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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 March 31, 2024

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)

Delaware

 

26-1911571

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1 First American Way, Santa Ana, California

 

92707-5913

(Address of principal executive offices)

 

(Zip Code)

(714) 250-3000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, $0.00001 par value

 

FAF

 

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.

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

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 April 22, 2024 there were 103,723,643 shares of common stock outstanding.

 

 


 

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

INFORMATION INCLUDED IN REPORT

PART I: FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited)

 

 

 

 

 

 

 

 

 

A. Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

5

 

 

 

 

 

 

 

 

 

 

B. Condensed Consolidated Statements of Income for the three months ended March 31, 2024 and 2023

 

 

6

 

 

 

 

 

 

 

 

 

 

C. Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023

 

 

7

 

 

 

 

 

 

 

 

 

 

D. Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023

 

 

8

 

 

 

 

 

 

 

 

 

E. Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023

10

 

 

 

 

 

 

 

 

 

 

F. Notes to Condensed Consolidated Financial Statements

 

 

11

 

 

 

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

37

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

37

 

 

 

 

 

 

 

 

PART II: OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

38

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

38

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

48

 

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

 

48

 

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

 

48

 

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

 

48

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

49

 

 

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, TERRORIST ATTACKS, 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 EMPLOYEES;

3


 

THE COMPANY’S USE OF A GLOBAL WORKFORCE;
INABILITY OF THE COMPANY TO FULFILL PARENT COMPANY OBLIGATIONS AND/OR PAY DIVIDENDS;
INABILITY TO REALIZE ANTICIPATED SYNERGIES OR PRODUCE RETURNS THAT JUSTIFY INVESTMENT IN ACQUIRED BUSINESSES;
a reduction in the deposits at the Company’s federal savings bank subsidiary;
CLAIMS OF INFRINGEMENT or INABILITY TO ADEQUATELY PROTECT THE COMPANY’S INTELLECTUAL PROPERTY; 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)

 

 

March 31,
2024

 

 

December 31,
2023

 

Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,506.4

 

 

$

3,605.3

 

Accounts and accrued income receivable, less allowance for credit losses of
   $
20.8 and $21.8

 

 

365.7

 

 

 

509.4

 

Income taxes receivable

 

 

71.1

 

 

 

75.7

 

Investments:

 

 

 

 

 

 

Deposits with banks

 

 

77.1

 

 

 

55.8

 

Debt securities (amortized cost of $7,859.0 and $7,895.2; pledged of $89.9 
   and $
107.0)

 

 

7,054.4

 

 

 

7,157.5

 

Equity securities

 

 

733.0

 

 

 

735.6

 

 

$

7,864.5

 

 

$

7,948.9

 

Secured financings receivable

 

 

831.4

 

 

 

636.5

 

Property and equipment, net

 

 

765.6

 

 

 

749.6

 

Operating lease assets

 

 

218.4

 

 

 

229.3

 

Title plants and other indexes

 

 

656.2

 

 

 

652.4

 

Deferred income taxes

 

 

50.1

 

 

 

50.1

 

Goodwill

 

 

1,807.3

 

 

 

1,807.5

 

Other intangible assets, net

 

 

147.6

 

 

 

153.8

 

Other assets

 

 

413.5

 

 

 

384.3

 

 

$

14,697.8

 

 

$

16,802.8

 

Liabilities and Equity

 

 

 

 

 

 

Deposits

 

 

5,303.2

 

 

 

7,308.0

 

Accounts payable and accrued liabilities

 

 

745.0

 

 

 

879.5

 

Deferred revenue

 

 

183.0

 

 

 

196.8

 

Reserve for known and incurred but not reported claims

 

 

1,261.6

 

 

 

1,282.4

 

Income taxes payable

 

 

15.3

 

 

 

15.9

 

Deferred income taxes

 

 

63.6

 

 

 

63.6

 

Operating lease liabilities

 

 

235.4

 

 

 

246.6

 

Secured financings payable

 

 

688.8

 

 

 

553.3

 

Notes and contracts payable

 

 

1,396.0

 

 

 

1,393.9

 

 

$

9,891.9

 

 

$

11,940.0

 

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—
103.7 shares and 103.1 shares

 

 

 

 

 

 

Additional paid-in capital

 

 

1,806.0

 

 

 

1,793.3

 

Retained earnings

 

 

3,701.6

 

 

 

3,710.6

 

Accumulated other comprehensive loss

 

 

(720.5

)

 

 

(655.8

)

Total stockholders’ equity

 

$

4,787.1

 

 

$

4,848.1

 

Noncontrolling interests

 

 

18.8

 

 

 

14.7

 

Total equity

 

$

4,805.9

 

 

$

4,862.8

 

 

$

14,697.8

 

 

