Aug 1, 2008
Operator
Welcome and thank you for standing by. Your lines have been placed on a listen-only mode until the question and answer session.
A copy of today's press release and the accompanying presentation are also available at the company's website at www.firstam.com/investor. This call is being recorded and will be available for replay from the company's investor website and for a short time by calling 203-369-38665.
I will now turn the call over to Jo Etta Bandy, Senior Vice President of Corporate Communications to make an introductory statement.
Jo Etta Bandy
Thank you and good morning everyone and we appreciate you joining this morning's call. At this time, we would like to remind listeners that management's commentary and responses to your questions may contain forward-looking statements such as those described on page two of the accompanying slides and other statements that do not relate strictly to historical or current facts.
The forward-looking statements speak only as of the date they are made and the company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements -- after the forward-looking statements are made. 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 are described on slide two. As indicated on slide three, management's commentary and responses to your questions also contain certain financial measures that are not presented in accordance with generally accepted accounting principles.
The company does not intend for these non-GAAP financial measures to be a substitute for any GAAP financial information. In the slide presentation, 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 comparable GAAP financial measures. In addition, as noted in the press release, the company recently became aware of a potential impairment on an investment by First American Title Insurance Company in a title agent and is still searching [ph] the degree of the potential impairment.
The company expects the final determination to be reflected in its Form 10-Q for the quarter ended June 30, 2008. As such, the results presented today are preliminary.
Joining us on today's call will be our Chairman and Chief Executive Officer, Parker Kennedy; Dennis Gilmore, First American's Chief Operating Officer; Frank McMahon, Vice Chairman; and Max Valdes, Chief Financial Officer. During the call, we will be referring to a slide presentation which is currently available on First American's website at firstam.com/investor.
At this time, it is my pleasure to turn the call over to Parker Kennedy.
Parker S. Kennedy
Thank you Jo and thank you to everyone on the call. Directing your attention to slides five and six of our presentation, we were pleased with the performance of our company during Q2 of 2008, particularly in light of the difficult real estate markets in which we operate.
Our earnings were $0.45 a share. The margin in our title segment was a strong 3.4% up from 0.3% in Q1 of this year.
Our title insurance segment has shown dramatic progress in recent quarters on the expense side while continuing to keep customers happy, not an easy task. Nonetheless, as Dennis Gilmore will confirm in a moment, we have more to do in continued upside potential for further cost cuttings.
Our claims developed in accordance with expectations during the quarter, resulting in a 6.2% provision. At the end of last week, the company became aware of a potential impairment of an asset in a title agency.
First American is currently evaluating whether to impair the $37.3 million carrying value. However any impairment will not impact our title insurance company statutory surplus.
The company expects to make a final determination which will be reflected in its Form 10-Q for the quarter ended June 30, 2008. Consequently, the results presented in our news release are preliminary.
Our Information Solutions Group continued to exhibit strong revenues and earnings in light of the tough market. Frank McMahon and his team are focused on developing new products and solutions and are less dependent on the mortgage origination market.
Operating revenues for the information solutions group declined only 10.3% when compared to Q2 of '07 and margins continued strong at 16.2% down only 2 percentage points from the same quarter last year. In total, our consolidated earnings before taxes and minority interest were a $100.9 million and our operating cash flow came in at $71.2 million.
Our consolidated corporate expenses were $34.8 million during the quarter and $47.9 million during the same quarter last year, a decline of 27%. Capital expenditures were $33.6 million in this quarter compared to $60.7 million in Q2 of '07, a decline of 45%.
Before turning the floor over to Dennis, I wanted to update you on the splitting of our company into a financial services company and an information solutions company. During our last call, we said that our goal was to close the transaction in Q4 of '08 due to negative trends and continuing uncertainty in the real estate and mortgage credit markets, and our desire to focus on responding to these conditions among other things, we have decided to delay the split.
While we look ahead with great confidence, we have seen in recent months, some turbulence surrounding major participants in the mortgage market. The MBA [ph] projections show a leveling of mortgage activity later this year but in the near term our markets were somewhat unsettled.
