With its fourth-quarter 2013 operating earnings of 51 cents per share beating the Zacks Consensus Estimate by a penny, First American Financial Corporation (FAF) delivered positive surprises for three straight quarters. The result, however, declined 37% year over year.
Operational Update
First American Financial’s top line declined 4% year over year to $1.3 billion, induced by lower information and other revenues (down 11% year over year) and direct premiums and escrow fees (down 9.2% year over year). The results comfortably exceeded the Zacks Consensus Estimate of $1.1 billion.
Total expenses of First American Financial inched up 0.5% year over year to nearly $1.1 billion in the reported quarter, largely owing to higher premiums retained by agents.
Closed orders per day during the quarter declined 35% due to 61% decrease in refinance orders.
Title orders opened in 2013 were 1.38 million, down 15% year over year. Title orders closed in 2013 were 1.1 million, down 7.4% year over year.
Average revenue per direct order in the reported quarter improved 34% due to higher purchase and commercial mix.
Segment Update
Title Insurance: Direct premiums and escrow fees of $455.6 million decreased 12.2% year over year. Agent premiums also declined 6.9% year over year to $455.6 million.
Investment income at the segment decreased 38% year over year to $13.8 million during the quarter.
Pretax margin contracted 490 basis points (bps) year over year to 7.8%.
Specialty Insurance: Direct premiums and escrow fees came in at $84.7 million, increasing 11.4% year over year.
Investment income improved 10.1% year over year to $2.0 million in the quarter.
Pre-tax margin of 17% expanded 40 bps from the year-ago quarter owing to higher premiums.
Corporate: Investment income of $2.5 million in the reported quarter rebounded from a loss of $0.138 million in the comparable year-ago period.
Full-Year 2013 Highlights
First American Financial’s bottom line in the year came in at $1.66 per share, down 30.5% from the 2012 equivalent.
First American Financial’s 2013 revenues improved 9% year over year to $5 billion on the strength of better performance at resale and commercial businesses.
Financial Update
First American Financial exited 2013 with cash and cash equivalents of $834.8 million, up 24.5% from Dec 31, 2012.
Total assets of $6.5 billion increased 7.7% from the 2012 year-end level.
Total shareholders’ equity stood at nearly $2.4 billion as of Dec 31, up 4% from the 2012 year-end level.
Total cash flows from operations during the quarter totaled $132.6 million.
Acquisition Update
On Feb 5, 2014, First American Financial agreed to acquire Interthinx, Inc. for $155 million. The transaction is expected to culminate by Mar 2014. Interthinx is a leading provider of loan quality analytics, decision support tools and loan review processes for the mortgage industry. The acquisition will help it leverage its extensive data assets and enhance its ability to innovate in response to increasing demands within the marketplace.
Performances by Other Property and Casualty Insurers
Allied World Assurance Company Holdings, AG (AWH) reported its fourth-quarter 2013 operating net income of $2.15 per share, lagging the Zacks Consensus Estimate by 10.2%. The results, nevertheless, rebounded from the year-ago loss of $1.60 per share.
Platinum Underwriters Holdings Ltd. (PTP) reported its fourth-quarter net earnings of $1.73 per share, which outpaced the Zacks Consensus Estimate of 50 cents. Results also surged 88% from the year-ago quarter level.
RLI Corporation (RLI) reported fourth-quarter operating earnings of 72 cents per share, surpassing both the Zacks Consensus Estimate by 28% and the year-ago figure by 60%.
Zacks Rank
First American Financial presently carries a Zacks Rank #3 (Hold).
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