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.
|Three Months Ended September 30||Nine Months Ended September 30|
|Risk Mitigation & Business Solutions||211,373||168,310||25.6||609,564||467,753||30.3|