First American Financial's CEO Discusses Q2 2012 Results - Earnings Call Transcript

First American Financial Corporation (FAF)

Q2 2012 Earnings Call

July 26, 2012 11:00 AM ET


Craig Barberio – Director, IR

Dennis Gilmore – CEO

Max Valdes – EVP and CFO

Mark Seaton – SVP, Finance


Mark Devries – Barclays

Jim Ryan – Morningstar

John Campbell – Stephens

Lee Kaplan – Kestrel Investment

Bose George – KBW

Geoffrey Dunn – Dowling & Partners



Welcome, and thank you for standing by. At this time all participants are in a listen-only mode until the question and answer session of today’s call. (Operator Instructions) A copy of today’s press release is available on First American’s website at Please note that the call is being recorded and will be available for replay from the company’s Investor website and for a short time by dialing 203-369-1533.

We will now turn the call over to Craig Barberio, Director of Investor Relations, to make an introductory statement.

Craig Barberio

Good morning, everyone, and thank you for joining us for our second quarter 2012 earnings conference call. Joining us on today’s call will be our Chief Executive Officer, Dennis Gilmore; Max Valdes, Executive Vice President and Chief Financial Officer; and Mark Seaton, Senior Vice President of Finance.

At this time, we’d like to remind listeners that management’s commentary and responses to your questions may contain forward-looking statements, such as those described on page four of today’s news release and other statements that do not relate strictly to historical or current fact. The forward-looking statements speak only as of the date they are made, and 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.

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 are also described on page four of today’s news release.

Management’s commentary contains and responses to your questions may also contain certain financial measures that are not presented in accordance with generally accepted accounting principles, including a personnel and other operating expense ratio. The company presenting, the company is presenting these non-GAAP financial measures because they provide 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 today news release, which is available on our website,, the non-GAAP financial measures disclosed in management’s commentary are 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.

With that, I will now turn the call over to Dennis Gilmore.

Dennis Gilmore

Thanks, Craig. Good morning and thank you for joining our call. I’ll review the highlights for the second quarter, then I’ll provide some comments on our outlook for the third quarter and the full year.

Total revenues for the second quarter were $1.1 billion, an increase of 18% relative to the second quarter of 2011, and up 13% sequentially. Net income in the current quarter was $73 million or $0.68 per share.

In the second quarter, we achieved a total margin of 11.7%, our best results since 2005. Our cost efficient and scalable operations built over the last several years enabled us to demonstrate excellent operating leverage in the quarter.

Second quarter open orders were up 36% year-over-year, primarily driven by strong refinance activity. Also we’re encouraged by this year’s spring buying season with resale orders up 4% over the second quarter of last year. In addition our Commercial division had an outstanding quarter with revenues with $98 million up 16% compared to last year. Our Specialty Insurance segment achieved pre-tax earnings of $13 million revenues were up 11% and the overall loss ratio was 55%.

On Tuesday of this week, we sold 4 million shares of CoreLogic stock. We anticipate a gain of approximately $15 million and we recognize it in the third quarter. Our remaining position of 4.9 million shares must be sold within the next three years.

Turning to the outlook, we continue to build on a strong second quarter order volumes. Open orders per day in July are running slightly ahead of June indicating that closed orders will remain strong throughout the third quarter. Given our first half results, we are on track to achieve our objective of 8% to 10% title margin for full year 2012.

At this point, I’d like to take a moment to acknowledge and thank our employees. The past several years have been very challenging for our industry and we would not have been able to deliver this quarter strong results without our employee’s dedication and hard-work.

Over this period the organization has relentlessly focused on improving the efficiencies of our operation and dramatically transforming our cost structure. While this process is never done, our emphasis is now on profitable growth in our core business. This will be achieved primarily through organic growth combined with pursing select acquisitions. We’re committed to and excited about our mission to be the premier title and settlement service company in the U.S. and our key markets abroad.

I’d now like to turn the call over to Max for a more detailed review of our financial results.

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