We have made great progress throughout the company with expense management and product development and we want to continue to make operating the business our number one priority. We will split the companies when we see more stability in our markets and when the outlook becomes clearer.
A final thought on splitting the companies. Our Board and Management Team are very committed to dividing our companies and we will complete the process as soon as -- as it is prudent to do so.
In the meantime we will continue to prepare to operate our businesses as if they were separated and we will look forward to creation of two great companies with enthusiasm and excitement. Thank you for your patience.
I will now ask Dennis to provide details on the performance of our financial services division.
Dennis J. Gilmore
Thanks Park. During the second quarter of 2008, the Title Insurance segment earned a pre-tax profit of $38 million, representing a pre-tax margin of 3.4%.
We're encouraged by the progress the title insurance business is making towards its goal of becoming the most profitable company in the industry. We've improved our performance this quarter, despite the deteriorating market environments.
The earnings this quarter were influenced by our aggressive cost reduction actions and structural changes that we continue to make throughout the organization. Although, we are pleased with our progress, there is still significant opportunities for future improvement.
Please direct your attention to page 9 of the earnings presentation for information on the Title Insurance segment. The company ordered 530,000 orders during this second quarter, for an average of 8300 orders per business day, a decrease of 19% over the prior year.
The company closed 401,000 title orders during the second quarter, a decline of 17% relative to the second quarter of 2007. In July we experienced a continued softening in our order counts, as both our open and closed orders per day have declined approximately 8% relative to June.
The closing ratio for the second quarter was 75% slightly higher than the 73% experienced in the second quarter of 2007. Direct revenues declined over 22% from the prior year due to decreases in the number of title orders closed and the average revenue per order.
Our average revenue per order declined 6% relative to prior year. The decline was primarily the result of a decline in home values and a shift in the mix of new mortgage loans to include more conforming loans.
Our agency revenue declined 28% over the prior year. The decline was the result of the same factors affecting the direct operations as well as the termination of certain agency relationships.
Our salary and other personnel costs decreased 24% over the prior year. During the second quarter, the title segment reduced its number of employees by approximately 700, producing an annualized cost savings of $40 million.
There were $6 million severance cost associated with the second quarter employee reductions and we will continue to manage our labor cost aggressively and expect continued reductions during the third quarter. For the month of July, we've reduced the number of employees by the -- in the title segment by an additional 300.
Our other operating expenses declining 10% over the prior year. The primary driver in the decline and in our other operating expenses; were decreases in occupancy costs, production costs and other cost containment programs.
The company closed 94 offices during the second quarter for an annualized cost savings of $5.6 million. These savings represent lease expense only and do not include property taxes, utilities and other expenses associated with occupying office space.
The company has identified an additional 30 offices that will be closed by the end of the year, we'll continue to seek office consolidation opportunities. The provisions for claim loss worth 6.2% for the second quarter of 2008 aren't changed relative to the first quarter.
The current quarter rate reflects the expected claim experienced for policy year 2008 with only minor reserve estimate... adjustments for r prior policy year.
Turning to page 10, total revenues in the National Commercial Service segment declined 26% relative to the second quarter of 2007. Commercial transactions are taking longer to close in the current environment as valuation expectations are adjusting.
We expect the commercial market to remain challenging in 2008 after several years of continuous growth and we remain the number one commercial underwriter. Our international title insurance business generated revenues of $122 million, a 4% increase over prior year.
Although the international operations posted revenue growth during the second quarter, the lending and real estate markets remained challenging in both Canada and the U.K. which has affected both our commercial and residential volumes internationally.
The international position remains one of our course to a long-term growth strategy. Our total revenues in our Special Insurance segment was $76.5 million, a 7% decrease over prior year.
The decrease was primarily due to a decrease in our property, casual and insurance revenue. The loss ratios for home warranty and property, casual and insurance businesses were 58% and 45% respectively.
Pre-tax income for the segment was $8.7 million, a 36% decline relative to prior year. To summarize, the real estate and mortgage markets remain challenging.
We experienced declining order counts in each month during the quarter and have yet to see the bottom of the market. However, we posted a profit this quarter due to aggressive cost reductions and we will continue to pursue meaningful cost savings opportunities.
