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Fidelity National Financial Inc. Reports Operating Results (10-Q)

November 02, 2010 | About:
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10qk

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Fidelity National Financial Inc. (FNF) filed Quarterly Report for the period ended 2010-09-30.

Fidelity National Financial Inc. has a market cap of $2.97 billion; its shares were traded at around $13.34 with a P/E ratio of 10.3 and P/S ratio of 0.5. The dividend yield of Fidelity National Financial Inc. stocks is 5.5%.FNF is in the portfolios of Tom Gayner of Markel Gayner Asset Management Corp, Richard Pzena of Pzena Investment Management LLC, Whitney Tilson of T2 Partners Management, LP, Richard Aster Jr of Meridian Fund, James Barrow of Barrow, Hanley, Mewhinney & Strauss, Chuck Royce of Royce& Associates, Charles Brandes of Brandes Investment, Jim Simons of Renaissance Technologies LLC, John Keeley of Keeley Fund Management, Murray Stahl of Horizon Asset Management, Mario Gabelli of GAMCO Investors.

Highlight of Business Operations:

Total revenues decreased $42.7 million in the three months ended September 30, 2010, compared to the 2009 period. The decrease consisted of a decrease of $63.3 million in the Fidelity National Title Group segment, offset by increases of $11.3 million in the specialty insurance segment and $9.3 million in the corporate and other segment. Total revenues decreased $239.8 million in the nine months ended September 30, 2010, compared to the 2009 period. The decrease was made up of a decrease of $437.1 million in the Fidelity National Title Group segment, offset by increases of $19.9 million in the specialty insurance segment and $177.4 million in the corporate and other segments.

Escrow, title-related and other fees decreased $1.3 million, or less than 1%, in the three months ended September 30, 2010, from the 2009 period, and decreased $62.1 million, or 6% in the nine months ended September 30, 2010, from the 2009 period. In the Fidelity National Title Group segment, escrow fees, which are more directly related to our direct operations, decreased $3.7 million, or less than 1%, in the three months ended September 30, 2010 compared to the 2009 period, and decreased $44.7 million, or 10%, in the nine months ended September 30, 2010 compared to the 2009 period, in each case due to the decrease in residential transactions. Other fees in the Fidelity National Title Group segment, excluding escrow fees, decreased $5.6 million, or 3%, in the three months ended September 30, 2010 compared to the 2009 period, and decreased $64.2 million, or 11%, in the nine months ended September 30, 2010 compared to the 2009 period, primarily due to a decrease in revenues from a division of our business that manages real estate owned by financial institutions. In the corporate and other segment, other fees increased $8.0 million in the three months ended September 30, 2010 compared to the 2009 period and increased $46.8 million in the nine months ended September 30, 2010 compared to the 2009 period, primarily due to an increase in revenues related to our mortgage servicing subsidiary, LoanCare, acquired in June 2009.

Net realized gains totaled $40.1 million and $10.6 million in the three-month periods ended September 30, 2010 and 2009, respectively, and $192.9 million and $18.1 million in the nine-month periods ended September 30, 2010 and 2009, respectively. The increase in the three-month period is primarily composed of a $21.7 million gain on the sale of FIS stock as part of a tender offer and a $9.2 million gain resulting from an increase in value of our structured notes. The increase in the nine-month period also included a $98.4 million gain on the sale of our 32% interest in Sedgwick in May 2010, $23 million in gains on the sale of various fixed maturity securities, and a $26 million gain on the sale of a fixed maturity bond during the first quarter of 2010. In

Personnel costs include base salaries, commissions, benefits, stock-based compensation and bonuses paid to employees, and are one of our most significant operating expenses. Personnel costs decreased $5.4 million, or 1%, in the three months ended September 30, 2010, from the 2009 period, with a decrease of $9.3 million in the Fidelity National Title Group segment offset by increases of $1.4 million in the specialty insurance segment and $2.5 million in the corporate and other segment. Personnel costs decreased $86.9 million, or 7%, in the nine months ended September 30, 2010, from the 2009 period, with decreases of $106.5 million in the Fidelity National Title Group segment offset by increases of $1.9 million in the specialty insurance segment and $17.7 million in the corporate and other segment. The decreases in the title segment in both periods are due mainly to decreases in title premiums from direct operations and decreases in opened and closed order counts. The increases in the corporate and other segment in both periods are due to the acquisition of LoanCare in June 2009. Personnel costs as a percentage of total revenue were 28% in the three-month periods ended September 30, 2010 and 2009, respectively, and 28% and 29% in the nine-month periods ended September 30, 2010 and 2009, respectively.

Other operating expenses consist primarily of facilities expenses, title plant maintenance, premium taxes (which insurance underwriters are required to pay on title premiums in lieu of franchise and other state taxes), postage and courier services, computer services, professional services, travel expenses, general insurance, and trade and notes receivable allowances. Other operating expenses decreased $15.5 million in the three months ended September 30, 2010, from the 2009 period, reflecting decreases of $22.6 million in the Fidelity National Title Group segment, partially offset by increases of $4.7 million in the specialty insurance segment and $2.4 million in the corporate and other segment. Other operating expenses decreased $79.7 million in the nine months ended September 30, 2010, from the 2009 period, reflecting decreases of $114.3 million in the Fidelity National Title Group segment, partially offset by increases of $10.4 million in the specialty insurance segment and $24.2 million in the corporate and other segment. The decreases in other operating expenses in both periods in the Fidelity National Title Group segment were due mainly to decreases in cost of sales and several other expense categories mainly relating to the declines in business levels. The increases in the specialty insurance segment relate to higher business levels. The increases in the corporate and other segment in both periods are due mainly to growth at LoanCare.

The provision for claim losses includes an estimate of anticipated title and title-related claims, escrow losses and claims relating to our specialty insurance segment. We monitor our claims loss experience on a continual basis and adjust the provision for claim losses accordingly as new information becomes known, new loss patterns emerge, or as other contributing factors are considered and incorporated into the analysis of the reserve for claim losses. The provision for claim losses for the three-month periods ended September 30, 2010 and 2009, was made up of $61.8 million and $55.4 million, respectively, from the Fidelity National Title Group segment and $39.0 million and $37.1 million, respectively, from the specialty insurance segment. The provision for claim losses for the nine-month periods ended September 30, 2010 and 2009, was made up of $175.2 million and $196.7 million, respectively, from the Fidelity National Title Group segment and $108.8 million and $93.5 million, respectively, from the specialty insurance segment. The provision for claim losses is discussed in further detail at the segment level below.

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