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1996 was a good year. Over a decade ago we put into motion a plan to become the leader in the real estate-related services industry in the interest of cultivating profit and growth. This year we began to reap the benefits of this strategy. In 1985, First American began building what has since become the largest real estate-related financial and information services company in the country. Since 1985, we have consistently added products to our package of information services. Our product offerings, now combined in a single company, are unique in the industry and provide strong cross-selling opportunities with substantial potential for efficiencies for both our company and our customers. During 1996 we crossed a threshold. We spent several years improving our systems and marketing our products collectively. This year we experienced some of the incredible benefits that will fuel our growth. We added many new customers in all divisions, providing multiple products to each customer. The year provided a steady stream of mortgage originations, driven by affordable mortgage interest rates, a strong general economy and robust residential resale and new home markets. Commercial transaction volumes were also strong. Our market shares in each of our businesses grew steadily. These factors led to record revenues of $1.598 billion for the year. After-tax profits for 1996 were $53.6 million, or $4.68 a share, compared with earnings of $7.6 million, or $.67 a share, during 1995. Our stock began the year at $27 and ended the year at $41, up over 50 percent, outpacing the stock price performance of any other company in our peer group. |
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Our business has changed dramatically over the last 10 years, due in large part to the huge increase in the size of our typical customers. Real estate brokers are getting larger and larger, as evidenced by the rise of HFS, Inc., which over the past two years has acquired three nationwide real estate brokerage franchises. Banks, such as Wells Fargo, Chase and Citibank, are big and getting bigger, and mortgage bankers like Countrywide Home Loans, Inc., Norwest Mortgage Corporation and GMAC Mortgage Group collectively control a major portion of the mortgage origination business. This, more than any factor, has led to change in our organization. Most of our customers no longer operate in a single area; they are now nationwide. All of our businesses, and the regions within each business, must now operate as a single team. Territorialism has become a thing of the past, leading to a new attitude and, in many cases, new people. We have responded well to the developments in the market, but the changes are not over. Our primary challenge for the future is to push toward a "single company" perspective, blending local autonomy with a national approach. We will never allow a state or regional boundary to get in the way of superior service to the customer. Our added challenge is to take advantage of our size while being careful never to develop any bureaucratic policies which would impede customer service. 1996 was a significant year in terms of achieving our goal of a strong market share in each of our businesses. We moved into the number one market share position in the title insurance industry. We added numerous title branches by acquisition. Our international growth took a big step with the creation and qualification of First American Title Insurance Company of Australia. We continue to pursue our three-pronged title insurance game plan: increase overall market share, improve our commercial title insurance penetration and expand internationally. Of special importance was the issuance of an "A" (Excellent) rating from A.M. Best. This was followed by strong ratings from Moody's and Duff & Phelps. In field services we added Ward Associates, the number two company in its field, to our existing operation, creating a strong presence in the industry. We also added new products to our menu of services. Excelis, Inc., considered by many to be the finest mortgage loan servicing software system, was purchased from The Prudential Insurance Company of America. We added first mortgage appraisals to our list of services with the acquisition of Cuffaro Appraisal Services. Home warranty had an excellent year, experiencing substantial profit gains; they opened operations in North and South Carolina in early 1997. |
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We are very pleased to announce the addition of Gary J. Beban to our Board of Directors. Gary, the recipient of the Heisman Trophy in 1967 while a quarterback at UCLA, has worked for CB Commercial Real Estate Group, Inc., since 1970. He currently serves as the president of commercial brokerage and corporate services. He replaces Frank Harrington who passed away in 1995. We're also pleased with the appointment of Dale F. Frey to our board. At the end of 1996, he retired from General Electric Investment Corporation, where he had served as chief executive officer. His wide experience in the financial field will be of great assistance to us in our operations. His appointment brings the total number of directors on our board to 16. Retiring during 1996 after a 37-year career with First American was Larry White, the executive vice president of the title insurance subsidiary. Larry knows the title business as well as anyone, having worked his way up through numerous technical, production and management positions. He was an extremely popular leader in our company and was instrumental in the growth of the title division from a single-county company to a nationwide operation. Gary Kermott replaces Larry as executive vice president of First American Title Insurance Company. Gary, a lawyer, joined the company in 1983 in our home office legal department and later became our Arizona state manager. At the time of his promotion, he was regional vice president for Arizona and Utah. Gary, a very effective manager in Arizona, led an operation that was consistently among the most profitable in the country. Gary is well-qualified for the challenges that face the title division. |
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Open orders during the early part of 1997 lagged first quarter 1996 levels due to a decline in refinance activity. Nonetheless, order counts are strong and 1997 should be a good year for all of our businesses, especially if the Federal Reserve allows interest rates to remain near their current levels. We will continue to expand our market share in all of our segments and add new businesses, services and products to our already extensive menu. We will seek every possible efficiency, aggressively cross-market our products and provide excellent service to our customers. We look ahead with confidence. At its February 1997 meeting, the Board declared a quarterly dividend of 18 cents per share payable April 15, 1997. First American has paid a cash dividend every year since 1909. The Officers and Directors are grateful for your continuing support. 
D.P. Kennedy Chairman of the Board 
Parker S. Kennedy President |
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