First American Financial Reports Second Quarter 2021 Results
07/22/2021 - 06:45 AM
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, 2021.
Current Quarter Highlights
Total revenue of $2.3 billion , up 41 percent compared with last year
Closed title orders up 7 percent, driven by growth in purchase and commercial orders, partially offset by lower refinance orders
Average revenue per order up 36 percent, primarily driven by an increase in average revenue per order for commercial transactions and by residential home price appreciation
Title Insurance and Services segment pretax margin of 19.1 percent
16.3 percent excluding net realized investment gains
Commercial revenues of $223.3 million , up 104 percent compared with last year
Specialty Insurance segment pretax margin of 13.0 percent
2.6 percent excluding net realized investment gains
Net realized investment gains of $86.5 million , or 59 cents per diluted share
Includes gain on a venture investment of $43.7 million
Debt-to-capital ratio of 23.5 percent, or 16.0 percent excluding secured financings payable of $611.0 million
Selected Financial Information
($ in millions, except per share data)
Three Months Ended
June 30,
2021
2020
Total revenue
$
2,266.4
$
1,608.7
Income before taxes
399.4
225.3
Net income
$
302.3
$
170.7
Net income per diluted share
2.72
1.52
Total revenue for the second quarter of 2021 was $2.3 billion , an increase of 41 percent relative to the second quarter of 2020. Net income in the current quarter was $302.3 million , or $2.72 per diluted share, compared with net income of $170.7 million , or $1.52 per diluted share, in the second quarter of 2020. Net realized investment gains in the current quarter were $86.5 million , or 59 cents per diluted share, compared with net realized investment gains of $69.3 million , or 47 cents per diluted share, in the second quarter of last year. The net realized investment gains in the current quarter were primarily due to a gain related to a venture investment and the change in the fair value of marketable equity securities, while net realized investment gains in the second quarter of last year were primarily driven by the change in the fair value of marketable equity securities.
“First American continued to deliver record results in the second quarter,” said Dennis J. Gilmore, chief executive officer at First American Financial Corporation. “Our title segment posted a pretax margin of 19.1 percent, the highest in the company’s history.
“These outstanding results were driven by continued strength in the purchase market and a strong rebound in the commercial market. We also benefited from high productivity bolstered by our ongoing data and title automation initiatives. In addition, we recognized a $44 million gain this quarter related to our venture investments program, which continues to provide strategic and financial benefit.
“Moving forward, we will manage our capital to create long-term shareholder value, including continued investment to expand our position as the leading industry innovator.”
Title Insurance and Services
($ in millions, except average revenue per order)
Three Months Ended
June 30,
2021
2020
Total revenues
$
2,108.2
$
1,462.9
Income before taxes
$
402.4
$
237.8
Pretax margin
19.1
%
16.3
%
Title open orders(1)
329,500
351,300
Title closed orders(1)
271,100
254,500
U.S. Commercial
Total revenues
$
223.3
$
109.5
Open orders
37,100
23,200
Closed orders
20,200
14,900
Average revenue per order
$
11,100
$
7,400
(1) U.S. direct title insurance orders only.
Total revenues for the Title Insurance and Services segment during the second quarter were $2.1 billion , up 44 percent compared with the same quarter of 2020. Direct premiums and escrow fees were up 48 percent compared with the second quarter of 2020, driven by a 7 percent increase in the number of direct title orders closed and a 36 percent increase in the average revenue per direct title order closed. The average revenue per direct title order increased to $2,651, due to higher average revenue per order from commercial transactions related to larger deal size and from residential transactions primarily driven by strong home price appreciation. In addition, the shift in the order mix from lower-premium residential refinance transactions to higher-premium commercial and purchase transactions also impacted the average revenue per order. Agent premiums, which are recorded on approximately a one-quarter lag relative to direct premiums, were up 51 percent in the current quarter as compared with last year.
Information and other revenues were $298.2 million during the quarter, up 31 percent compared with the same quarter of last year. The increase was primarily due to higher demand for the company’s title information products in our data and analytics, commercial and loss mitigation business lines.
