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The First American Corporation Reports Preliminary Financial Results for the 3rd Quarter 2006

November 3, 2006

SANTA ANA, Calif., -- The First American Corporation (NYSE: FAF), America's largest provider of business information, today announced preliminary financial results for the third quarter and nine months ended Sept. 30, 2006, and a preliminary adjustment to its second quarter earnings release to reflect an increase in the company's provision for title losses and other claims, and the effects of certain other matters.

These financial results and adjustments are preliminary because, as previously disclosed on Aug. 9, 2006, the company initiated a review of its historical stock option grant practices and related potential tax and accounting impact. A special subcommittee of the company's audit committee is conducting a review relative to this issue with the assistance of independent legal counsel and outside accounting experts. The financial results and adjustments reported today do not take into account any adjustments that may be required in connection with the completion of this review and, therefore, should be considered preliminary until the company files its Form 10-Qs for the periods ended Sept. 30 and June 30, 2006, as discussed in more detail below.

Revenues for the third quarter of 2006 were $2.17 billion, essentially unchanged from the third quarter of 2005. Net income was $98.0 million in the third quarter of 2006, compared with $149.1 million in the third quarter of 2005, a decline of 34 percent. Diluted earnings per share were $1.00 in the third quarter of 2006, versus $1.51 in the third quarter of the prior year. For the nine-months ended Sept. 30, 2006, revenues grew to $6.34 billion, up 8 percent from $5.86 billion for the nine months ended Sept. 30, 2005. Year-to-date, the company's net income was $187.4 million versus $367.8 million for the comparable period in 2005, a decline of 49 percent. Diluted earnings per share were $1.90 for the nine months ended Sept. 30, 2006, compared with $3.79 for the same period in 2005.

"Revenues for the third quarter were very resilient, given the decline in mortgage originations," stated Parker S. Kennedy, chairman and chief executive officer of The First American Corporation. "The Mortgage Bankers Association (MBA) estimates of mortgage originations for the third quarter of 2006 indicate a decline of nearly 29 percent over the prior year. Our strategy of diversifying our revenue base to include more counter-cyclical businesses is reducing our relationship with the declining housing market. "The margin decline this quarter is a result of a shift in mix of business to more agency generated revenue, which is less profitable for us, generally, as well as increased administrative costs. While we have made, and continue to make, efforts to reduce expenses, we are not satisfied, and continue to search for ways to enhance our efficiencies."

Overview Mortgage originations decreased in the third quarter of 2006 when compared with the same period of the prior year, resulting in a decline in operating revenues at the company's Title Insurance and Mortgage Information segments. Operating revenues for these two segments are primarily dependent on the level of real estate activity. However, as a result of the company's acquisition activity and organic growth at the company's Specialty Insurance, Property Information, and Risk Mitigation and Business Solutions segments, total operating revenues increased modestly when compared with the third quarter of 2005. Profits for the third quarter of 2006 did not keep pace with the revenue growth due primarily to an increase in the loss provision rate for the title insurance operations, continued investments in new business initiatives and increased legal/regulatory-related costs. Operating revenues for the three and nine months ended Sept. 30, 2006, were $2.11 billion and $6.16 billion, respectively. Operating revenues for the three and nine months ended Sept. 30, 2005, were $2.10 billion and $5.69 billion, respectively. Net income for the three and nine months ended Sept. 30, 2006, was $98.0 million, or $1.00 per diluted share, and $187.4 million, or $1.90 per diluted share, respectively. Net income for the three and nine months ended Sept. 30, 2005, was $149.1 million, or $1.51 per diluted share, and $367.8 million, or $3.79 per diluted share, respectively.

(in thousands)
Three Months Ended September 30 Nine Months Ended September 30
2006 2005 Change 2006 2005 Change
Financial Services:
Title Insurance:
Direct Operations
$763,959 $820,186  (6.9) $2,256,260 $2,172,406 3.9
Agency Operations 784,426 756,868 3.6 2,272,490 2,037,969 11.5
1,548,385 1,577,054 (1.8) 4,528,750 4,210,375 7.6
Specialty Insurance  78,521 74,678 5.1    230,275 198,972 15.7
1,626,906 1,651,732 (1.5) 4,759,025 4,409,347 7.9
Information Technology:
Mortgage Information 128,274 150,117 (14.6) 400,343  443,089 (9.6)
Property Information 157,018 137,447 14.2 436,568 384,074  13.7
Risk Mitigation & Business Solutions 211,373 168,310   25.6 609,564 467,753 30.3
496,665  455,874 8.9 1,446,475 1,294,916  11.7
Eliminations   (17,249) (4,453)    --     (46,792)  (12,653) --
Total $2,106,322 $2,103,153 0.2 $6,158,708 $5,691,610  8.2
Financial Services.

Operating revenues from direct title operations decreased 6.9 percent and increased 3.9 percent for the three and nine months ended Sept. 30, 2006, respectively, when compared with the same periods of the prior year. The decrease for the current three-month period was due to a decline in the number of title orders closed by the company's direct operations, offset in part by an increase in the average revenues per order closed. The increase for the current nine-month period was due to an increase in the average revenues per order closed, offset in part by a decline in the number of title orders closed. The average revenues per order closed were $1,614 and $1,630 for the three and nine months ended Sept. 30, 2006, respectively, increases of 9.3 percent and 16.0 percent when compared with the same periods of the prior year. These increases were primarily due to a decreased mix of lower-premium refinance transactions, an increase in higher- premium resale and commercial activity, and for the nine-month period, appreciating home values. The company's direct operations closed 473,300 and 1,384,000 title orders during the current three and nine month periods, respectively, decreases of 14.8 percent and 10.5 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 3.6 percent and 11.5 percent for the three and nine months ended Sept. 30, 2006, respectively, when compared with the same periods of the prior year. These increases primarily reflect the timing of the reporting of agency remittances. Total operating revenues for the Title Insurance segment (direct and agency operations) contributed by new acquisitions were $58.7 million and $191.1 million for the three and nine months ended Sept. 30, 2006, respectively.



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