—				—
Other operating expenses			431,667				394,056				24,720				12,891
Provision for policy losses and other claims			224,424				122,286				102,138				—
Depreciation and amortization			42,317				39,690				2,382				245
Premium taxes			29,481				26,225				3,256				—
Interest			14,510				1,217				—				13,293
			2,234,303				2,022,592				164,425				47,286
Income (loss) before income taxes		$	200,570			$	224,238			$	27,764			$	(51,432	)
For the Six Months Ended June 30, 2014		Consolidated				Title Insurance				Specialty Insurance				Corporate (incl. Elims.)
Revenues
Direct premiums and escrow fees		$	964,995			$	792,728			$	172,267			$	—
Agent premiums			844,133				844,133				—				—
Information and other			303,345				302,400				957				(12	)
Net investment income			41,426				35,035				3,571				2,820
Net realized investment gains (1)			8,869				6,428				1,530				911
			2,162,768				1,980,724				178,325				3,719
Expenses
Personnel costs			680,651				627,498				31,001				22,152
Premiums retained by agents			674,936				674,936				—				—
Other operating expenses			402,488				367,132				21,828				13,528
Provision for policy losses and other claims			218,349				123,305				95,044				—
Depreciation and amortization			39,752				35,537				2,577				1,638
Premium taxes			26,544				23,602				2,942				—
Interest			8,337				1,241				—				7,096
			2,051,057				1,853,251				153,392				44,414
Income (loss) before income taxes		$	111,711			$	127,473			$	24,933			$	(40,695	)

 

(1)	Includes impairment losses recorded in earnings, except for impairments on investments accounted for under the equity method, which are recorded in investment income.

 

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First American Financial Reports Second Quarter 2015 Results

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First American Financial Corporation

Expense and Success Ratio Reconciliation

Title Insurance and Services Segment

($ in thousands, unaudited)

 

		For the Three Months Ended June 30								For the Six Months Ended June 30
		2015				2014				2015				2014
Total revenues		$	1,227,058			$	1,055,395			$	2,246,830			$	1,980,724
Less: Net realized investment gains			4,168				4,267				1,605				6,428
Net investment income			25,996				19,332				47,770				35,035
Premiums retained by agents			394,828				338,271				737,288				674,936
Net operating revenues		$	802,066			$	693,525			$	1,460,167			$	1,264,325
Personnel and other operating expenses		$	575,773			$	524,268			$	1,095,886			$	994,630
Ratio (% net operating revenues)			71.8	%			75.6	%			75.1	%			78.7	%
Ratio (% total revenues)			46.9	%			49.7	%			48.8	%			50.2	%
Change in net operating revenues		$	108,541							$	195,842
Change in personnel and other operating expenses			51,505								101,256
Success Ratio (1)			47	%							52	%

 

(1)	Change in personnel and other operating expenses divided by change in net operating revenues

 

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First American Financial Reports Second Quarter 2015 Results

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First American Financial Corporation

Supplemental Direct Title Order Information

(unaudited)

 

		Q215				Q115				Q414				Q314				Q214
Open Orders per Day
Purchase			2,324				2,002				1,611				2,033				2,189
Refinance			1,758				2,379				1,627				1,521				1,554
Refinance as % of residential orders			43	%			54	%			50	%			43	%			42	%
Commercial			544				532				505				485				528
Other (1)			612				612				522				609				701
Total open orders per day			5,238				5,525				4,263				4,648				4,972
Closed Orders per Day
Purchase			1,681				1,247				1,420				1,573				1,579
Refinance			1,420				1,471				1,122				1,113				983
Refinance as % of residential orders			46	%			54	%			44	%			41	%			38	%
Commercial			325				300				330				308				306
Other (1)			425				386				377				404				479
Total closed orders per day			3,852				3,403				3,249				3,397				3,347
Average Revenue per Order (ARPO) (2)
Purchase		$	2,036			$	1,921			$	1,944			$	1,950			$	1,918
Refinance			871				880				869				857				812
Commercial			8,182				8,117				9,558				7,568				6,746
Other (1)			477				580				437				480				488
Total ARPO		$	1,953			$	1,865			$	2,171			$	1,926			$	1,830
Business Days			64				61				63				64				64

 

(1)	Includes default and other orders

(2)	U.S. operations only

Totals may not add due to rounding

 

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