Investment income was $47.5 million in the second quarter, up $4.2 million , or 10 percent from the same quarter last year. The increase was primarily due to higher interest income in the company’s warehouse lending business and higher average balances in the company’s investment portfolio, partially offset by the impact of the decline in short-term interest rates on the company’s tax-deferred property exchange and escrow balances. Net realized investment gains totaled $70.4 million in the current quarter, compared with net realized investment gains of $62.8 million in the second quarter of 2020. This quarter’s net realized investment gains were primarily driven by a gain related to a venture investment, compared with net realized gains in the second quarter of last year that were primarily due to the change in the fair value of marketable equity securities.
Personnel costs were $556.8 million in the second quarter, an increase of $139.8 million , or 34 percent, compared with the same quarter of 2020. This increase was attributable to higher incentive compensation and employee benefit expense due to growth in revenues and profitability, and higher salary expense from an increase in the number of employees.
Other operating expenses were $297.6 million in the second quarter, up $75.4 million , or 34 percent, compared with the second quarter of 2020. The increase was primarily due to higher production-related costs resulting from elevated order volume, and higher software and professional services expense.
The provision for policy losses and other claims was $67.7 million in the second quarter, or 4.0 percent of title premiums and escrow fees, a decrease from a 5.0 percent loss provision rate in the prior year. The current quarter rate reflects an ultimate loss rate of 4.0 percent for the current policy year with no change in the loss reserve estimates for prior policy years.
Depreciation and amortization expense was $39.5 million in the second quarter, up $0.5 million , or 1 percent, compared with the same period last year, due to higher amortization of intangible assets.
Pretax income for the Title Insurance and Services segment was $402.4 million in the second quarter, compared with $237.8 million in the second quarter of 2020. Pretax margin was 19.1 percent in the current quarter, compared with 16.3 percent last year. Excluding the impact of net realized investment gains, the pretax margin was 16.3 percent this year, compared with 12.5 percent last year.
Specialty Insurance
($ in millions)
Three Months Ended
June 30,
2021
2020
Total revenues
$
151.6
$
133.5
Income before taxes
$
19.7
$
7.3
Pretax margin
13.0
%
5.5
%
Total revenues for the Specialty Insurance segment were $151.6 million in the second quarter of 2021, an increase of 14 percent compared with the second quarter of 2020. Pretax income for the segment was $19.7 million , compared with $7.3 million last year.
Home warranty revenues grew this quarter to $107.6 million , up 10 percent compared with last year. The loss rate was 55.5 percent, compared with 54.7 percent last year, primarily driven by higher average cost per claim. Home warranty’s pretax income was $13.7 million , compared with $15.8 million last year.
The wind down of the property and casualty business is on track to be completed in the third quarter of 2022. At the close of the current quarter, policies-in-force had declined by 22 percent since the beginning of the year. Pretax income was $6.0 million , largely due to a $12.2 million gain from the sale of agency operations.
Teleconference/Webcast
First American’s second-quarter 2021 results will be discussed in more detail on Thursday, July 22, 2021, 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 +1-201-689-8349.
The live audio webcast of the call will be available on First American’s website at www.firstam.com/investor
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; banking, trust and wealth management services; and other related products and services. With total revenue of $7.1 billion in 2020, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2021, First American was named to the Fortune 100 Best Companies to Work For® list for the sixth consecutive year. 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
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; the coronavirus pandemic and responses thereto; impairments in the company’s goodwill or other intangible assets; uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark; failures at financial institutions where the company deposits funds; regulatory oversight and changes in applicable laws and government regulations, including privacy and data protection laws; 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; limitations on access to public records and other data; climate change, health crises, severe weather conditions and other catastrophe events; 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 or venture capital 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, cyberattacks and intrusions, or unauthorized data disclosures; innovation efforts of the company and other industry participants and any related market disruption; 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 annual report on Form 10-Q for the quarter ended March 31, 2021, 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 debt to capitalization ratio, personnel and other operating expense ratios, success ratios, net operating revenues; and adjusted revenues, adjusted pretax income, adjusted earnings per share, and adjusted pretax margins for the company, its title insurance and services segment and its specialty insurance segment. The company is presenting these non-GAAP financial measures because they provide the company’s management and investors with additional insight into the financial leverage, 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. Because not all companies use identical calculations, the presentation of these non-GAAP measures may not be comparable to other similarly titled measures of other companies.