$

16,802.8

 

 

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

 

 

 

March 31,

 

 

 

2024

 

 

2023

 

 

Revenues

 

 

 

 

 

 

 

Direct premiums and escrow fees

 

$

500.9

 

 

$

502.2

 

 

Agent premiums

 

 

563.8

 

 

 

590.4

 

 

Information and other

 

 

223.0

 

 

 

226.9

 

 

Net investment income

 

 

127.9

 

 

 

134.0

 

 

Net investment gains (losses) (realized of $(3.4) and $(4.5))

 

 

9.0

 

 

 

(7.4

)

 

 

 

1,424.6

 

 

 

1,446.1

 

 

Expenses

 

 

 

 

 

 

 

Personnel costs

 

 

484.9

 

 

 

487.6

 

 

Premiums retained by agents

 

 

447.8

 

 

 

469.0

 

 

Other operating expenses

 

 

265.8

 

 

 

258.5

 

 

Provision for policy losses and other claims

 

 

69.5

 

 

 

82.3

 

 

Depreciation and amortization

 

 

50.1

 

 

 

45.5

 

 

Premium taxes

 

 

13.9

 

 

 

14.5

 

 

Interest

 

 

34.3

 

 

 

29.1

 

 

 

 

1,366.3

 

 

 

1,386.5

 

 

Income before income taxes

 

 

58.3

 

 

 

59.6

 

 

Income taxes

 

 

11.6

 

 

 

13.6

 

 

Net income

 

 

46.7

 

 

 

46.0

 

 

Less: Net income attributable to noncontrolling interests

 

 

 

 

 

0.1

 

 

Net income attributable to the Company

 

$

46.7

 

 

$

45.9

 

 

Net income per share attributable to the Company's stockholders (Note 10):

 

 

 

 

 

 

 

Basic

 

$

0.45

 

 

$

0.44

 

 

Diluted

 

$

0.45

 

 

$

0.44

 

 

Cash dividends per share

 

$

0.53

 

 

$

0.52

 

 

Weighted-average common shares outstanding (Note 10):

 

 

 

 

 

 

 

Basic

 

 

104.1

 

 

 

104.5

 

 

Diluted

 

 

104.4

 

 

 

104.8

 

 

 

See notes to condensed consolidated financial statements.

6


 

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Comprehensive Income

(in millions)

(unaudited)

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

 

Net income

 

$

46.7

 

 

$

46.0

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

Unrealized (losses) gains on debt securities

 

 

(50.6

)

 

 

110.1

 

 

Foreign currency translation adjustment

 

 

(14.5

)

 

 

2.6

 

 

Pension benefit adjustment

 

 

0.4

 

 

 

0.3

 

 

Total other comprehensive (loss) income, net of tax

 

 

(64.7

)

 

 

113.0

 

 

Comprehensive (loss) income

 

 

(18.0

)

 

 

159.0

 

 

Less: Comprehensive income attributable to noncontrolling interests

 

 

 

 

 

0.1

 

 

Comprehensive (loss) income attributable to the Company

 

$

(18.0

)

 

$

158.9

 

 

 

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, 2023

 

 

103.1

 

 

$

 

 

$

1,793.3

 

 

$

3,710.6

 

 

$

(655.8

)

 

$

4,848.1

 

 

$

14.7

 

 

$

4,862.8

 

Net income for three months
   ended March 31, 2024

 

 

 

 

 

 

 

 

 

 

 

46.7

 

 

 

 

 

 

46.7

 

 

 

 

 

 

46.7

 

Dividends on common shares

 

 

 

 

 

 

 

 

 

 

 

(54.9

)

 

 

 

 

 

(54.9

)

 

 

 

 

 

(54.9

)

Repurchases of Company shares

 

 

(0.1

)

 

 

 

 

 

(3.5

)

 

 

 

 

 

 

 

 

(3.5

)

 

 

 

 

 

(3.5

)

Shares issued in connection with
   share-based compensation

 

 

0.7

 

 

 

 

 

 

(7.2

)

 

 

(0.8

)

 

 

 

 

 

(8.0

)

 

 

 

 

 

(8.0

)

Share-based compensation

 

 

 

 

 

 

 

 

23.4

 

 

 

 

 

 

 

 

 

23.4

 

 

 

 

 

 

23.4

 

Net activity related to
   noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.1

 

 

 

4.1

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(64.7

)

 

 

(64.7

)

 

 

 

 

 

(64.7

)

Balance at March 31, 2024

 

 

103.7

 

 

$

 

 

$

1,806.0

 

 

$

3,701.6

 

 

$

(720.5

)

 

$

4,787.1

 

 

$

18.8

 

 

$

4,805.9

 

 

See notes to condensed consolidated financial statements.

