The First American Corporation Reports Results for the Second Quarter 200628 July 2006
The First American Corporation (NYSE: FAF), America's largest provider of business information, today announced results for the second quarter ended June 30, 2006:
Three Months Ended Six Months Ended
June 30 June 30
2006 (A) 2005 (B) 2006 (A) 2005 (B)
Total
revenues $2.17 billion $1.98 billion $4.17 billion $3.69 billion
Income
before
income
taxes
and
minority
interests $220.7 million $265.6 million $358.4 million $419.3 million
Net income $114.7 million $139.5 million $184.4 million $218.7 million
Net income
per
diluted
share $1.16 $1.43 $1.86 $2.27
(A) Results for the three and six months ended June 30, 2006, include a
$22.0 million pretax charge, $13.7 million, or $0.14 per diluted
share on an after-tax basis, for certain title insurance
regulatory/litigation matters.
(B) Results for the three and six months ended June 30, 2005, include a
$6.0 million pretax charge, $3.4 million, or $0.03 per diluted share
on an after-tax basis, for merger and relocation-related charges at
First Advantage Corporation.
"Second quarter revenues were $2.17 billion, an increase of 9 percent over the same quarter of 2005, setting an all-time company high for second quarter revenues," stated Parker S. Kennedy, chairman and chief executive officer of The First American Corporation. "Year-to-date revenues of $4.17 billion increased 13 percent over the same period last year and also set an all-time company high for first-half-of-the-year revenues. This growth in revenues was achieved despite a drop in mortgage originations."
Summary of Operations
Mortgage originations decreased in the second quarter of 2006 when compared with the same period of the prior year. However, as a result of increases in market share and in the average revenues per title order closed at the company's title insurance operations, as well as acquisition activity and organic growth at the company's specialty insurance, property information, and risk mitigation and business solutions segments, total operating revenues increased when compared with the second quarter of 2005. Though strong, profits for the second quarter of 2006 did not keep pace with the revenue growth. Factors affecting results included a quarter-over-quarter increase in the loss provision rate for the title insurance operations, a $22.0 million charge for certain title insurance regulatory/litigation matters and continued investments in new business initiatives. Operating revenues for the three and six months ended June 30, 2006, were $2.10 billion and $4.05 billion, respectively. Operating revenues for the three and six months ended June 30, 2005, were $1.92 billion and $3.59 billion, respectively. Net income for the three and six months ended June 30, 2006, was $114.7 million, or $1.16 per diluted share, and $184.4 million, or $1.86 per diluted share. Net income for the three and six months ended June 30, 2005, was $139.5 million, or $1.43 per diluted share, and $218.7 million, or $2.27 per diluted share, respectively.
Operating Revenues
(in thousands)
Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
Financial Services
Title Insurance and
Services:
Direct operations $806,979 $740,203 $1,492,301 $1,352,220
Agency operations 747,685 681,354 1,488,064 1,281,101
1,554,664 1,421,837 2,980,365 2,633,321
Specialty
Insurance 77,181 63,785 151,754 124,294
1,631,845 1,485,622 3,132,119 2,757,615
Information
Technology
Mortgage
Information 137,643 150,499 272,069 292,972
Property
Information 144,649 131,834 279,550 246,627
Risk Mitigation
and Business
Solutions 204,470 161,253 398,191 299,443
486,762 443,586 949,810 839,042
Eliminations (18,194) (4,309) (29,543) (8,200)
Total operating
revenues $2,100,413 $1,924,899 $4,052,386 $3,588,457
Financial Services
Operating revenues from direct title operations increased 9.0 percent and 10.4 percent for the three and six months ended June 30, 2006, respectively, when compared with the same periods of the prior year. These increases were primarily due to increases in the average revenues per order closed, offset in part by decreases in the number of title orders closed. The average revenues per order closed were $1,665 and $1,639 for the three and six months ended June 30, 2006, respectively, increases of 19.7 percent and 20.1 percent when compared with the same periods of the prior year. These increases were primarily due to a decrease in the mix of lower-premium refinance transactions, an increase in higher-premium resale and commercial activity, and appreciating home values. The company's direct operations closed 484,700 and 910,700 title orders during the current three and six month periods, respectively, decreases of 8.9 percent and 8.1 percent when compared with the same periods of the prior year. These decreases were primarily due to the decline in mortgage originations, offset in part by market share gains that resulted from organic growth and acquisitions. Operating revenues from agency operations increased 9.7 percent and 16.2 percent for the three and six months ended June 30, 2006, respectively, when compared with the same periods of the prior year. These increases were primarily due to the same factors affecting direct title operations, as well as the timing of the reporting of agency remittances.
