• Headquarters: 1 First American Way, Santa Ana<br>• Employees: 16,879; 1,801 in OC<br>• Business: title insurer<br>• Market value as of April 1: $1.7 billion<br>• 2010 revenue: $3.9 billion, down 3.5%<br>• 2010 income: $129 million, down 4%
Year in Review
It took a few years longer than expected due to the uncertain economic climate, but the long-awaited split of First American Corp. into two smaller businesses was completed in June.
The split—first proposed in early 2008—created two companies, First American Financial Corp., which retained First American Corp.’s core title insurance business, and Santa Ana-based CoreLogic Inc., a provider of data to real estate and mortgage companies.
CoreLogic counts the larger market value at nearly $2.2 billion. First American, which writes policies protecting owners of homes and other real estate from competing claims of ownership, has higher revenue.
Beyond the split, First American has had to deal with the challenges of the topsy-turvy mortgage and real estate markets.
“2010 was a difficult and volatile year,” Chief Executive Dennis Gilmore said.
As First American has done for much of the past few years, the company focused on improving efficiencies rather than growth in 2010. Earnings were down 3.5% for the year, but the company’s core title business line posted a full year pre-tax margin of 6.3%, its best since 2006.
What’s Ahead
A slowdown in home refinancing—expected to fall by about a third this year to $1 trillion, due to rising interest rates—has the company bracing for a challenging 2011.
“We are positioning the company for a significantly lower mortgage origination market,” Gilmore said in late February.
On the upside, title business for new home mortgages—a more profitable source of work for First American than refinancing—is projected by industry watchers to increase some 30% this year to about $600 billion.
The company also said it’s seeing more revenue from commercial real estate deals.
Still, the overall expectation is lower revenue for the title industry in 2011, and the company said it’s planning to maintain a conservative balance sheet this year, while “capitalizing on strategic investment opportunities in our core business.”
Wall Street’s Take
After a few up and down months following the split, shares have steadily risen by more than 20% since June.
The market doesn’t seem too fazed by company or analysts’ predictions of a tough year ahead for the industry. First American and its main competitor, Jacksonville, Fla.-based Fidelity National Financial Inc., probably will post lower revenue this year as mortgage originations fall, Fitch Ratings said late last month.
“Operating performance remains considerably weaker than the strong profits reported from 2004 to 2007 and the industry continues to face headwinds,” the ratings company said in a statement.
The current consensus among analysts following the company is for First American to have $3.7 billion in revenues this year, a 5% drop from 2010 levels.
