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First American Financial Reports Second Quarter 2013 Results

Teleconference/Webcast

First American’s second quarter 2013 results will be discussed in more detail on Thursday, July 25, 2013, at 11 a.m. ET, via teleconference. The toll-free dial-in number is (800) 619-2658. Callers from outside the United States may dial (773) 756-4600. The passcode for the event is “First American.”

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 July 31, 2013, by dialing (203) 369-3836. 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 and settlement services to the real estate and mortgage industries, 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 $4.5 billion in 2012, 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 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 the outlook for the housing market and its effects on the company; future refinance, purchase and commercial volumes; the decline in refinance business being offset by future strength in the company’s purchase and commercial businesses; focus on organic growth in the core title business; and future title claims experience and loss rates, 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; regulation of title insurance rates; reform of government-sponsored mortgage enterprises; limitations on access to public records and other data; product migration; changes in relationships with large mortgage lenders; 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; systems 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; and other factors described in the company’s quarterly report on Form 10-Q for the quarter ended March 31, 2013, 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 an adjusted pretax title margin and personnel and other operating expense 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.

     
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 For the Six Months Ended
June 30 June 30
2013       2012 2013       2012
 
Total revenues $ 1,288,464 $ 1,089,833 $ 2,435,227 $ 2,056,596
 
Income before income taxes $ 59,224 $ 112,290 $ 118,816 $ 163,840
Income tax expense   24,276   38,773   47,636   59,214
Net income 34,948 73,517 71,180 104,626

Less: Net income attributable to noncontrolling interests

  276   516   330   332
Net income attributable to the Company $ 34,672 $ 73,001 $ 70,850 $ 104,294
 
Net income per share attributable to stockholders:
Basic $ 0.32 $ 0.69 $ 0.66 $ 0.98
Diluted $ 0.31 $ 0.68 $ 0.64 $ 0.97
 
Cash dividends declared per share $ 0.12 $ 0.08 $ 0.24 $ 0.16
 
Weighted average common shares outstanding:
Basic 108,210 106,230 107,881 105,926
Diluted 110,311 107,945 110,072 107,681
 

Selected Title Information

 
Title orders opened 421,500 411,200 798,100 788,400
 
Title orders closed 321,300 289,300 612,700 550,600
 
Paid title claims $ 69,148 $ 71,850 $ 140,485 $ 152,305
 
 
                         
First American Financial Corporation
Selected Balance Sheet Information
(in thousands)
(unaudited)
 

June 30,

2013

December 31,

2012

 
Cash and cash equivalents $ 861,835 $ 627,208
Investment portfolio 3,145,223 3,113,560
Goodwill and other intangible assets 891,188 902,952
Total assets 6,302,979 6,050,847
Reserve for claim losses 1,054,450 976,462
Notes payable 314,779 229,760
Total stockholders' equity $ 2,342,220 $ 2,348,065
 
 
 
First American Financial Corporation
Segment Information
(in thousands, unaudited)
                       
For the Three Months Ended Title Specialty Corporate

June 30, 2013

Consolidated Insurance Insurance (incl. Elims.)
Revenues
Direct premiums and escrow fees $ 593,205 $ 511,918 $ 81,287 $ -
Agent premiums 496,730 496,730 - -
Information and other 171,522 171,104 424 (6 )
Investment income 22,485 21,599 1,787 (901 )
Net realized investment gains (1)   4,522   3,696   525   301  
  1,288,464   1,205,047   84,023   (606 )
Expenses
Personnel costs 364,767 340,046 14,905 9,816
Premiums retained by agents 396,024 396,024 - -
Other operating expenses 232,765 216,230 9,859 6,676
Provision for policy losses and other claims 198,766 149,534 49,232 -
Depreciation and amortization 18,192 16,260 1,209 723
Premium taxes 14,795 13,268 1,527 -
Interest   3,931   645   -   3,286  
  1,229,240   1,132,007   76,732   20,501  
       
Income (loss) before income taxes $ 59,224 $ 73,040 $ 7,291 $ (21,107 )
 
