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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 001-34580
FIRST AMERICAN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware |
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26-1911571 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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1 First American Way, Santa Ana, California |
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92707-5913 |
(Address of principal executive offices) |
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(Zip Code) |
(714) 250-3000
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
Common stock, $0.00001 par value |
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FAF |
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New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act
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Large accelerated filer |
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☒ |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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☐ |
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Emerging growth company |
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☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
On October 25, 2022 there were 103,541,714 shares of common stock outstanding.
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
INFORMATION INCLUDED IN REPORT
Items 3 through 5 of Part II have been omitted because they are not applicable with respect to the current reporting period.
2
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE FACT THAT THEY DO NOT RELATE STRICTLY TO HISTORICAL OR CURRENT FACTS AND MAY CONTAIN THE WORDS “BELIEVE,” “ANTICIPATE,” “EXPECT,” “INTEND,” “PLAN,” “PREDICT,” “ESTIMATE,” “PROJECT,” “WILL BE,” “WILL CONTINUE,” “WILL LIKELY RESULT,” OR OTHER SIMILAR WORDS AND PHRASES OR FUTURE OR CONDITIONAL VERBS SUCH AS “WILL,” “MAY,” “MIGHT,” “SHOULD,” “WOULD,” OR “COULD.” THESE FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS REGARDING FUTURE OPERATIONS, PERFORMANCE, FINANCIAL CONDITION, PROSPECTS, PLANS AND STRATEGIES. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS THAT MAY PROVE TO BE INCORRECT.
RISKS AND UNCERTAINTIES EXIST THAT MAY CAUSE RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE THE ANTICIPATED RESULTS TO DIFFER FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION:
•INTEREST RATE FLUCTUATIONS;
•CHANGES IN CONDITIONS OF THE REAL ESTATE MARKETS;
•VOLATILITY IN THE CAPITAL MARKETS;
•UNFAVORABLE ECONOMIC CONDITIONS;
•IMPAIRMENTS IN THE COMPANY’S GOODWILL OR OTHER INTANGIBLE ASSETS;
•FAILURES AT FINANCIAL INSTITUTIONS WHERE THE COMPANY DEPOSITS FUNDS;
•REGULATORY OVERSIGHT AND CHANGES IN APPLICABLE LAWS AND GOVERNMENT REGULATIONS, INCLUDING PRIVACY AND DATA PROTECTION LAWS;
•HEIGHTENED SCRUTINY BY LEGISLATORS AND REGULATORS OF THE COMPANY’S TITLE INSURANCE AND SERVICES SEGMENT AND CERTAIN OTHER OF THE COMPANY’S BUSINESSES;
•REGULATION OF TITLE INSURANCE RATES;
•LIMITATIONS ON ACCESS TO PUBLIC RECORDS AND OTHER DATA;
•CLIMATE CHANGE, HEALTH CRISES, SEVERE WEATHER CONDITIONS AND OTHER CATASTROPHE EVENTS;
•CHANGES IN RELATIONSHIPS WITH LARGE MORTGAGE LENDERS AND GOVERNMENT-SPONSORED ENTERPRISES;
•CHANGES IN MEASURES OF THE STRENGTH OF THE COMPANY’S TITLE INSURANCE UNDERWRITERS, INCLUDING RATINGS AND STATUTORY CAPITAL AND SURPLUS;
•LOSSES IN THE COMPANY’S INVESTMENT PORTFOLIO OR VENTURE INVESTMENT PORTFOLIO;
•MATERIAL VARIANCE BETWEEN ACTUAL AND EXPECTED CLAIMS EXPERIENCE;
•DEFALCATIONS, INCREASED CLAIMS OR OTHER COSTS AND EXPENSES ATTRIBUTABLE TO THE COMPANY’S USE OF TITLE AGENTS;
•ANY INADEQUACY IN THE COMPANY’S RISK MANAGEMENT FRAMEWORK OR USE OF MODELS;
•SYSTEMS DAMAGE, FAILURES, INTERRUPTIONS, CYBERATTACKS AND INTRUSIONS, OR UNAUTHORIZED DATA DISCLOSURES;
•INNOVATION EFFORTS OF THE COMPANY AND OTHER INDUSTRY PARTICIPANTS AND ANY RELATED MARKET DISRUPTION;
•ERRORS AND FRAUD INVOLVING THE TRANSFER OF FUNDS;
•FAILURES TO RECRUIT AND RETAIN QUALIFIED PERSONNEL;
3
•THE COMPANY’S USE OF A GLOBAL WORKFORCE;
•INABILITY OF THE COMPANY’S SUBSIDIARIES TO PAY DIVIDENDS OR REPAY FUNDS;
•INABILITY TO REALIZE ANTICIPATED SYNERGIES OR PRODUCE RETURNS THAT JUSTIFY INVESTMENT IN ACQUIRED BUSINESSES;
•Changes in the composition of deposits at the Company’s federal savings bank subsidiary; and
•OTHER FACTORS DESCRIBED IN THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING UNDER THE CAPTION “RISK FACTORS” IN ITEM 1A OF PART II.