First American Financial Corporation
Summary of Consolidated Financial Results and Selected Information
(in thousands, except per share amounts and title orders, unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2021
2020
2021
2020
Total revenues
$
2,266,375
$
1,608,729
$
4,292,120
$
3,021,672
Income before income taxes
$
399,416
$
225,295
$
705,438
$
297,619
Income tax expense
96,008
53,601
167,572
62,079
Net income
303,408
171,694
537,866
235,540
Less: Net income attributable to noncontrolling interests
1,109
1,039
1,951
1,681
Net income attributable to the Company
$
302,299
$
170,655
$
535,915
$
233,859
Net income per share attributable to stockholders:
Basic
$
2.73
$
1.52
$
4.83
$
2.07
Diluted
$
2.72
$
1.52
$
4.81
$
2.06
Cash dividends declared per share
$
0.46
$
0.44
$
0.92
$
0.88
Weighted average common shares outstanding:
Basic
110,866
112,309
111,001
112,939
Diluted
111,177
112,555
111,303
113,270
Selected Title Insurance Segment Information
Title orders opened(1)
329,500
351,300
692,700
705,700
Title orders closed(1)
271,100
254,500
558,700
457,200
Paid title claims
$
32,873
$
34,986
$
72,842
$
77,718
(1) U.S. direct title insurance orders only.
First American Financial Corporation
Selected Consolidated Balance Sheet Information
(in thousands, unaudited)
June 30,
December 31,
2021
2020
Cash and cash equivalents
$
2,222,675
$
1,275,466
Investments
8,814,914
7,150,689
Goodwill and other intangible assets, net
1,555,993
1,573,102
Total assets
15,426,885
12,795,988
Reserve for claim losses
1,242,510
1,178,004
Notes and contracts payable
1,008,241
1,010,756
Total stockholders’ equity
$
5,263,744
$
4,909,972
First American Financial Corporation
Segment Information
(in thousands, unaudited)
Three Months Ended
Title
Specialty
Corporate
June 30, 2021
Consolidated
Insurance
Insurance
(incl. Elims.)
Revenues
Direct premiums and escrow fees
$
917,451
$
787,244
$
130,207
$
—
Agent premiums
904,897
904,897
—
—
Information and other
301,439
298,242
3,457
(260)
Net investment income
56,074
47,482
1,816
6,776
Net realized investment gains
86,514
70,364
16,150
—
2,266,375
2,108,229
151,630
6,516
Expenses
Personnel costs
588,266
556,827
22,727
8,712
Premiums retained by agents
718,424
718,424
—
—
Other operating expenses
330,719
297,586
23,726
9,407
Provision for policy losses and other claims
149,930
67,686
82,244
—
Depreciation and amortization
40,939
39,470
1,433
36
Premium taxes
22,467
20,698
1,769
—
Interest
16,214
5,187
—
11,027
1,866,959
1,705,878
131,899
29,182
Income (loss) before income taxes
$
399,416
$
402,351
$
19,731
$
(22,666)
Three Months Ended
Title
Specialty
Corporate
June 30, 2020
Consolidated
Insurance
Insurance
(incl. Elims.)
Revenues
Direct premiums and escrow fees
$
651,984
$
530,735
$
121,249
$
—
Agent premiums
597,895
597,895
—
—
Information and other
231,169
228,252
3,103
(186)
Net investment income
58,420
43,234
2,316
12,870
Net realized investment gains (losses)
69,261
62,823
6,850
(412)
1,608,729
1,462,939
133,518
12,272
Expenses
Personnel costs
451,487
417,066
20,681
13,740
Premiums retained by agents
472,398
472,398
—
—
Other operating expenses
250,088
222,192
19,283
8,613
Provision for policy losses and other claims
138,688
56,431
82,257
—
Depreciation and amortization
40,976
38,995
1,943
38
Premium taxes
16,354
14,319
2,035
—
Interest
13,443
3,736
—
9,707
1,383,434
1,225,137
126,199
32,098
Income (loss) before income taxes
$
225,295
$
237,802
$
7,319
$
(19,826)
First American Financial Corporation
Segment Information
(in thousands, unaudited)
Six Months Ended
Title
Specialty
Corporate
June 30, 2021
Consolidated
Insurance
Insurance
(incl. Elims.)
