EX-99.1

EX-99.1 2 d676751dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

LOGO

FIRST AMERICAN FINANCIAL REPORTS RESULTS

FOR THE FOURTH QUARTER AND FULL YEAR OF 2013

—Reports Earnings of 48 Cents per Diluted Share for the Fourth Quarter—

SANTA ANA, Calif., Feb. 13, 2014 – 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 fourth quarter and year ended Dec. 31, 2013.

Current Quarter Highlights

•

Total revenues down 4 percent compared with last year

•

Closed orders per day down 35 percent, driven by 61 percent decline in refinance orders

•

Average revenue per direct order up 34 percent due to higher purchase and commercial mix

•

Title Insurance and Services segment pretax margin of 7.8 percent

•

Commercial revenues of $175.7 million, up 12 percent compared with last year

•

Specialty Insurance segment pretax margin of 17.0 percent

•

Cash flow from operations of $132.6 million

•

Signed definitive agreement to acquire Interthinx, Inc. for $155 million on Feb. 5, 2014

•

Expected to close by March 31, 2014

Selected Financial Information

($ in millions, except per share data)


	For the Three Months Ended December 31				For the Full Year Ended December 31
	2013		2012		2013		2012
Total revenues	$	1,219.9	$	1,276.8	$	4,956.1	$	4,541.8
Income before taxes		84.8		147.7		310.7		467.4
Net income	$	51.6	$	93.3	$	186.4	$	301.0
Net income per diluted share		0.48		0.85		1.71		2.77

Total revenues for the fourth quarter of 2013 were $1.2 billion, a decline of 4 percent relative to the fourth quarter of 2012. Net income in the current quarter was $51.6 million, or 48 cents per diluted share, compared with net income of $93.3 million, or 85 cents per diluted share, in the fourth quarter of 2012. The current quarter results include net realized investment gains of $2.4 million and impairment of equity investments of $7.8 million, which together reduced net income by 3 cents per diluted share. The fourth quarter of 2012 included net realized investment gains of $6.2 million, or 4 cents per diluted share.

Total revenues for the full year of 2013 were $5.0 billion, an increase of 9 percent relative to the prior year. Net income was $186.4 million, or $1.71 per diluted share, compared with $301.0 million, or $2.77 per diluted share, in 2012. The results for the full year 2013 include net realized investment gains of $9.2 million, or 5 cents per diluted share, compared with $64.1 million of net realized investment gains, or 38 cents per diluted share, in 2012. In addition, the current year results include reserve additions of $148.5 million, or 84 cents per diluted share, primarily due to claims from policy years 2005 to 2008, compared with reserve additions of $62.1 million, or 37 cents per diluted share, in 2012.

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First American Financial Reports Fourth Quarter and Full Year 2013 Results

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“In 2013, revenue grew by 9 percent, driven by strength in our resale and commercial businesses,” said Dennis J. Gilmore, chief executive officer at First American Financial Corporation. “Revenue growth was led by our purchase business, which grew 26 percent, as both transaction volumes and real estate prices increased. Our commercial business had its strongest year ever, with revenue up 23 percent.

“In the fourth quarter, however, we felt the full impact of the drop-off in refinance activity, with closed title orders declining to the lowest level of the year. The effect was offset in part by the growth in our resale and commercial businesses, which drove average revenue per order up 34 percent. We are actively managing expenses and, going into 2014, will continue to adjust our cost structure to market conditions.

“Throughout 2014 we will focus on responding to our customers’ desire for tighter integration between loan origination activities, loan quality verification and title and settlement services,” continued Gilmore. “As part of this effort, we recently announced our agreement to acquire Interthinx, a leading provider of loan quality analytics, decision support tools and loan review processes for the mortgage industry. The combination of Interthinx’s powerful offerings with the risk mitigation we already provide through our title insurance and settlement services products gives us a compelling solution for customers’ compliance and loan-quality assurance requirements. This transaction also provides us further opportunity to leverage our extensive data assets and enhances our ability to innovate in response to the increasing demands of the marketplace.”

Title Insurance and Services

($ in millions, except average revenue per order)


	For the Three Months Ended December 31
	2013			2012
Total revenues	$	1,125.5		$	1,197.0
Income before taxes	$	87.9		$	152.5
Pretax margin		7.8	%		12.7	%
Direct open orders		270,500			408,100
Direct closed orders		217,300			335,300
U.S. Commercial
Total revenues	$	175.7		$	156.6
Open orders		30,200			30,700
Closed orders		20,900			21,400
Average revenue per order	$	8,400		$	7,300

Total revenues for the Title Insurance and Services segment were $1.1 billion in the fourth quarter of 2013, a decline of 6 percent from the same quarter of 2012. Direct premiums and escrow fees were down 12 percent compared with the fourth quarter of 2012, due to a 35 percent decline in the

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number of direct title orders closed in the quarter that was largely offset by the increase in average revenue per order. Average revenue per direct title order was $1,878, an increase of 34 percent compared with the fourth quarter of 2012, due to the shift in the mix of revenues to higher-premium commercial and purchase transactions, as well as an increase in the average revenue per closed order for commercial and purchase transactions. Agent premiums were up by 5 percent in the current quarter, reflecting the normal reporting lag of approximately one quarter.