THE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE TO UPDATE FORWARD-LOOKING STATEMENTS TO REFLECT CIRCUMSTANCES OR EVENTS THAT OCCUR AFTER THE DATE THE FORWARD-LOOKING STATEMENTS ARE MADE.
4
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements.
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Condensed Consolidated Balance Sheets
(in millions, except par values)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
|
December 31,
2021 |
|
Assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,361 |
|
|
$ |
1,228 |
|
Accounts and accrued income receivable, less allowances of $19 and $14 |
|
|
397 |
|
|
|
441 |
|
Income taxes receivable |
|
|
411 |
|
|
|
11 |
|
Investments: |
|
|
|
|
|
|
Deposits with banks |
|
|
61 |
|
|
|
58 |
|
Debt securities, includes pledged securities of $84 and $91 (amortized
costs of $9,314 and $9,317) |
|
|
8,153 |
|
|
|
9,362 |
|
Equity securities |
|
|
764 |
|
|
|
1,176 |
|
|
|
|
8,978 |
|
|
|
10,596 |
|
Secured financings receivable |
|
|
448 |
|
|
|
565 |
|
Property and equipment, net |
|
|
593 |
|
|
|
506 |
|
Operating lease assets |
|
|
258 |
|
|
|
249 |
|
Title plants and other indexes |
|
|
612 |
|
|
|
587 |
|
Deferred income taxes |
|
|
14 |
|
|
|
14 |
|
Goodwill |
|
|
1,811 |
|
|
|
1,588 |
|
Other intangible assets, net |
|
|
205 |
|
|
|
218 |
|
Other assets |
|
|
398 |
|
|
|
448 |
|
|
|
$ |
16,486 |
|
|
$ |
16,451 |
|
Liabilities and Equity |
|
|
|
|
|
|
Deposits |
|
$ |
6,728 |
|
|
$ |
5,069 |
|
Accounts payable and accrued liabilities |
|
|
1,115 |
|
|
|
1,262 |
|
Deferred revenue |
|
|
214 |
|
|
|
224 |
|
Reserve for known and incurred but not reported claims |
|
|
1,314 |
|
|
|
1,284 |
|
Income taxes payable |
|
|
4 |
|
|
|
24 |
|
Deferred income taxes |
|
|
314 |
|
|
|
345 |
|
Operating lease liabilities |
|
|
278 |
|
|
|
274 |
|
Secured financings payable |
|
|
341 |
|
|
|
538 |
|
Notes and contracts payable |
|
|
1,647 |
|
|
|
1,648 |
|
|
|
|
11,955 |
|
|
|
10,668 |
|
Commitments and contingencies (Note 16) |
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
Preferred stock, $0.00001 par value; Authorized—0.5 shares;
Outstanding—none |
|
|
— |
|
|
|
— |
|
Common stock, $0.00001 par value; Authorized—300.0 shares;
Outstanding—103.8 shares and 109.7 shares |
|
|
— |
|
|
|
— |
|
Additional paid-in capital |
|
|
1,834 |
|
|
|
2,179 |
|
Retained earnings |
|
|
3,722 |
|
|
|
3,680 |
|
Accumulated other comprehensive loss |
|
|
(1,048 |
) |
|
|
(92 |
) |
Total stockholders’ equity |
|
|
4,508 |
|
|
|
5,767 |
|
Noncontrolling interests |
|
|
23 |
|
|
|
16 |
|
Total equity |
|
|
4,531 |
|
|
|
5,783 |
|
|
|
$ |
16,486 |
|
|
$ |
16,451 |
|
See notes to condensed consolidated financial statements.