We're excited about the opportunity of First American and we believe we're making significant progress towards our goal to becoming the most profitable Title insurance company. I would now like to turn the call over to Frank McMahon, who will comment on the information solutions company.
Frank V. McMahon
Great. Thanks, Dennis.
Our focus at the information solutions company is really two fold, one, is to generate value-added new products and second is to improve the efficiency of our operations. We managed the business and we have redesigned our compensation programs with a focus on four key metrics; EBITDA margin improvement, free cash flow growth, EBITDA growth and revenue growth.
Our management team continues to work hard to navigate through this economic cycle and I would like to thank them for their efforts. The improvements the team has made to-date provide a strong platform for the company as we move forward.
Page 11 will reflect the pro forma results of the information solutions company and these results include an allocation of corporate expenses and also include interest expense associated with approximately $560 million of corporate debt. The information solutions company reported pro forma pre-tax income of $66.9 million, which was down 4% from the first quarter, and 12% up on the second quarter of last year.
The primary driver of this decline was the 10% decline in operating revenues. Market share gains in sales of new products have softened the impact of the decline in revenue from transaction based real estate related products.
However, the softness in the real estate, given the softness in the real estate activity our overall revenue still declined. We produced EBITDA in the second quarter of a $115 million.
This was a decrease of 2% relative to the first quarter and 6.8% relative to the second quarter of '07 but on an EBITDA margin basis, we were at 22% compared, to 22.1% in the first quarter and up from 21.5% in the second quarter of last year. So we feel that posting higher EBITDA margins in the face of a 10% revenue decline was a respectable outcome.
Our results for the quarter are a testament to the depth of our relationships with strong banks and mortgage lenders. The strength of our default related BPO and mortgage analytic businesses, our new product development and the strong cost containment mentality that we have and we'll maintain through this cycle.
Turning to the information and outsourcing segment; there was decline in revenues of 1.3% relative to the first quarter and down 10% year-over-year. The EBITDA margin was 24.5% in the quarter down from the first quarter but up from 23.9% a year ago.
Although the flood business saw a slight drop in volume, the collateral valuation and default businesses continue to experience strong volumes with our REO business showing a 40% sequential quarter increase and our broker price opinion orders up 6% over that same time period. Additionally, our tax business experienced a slight increase in order counts, but more importantly they increased their market share and are adding new clients.
Our highlight for this business was that for the first time our loans under service exceeded $29 million. Our flood business is continuing to develop new products that model natural hazard risk.
We recently launched two new products; our advanced floods score which includes our flood risk score and enhances the ability to forecast the impact of floods anywhere in the continent of US and both of these products have been very well received by the P&C marketplace. Expenses for the segment increased $5.1 million on a sequential quarter basis.
Some of the increase was cost to goods sold and our controllable costs were up 4.9% given the growth in many of our default and BPO related businesses. Our cost savings initiated year-to-date are expected to result in annualized savings of $11.6 million.
I'd now like to talk about our data and analytic segment, excluding net realized investment gains, revenues in the quarter increased $2.1 million or 1.3% relative to the first quarter. That was driven by increases across many of our transaction based product lines including a 11.6% of organic growth in custom products and licensing products.
These increases were offset by continued declines in revenues related to securitization activity. Financial performance measured on a sequential basis improved from the first quarter of '08, our pre-tax EBITDA margins were up 9.8% and 3.7% respectively.
After considering an increase in costs due to a higher claims experience related to our second lean [ph] product, controllable costs to the segment were consistent with the first quarter and down $6 million from the second quarter of last year. The claim loss is associated with the second lean product or function of the current operating agreement with the title segment.
Once the spin is consummated we will operate this business as an agent and we'll not assume underwriting risk. Therefore, post separation we do not expect this business to experience losses comparable to what we experienced this quarter.
Overall, in the data and analytic segment our initiatives on the cost saving side are expected to realize annualized saving of $14.5 million. On the product development front during the quarter First American Core logic launched a new AVM, a default related AVM.