Information and other revenues were $143.8 million this quarter, down 11 percent compared with the same quarter of last year, primarily due to lower demand for the company’s title plant information and default information products, driven by the overall decline in transaction activity. Total investment income was down $15.3 million compared with the fourth quarter of 2012, due in part to a $6.8 million decline in net realized investment gains. In addition, investment income in the current quarter was impacted by impairment of equity investments totaling $5.8 million.

Personnel costs were $330.6 million in the fourth quarter, down $8.5 million, or 3 percent, compared with the fourth quarter of 2012. This decline was primarily due to reduced incentive-based compensation driven by lower revenues and profitability resulting from the slowdown in order volume compared with the prior year.

Other operating expenses were $207.3 million in the fourth quarter, down $3.6 million, or 2 percent, compared with the fourth quarter of 2012. This decline was primarily due to lower production-related expenses and temporary labor costs driven by the reduced order volumes in the current quarter, partly offset by higher legal settlement costs.

The provision for policy losses and other claims was $56.1 million in the fourth quarter, or 5.8 percent of title premiums and escrow fees, compared with a loss provision rate of 7.0 percent in the same quarter of the prior year.

Pretax income for the Title Insurance and Services segment was $87.9 million in the fourth quarter, compared with $152.5 million in the fourth quarter of 2012. Pretax margin was 7.8 percent in the current quarter, compared with 12.7 percent last year.

Specialty Insurance

($ in millions)


	For the Three Months Ended December 31
	2013			2012
Total revenues	$	88.0		$	80.0
Income before taxes	$	14.9		$	13.2
Pretax margin		17.0	%		16.6	%

Total revenues for the Specialty Insurance segment were $88.0 million in the fourth quarter of 2013, up 10 percent compared with the fourth quarter of 2012. The overall loss ratio for the Specialty Insurance segment was 53 percent in the current quarter, up from 51 percent in the prior year. Higher premiums for the segment contributed to a pretax margin of 17.0 percent, up from 16.6 percent in the fourth quarter of 2012.

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Teleconference/Webcast

First American’s fourth quarter and full year 2013 results will be discussed in more detail on Thursday, Feb. 13, 2014, at noon EST, via teleconference. The toll-free dial-in number is 800-779-1598. Callers from outside the United States may dial 415-228-4861. The passcode for the event is “First American.”

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 Feb. 19, 2014, by dialing 203-369-0421. 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; property and casualty insurance; and banking, trust and investment advisory services. With revenues of $5.0 billion in 2013, the company offers its products and services directly and through its agents throughout the United States and abroad. 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 direct title insurance operations, which are posted approximately 12 days after the end of each month.

Forward-Looking Statements

Certain statements made in this press release and the related management commentary and responses to investor questions, including but not limited to those related to the acquisition of Interthinx and its anticipated closing, benefits, opportunities and synergies; headcount reduction and other expense management; a focus during 2014 on responding to the company’s customers’ desire for tighter integration between loan origination activities, loan quality verification and title and settlement services; the making of value-creating investments in the company’s core business; future acquisitions; the return of capital to stockholders; the outlook for the housing market, including a weaker refinance market, decreased transaction volumes, and growth in both the home purchase and commercial markets; a focus on gaining profitable market share; title claims expectations; the company’s liquidity, including draw downs on its credit facility, its debt-to-capital ratio and the duration of liabilities; and the timing and results of the reorganization of certain subsidiaries, are 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 may contain the words “believe,” “anticipate,” “expect,” “plan,” “predict,” “estimate,” “project,” “will be,” “will continue,” “will likely result,” or other similar words and phrases. 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: interest rate fluctuations; changes in the performance of the real estate markets; volatility in the capital markets; unfavorable economic conditions; impairments in the company’s goodwill or other intangible assets; failures at financial institutions where the company deposits funds; changes in applicable government regulations; heightened scrutiny by legislators and regulators of the company’s title insurance

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and services segment and certain other of the company’s businesses; regulation of title insurance rates; reform of government-sponsored mortgage enterprises; limitations on access to public records and other data; changes in relationships with large mortgage lenders; 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; expenses of and funding obligations to the pension plan; 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 mitigation efforts; systems interruptions and intrusions, wire transfer errors or unauthorized data disclosures; inability to realize the benefits of the company’s offshore strategy; inability of the company’s subsidiaries to pay dividends or repay funds; and other factors described in the company’s quarterly report on Form 10-Q for the quarter ended September 30, 2013, 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 a personnel and other operating expense ratio. The company is presenting these non-GAAP financial measures because they provide the 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 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.


