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First American Financial Corporation (



Q4 2010 Earnings Call

February 24, 2011 11:00 AM ET


Craig Barberio – Director, IR

Dennis Gilmore – CEO

Max Valdes – EVP and CFO

Mark Seaton – SVP, Finance


Nat Otis – Keefe, Bruyette & Woods

Brett Huff – Stephens Inc.

Jason Deleeuw – Piper Jaffray

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Good morning and thank you for standing by. (Operator Instructions.) Copies of today’s discussion materials are available on First American’s website at Please note that the call is being recorded and will be available for replay from the company’s investor website and for a short time by dialing 203-369-0604. I will now turn the call over to Mr. Craig Barberio, Director of Investor Relations, to make an introductory statement.

Craig Barberio

Good morning everyone and thank you for joining us for our Q4 2010 Earnings Conference Call. Joining us on today’s call will be our Chief Executive Officer – Dennis Gilmore, Max Valdes – Executive Vice President and Chief Financial Officer, and Mark Seaton – Senior Vice President of Finance.

At this time we would like to remind listeners that management’s commentary and responses to your questions may contain forward looking statements such as those described on pages four and five of today’s news release and other statements that do not relate strictly to historical or current fact. The forward looking statements speak only as of the date they are made and the company does not undertake responsibility to update forward looking statements to reflect circumstances for events that occur after the date the forward looking statements are made. Risks and uncertainties exist that may cause results to differ materially from those set forth in the forward-looking statements. Factors that could cause the anticipated results to differ from those described in the forward-looking statements are also described on pages four and five of the news release.

With that, I will now turn the call over to Dennis Gilmore.

Dennis Gilmore

Thank you, Craig. 2010 was a difficult and volatile year for the mortgage and real estate markets. Operating within this environment the company delivered strong results. Full year revenues were $3.9 billion with net income of $128 million or $1.20 per share. Earnings were higher in both our title and specialty insurance segments as we continue to execute on our strategy of driving efficiencies throughout the organization. The title segment achieved a full year pre-tax margin of 6.3%, title’s best year since 2006.

Throughout 2010 we continue to focus on our ongoing expense management initiatives. We also experienced a strong rebound in our commercial title business as the size and number of transactions increased in our key markets. And in the second half of the year, low interest rates led to an increased refinance activity. Our specialty insurance segment also had strong full year results, achieving a combined pre-tax margin of 15% due to improved cost and operation management.

Turning to Q4, our revenues were $1 billion, down 1% from the prior year. The company generated $47 million of net income, or $.44 per share. The title segments margin was 8.6, the highest since Q4 of 2006, driven by strong commercial activity, a robust refinance market. Although title revenues were down 1%, our expenses were down 4%, resulting in a pre-tax income of $81 million, a 39% increase from the prior year.

Revenues for our national commercial division were $98 million, its strongest quarter since 2007, reflecting favorable interest rates, improved access to credit and the successful execution of their marketing strategy. Revenues for our international division were $83 million, up 12% compared to last year and driven by a strong improvement in the Canadian real estate market. Revenues for our default business were $42 million, down 29% compared to last year, primarily due to a decline in foreclosure activity.

The specialty insurance segment had another strong quarter, achieving a pre-tax margin of 14.3%. Home warranty continues to deliver consistent results favorable of operational and cost management efforts. The property casualty business performed well although claims from the severe hailstorm in Arizona put pressure on our margins.

During Q4 we also completed two acquisitions, Nazca Solutions, the company that leverages web based technology to extract and combine property information from multiple data sources. This acquisition augments our efforts to expand our title (inaudible) coverage and will help us to serve a broader set of title information customers. The second acquisition was Nationwide Posting and Publication, a leading regional company in the posting and publishing of trustee sale notices. This acquisition filled a product gap in our default business.

The outlook for 2011 is for lower mortgage originations and overall cost structure is in a good position for the year ahead and we will continue to drive operation efficiencies throughout the company. Specific to the current market conditions, we continued reducing expenses as older accounts declined in Q4. Expense management efforts have accelerated in the current quarter as we keep a close watch on our accounts. In February our open orders are running slightly below January and March will be the pivotal month for accessing the strength of the purchase market.

Looking to 2011 we will continue to maintain a conservative balance sheet while pursuing organic growth and strategic investment opportunities in our core business.

I’d now like to turn the call over to Max Valdes who will provide more detail and review our financial results.

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