This product enhances our existing market leading analytics to now provide market valuation estimates on distressed properties. Additionally, we have launched LoanSafe 2.0 that product continues to receive very good market acceptance and it is now being implemented by one of the top mortgage lenders in the country.
First Advantage reported results earlier this week, their earnings were down in the quarter, most of that was driven by softness in revenue, in the lender, and employer segments. There were many pockets of strength however their international screen business was up 34% revenue year-over-year, the multi-family business improved their earnings by 10%, and the litigation consulting business continues to grow at a strong pace with revenue and pre-tax earnings up 34% and 50% respectively.
As with all of our other segments, First Advantage continues to place a string emphasis on cost containment and total 2008 cost savings initiatives, are expected to result in annualized savings of $21.5 million. To page 19 in the presentation, reflects the pro forma balance sheet between the financial services and the information solutions company.
We have reallocated assets in the quarter and this balance sheet shows that reallocation, the net is -- the net benefit is or net increase is through the equity of the financial services company relative to the previously disclosed balance sheet. Looking at the pro forma debt to total capital ratios for the two entities, financial services would be at 14.3 and information solutions would be at 27.4, both we think compare favorable to -- favorably to peers.
Where we are, as we should be focused on capital and liquidity and slide 20 shows our potential sources and uses of holding company cash for the remainder of 2008. We currently expect dividends and advances from our title and specialty insurance subsidiaries to be 60 million in the second half, our FARES distribution to be 42 million, management fees to be 20 million.
These amounts along with existing cash at the holding company are sufficient to pay our holding company obligations. However, I'd like to point out that in addition to the sources of cash I just discussed, we currently have a $160 million available on our credit line and we are very comfortable from all of our covenants and we also own 30 million shares of FADV at the holding company with a market value of $477 million.
That concludes our prepared remarks. And I would now like to open it up to questions.
Question And Answer
Operator
Thank you. [Operator Instructions].
Our first question today is from Bob Napoli from Piper Jaffray.
Robert Napoli
Good morning and nice job, compared to your peers at least. A question on one thing, the title claims for you guys, certainly outperformed or your provisions did, anyway, but I just -- it seems unlikely to me that the actual claim results for you guys would have been materially different than your larger peers.
Was it that you built reserves higher coming into the quarter, so you didn't need to build your reserves? Or what is going on with you guys versus the others on your provisions this quarter?
Max O. Valdes
This is Max. What I've stated that is, I think that's, you hit the nail on the head, I think over the last couple of years, we've strengthened our results by over 500 million.
So, if you really look at, maybe go back and look at that last eight or nine quarters, we've reserved more than our competitors. So, after all that reserve strengthening adjustments, right now we feel that all our prior policy years are properly reserved and what we are seeing right now is claims coming in, in line with our expectations, and what we are providing for right now is the 6.28 just policy year '08.
Robert Napoli
And do you feel that that is at 6.2% from is -- you believe that that's a sustainable long term rate.
Max O. Valdes
Well from what we've see right now, it is. Now claims -- we monitor claims daily, so from what we know today, yes it is.
But I will caution you, I mean that could change in a week. But right now we are comfortable with that range.
Robert Napoli
Okay. And now given the I mean the environment, obviously continue to get weak through the quarters for the title business, on the origination front, and for the mortgage business, obviously, in fact many of your financial technology businesses -- your technology businesses as well.
But and it's slowed even further I think so far in July, as I think lenders continue to tighten and rates have moved up some. In this environment, and you guys went through additional cost cuts.
What sustainable level, as you complete your cost cuts, in this low origination environment, what is -- what kind of pre-tax margin can you get to and maintain in this title business?
Dennis J. Gilmore
Yes. This is Dennis.
We have not given guidance on what our long term margin forecast is for the business, but back to your direct question. We are aggressively right sizing this business and will continue to do that to the market environment, so that's number one.
And number two, we continue to do structural changes across the business to enhance this efficiency. We've recently reorganized the business down to three operating divisions, we continue to look for ways to simplify the business and enhance its efficiencies.
And that's an ongoing process that just won't stop. So, few things again, we'll adjust the order volumes as a necessary and we are going to continue to seek out ways and deliver efficiencies overall to fix the structural or change the structural piece of the business to optimize its efficiency.
