The First American Corporation announced preliminary financial results for the quarter ended June 30, 2008. According to the corporation, its title insurance and services segment experienced a pretax margin of 3.4 percent, while claims on title insurance policies remained in-line with First American's expectations. Meanwhile, First American posted a net income of $42.0 million due to continued progress on company-wide expense-reduction initiatives and decreasing salary and other operating expenses, which fell by $179.3 million. The company also indicated that it had an operating cash flow of $71.2 million.

"We are pleased by the performance of both the Financial Services and Information Solutions businesses in light of the current market environment," said Parker Kennedy, First American's chairman and chief-executive-officer. "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."

The corporation posted total revenues for the second quarter of 2008 were $1.7 billion, a decrease of 20 percent relative to the second quarter of 2007. Additionally, its net income was $42.0 million in the second quarter of 2008, an improvement when compared with a net loss of $66.0 million in the second quarter of 2007. The company reported results for the second quarter of 2007 included reserve strengthening, restructuring and asset impairments totaling $172.8 million 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. First American did not elaborate if the company that was facing the uncertain future was Mercury Companies, an agent of the company that operates more than 500 office nationwide. Several of the company's subsidiaries announced yesterday that they were closing their doors.

"Our title insurance segment earnings this quarter reflect our aggressive cost-reduction efforts and the structural improvements that are ongoing throughout the organization," said Dennis Gilmore, First American's chief-operating-officer who is also the 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."

During the second quarter of 2008, First American's operating revenues in the title insurance and services segment were $1.1 billion, a 25 percent decrease from the same quarter of 2007. The company indicated that 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. Meanwhile, the 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.

First American reported that 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 company said the decrease was primarily due to a reduction in title production costs, lower occupancy costs and other cost-containment programs.

Lastly, First American indicated that its 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 company indicated that 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.

The company also reported that, based on management's recommendation, its board of directors has decided to delay the previously announced separation of its Financial Services and Information Solutions companies.

"We remain intent on moving forward with our planned spin-off," Kennedy added. "We still firmly believe that splitting our businesses will unlock the unrealized value of the Information Solutions businesses and strengthen the competitive position of both companies. However, given the uncertainty in the real estate and mortgage credit markets, we believe it is prudent to delay the split. Our primary focus at this time is expense management, product development and maximizing profitability.

"We will split the companies when we see more stability in our markets and when the outlook becomes clearer," he said. "In the meantime, we will continue to report results of our businesses as if they were already separated and we will enthusiastically look forward to creating two great companies."