Information Technology
Mortgage information operating revenues decreased $12.9 million and $20.9 million for the three and six months ended June 30, 2006, respectively, when compared with the same periods of the prior year. These decreases were primarily due to the decline in mortgage originations and increases in estimated servicing life of the tax service loan portfolio due to a slowdown in prepayment speeds, which resulted in the deferral of a larger portion of the tax service fee in early years. Operating revenues for the property information segment increased $12.8 million, or 9.7 percent, and $32.9 million, or 13.4 percent, for the three and six months ended June 30, 2006, respectively, when compared with the same periods of the prior year. These increases were primarily due to the continued strength in this segment's subscription-based information businesses, increased appraisal revenues resulting from market share growth and $0.9 million and $7.3 million of operating revenues contributed by new acquisitions for the respective periods, offset in part by the affects of the slowdown in mortgage originations. Risk mitigation and business solutions operating revenues increased $43.2 million, or 26.8 percent, and $98.7 million, or 33.0 percent, for the three and six months ended June 30, 2006, respectively, when compared with the same periods of the prior year. These increases were primarily due to $38.0 million and $82.3 million of operating revenues contributed by new acquisitions for the respective periods.
2006 Outlook and Strategic Focus
"During the second half of 2006, efforts to further realize cost efficiencies and focus on sales of higher-margin products should help maintain steady profit margins," Kennedy added. "We will look to further centralize corporate administrative functions to improve the efficiency of our company. In addition, the full benefits of many of our technology investments have yet to be realized. Many of our businesses are performing well in the current business environment and are well positioned to continue to experience growth. Finally, the margin contributions from many recent acquisitions are expected to improve in the second half of 2006."
Teleconference/Webcast
First American's second quarter results will be discussed in more detail on Wednesday, July 26, 2006, at 11 a.m. EDT, via teleconference. The dial-in number is (888) 955-3516 and the pass code is FIRST AMERICAN. The live audio webcast of the call and copies of the slide presentation will be available on First American's Web site at http://www.firstam.com/investor. An audio replay of the conference call will be available through Aug. 4, 2006, by dialing (203) 369-0365. An audio archive of the call will also be available for replay on First American's Web site.
About First American
The First American Corporation (NYSE: FAF), a FORTUNE 500(R) company that traces its history to 1889, is America's largest provider of business information. First American combines advanced analytics with its vast data resources to supply businesses and consumers with valuable information products to support the major economic events of people's lives, such as getting a job, renting an apartment, buying a car or house, securing a mortgage and opening or buying a business. The First American Family of Companies, many of which command leading market share positions in their respective industries, operate within five primary business segments, including: Title Insurance and Services, Specialty Insurance, Mortgage Information, Property Information, and Risk Mitigation and Business Solutions -- a new segment that the company formed in 2005 by combining its Credit Information and Screening Information segments. With revenues of $8.1 billion in 2005, First American has approximately 2,100 offices throughout the United States and abroad. More information about the company and an archive of its press releases can be found at http://www.firstam.com.
Forward-Looking Statements
Certain statements made in this press release, including those relating to profit margins in the second half of 2006, efficiencies achieved from centralizing of corporate administrative functions, benefits from technology investments, positioning of many of our businesses to experience growth and margin contribution from recent acquisitions, are forward looking. 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; limitations on access to public records and other data; general volatility in the capital markets; changes in applicable government regulations; heightened scrutiny by legislators and regulators of the company's title insurance and services segment and certain other of the company's businesses; consolidation among the company's significant customers and competitors; the company's continued ability to identify businesses to be acquired; changes in the company's ability to integrate businesses which it acquires; and other factors described in Part I, Item 1A of the company's annual report on Form 10-K for the year ended Dec. 31, 2005, and Part II, Item 1A of the company's quarterly report on Form 10-Q for the quarter ended March 31, 2006, in both cases 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.
