The First American Corporation Reports Preliminary Financial Results for the Second Quarter of 2008

August 1, 2008

SANTA ANA, Calif., -- The First American Corporation (NYSE: FAF ), a provider of business information, announced preliminary financial results for the quarter ended June 30, 2008.

Current Quarter Highlights

  • Title Insurance and Services segment pretax margin of 3.4 percent
  • Title Insurance claims development remains in-line with expectations
  • Information Solutions Group pretax margin of 16.2 percent
  • Net income of $42.0 million, or 45 cents per diluted share
  • Continued progress on company-wide expense-reduction initiatives
  • Salary and other operating expenses, on a consolidated basis, decreased by $179.3 million, or 14.7 percent
  • Operating cash flow of $71.2 million


Consolidated Review

"We are pleased by the performance of both the Financial Services and Information Solutions businesses in light of the current market environment," stated Parker S. Kennedy, chairman and chief executive officer of The First American Corporation. "We are especially encouraged by the operating results within our Title Insurance segment. Clearly, these results reflect the hard work that began last year to restructure our Title operations and change our business model. We are focused in our commitment to maximize profitability in all of our businesses."

Total revenues for the second quarter of 2008 were $1.7 billion, a decrease of 20 percent relative to the second quarter of 2007. Net income was $42.0 million, or 45 cents per diluted share, in the second quarter of 2008, compared with a net loss of $66.0 million, or 68 cents per diluted share, in the second quarter of 2007. Results for the second quarter of 2007 included reserve strengthening, restructuring and asset impairments totaling $172.8 million, or $1.79 per diluted share, net of tax.

At the end of last week, the company became aware of circumstances surrounding an investment held by First American Title Insurance Company (FATICO) in a title agent that may cause the investment to be impaired. The company is currently evaluating whether to impair its $37.3 million carrying value; however, any impairment will not impact FATICO's statutory surplus. The final determination with respect to any impairment will be reflected in the company's Form 10-Q for the quarter ended June 30, 2008, which it expects to timely file. Consequently, the results presented in this news release are preliminary.

Financial Services Group

Current Quarter Highlights:
  • Title Insurance and Services segment pretax margin of 3.4 percent
  • Title Insurance and Services segment pretax income of $38.4 million
  • Title Insurance and Services segment other operating expenses decreased by 10 percent
  • Title Insurance claims development remains in-line with expectations at 6.2 percent of operating revenues
  • Title Insurance and Services segment staff reduction of 700 will result in annualized savings of $40.1 million
  • 94 title insurance office closures expected to yield $5.6 million of annualized savings


"Our Title Insurance segment earnings this quarter reflect our aggressive cost-reduction efforts and the structural improvements that are ongoing throughout the organization," stated Dennis J. Gilmore, First American's chief operating officer and chief executive officer of the Financial Services Group. "We will continue our efforts to increase the efficiency of our operations by advancing certain key company-wide initiatives, including focused management of employee costs, centralizing administrative functions, reorganizing our operating structure and rationalizing our office footprint."

Title Insurance and Services. During the second quarter of 2008, operating revenues in the Title Insurance and Services segment were $1.1 billion, a 25 percent decrease from the same quarter of 2007. Factors contributing to these results were a decline in the number of title orders closed, a decrease in the average revenue per order closed and the termination of certain agency relationships. Average revenue per direct title order was $1,528, a 6 percent decline relative to the second quarter of 2007. The company's direct operations closed 401,200 title orders for the second quarter of 2008, a decrease of 17 percent, when compared with 482,900 title orders closed in the second quarter of 2007.

Salary and other personnel costs were $338.6 million, a 24 percent decrease, compared with the second quarter of 2007, primarily due to staff reductions. The company reduced staff by approximately 700 during the second quarter of 2008. Included in salary and other personnel costs for the second quarter of 2008 were $6.1 million of employee separation costs. Other operating expenses were $266.8 million, a decrease of 10 percent, compared with the second quarter of 2007. The decrease was primarily due to a reduction in title production costs, lower occupancy costs and other cost-containment programs. Other operating expenses include $6.6 million of lease termination costs incurred during the second quarter of 2008.

The loss provision for claims during the second quarter of 2008 was 6.2 percent of operating revenues, versus 23.7 percent in the second quarter of 2007. The current quarter rate reflects the expected claims experience for policy year 2008, with minor reserve adjustments required for prior policy years. The rate for the second quarter of 2007 reflected an expected claims rate of 6.4 percent for policy year 2007 and adverse development primarily for policy years 2006, 2005 and 2004.

Pretax income for the Title Insurance and Services segment was $38.4 million in the second quarter of 2008, compared to a pretax loss of $156.2 million in the second quarter of 2007.

Specialty Insurance. Total revenues at First American's Specialty Insurance segment were $76.5 million in the second quarter of 2008, a 7 percent decrease relative to the second quarter of 2007. The decline was primarily due to a decrease in property and casualty insurance revenues. Pretax income was $8.7 million in the second quarter of 2008, a 36 percent decrease relative to the second quarter of 2007.

Source: First American Corporation


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