5
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Condensed Consolidated Statements of Income
(in millions, except per share amounts)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Direct premiums and escrow fees |
|
$ |
758 |
|
|
$ |
921 |
|
|
$ |
2,429 |
|
|
$ |
2,624 |
|
Agent premiums |
|
|
910 |
|
|
|
999 |
|
|
|
2,795 |
|
|
|
2,749 |
|
Information and other |
|
|
282 |
|
|
|
309 |
|
|
|
899 |
|
|
|
890 |
|
Net investment income |
|
|
100 |
|
|
|
51 |
|
|
|
199 |
|
|
|
156 |
|
Net investment (losses) gains (realized (losses) gains
of $(50), $7, $(7), $18) |
|
|
(226 |
) |
|
|
276 |
|
|
|
(402 |
) |
|
|
429 |
|
|
|
|
1,824 |
|
|
|
2,556 |
|
|
|
5,920 |
|
|
|
6,848 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs |
|
|
570 |
|
|
|
585 |
|
|
|
1,790 |
|
|
|
1,708 |
|
Premiums retained by agents |
|
|
725 |
|
|
|
794 |
|
|
|
2,231 |
|
|
|
2,184 |
|
Other operating expenses |
|
|
312 |
|
|
|
332 |
|
|
|
993 |
|
|
|
959 |
|
Provision for policy losses and other claims |
|
|
131 |
|
|
|
156 |
|
|
|
380 |
|
|
|
446 |
|
Depreciation and amortization |
|
|
41 |
|
|
|
39 |
|
|
|
124 |
|
|
|
118 |
|
Premium taxes |
|
|
24 |
|
|
|
27 |
|
|
|
71 |
|
|
|
72 |
|
Interest |
|
|
24 |
|
|
|
19 |
|
|
|
63 |
|
|
|
52 |
|
|
|
|
1,827 |
|
|
|
1,952 |
|
|
|
5,652 |
|
|
|
5,539 |
|
(Loss) income before income taxes |
|
|
(3 |
) |
|
|
604 |
|
|
|
268 |
|
|
|
1,309 |
|
Income tax (benefit) expense |
|
|
(6 |
) |
|
|
154 |
|
|
|
57 |
|
|
|
321 |
|
Net income |
|
|
3 |
|
|
|
450 |
|
|
|
211 |
|
|
|
988 |
|
Less: Net income attributable to noncontrolling interests |
|
|
1 |
|
|
|
5 |
|
|
|
2 |
|
|
|
7 |
|
Net income attributable to the Company |
|
$ |
2 |
|
|
$ |
445 |
|
|
$ |
209 |
|
|
$ |
981 |
|
Net income per share attributable to the Company's
stockholders (Note 10): |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.02 |
|
|
$ |
4.01 |
|
|
$ |
1.94 |
|
|
$ |
8.84 |
|
Diluted |
|
$ |
0.02 |
|
|
$ |
4.00 |
|
|
$ |
1.93 |
|
|
$ |
8.81 |
|
Cash dividends per share |
|
$ |
0.52 |
|
|
$ |
0.51 |
|
|
$ |
1.54 |
|
|
$ |
1.43 |
|
Weighted-average common shares outstanding (Note 10): |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
105.3 |
|
|
|
111.0 |
|
|
|
107.8 |
|
|
|
111.0 |
|
Diluted |
|
|
105.5 |
|
|
|
111.4 |
|
|
|
108.1 |
|
|
|
111.3 |
|
See notes to condensed consolidated financial statements.
6
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES Ava
Condensed Consolidated Statements of Comprehensive Income
(in millions)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30, |
|
|
Nine Months Ended
September 30, |
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
Net income |
|
$ |
3 |
|
|
$ |
450 |
|
|
$ |
211 |
|
|
$ |
988 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on debt securities |
|
|
(264 |
) |
|
|
(42 |
) |
|
|
(902 |
) |
|
|
(105 |
) |
Foreign currency translation adjustment |
|
|
(35 |
) |
|
|
(13 |
) |
|
|
(58 |
) |
|
|
(4 |
) |
Pension benefit adjustment |
|
|
1 |
|
|
|
1 |
|
|
|
4 |
|
|
|
3 |
|
Total other comprehensive loss, net of tax |
|
|
(298 |
) |
|
|
(54 |
) |
|
|
(956 |
) |
|
|
(106 |
) |
Comprehensive (loss) income |
|
|
(295 |
) |
|
|
396 |
|
|
|
(745 |
) |
|
|
882 |
|
Less: Comprehensive income attributable to noncontrolling
interests |
|
|
1 |
|
|
|
5 |
|
|
|
2 |
|
|
|
7 |
|
Comprehensive (loss) income attributable to the Company |
|
$ |
(296 |
) |
|
$ |
391 |
|
|
$ |
(747 |
) |
|
$ |
875 |
|
See notes to condensed consolidated financial statements.
7
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Condensed Consolidated Statements of Stockholders’ Equity
(in millions)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First American Financial Corporation Stockholders |
|
|
|
|
|
|
|
|
|
Shares |
|
|
Common
stock |
|
|
Additional
paid-in
capital |
|
|
Retained
earnings |
|
|
Accumulated
other
comprehensive
income (loss) |
|
|
Total
stockholders’
equity |
|
|
Noncontrolling
interests |
|
|
Total |
|
Balance at December 31, 2021 |
|
|
109.7 |
|
|
$ |
— |
|
|
$ |
2,179 |
|
|
$ |
3,680 |
|
|
$ |
(92 |
) |
|
$ |
5,767 |
|
|
$ |
16 |
|
|
$ |
5,783 |
|
Net income for three months
ended March 31, 2022 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
98 |
|
|
|
— |
|
|
|
98 |
|
|
|
— |
|
|
|
98 |
|
Dividends on common shares |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(56 |
) |
|
|
— |
|
|
|
(56 |
) |
|
|
— |
|
|
|
(56 |
) |
Repurchases of Company shares |
|
|
(1.6 |
) |
|
|
— |
|
|
|
(108 |
) |
|
|
— |
|
|
|
— |
|
|
|
(108 |
) |
|
|
— |
|
|
|
(108 |
) |
Shares issued in connection with
share-based compensation |
|
|
0.6 |
|
|
|
— |
|
|
|
(11 |
) |
|
|
(1 |
) |
|
|
— |
|
|
|
(12 |
) |
|
|
— |
|
|
|
(12 |
) |
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
43 |
|
|
|