 
For the Three Months Ended Title Specialty Corporate

June 30, 2012

Consolidated Insurance Insurance (incl. Elims.)
Revenues
Direct premiums and escrow fees $ 497,288 $ 424,146 $ 73,142 $ -
Agent premiums 400,361 400,361 - -
Information and other 167,827 167,411 418 (2 )
Investment income 12,789 12,283 2,231 (1,725 )
Net realized investment gains (1)   11,568   7,771   3,797   -  
  1,089,833   1,011,972   79,588   (1,727 )
Expenses
Personnel costs 322,043 299,348 13,717 8,978
Premiums retained by agents 321,348 321,348 - -
Other operating expenses 205,647 189,759 9,594 6,294
Provision for policy losses and other claims 95,389 54,820 40,569 -
Depreciation and amortization 18,456 16,669 1,116 671
Premium taxes 12,228 10,922 1,306 -
Interest   2,432   661   -   1,771  
  977,543   893,527   66,302   17,714  
       
Income (loss) before income taxes $ 112,290 $ 118,445 $ 13,286 $ (19,441 )
 
(1) Includes other-than-temporary impairment (OTTI) losses recorded in earnings.
 
 
 
First American Financial Corporation
Segment Information
(in thousands, unaudited)
                       
For the Six Months Ended Title Specialty Corporate

June 30, 2013

Consolidated Insurance Insurance (incl. Elims.)
Revenues
Direct premiums and escrow fees $ 1,071,056 $ 911,902 $ 159,154 $ -
Agent premiums 981,195 981,195 - -
Information and other 323,655 322,852 814 (11 )
Investment income 45,543 40,585 3,466 1,492
Net realized investment gains (1)   13,778   11,092   2,100   586  
  2,435,227   2,267,626   165,534   2,067  
Expenses
Personnel costs 709,267 656,889 29,236 23,142
Premiums retained by agents 783,567 783,567 - -
Other operating expenses 438,111 404,843 20,078 13,190
Provision for policy losses and other claims 314,792 226,894 87,898 -
Depreciation and amortization 36,587 32,744 2,387 1,456
Premium taxes 26,912 24,172 2,740 -
Interest   7,175   1,209   -   5,966  
  2,316,411   2,130,318   142,339   43,754  
       
Income (loss) before income taxes $ 118,816 $ 137,308 $ 23,195 $ (41,687 )
 
 
For the Six Months Ended Title Specialty Corporate

June 30, 2012

Consolidated Insurance Insurance (incl. Elims.)
Revenues
Direct premiums and escrow fees $ 911,074 $ 767,785 $ 143,289 $ -
Agent premiums 777,347 777,347 - -
Information and other 323,587 322,700 893 (6 )
Investment income 33,923 29,604 4,696 (377 )
Net realized investment gains (1)   10,665   5,757   4,908   -  
  2,056,596   1,903,193   153,786   (383 )
Expenses
Personnel costs 627,322 576,925 27,380 23,017
Premiums retained by agents 623,512 623,512 - -
Other operating expenses 394,797 361,510 20,637 12,650
Provision for policy losses and other claims 182,067 107,000 75,067 -
Depreciation and amortization 36,515 33,002 2,172 1,341
Premium taxes 23,076 20,655 2,421 -
Interest   5,467   1,322   -   4,145  
  1,892,756   1,723,926   127,677   41,153  
       
Income (loss) before income taxes $ 163,840 $ 179,267 $ 26,109 $ (41,536 )
 
(1) Includes other-than-temporary impairment (OTTI) losses recorded in earnings.
 
 
                       
First American Financial Corporation
Expense Ratio Reconciliation
Title Insurance and Services Segment
($ in thousands, unaudited)
 
For the Three Months Ended For the Six Months Ended
June 30 June 30
2013 2012 2013 2012
 
Total revenues $ 1,205,047 $ 1,011,972 $ 2,267,626 $ 1,903,193

Less: Net realized investment gains (1)

3,696 7,771 11,092 5,757
Investment income 21,599 12,283 40,585 29,604
Premiums retained by agents   396,024     321,348     783,567     623,512  
Net operating revenues $ 783,728   $ 670,570   $ 1,432,382   $ 1,244,320  
 
Personnel and other operating expenses $ 556,276 $ 489,107 $ 1,061,732 $ 938,435
Ratio (% net operating revenues) 71.0 % 72.9 % 74.1 % 75.4 %
Ratio (% total revenues) 46.2 % 48.3 % 46.8 % 49.3 %
 
(1) Includes other-than-temporary impairment (OTTI) losses recorded in earnings.




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