Revenues
Direct premiums and escrow fees
$
1,703,126
$
1,444,741
$
258,385
$
—
Agent premiums
1,750,189
1,750,189
—
—
Information and other
580,331
573,646
7,205
(520
)
Net investment income
105,127
90,135
3,750
11,242
Net realized investment gains
153,347
134,578
18,769
—
4,292,120
3,993,289
288,109
10,722
Expenses
Personnel costs
1,123,448
1,060,970
46,654
15,824
Premiums retained by agents
1,389,725
1,389,725
—
—
Other operating expenses
626,122
562,074
46,365
17,683
Provision for policy losses and other claims
290,377
127,798
162,579
—
Depreciation and amortization
79,237
76,183
2,983
71
Premium taxes
45,053
41,516
3,537
—
Interest
32,720
11,043
—
21,677
3,586,682
3,269,309
262,118
55,255
Income (loss) before income taxes
$
705,438
$
723,980
$
25,991
$
(44,533
)
Six Months Ended
Title
Specialty
Corporate
June 30, 2020
Consolidated
Insurance
Insurance
(incl. Elims.)
Revenues
Direct premiums and escrow fees
$
1,272,621
$
1,032,036
$
240,585
$
—
Agent premiums
1,197,577
1,197,577
—
—
Information and other
442,681
436,525
6,542
(386
)
Net investment income
104,294
102,902
4,900
(3,508
)
Net realized investment gains (losses)
4,499
(5,476
)
3,460
6,515
3,021,672
2,763,564
255,487
2,621
Expenses
Personnel costs
881,147
838,681
42,126
340
Premiums retained by agents
947,779
947,779
—
—
Other operating expenses
507,328
448,787
40,831
17,710
Provision for policy losses and other claims
256,165
111,481
144,684
—
Depreciation and amortization
72,425
68,512
3,837
76
Premium taxes
33,669
29,837
3,832
—
Interest
25,540
7,709
—
17,831
2,724,053
2,452,786
235,310
35,957
Income (loss) before income taxes
$
297,619
$
310,778
$
20,177
$
(33,336
)
First American Financial Corporation
Reconciliation of Pretax Margins and Earnings per Diluted Share
Excluding Net Realized Investment Gains and Losses ("NRIG(L)")
(in thousands, except margin and per share amounts, unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2021
2020
2021
2020
Consolidated
Total revenues
$
2,266,375
$
1,608,729
$
4,292,120
$
3,021,672
Less: NRIG(L)
86,514
69,261
153,347
4,499
Total revenues excluding NRIG(L)
$
2,179,861
$
1,539,468
$
4,138,773
$
3,017,173
Pretax income
$
399,416
$
225,295
$
705,438
$
297,619
Less: NRIG(L)
86,514
69,261
153,347
4,499
Pretax income excluding NRIG(L)
$
312,902
$
156,034
$
552,091
$
293,120
Pretax margin
17.6
%
14.0
%
16.4
%
9.8
%
Less: Pretax margin impact of NRIG(L)
3.2
%
3.9
%
3.1
%
0.1
%
Pretax margin excluding NRIG(L)
14.4
%
10.1
%
13.3
%
9.7
%
Earnings per diluted share (EPS)
$
2.72
$
1.52
$
4.81
$
2.06
Less: EPS impact of NRIG(L)
0.59
$
0.47
1.05
0.03
EPS excluding NRIG(L)
$
2.13
$
1.05
$
3.76
$
2.03
Title Insurance and Services Segment
Total revenues
$
2,108,229
$
1,462,939
$
3,993,289
$
2,763,564
Less: NRIG(L)
70,364
62,823
134,578
(5,476
)
Total revenues excluding NRIG(L)
$
2,037,865
$
1,400,116
$
3,858,711
$
2,769,040
Pretax income
$
402,351
$
237,802
$
723,980
$
310,778
Less: NRIG(L)
