First American Financial Corporation, a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, has announced financial results for the third quarter ended Sept. 30, 2014.
Current Quarter Highlights
- Total revenue of $1.3 billion, down 3 percent compared with last year
- Direct title orders closed down 20 percent, driven by a decline in refinance orders
- Average revenue per direct title order closed up 20 percent
- Title Insurance and Services segment pretax margin of 10.4 percent
- Commercial revenue of $149.0 million, up 7 percent compared with last year
- Specialty Insurance segment total revenue up 10 percent, with a pretax margin of 11.0 percent
- Debt-to-capital ratio of 14.9 percent as of Sept. 30, 2014
Selected Financial Information
Total revenue for the third quarter of 2014 was $1.3 billion, a decline of 3 percent relative to the third quarter of 2013. Net income in the current quarter was $80.7 million, or 74 cents per diluted share, compared with net income of $63.9 million, or 59 cents per diluted share, in the third quarter of 2013. The current quarter results include net realized investment gains of $14.4 million, or 9 cents per diluted share, compared with net realized investment losses of $7.0 million, or 4 cents per diluted share, in the same quarter of last year. The current quarter also benefited from a 30 percent tax rate, primarily due to a lower effective foreign tax rate and certain non-recurring tax benefits.
"A continued emphasis on operating efficiency, coupled with seasonal strength in the purchase and commercial markets, had a favorable impact on the title segment’s results,” said Dennis J. Gilmore, chief executive officer at First American Financial Corporation. "In addition, the specialty insurance segment continued its strong performance driven by the home warranty business.
"We continue to adjust our cost structure ahead of the normal seasonal slowdown in the residential purchase market. Expectations for a traditionally strong commercial market during the fourth quarter, along with the recent surge in refinance activity, should help soften the seasonal decline in earnings. Looking forward, we continue our focus on delivering innovative, industry-leading solutions to our customers.”
Title Insurance and Services
Total revenue for the Title Insurance and Services segment was $1.2 billion, a 4 percent decline from the same quarter of 2013. Direct premiums and escrow fees were down 3 percent from the third quarter of 2013, driven by a 20 percent decline in the number of direct title orders closed in the quarter, largely offset by a 20 percent increase in the revenue per direct title order to $1,926. The increase in revenue per direct title order closed was primarily attributable to a shift in the title order mix to higher-premium purchase and commercial transactions. In addition, the average fee per order for purchase and commercial transactions increased by 8 percent and 10 percent, respectively, during the third quarter. Agent premiums were down by 10 percent in the current quarter, which is consistent with the 13 percent decline in direct premiums experienced in the previous quarter, reflecting the typical reporting lag of approximately one quarter.
Information and other revenue was $160.6 million this quarter, up 1 percent compared with the same quarter of last year. The increase was driven by the impact of the recent Interthinx acquisition, offset by lower demand for the company’s default information products as a result of the decline in loss mitigation and foreclosure activity during the quarter.
Investment income was $22.0 million in the third quarter, down 1 percent from the third quarter of 2013. The decline was primarily related to lower earnings from investments accounted for using the equity method, partly offset by higher interest income from the investment portfolio. Net realized
investment gains totaled $12.8 million in the current quarter, compared with losses of $5.5 million in the third quarter of 2013.
Personnel costs were $345.8 million in the third quarter, a decline of $5.2 million, or 1 percent, compared with the same quarter of 2013. Excluding the $10.8 million impact of recent acquisitions, personnel costs declined by $16.0 million, or 5 percent. This decline was primarily attributable to lower salary, overtime, incentive compensation and severance costs in the current quarter.
Other operating expenses were $202.4 million in the third quarter, down $2.4 million, or 1 percent, compared with the third quarter of 2013. Excluding the $8.5 million impact of recent acquisitions, other operating costs declined by $10.9 million, or 5 percent. This decrease was primarily due to lower production-related expenses and temporary labor costs driven by the decline in order volumes in the current quarter.
The provision for policy losses and other claims was $65.1 million in the third quarter, or 6.7 percent of title premiums and escrow fees, an increase of $4.6 million compared with the same quarter of the prior year. The current quarter rate reflects an ultimate loss rate of 6.0 percent for the current policy year and a $6.8 million net increase in the loss reserve estimates for prior policy years.
Pretax income for the Title Insurance and Services segment was $121.0 million in the third quarter, compared with $125.0 million in the third quarter of 2013. Pretax margin was 10.4 percent in the current quarter, compared with 10.3 percent last year.