First American’s Profit Builds on Housing Market Boom

Profit at Santa Ana title insurer First American Corp. tripled in the second quarter as the residential real estate market remained hot and savings from a long-planned automation program began to be realized.

Net income was $127.5 million, or $1.47 a share, compared with $40.1 million, or 51 cents a share, in the same period a year earlier. Revenue rose 41% to $1.5 billion.

The earnings per share beat the $1.09 average estimate of analysts surveyed by Thompson First Call. The quarterly revenue and profit figures were the highest in First American’s history, the company said.

First American benefited significantly from improved efficiency in processing title insurance policies and related cuts in infrastructure, said Parker S. Kennedy, First American’s president. The company also enjoyed record transaction volumes for new homes sales, resales and refinancings.

“They have done a terrific job of adapting information technology to re-engineer their entire business,” said Charles F. Gunther, a senior analyst at Wells Fargo Securities.

First American completed a roll-out of an automation program last year that centralized national loan processing in seven centers, Gunther said. A great deal of data entry is done overnight in the Philippines and India by contract employees who work at considerably lower wages than their counterparts in the U.S.

Title insurance business from the hot housing market should continue to grow, Gunther said, but refinancings, which accounted for about half of the title insurance revenue in recent months, should drop next year.

For First American, “2003 will be far and away the biggest year they ever had,” he said. Profit probably will slip in 2004, but by less than its competitors in the cyclical industry, Gunther said.

Shares of First American rose 39 cents to $23.75 on the New York Stock Exchange.