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First American Financial Reports First Quarter 2012 Results

SANTA ANA, Calif., April 26, 2012 /PRNewswire/ -- First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance and settlement services for real estate transactions, today announced financial results for the first quarter ended March 31, 2012.

Current Quarter Highlights

    --  Title Insurance and Services segment pretax margin of 6.8 percent
        --  Highest first-quarter margin since 2006
    --  Title open orders up 31 percent compared to last year, primarily driven
        by refinance transactions
    --  Commercial division revenues of $81.5 million, up 21 percent compared to
        last year
    --  Specialty Insurance segment pretax margin of 17.3 percent
    --  Completed a new $600 million, four-year senior secured revolving credit
        facility on April 17, 2012
    Selected Financial Information
    ($ in millions, except per share data)
                                For the Three
                                 Months Ended
                                  March 31
                                  --------
                                2012              2011
                                ----              ----
    Total revenues            $966.8            $931.7
    Income (loss) before
     taxes                      51.6             (23.4)

    Net income (loss)          $31.3            $(15.3)
    Net income (loss) per
     diluted share              0.29             (0.15)

Total revenues for the first quarter of 2012 were $966.8 million, an increase of 4 percent relative to the first quarter of 2011. Net income in the current quarter was $31.3 million, or 29 cents per diluted share, compared with a net loss of $15.3 million, or 15 cents per diluted share, in the first quarter of 2011. Last year's results included a $45.3 million reserve-strengthening adjustment in the company's Canadian operations, which is $27.2 million on an after-tax basis, or 26 cents per diluted share.

"The year is off to a good start," said Dennis J. Gilmore, chief executive officer at First American Financial Corporation. "Our efficient and scalable cost structure coupled with improved market conditions enabled us to deliver our best first-quarter title margin since 2006.

"First-quarter open orders were the strongest in three years, up 31 percent year-over-year, driven primarily by a significant increase in refinance activity and a modest but encouraging increase in resale transactions. Growth in our commercial business continued, with revenues up 21 percent compared with last year. While current market conditions and order volumes have clearly improved, we continue to maintain tight control on expenses.

"In April, we also completed a new $600 million revolving credit facility with improved pricing and terms compared to the previous facility. This new facility enhances our flexibility and strengthens our financial position."

    Title Insurance and Services
    ($ in millions, except average revenue per order)
                                          For the Three Months
                                                 Ended
                                               March 31
                                               --------
                                             2012                    2011
                                             ----                    ----
    Total revenues                         $891.2                  $861.9

    Income (loss) before taxes*             $60.8                  $(15.7)
    Pretax margin                             6.8%                  (1.8)%

    Direct open orders                    377,200                 287,100
    Direct closed orders                  261,300                 225,600

    Commercial**
       Total revenues                       $81.5                   $67.3
       Open orders                         17,900                  17,400
       Closed orders                       10,400                   8,400
       Average revenue per order           $6,700                  $6,300

    *           See footnote on page 7.
    **           Includes commercial activity
                 from the National Commercial
                 Services division only.

Total revenues for the Title Insurance and Services segment were $891.2 million, a 3 percent increase from the same quarter of 2011. Direct premiums and escrow fees were up 16 percent from the first quarter of 2011, directly comparable with the 16 percent increase in the number of direct title orders closed in the quarter. Average revenue per direct title order was $1,315, compared with $1,310 in the first quarter of 2011. Agent premiums were lower by 6 percent in the current quarter, which is comparable with the 4 percent decline in direct premiums experienced in the fourth quarter, reflecting the normal reporting lag of approximately one quarter.

Information and other revenues were $155.3 million this quarter, up 3 percent as compared to the same quarter of last year, primarily attributable to higher demand for the company's title plant information and increased international service revenues, offset in part by lower sales of default information products. Total investment income was down 5 percent in the first quarter, primarily reflecting higher net realized investment losses.