Analyst: But in this environment Dennis, with more deterioration as low as they are, can I mean, can you actually increase the margins from what we saw this quarter, I mean they trended down and obviously were -- what where -- what can you do in margins in this environment? I mean I understand long term you can do much better.
Dennis J. Gilmore
Well again, I'm to say basically the same thing again Bob. I mean I like our situation, I like our cost containment initiatives and I like the opportunities ahead of us.
I mean we are all facing the market place; it's just more of a matter, how we all react to that market place. And with that aspect, I think we've made progress and I think we have more progress to go.
Robert Napoli
Maybe a question for Frank on the technology businesses and what -- where does profitability drop? Does it take a rebound in the housing market Frank, for the profitability to drop in those businesses?
Frank V. McMahon
Not necessarily. There is a lot of different variables Bob, we've got some businesses that are performing very, very well in this environment.
We continue to build out new industry verticals focused on clients outside of the banking and mortgage space. So, we look at a lot of different variables.
I will tell you that our compensation programs are all designed to improve margins and last year EBITDA margins were just over 20% in our business. And so, that's kind of our goal as a management team is to grow that.
And none -- no one has a crystal ball, no one knows where things will drop out but our goal is to continue to improve our margins over the long term. We're not talking quarter-to-quarter but over the long term we think we can grow our margins from where they are today.
Robert Napoli
And -- I'm sorry.
Parker S. Kennedy
This is Park.
Robert Napoli
Hey Park.
Parker S. Kennedy
How are you?
Robert Napoli
Alright. How are you doing, surviving?
Parker S. Kennedy
Doing good. Speaking on behalf of both businesses, to use your word, we don't need a rebound.
I think we just need for everything to level off and I think our margins could improve if we saw, in all of our businesses, if we saw a leveling off. In the meantime, as the volumes decline, we just keep cutting expenses and thus far I think we've done good job and we will continue to.
Robert Napoli
What is -- what about M&A, does it make sense at this point from to do, I mean, have consolidation in the industry? I mean there is got to be some huge scale benefits, [indiscernible] have interest in that or not at this point in the title side and?
Parker S. Kennedy
This is Park. I would say that we'd look at any good opportunity, if anybody approaches, we'd be happy to talk to them.
But right now we're working hard, we're looking at our businesses, we're transforming, particularly our title business into a completely different way of operating. And we're having some success there, so I'd hate to get distracted.
Dennis J. Gilmore
Yes, Bob, this is Dennis, again, on the title side again, we're really focused on our margin performance, our efficiency as a business and the last thing on our customer service. So, all of those things are key focuses and we measure them very closely.
And with the opportunities for consolidation to the industry, and at this point I'm very focused on the performance of the business. And so, we'd have to be very opportunistic if the case was presented to us.
But right now we're focused on our business.
Robert Napoli
Okay. Thank you.
Operator
[Operator Instructions]. Our next question is from Nat Otis, from KBW.
Nathaniel Otis
Good morning gentlemen.
Parker S. Kennedy
Hi Nat.
Nathaniel Otis
Just actually one quick question. Could you just go through will you reserve that then for your prior books maybe, '03 to '06 or 07, just given your commentary earlier on where you are provisioned?
Parker S. Kennedy
I am sorry. What was the question again?
Nathaniel Otis
It's what your loss provisioning is for the books of business, for '03 to '07, kind of from a yearly basis?
Parker S. Kennedy
Yes. '03 is about 4.5, '04 if I remember right is about 6, '05 was 7.5 or so, '06 7, '07 7 and '08 is about 6.2.
Unidentified Analyst
Okay that's helpful. And then just on do you have any color on just a little extra color on the possible agent impairment.
Anything that you can give us more than what was in press release?
Parker S. Kennedy
Not really it's something that we're really shouldn't elaborate on because it involves a third party.
Unidentified Analyst
Okay fair enough. And then just last question since we're...
since we'll probably get information on it on your Q any idea, how soon after today we might see the Q out there?
Parker S. Kennedy
Well we're working on it as quickly as we can, and we're going to file the Q as soon as we can but definitely we'll file it before it's due there.
