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Tax Benefit Boosts Profit at First American Financial

April 28, 1993|JAMES S. GRANELLI | TIMES STAFF WRITER

SANTA ANA — First American Financial Corp., propelled by a one-time tax benefit that nearly doubled its profit, reported first-quarter earnings of $8.7 million, or 77 cents a share.

The holding company for First American Title Insurance Co., the nation's second largest title insurer, said Tuesday that the tax benefit added $4.2 million, or 37 cents a share, to the bottom line. The benefit came from a change in the way the accounting industry determines income taxes.

The profit was second only to record quarterly earnings of $6.3 million, or 70 cents a share, for the first three months last year. Revenue for the latest quarter was a record $279 million, an increase of 22% from $228.4 million a year earlier.

"Real estate activity during the latter part of 1992 was not strong, and yet title insurance, tax service, home warranty and trust and banking (operations) each were profitable before corporate overhead during the quarter," said Donald P. Kennedy, the company's president.

First American Financial is expecting even stronger sales this quarter. Orders for title insurance increased "substantially" toward the end of the first quarter, Kennedy said. "During March, the title company had the highest open order month in its history, signaling strong operating revenues from direct operations for the next quarter."

The company had higher expenses, however, because it paid more commissions to independent agents than it usually does. Agents, a costlier group than employees, usually gather about 45% of the title company's business. But because they are used mostly in the East, where home sales have increased, the agents accounted for about 55% of the title business for the first quarter, thus raising the amount of commissions paid.

Also, the cost of servicing this year's higher level of open orders added to quarterly expenses.

Based in Santa Ana since it opened 104 years ago, First American Title provides insurance through a network of more than 300 offices and 4,000 agents in the United States, the Bahamas, Bermuda, Canada, Guam, Mexico, Puerto Rico, the Virgin Islands and the United Kingdom.

Other subsidiaries of First American Financial provide real estate financial services, including tax monitoring and home warranty services, to real estate buyers and mortgage lenders. The company also operates a trust and a banking business in Southern California.

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