Fidelity National Financial (FNF) Q3 2011 Earnings Call October 20, 2011 10:00 am ET Executives William P. Foley - Executive Chairman, Chairman of Executive Committee and Chairman of FNF Holding Daniel Kennedy Murphy - Senior Vice President of Finance and Investor Relations of Fidelity National Financial Anthony J. Park - Chief Financial Officer, Principal Accounting Officer and Executive Vice President Raymond R. Quirk - President George Scanlon - Chief Executive Officer and Chief Operating Officer Analysts Nathaniel Otis - Keefe, Bruyette, & Woods, Inc., Research Division Brett Huff - Stephens Inc., Research Division Mark C. DeVries - Barclays Capital, Research Division Presentation Operator
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Let me now turn the call over to our Chairman, Bill Foley.William P. Foley Thanks, Dan. We produced another strong quarter in our title insurance business despite continued difficult operating environment. Our industry-leading pretax margin was 11.6%, including $7.2 million in realized investment losses and 12.2% before the impact of those realized losses. We again saw the strength in our commercial title business, partially offset the sustained weakness in the residential resale markets, and we exceeded our targets in shared services cost reductions. Additionally, with the meaningful decline in mortgage rates beginning in August, we began to see a significant increase in our refinance open order volumes as August's total open orders per day increased nearly 30% over July, and September total open orders per day remained nearly equal with those elevated August levels. We expect to see the majority of the revenue and earnings benefit from these increased open order volumes in our fourth quarter operating results. In July, we announced the sale of our flood business for $210 million, which will generate an estimated $154 million pretax gain. That flood business has been the nation's largest flood insurance provider and a very profitable and consistent business for FNF for nearly 10 years. We feel this transaction is a great opportunity to realize the value we have created and redeploy the capital into other uses that can continue to create increased value for our shareholders. We are awaiting final regulatory approval and expect to close that sale in the next several weeks. In August, we entered into a $300 million, 7-year, 4.25% convertible senior note. This issuance allowed us to prepay our maturing senior notes and continued our strategy of enhancing our longer-term liquidity profile conservatively managed in our balance sheet and liquidity position during uncertain times and maximizing holding company flexibility. Concurrent with the offering, we used $75 million of the proceeds to repurchase approximately 4.6 million shares of our common stock. We currently have 4.6 million shares remaining on our repurchase authorization.
Finally, in September, we filed a 13D disclosing that we had purchased a total of 2.1 million shares or a 9.5% ownership position in O'Charley's Inc., the operator of more than 220 full-service restaurants under O'Charley's Ninety Nine and Stoney River concepts. Our total investment is approximately $13.8 million or $6.65 per share.I'll now turn the call over to our CEO, George Scanlon. George Scanlon Thank you, Bill, and good morning, everyone. We are pleased to report another strong performance from our title insurance business, although a bit of analysis is necessary to better understand the company's performance this quarter. For the third quarter, we reported earnings per share of $0.33 compared with $0.36 last year, and our very strong title operating performance was overshadowed by 2 items. First, we realized about $40 million in gains in last year's quarter. It was an exceptionally strong quarter for gains as we disposed of half of our position in common shares of FIS when they did their leveraged recapitalization. Now we realized a gain of $23 million. This year, we realized a loss of $6 million, primarily associated with mark-to-market adjustments for certain investment securities. As a result, there was a net change year-over-year of $46 million in realized gains and losses, which roughly translates into almost $0.14 per share. As you have seen in the past, there can be volatility in the recognition of portfolio gains and losses, but it is important to separate this line from the operating margins generated by our title business. Read the rest of this transcript for free on seekingalpha.com