Unidentified Analyst
Okay, thank you.
Parker S. Kennedy
Thank you.
Operator
Thank you. Our next question is from Darrin Peller from Lehman Brothers.
Darrin Peller
Thanks guys. Just quickly on expenses on the...
in the title segment in particularly you have done a good job on the salaries and other the, personnel has come down nicely? You may have mentioned already but can you first of all just remind us how much more when we think we have on that line and then also on the...
why was the other operating expense line up in late quarter [ph]?
Dennis J. Gilmore
Let me, this is Dennis let me break them into two components on the personnel cost we continue to aggressively go up I think right size the business as I have said before. Actually when we look at our personnel cost or productivity quarter-over-quarter has increased in a really declining market and that's the key issue for us.
So if we look at the overall productivity on our business second in that number to the $6 million severance in that number, when you flip that other operating costs, when you look quarter first over second our operating costs were effectively flat and that number is about $6 million of other operating expenses associated with lease impairment and just a higher volume production costs were up. Also we've had increases in our international costs and then in our other operating expenses and let me explain that for you, other operating in revenue and international is up significantly approximately 20% and corresponding to that revenue increase is a pretty good size increase in other operating expenses internationally.
And that's what was going through that number. So we would have backed that out, you would actually see a quarterover-quarter decline.
Darrin Peller
Should we back that out, I mean should... for purposes of run-rate we are too--
Dennis J. Gilmore
No, I don't think you should, I was just trying to give you some insight on it.
Darrin Peller
Okay, so I mean the international expenses are going to probably remain, so that's something that's closer to this quarter number minus the I guess the termination, the lease termination expenses, right?
Dennis J. Gilmore
Yes, and again this is an area we really are focused on, and you kind of go through all the big categories and we are attacking all of them. And it does takes a while for some of this to show on the numbers.
So I think the better comparison for you Darrin is to look quote year-over-year and I think we are making good headway year-over-year and we'll continue to focus on this.
Darrin Peller
Okay. Investors, I think are still trying to really gauge the...
how much more room we have on the expense side and I mean, and I think part of the way to do that would be to understand really when you say capacity has come up a lot, sorry when I say capacity I mean the average utilization of your excellent pulleys [ph] is coming up a lot. How much more room does that have, I mean how many orders per month there are approximately are your employees actually underwriting in and where can that go?
Dennis J. Gilmore
Well, there is no... I am going to say it this way it is actually in my mind no end to this.
This is an effortless upon going its part of the culture, on how we run the business. And let's not forget the leverage in our infrastructure more effectively, the leverage in our technology will continue to leverage our offshore resources.
And so I think this is an ongoing process. And then I think there are continued opportunities for us to simplify the business which will all lower our cost structure.
And we also have significant initiatives underway now to centralize various functions in the business. There is still a lot for us to do, regardless of the market environment.
Darrin Peller
All right. Thank you very much guys.
Operator
Thank you. Our next question is from Jordan Hymowitz from Philadelphia Financial.
Jordan Hymowitz
Thanks guys. Most of my questions have been answered, what is the corporate expense that's unallocated at this point this quarter?
Parker S. Kennedy
It's about $34 million, if I remember right.
Jordan Hymowitz
You are asking me or telling I am sorry.
Parker S. Kennedy
No, I am sorry, no I was telling you.
Jordan Hymowitz
Okay, everything else has been answered. Thank you very much.
Parker S. Kennedy
Thank you.
Operator
Thank you. Our next question is from Jeffrey Dunn [ph] from Dialing and Partners [ph].
Unidentified Analyst
A question about efficiency. Can you get more specific about how you exactly you measure efficiency.
Is it a certain range of open and closed orders per employees that we can track and if you start to move out of that range, we'll know if you are going to add or subtract additional headcount, just some more color there will be very helpful.
Dennis J. Gilmore
Sure Jeff [ph], this is Dennis. We monitor the normal thing that all do which would be our open orders per employee and closed orders per employee.
In the quarter we ran right around 13 orders from fully opened. Personally, we'd like to get that number up into the 14 - 15 range; that's a little difficult in this kind of a volatile marketplace.
