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First American Financial Reports Second Quarter 2021 Results

·13 min read

Reports Second Quarter Earnings of $2.72 per Diluted Share

SANTA ANA, Calif., July 22, 2021--(BUSINESS WIRE)--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. An audio replay of the conference call will be available through August 5, 2021, by dialing 201-612-7415 and using the conference ID 13721369. 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, 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. This includes opened and closed title insurance order counts for its U.S. direct title insurance operations, which are posted approximately 10 to 12 days after the end of each month.

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/

Contacts

Media Contact:
Marcus Ginnaty
Corporate Communications
First American Financial Corporation
714-250-3298

Investor Contact:
Craig Barberio
Investor Relations
First American Financial Corporation
714-250-5214