Personnel costs were $277.6 million in the first quarter, an increase of $18.5 million, or 7 percent, compared with the first quarter of 2011. This increase was primarily due to higher incentive-based compensation, increased healthcare-related expenses, and one additional payroll day in the current quarter.

Other operating expenses were $171.8 million in the first quarter, down $3.8 million, or 2 percent, compared with the first quarter of 2011. This decrease was primarily due to lower office-related expenses resulting from the company's consolidation and closure of certain title offices. Further contributing to the decrease in other operating expenses was a decline in professional services costs. These decreases were partially offset by higher production-related expenses due to increased order activity.

The provision for policy losses and other claims was $52.2 million in the first quarter, or 7.2 percent of title premiums and escrow fees, down $44.2 million compared with the same quarter of the prior year. Last year's results included a $45.3 million reserve-strengthening adjustment in the company's Canadian operations. The current quarter rate of 7.2 percent reflects an ultimate loss rate of 6.2 percent for the current policy year and a net increase in the loss reserve estimates for prior policy years, primarily 2007 and 2008.

Pretax income for the Title Insurance and Services segment was $60.8 million in the first quarter, compared with a $15.7 million pretax loss in the first quarter of 2011. Pretax margin was 6.8 percent in the current quarter.

    Specialty Insurance
    ($ in millions)
                         For the Three Months
                                 Ended
                               March 31
                               --------
                            2012               2011
                            ----               ----
    Total revenues         $74.2              $68.8

    Income before taxes*   $12.8              $12.4
    Pretax margin           17.3%              18.0%

    * See footnote on page
     7.

Total revenues for the Specialty Insurance segment were $74.2 million in the first quarter of 2012, an increase of 8 percent compared with the first quarter of 2011. The overall loss ratio in the Specialty Insurance segment was 49 percent in the current quarter, down from 51 percent in the prior year. Pretax margin was 17.3 percent, down from 18.0 percent in the first quarter of 2011.

Teleconference/Webcast
First American's first quarter 2012 results will be discussed in more detail on Thursday, April 26, 2012, at 11 a.m. ET, via teleconference. The toll-free dial-in number is (877) 918-5752. Callers from outside the United States may dial (517) 319-9305. The pass code for the event is "First American."

The live audio webcast of the call will be available on First American's website at www.firstam.com/investor. An audio replay of the conference call will be available through May 3, 2012, by dialing (203) 369-0663. An audio archive of the call will also be available on First American's investor website.

About First American
First American Financial Corporation (NYSE: FAF)
is a leading provider of title insurance and settlement services to the real estate and mortgage industries, that traces its heritage back to 1889. First American and its affiliated companies also provide title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; and banking, trust and investment advisory services. With revenues of $3.8 billion in 2011, the company offers its products and services directly and through its agents and partners in all 50 states and abroad. More information about the company can be found at www.firstam.com.

Website Disclosure
First American posts information of interest to investors at www.firstam.com/investor. This includes opened and closed title insurance order counts for its direct title insurance operations, which are posted approximately 12 days after the end of each month.

Forward-Looking Statements
Certain statements made in this press release and the related management commentary and responses to investor questions, including but not limited to those related to the effects of the HARP 2.0 program, closed order projections, corporate net expense projections, and expense management are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may contain the words "believe," "anticipate," "expect," "plan," "predict," "estimate," "project," "will be," "will continue," "will likely result," or other similar words and phrases. 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 include: interest rate fluctuations; changes in the performance of the real estate markets; volatility in the capital markets; unfavorable economic conditions; impairments in the company's goodwill or other intangible assets; failures at financial institutions where the company deposits funds; changes in applicable government regulations; heightened scrutiny by legislators and regulators of the company's title insurance and services segment and certain other of the company's businesses; regulation of title insurance rates; reform of government-sponsored mortgage enterprises; limitations on access to public records and other data; product migration; changes resulting from increases in the size of the company's customers; changes in measures of the strength of the company's title insurance underwriters, including ratings and statutory surpluses; losses in the company's investment portfolio; expenses of and funding obligations to the pension plan; material variance between actual and expected claims experience; defalcations, increased claims or other costs and expenses attributable to the company's use of title agents; systems interruptions and intrusions, wire transfer errors or unauthorized data disclosures; inability to realize the benefits of the company's offshore strategy; inability of the company's subsidiaries to pay dividends or repay funds; and other factors described in the company's annual report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission. The forward-looking statements speak only as of the date they are made. The company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