So that's the one statistic we look at very closely. The other measures we look at very closely are what we consider net operating revenues, our salaries to net operating revenues.
We look at that ratio very, very closely. At the end of the quarter we ended at 47.7% net operating revenues to salary.
We'd like to run that number under 47%. And then we also look at net operating revenues to other operating expenses and again we ended the quarter at 37.6% and I'd like to run the business under 37% there.
So those are the kind of the ratios we look at very closely. We look at them daily, weekly type of frame and we continue to monitor accordingly.
Unidentified Analyst
And, just again a follow-up and I know you don't like comparisons to your peers but when we look at other companies of similar size and their headcounts, is there anything about your operating structure or your business mix that it prevents you from ultimately moving to a similar headcount number?
Dennis J. Gilmore
Actually when you look at the overall headcount of the business, because I think it's a little confusing of the industry because some folks talk about field employees and those types of things. But Jeff, when you go back and look at the Form 9 and actually look at their total employee counts between the two businesses, we're actually almost dead even right now between the two companies at about 13,000 U.S.
employees. So, almost exactly the same from an employee count.
And I am sure all comments [ph] will continue to adjust accordingly now in that number I left out our international operations of about 1800. So if you look at U.S.
to U.S. comparison I think the two largest companies right now are exactly even.
Unidentified Analyst
Okay, thank you.
Operator
Thank you. Our next question is from Paul Steep [ph] from Scotia Capital.
Unidentified Analyst
Good morning, gentlemen. Great surprise for us in light of this very difficult market relative to your peers.
What's the statutory surplus at the Q end?
Parker S. Kennedy
No, we don't have... we'll have that number when we report it, it will just close out when we've had second quarter Q.
Obviously, I am sure you read we put in $200 million since the end of the first quarter but we'll have that final number again by the time we file our Q.
Unidentified Company Representative
Let me follow-up on that answer to... it's clearly it's an area of focus for us we want to maximize our statutory surplus, we want to optimize how we're holding our companies to maximize all of the ratios with all rating agencies and we want to continue to grow our commercial business, we are very focused on it, we actually think there is great opportunities for us to increase share in commercial right now, a large area of focus for us.
Unidentified Analyst
Okay and the jump there was $410 million jump on the demand deposit line item on the balance sheet of which I would assume $200 million it's from the addition where is the other money coming from? What's the reason for that?
Parker S. Kennedy
I am sorry what--
Frank V. McMahon
Paul it's Frank McMahon. We manage extra deposits and we have...
we are putting more of those deposits at our own bank
Unidentified Analyst
Okay.
Frank V. McMahon
And so that just represents holding more of those deposits at our own federally insured bank.
Unidentified Analyst
Okay, thank you. And then what percentage was title international on the title in terms of revenues or net I do not know if you are going to break that out but--.
Frank V. McMahon
Yes, we actually do break it out in the slides or right now, we referenced that the quarter had a $122 million of revenue, rough estimation is probably about 12% of the business right now and again I stated in the prepared script. It is the key area of differentiation in the companies and a key area of focusing growth for us.
Unidentified Analyst
Thanks and last question, let this be limited to your debt, the capital covenants but if there is no mention of the stock buybacks I am looking at the stock where its trading and I am bit confused this to why we wouldn't have a buyback in place here?
Parker S. Kennedy
Well we have got capital in the company and we look at the best use of that capital, we want to keep our product powder [ph] to take advantage of whatever comes our way, granted the shares are down, there are other uses for their capital. We look at it all the time, everyday and try to do the best we can with our capital and certainly on the list of things to do with the capital is buying in shares.
Unidentified Analyst
Okay. Thanks Parker.
Thanks gentlemen.
Parker S. Kennedy
Thank you, Paul [ph].
Operator
Thank you and that's all the time we have for questions today. We'd like to remind listeners that today's call is available for replay by dialing 203-369-3865.
Copies of the press release announcing First American's second quarter results and the slide presentation are available on First American's website at www.firstam.com/investor. The company would like to thank you for your participation.
This concludes today's conference call. You may now disconnect.