Media Contact:		Investor Contact:
Sandra Bell		Craig Barberio
Corporate Communications First American Financial Corporation 714-250-3298		Investor Relations First American Financial Corporation 714-250-5214

(Additional Financial Data Follows)

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First American Financial Corporation

Summary of Consolidated Financial Results and Selected Information

(in thousands, except per share amounts and title orders)

(unaudited)


	For the Three Months Ended December 31					For the Twelve Months Ended December 31
	2013		2012			2013		2012
Total revenues	$	1,219,872	$	1,276,823		$	4,956,077	$	4,541,821
Income before income taxes	$	84,847	$	147,684		$	310,708	$	467,406
Income tax expense		33,058		54,482			123,644		165,678

Net income		51,789		93,202			187,064		301,728
Less: Net income (loss) attributable to noncontrolling interests		162		(75	)		697		687

Net income attributable to the Company	$	51,627	$	93,277		$	186,367	$	301,041

Net income per share attributable to stockholders:
Basic	$	0.49	$	0.87		$	1.74	$	2.83
Diluted	$	0.48	$	0.85		$	1.71	$	2.77
Cash dividends declared per share	$	0.12	$	0.08		$	0.48	$	0.36
Weighted average common shares outstanding:
Basic		105,765		106,929			106,991		106,307
Diluted		107,974		109,477			109,102		108,542
Selected Title Information
Title orders opened		270,500		408,100			1,384,600		1,634,900
Title orders closed		217,300		335,300			1,103,400		1,191,800
Paid title claims	$	86,972	$	66,261		$	295,982	$	285,210

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First American Financial Corporation

Selected Balance Sheet Information

(in thousands)

(unaudited)


	December 31, 2013		December 31, 2012
Cash and cash equivalents	$	834,837	$	670,529
Investment portfolio		3,385,328		3,070,239
Goodwill and other intangible assets		892,373		902,952
Total assets		6,520,600		6,050,847
Reserve for claim losses		1,018,365		976,462
Notes payable		310,285		229,760
Total stockholders’ equity	$	2,453,049	$	2,348,065

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First American Financial Corporation

Segment Information

(in thousands, unaudited)


For the Three Months Ended December 31, 2013	Consolidated		Title Insurance			Specialty Insurance		Corporate (incl. Elims.)
Revenues
Direct premiums and escrow fees	$	540,292	$	455,567		$	84,725	$	—
Agent premiums		514,615		514,615			—		—
Information and other		144,215		143,820			401		(6	)
Investment income		18,351		13,788			2,047		2,516
Net realized investment gains (losses) ⁽¹⁾		2,399		(2,248	)		781		3,866

		1,219,872		1,125,542			87,954		6,376

Expenses
Personnel costs		358,443		330,551			14,478		13,414
Premiums retained by agents		412,674		412,674			—		—
Other operating expenses		225,397		207,295			11,419		6,683
Provision for policy losses and other claims		100,612		56,086			44,526		—
Depreciation and amortization		19,775		17,717			1,239		819
Premium taxes		14,032		12,651			1,381		—
Interest		4,092		682			—		3,410

		1,135,025		1,037,656			73,043		24,326

Income (loss) before income taxes	$	84,847	$	87,886		$	14,911	$	(17,950	)


For the Three Months Ended December 31, 2012	Consolidated		Title Insurance			Specialty Insurance		Corporate (incl. Elims.)
Revenues
Direct premiums and escrow fees	$	594,820	$	518,753		$	76,067	$	—
Agent premiums		489,530		489,530			—		—
Information and other		162,333		161,931			408		(6	)
Investment income (losses)		23,954		22,233			1,859		(138	)
Net realized investment gains⁽¹⁾		6,186		4,567			1,619		—

		1,276,823		1,197,014			79,953		(144	)

Expenses
Personnel costs		363,404		339,081			13,775		10,548
Premiums retained by agents		391,490		391,490			—		—
Other operating expenses		228,411		210,938			11,808		5,665
Provision for policy losses and other claims		109,441		70,710			38,731		—
Depreciation and amortization		20,006		18,071			1,202		733
Premium taxes		14,758		13,565			1,193		—
Interest		1,629		653			—		976

		1,129,139		1,044,508			66,709		17,922

Income (loss) before income taxes	$	147,684	$	152,506		$	13,244	$	(18,066	)

(1)	Includes other-than-temporary impairment (OTTI) losses recorded in earnings.