Use of Non-GAAP Financial Measures
This news release and related management commentary contain certain financial measures that are not presented in accordance with generally accepted accounting principles (GAAP), including a personnel and other operating expense ratio. The company is presenting these non-GAAP financial measures because they provide the company's management and investors with additional insight into the operational efficiency and performance of the company relative to earlier periods and relative to the company's competitors. The company does not intend for these non-GAAP financial measures to be a substitute for any GAAP financial information. In this news release, 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 the comparable GAAP financial measures.

    Media Contact:                            Investor Contact:
    Carrie Navarifar                          Craig Barberio
    Corporate Communications                  Investor Relations
    First American Financial Corporation       First American Financial
                                               Corporation
    (714) 250-3298                            (714) 250-5214


               (Additional Financial Data Follows)

              First American Financial Corporation
    Summary of Consolidated Financial Results and Selected Information
    (in thousands, except per share amounts and title orders)
                           (unaudited)

                                         For the Three Months
                                                Ended
                                            March 31
                                            --------
                                             2012                2011
                                             ----                ----


    Total revenues                       $966,763            $931,700

    Income (loss)
     before income
     taxes                                $51,550            $(23,449)
    Income tax
     expense
     (benefit)                             20,441              (8,208)
                                           ------              ------
    Net income
     (loss)                                31,109             (15,241)
    Less: Net
     (loss) income
     attributable
     to
     noncontrolling
     interests                               (184)                 94
    Net income
     (loss)
     attributable
     to the
     Company                              $31,293            $(15,335)
                                          =======            ========

    Net income (loss) per share
     attributable to stockholders:
         Basic                              $0.30              $(0.15)
         Diluted                            $0.29              $(0.15)

    Cash dividends
     per share                              $0.08               $0.06

    Weighted average common shares
     outstanding:
         Basic                            105,621             104,660
         Diluted                          107,480             104,660

    Selected Title Information
    --------------------------

    Title orders
     opened                               377,200             287,100

    Title orders
     closed                               261,300             225,600

    Paid title
     claims                               $80,455             $81,357


                   First American Financial Corporation
                    Selected Balance Sheet Information
                              (in thousands)
                                (unaudited)

                               March 31, 2012           December 31, 2011
                               --------------           -----------------

    Cash and cash
     equivalents                           $672,529                   $418,299
    Investment
     portfolio                            2,669,682                  2,642,917
    Goodwill and
     other
     intangible
     assets                                 890,223                    878,414
    Total assets                          5,653,193                  5,370,337
    Reserve for
     claim losses                           992,719                  1,014,676
    Notes payable                           276,684                    299,975
    Total
     stockholders'
     equity                               2,087,473                  2,028,600


                                                      First American Financial Corporation
                                                               Segment Information
                                                            (in thousands, unaudited)