70,364
62,823
134,578
(5,476
)
Pretax income excluding NRIG(L)
$
331,987
$
174,979
$
589,402
$
316,254
Pretax margin
19.1
%
16.3
%
18.1
%
11.2
%
Less: Pretax margin impact of NRIG(L)
2.8
%
3.8
%
2.8
%
(0.2
)%
Pretax margin excluding NRIG(L)
16.3
%
12.5
%
15.3
%
11.4
%
Specialty Insurance Segment
Total revenues
$
151,630
$
133,518
$
288,109
$
255,487
Less: NRIG(L)
16,150
6,850
18,769
3,460
Total revenues excluding NRIG(L)
$
135,480
$
126,668
$
269,340
$
252,027
Pretax income
$
19,731
$
7,319
$
25,991
$
20,177
Less: NRIG(L)
16,150
6,850
18,769
3,460
Pretax income excluding NRIG(L)
$
3,581
$
469
$
7,222
$
16,717
Pretax margin
13.0
%
5.5
%
9.0
%
7.9
%
Less: Pretax margin impact of NRIG(L)
10.4
%
5.1
%
6.3
%
1.3
%
Pretax margin excluding NRIG(L)
2.6
%
0.4
%
2.7
%
6.6
%
Totals may not sum due to rounding.
First American Financial Corporation
Expense and Success Ratio Reconciliation
Title Insurance and Services Segment
($ in thousands, unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2021
2020
2021
2020
Total revenues
$
2,108,229
$
1,462,939
$
3,993,289
$
2,763,564
Less: Net realized investment gains (losses)
70,364
62,823
134,578
(5,476
)
Net investment income
47,482
43,234
90,135
102,902
Premiums retained by agents
718,424
472,398
1,389,725
947,779
Net operating revenues
$
1,271,959
$
884,484
$
2,378,851
$
1,718,359
Personnel and other operating expenses
$
854,413
$
639,258
$
1,623,044
$
1,287,468
Ratio (% net operating revenues)
67.2
%
72.3
%
68.2
%
74.9
%
Ratio (% total revenues)
40.5
%
43.7
%
40.6
%
46.6
%
Change in net operating revenues
$
387,475
$
660,492
Change in personnel and other operating expenses
215,155
335,576
Success Ratio(1)
56
%
51
%
(1) Change in personnel and other operating expenses divided by change in net operating revenues.
First American Financial Corporation
Supplemental Direct Title Insurance Order Information(1)
(unaudited)
Q221
Q121
Q420
Q320
Q220
Open Orders per Day
Purchase
2,381
2,275
1,925
2,405
1,919
Refinance
1,752
2,652
2,923
3,154
2,898
Refinance as % of residential orders
42
%
54
%
60
%
57
%
60
%
Commercial
579
537
509
486
362
Default and other
436
491
273
370
310
Total open orders per day
5,148
5,954
5,629
6,416
5,489
Closed Orders per Day
Purchase
1,873
1,495
1,740
1,820
1,310
Refinance
1,628
2,506
2,430
2,320
2,222
Refinance as % of residential orders
47
%
63
%
58
%
56
%
63
%
Commercial
315
272
307
248
232
Default and other
420
442
207
167
213
Total closed orders per day
4,236
4,715
4,684
4,555
3,977
Average Revenue per Order (ARPO)
Purchase
$
3,001
$
2,794
$
2,826
$
2,726
$
2,581
Refinance
1,260
1,228
1,228
1,204
1,194
Commercial
11,078
9,838
11,703
8,993
7,373
Default and other
161
128
55
46
41
Total ARPO
$
2,651
$
2,118
$
2,457
$
2,193
$
1,950
Business Days
64
61
63
64
64
(1) U.S. operations only.
Totals may not sum due to rounding.
View source version on businesswire.com: https://www.businesswire.com/news/home/20210722005278/en/