Contact:
Frank V. McMahon
Vice Chairman and
Chief Financial Officer
(714) 800-4401
(Additional Financial Data Follows)
Summary of Earnings
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
Total revenues $2,167,788 $1,983,975 $4,170,972 $3,688,459
Income before income
taxes and minority
interests $220,704 $265,560 $358,429 $419,262
Income taxes $82,800 $100,700 $132,200 $154,500
Minority interests $23,243 $25,367 $41,873 $46,107
Net income $114,661 $139,493 $184,356 $218,655
Net income per share:
Basic $1.19 $1.47 $1.92 $2.35
Diluted $1.16 $1.43 $1.86 $2.27
Weighted average shares
outstanding:
Basic 96,563 94,639 96,212 93,106
Diluted 99,229 97,990 99,086 96,559
Summary Balance Sheet Information
(in thousands, except per share amounts)
June 30 December 31
2006 2005
Total stockholders' equity $3,171,067 $3,006,547
Book value per share $32.95 $31.36
Summary Title Insurance Order Counts
From Direct Operations
Three Months Ended
June 30
2006 2005
Title orders opened:
April 203,200 238,200
May 230,900 247,500
June 229,500 269,200
Second quarter total 663,600 754,900
Title orders closed:
April 144,700 165,400
May 166,500 171,900
June 173,500 194,900
Second quarter total 484,700 532,200
(Additional Financial Data Follows)
Selected Financial Data
(unaudited, in thousands)
Three Months Ended Six Months Ended
June 30 June 30
2006 2005 2006 2005
RESULTS OF OPERATIONS
Revenues
Operating revenues $2,100,413 $1,924,899 $4,052,386 $3,588,457
Investment and other
income 60,016 55,027 110,103 94,331
Gain on stock issued by
subsidiary 7,276 2,419 8,436 2,766
Net realized investment
gains 83 1,630 47 2,905
2,167,788 1,983,975 4,170,972 3,688,459
Expenses
Salaries and other
personnel costs 656,373 601,487 1,295,868 1,149,972
Premiums retained by
agents 597,899 539,665 1,196,197 1,025,624
Other operating expenses 483,134 413,774 913,521 777,347
Provision for title losses
and other claims 125,360 99,857 241,104 190,634
Depreciation and
amortization 50,525 37,202 98,658 72,949
Premium taxes 17,507 15,413 34,966 28,943
Interest 16,286 11,017 32,229 23,728
1,947,084 1,718,415 3,812,543 3,269,197
Income before income taxes
and minority interests $220,704 $265,560 $358,429 $419,262
INCOME BEFORE INCOME TAXES
AND MINORITY INTERESTS
Financial Services
Title Insurance and
Services $136,418 $166,518 $213,857 $246,066
Specialty Insurance 14,595 12,356 26,623 21,498
151,013 178,874 240,480 267,564
Information Technology
Mortgage Information 33,041 41,417 62,630 71,849
Property Information 38,159 41,688 68,789 77,292
Risk Mitigation and
Business Solutions 30,757 23,793 54,949 48,083
101,957 106,898 186,368 197,224
Total before corporate
expenses and minority
interest 252,970 285,772 426,848 464,788
Corporate (32,266) (20,212) (68,419) (45,526)
Income before income taxes
and minority interests $220,704 $265,560 $358,429 $419,262
Segment Margins
(unaudited)
(in thousands, except percentages)
Three Months Ended June 30
Total revenues Pretax (A) Margins
2006 2005 2006 2005 2006 2005
Financial
Services
Title
Insurance and
Services $1,603,417 $1,460,457 $136,418 $166,518 8.5% 11.4%
Specialty
Insurance 81,668 67,504 14,595 12,356 17.9% 18.3%
$1,685,085 $1,527,961 $151,013 $178,874 9.0% 11.7%
Information
Technology
Mortgage
Information $139,112 $152,557 $33,041 $41,417 23.8% 27.1%
Property
Information 150,702 140,800 38,159 41,688 25.3% 29.6%
Risk Mitigation
and Business
Solutions 205,847 163,922 30,757 23,793 14.9% 14.5%
$495,661 $457,279 $101,957 $106,898 20.6% 23.4%
Six Months Ended June 30
Total revenues Pretax (A) Margins
2006 2005 2006 2005 2006 2005
Financial
Services
Title Insurance
and Services $3,067,566 $2,698,378 $213,857 $246,066 7.0% 9.1%
Specialty
Insurance 160,316 131,548 26,623 21,498 16.6% 16.3%
$3,227,882 $2,829,926 $240,480 $267,564 7.5% 9.5%
Information
Technology
Mortgage
Information $275,251 $296,661 $62,630 $71,849 22.8% 24.2%
Property
Information 290,161 262,744 68,789 77,292 23.7% 29.4%
Risk Mitigation
and Business
Solutions 400,436 304,723 54,949 48,083 13.7% 15.8%
$965,848 $864,128 $186,368 $197,224 19.3% 22.8%
(A) - Income before income tax, minority interest and corporate expenses
Source: prnewswire
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