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First American Financial Reports Fourth Quarter and Full Year 2013 Results

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First American Financial Corporation

Segment Information

(in thousands, unaudited)


For the Twelve Months Ended December 31, 2013	Consolidated		Title Insurance		Specialty Insurance		Corporate (incl. Elims.)
Revenues
Direct premiums and escrow fees	$	2,184,464	$	1,855,270	$	329,194	$	—
Agent premiums		2,044,862		2,044,862		—		—
Information and other		627,645		626,016		1,652		(23	)
Investment income		89,895		76,606		7,342		5,947
Net realized investment gains ⁽¹⁾		9,211		3,334		1,425		4,452

		4,956,077		4,606,088		339,613		10,376

Expenses
Personnel costs		1,445,582		1,338,361		58,261		48,960
Premiums retained by agents		1,636,694		1,636,694		—		—
Other operating expenses		885,805		816,870		41,725		27,210
Provision for policy losses and other claims		530,356		343,461		186,895		—
Depreciation and amortization		74,916		66,956		4,865		3,095
Premium taxes		56,715		50,980		5,735		—
Interest		15,301		2,601		—		12,700

		4,645,369		4,255,923		297,481		91,965

Income (loss) before income taxes	$	310,708	$	350,165	$	42,132	$	(81,589	)


For the Twelve Months Ended December 31, 2012	Consolidated		Title Insurance		Specialty Insurance		Corporate (incl. Elims.)
Revenues
Direct premiums and escrow fees	$	2,041,740	$	1,745,687	$	296,053	$	—
Agent premiums		1,709,905		1,709,905		—		—
Information and other		645,023		643,433		1,605		(15	)
Investment income		81,031		71,350		8,923		758
Net realized investment gains ⁽¹⁾		64,122		30,145		8,590		25,387

		4,541,821		4,200,520		315,171		26,130

Expenses
Personnel costs		1,334,866		1,233,203		55,453		46,210
Premiums retained by agents		1,370,193		1,370,193		—		—
Other operating expenses		836,319		769,477		42,395		24,447
Provision for policy losses and other claims		397,717		237,427		160,290		—
Depreciation and amortization		74,950		67,610		4,553		2,787
Premium taxes		51,304		46,283		5,021		—
Interest		9,066		2,646		—		6,420

		4,074,415		3,726,839		267,712		79,864

Income (loss) before income taxes	$	467,406	$	473,681	$	47,459	$	(53,734	)

(1)	Includes other-than-temporary impairment (OTTI) losses recorded in earnings.

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First American Financial Corporation

Expense Ratio Reconciliation

Title Insurance and Services Segment

($ in thousands, unaudited)


	For the Three Months Ended December 31						For the Twelve Months Ended December 31
	2013			2012			2013			2012
Total revenues	$	1,125,542		$	1,197,014		$	4,606,088		$	4,200,520
Less: Net realized investment (losses) gains ⁽¹⁾		(2,248	)		4,567			3,334			30,145
Investment income		13,788			22,233			76,606			71,350
Premiums retained by agents		412,674			391,490			1,636,694			1,370,193

Net operating revenues	$	701,328		$	778,724		$	2,889,454		$	2,728,832

Personnel and other operating expenses	$	537,846		$	550,019		$	2,155,231		$	2,002,680
Ratio (% net operating revenues)		76.7	%		70.6	%		74.6	%		73.4	%
Ratio (% total revenues)		47.8	%		45.9	%		46.8	%		47.7	%

(1)	Includes other-than-temporary impairment (OTTI) losses recorded in earnings.

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First American Financial Corporation

Supplemental Direct Title Order Information

(unaudited)


	Q413			Q313			Q213			Q113			Q412
Open Orders per Day
Purchase		1,626			2,054			2,199			1,900			1,529
Refinance		1,462			1,628			2,967			2,905			3,363
Refinance as % of residential orders		47	%		44	%		57	%		60	%		69	%
Commercial		480			477			548			482			487
Other¹		726			779			872			887			1,099

Total open orders per day		4,294			4,938			6,586			6,174			6,478

Closed Orders per Day
Purchase		1,383			1,657			1,637			1,218			1,320
Refinance		1,096			1,645			2,311			2,496			2,840
Refinance as % of residential orders		44	%		50	%		59	%		67	%		68	%
Commercial		331			316			313			278			340
Other¹		640			653			759			785			823

Total closed orders per day		3,449			4,272			5,020			4,777			5,322

Average Revenue per Order (ARPO)²
Purchase	$	1,829		$	1,813		$	1,810		$	1,700		$	1,758
Refinance		819			807			802			820			823
Commercial		8,425			6,895			6,886			5,465			7,313
Other¹		409			504			337			367			403
Total ARPO	$	1,878		$	1,602		$	1,440		$	1,240		$	1,404
Business Days		63			64			64			61			63

(1)	Includes default and other orders

(2)	U.S. operations only

Totals may not add due to rounding

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