    For the Three Months Ended                                         Title                 Specialty                   Corporate
    March 31, 2012             Consolidated                         Insurance               Insurance               (incl. Elims.)
    --------------             ------------                        ---------               ---------                 -------------
    Revenues
    Direct premiums
     and escrow fees                        $413,786                         $343,639                 $70,147           $              -
    Agent premiums                           376,986                          376,986                       -                          -
    Information and
     other                                   155,760                          155,289                     475                         (4)
    Investment
     income                                   22,377                           17,321                   2,465                      2,591
    Net realized
     investment
     (losses) gains*                          (2,146)                          (2,014)                  1,111                     (1,243)
                                             966,763                          891,221                  74,198                      1,344
                                             -------                          -------                  ------                      -----
    Expenses
    Personnel costs                          305,279                          277,577                  13,663                     14,039
    Premiums
     retained by
     agents                                  302,164                          302,164                       -                          -
    Other operating
     expenses                                189,150                          171,752                  11,042                      6,356
    Provision for
     policy losses
     and other
     claims                                   86,678                           52,179                  34,499                          -
    Depreciation and
     amortization                             18,059                           16,333                   1,055                        671
    Premium taxes                             10,848                            9,733                   1,115                          -
    Interest                                   3,035                              661                       -                      2,374
                                             915,213                          830,399                  61,374                     23,440
                                             -------                          -------                  ------                     ------

    Income (loss)
     before income
     taxes**                                 $51,550                          $60,822                 $12,824                   $(22,096)
                                             =======                          =======                 =======                   ========



    For the Three Months Ended                                       Title                 Specialty                   Corporate
    March 31, 2011             Consolidated                         Insurance               Insurance         (incl. Elims.)
    --------------             ------------                        ---------               ---------          -------------
    Revenues
    Direct premiums
     and escrow fees                        $361,094                         $295,431                 $65,663           $              -
    Agent premiums                           399,921                          399,921                       -                          -
    Information and
     other                                   150,758                          150,427                     329                          2
    Investment
     income                                   20,771                           17,568                   2,508                        695
    Net realized
     investment
     (losses) gains*                            (844)                          (1,423)                    331                        248
                                             931,700                          861,924                  68,831                        945
                                             -------                          -------                  ------                        ---
    Expenses
    Personnel costs                          283,302                          259,067                  11,651                     12,584
    Premiums
     retained by
     agents                                  319,987                          319,987                       -                          -
    Other operating
     expenses                                190,390                          175,513                   9,610                      5,267
    Provision for
     policy losses
     and other
     claims                                  129,512                           96,376                  33,136                          -
    Depreciation and
     amortization                             19,099                           17,171                   1,016                        912
    Premium taxes                              9,043                            8,039                   1,004                          -
    Interest                                   3,816                            1,467                       -                      2,349
                                             955,149                          877,620                  56,417                     21,112
                                             -------                          -------                  ------                     ------

    (Loss) income
     before income
     taxes**                                $(23,449)                        $(15,696)                $12,414                   $(20,167)
                                            ========                         ========                 =======                   ========

    *             Includes other-than-temporary
                  impairment (OTTI) losses
                  recorded in earnings.
    **            During the current quarter,
                  changes were made to the
                  allocation of certain expenses
                  between business segments and
                  the corporate division,
                  primarily related to benefit
                  plans, shared services, and
                  interest expense. Prior period
                  financials were reclassified to
                  conform to the current
                  presentation. For the first
                  quarter of 2011, income before
                  income taxes increased by $2.9
                  million in the title segment
                  and $0.2 million in the
                  specialty segment with an
                  offsetting decrease of $3.1
                  million in corporate.


                             First American Financial Corporation
                                 Expense Ratio Reconciliation
                             Title Insurance and Services Segment
                                 ($ in thousands, unaudited)

                                    For the Three Months
                                            Ended
                                          March 31
                                          --------
                                                      2012            2011
                                                      ----            ----


    Total revenues                                $891,221        $861,924
    -Net realized investment
     (losses)                                       (2,014)         (1,423)
    -Investment income                              17,321          17,568
    -Premiums retained by
     agents                                        302,164         319,987
    Net operating revenues                         573,750         525,792
                                                   =======         =======


    Personnel and other
     operating expenses                           $449,329        $434,580
    Ratio (% net operating
     revenues)                                        78.3%           82.7%
    Ratio (% total revenues)                          50.4%           50.4%

SOURCE First American Financial Corporation

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