 

8


 

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Stockholders’ Equity – (Continued)

(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, 2022

 

 

103.2

 

 

$

 

 

$

1,812.4

 

 

$

3,714.3

 

 

$

(868.9

)

 

$

4,657.8

 

 

$

23.4

 

 

$

4,681.2

 

Net income for three months
   ended March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

45.9

 

 

 

 

 

 

45.9

 

 

 

0.1

 

 

 

46.0

 

Dividends on common shares

 

 

 

 

 

 

 

 

 

 

 

(53.8

)

 

 

 

 

 

(53.8

)

 

 

 

 

 

(53.8

)

Repurchases of Company shares

 

 

(0.6

)

 

 

 

 

 

(30.4

)

 

 

 

 

 

 

 

 

(30.4

)

 

 

 

 

 

(30.4

)

Shares issued in connection with
   share-based compensation

 

 

0.7

 

 

 

 

 

 

(4.9

)

 

 

(1.1

)

 

 

 

 

 

(6.0

)

 

 

 

 

 

(6.0

)

Share-based compensation

 

 

 

 

 

 

 

 

23.0

 

 

 

 

 

 

 

 

 

23.0

 

 

 

 

 

 

23.0

 

Net activity related to
   noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.1

)

 

 

(1.1

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

113.0

 

 

 

113.0

 

 

 

 

 

 

113.0

 

Balance at March 31, 2023

 

 

103.3

 

 

$

 

 

$

1,800.1

 

 

$

3,705.3

 

 

$

(755.9

)

 

$

4,749.5

 

 

$

22.4

 

 

$

4,771.9

 

 

See notes to condensed consolidated financial statements.

9


 

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Cash Flows

(in millions)

(unaudited)

 

 

Three Months Ended
March 31,

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

46.7

 

 

$

46.0

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

Provision for policy losses and other claims

 

 

69.5

 

 

 

82.3

 

Depreciation and amortization

 

 

50.1

 

 

 

45.5

 

Amortization of premiums and accretion of discounts on debt securities, net

 

 

2.1

 

 

 

1.6

 

Net investment (gains) losses

 

 

(9.0

)

 

 

7.4

 

Share-based compensation

 

 

23.4

 

 

 

23.0

 

Equity in earnings of affiliates, net

 

 

(1.1

)

 

 

(0.5

)

Dividends from equity method investments

 

 

0.8

 

 

 

1.6

 

Changes in assets and liabilities excluding effects of acquisitions and noncash transactions:

 

 

 

 

 

 

Claims paid, including assets acquired, net of recoveries

 

 

(91.6

)

 

 

(95.2

)

Net change in income tax accounts

 

 

20.9

 

 

 

11.7

 

Decrease in accounts and accrued income receivable

 

 

160.2

 

 

 

12.7

 

Decrease in accounts payable and accrued liabilities

 

 

(143.7

)

 

 

(202.9

)

Decrease in deferred revenue

 

 

(13.8

)

 

 

(12.8

)

Other, net

 

 

(45.2

)

 

 

(12.7

)

Cash provided by (used for) operating activities

 

 

69.3

 

 

 

(92.3

)

Cash flows from investing activities:

 

 

 

 

 

 

Acquisitions/dispositions, net of cash acquired/divested

 

 

(3.5

)

 

 

(4.9

)

Net (increase) decrease in deposits with banks

 

 

(23.3

)

 

 

9.3

 

Purchases of debt securities

 

 

(332.5

)

 

 

(246.3

)

Proceeds from sales of debt securities

 

 

224.5

 

 

 

715.5

 

Proceeds from maturities of debt securities

 

 

132.8

 

 

 

210.5

 

Purchases of equity securities

 

 

(31.6

)

 

 

(34.2

)

Proceeds from sales of equity securities

 

 

44.2

 

 

 

11.1

 

Net change in other investments

 

 

(1.6

)

 

 

(0.8

)

Advances under secured financing agreements

 

 

(4,792.6

)

 

 

(2,778.4

)

Collections of secured financings receivable

 

 

4,601.0

 

 

 

2,606.0

 

Capital expenditures

 

 

(51.7

)

 

 

(63.1

)

Proceeds from sales of property and equipment

 

 

 

 

 

0.1

 

Proceeds from insurance settlement

 

 

2.9

 

 

 

2.1

 

Cash (used for) provided by investing activities

 

 

(231.4

)

 

 

426.9

 

Cash flows from financing activities:

 

 

 

 

 

 

Net change in deposits

 

 

(2,004.8

)

 

 

630.2

 

Borrowings under secured financing agreements

 

 

4,732.8

 

 

 

2,749.4

 

Repayments of secured financings payable

 

 

(4,597.3

)

 

 

(2,612.8

)

Repayment of senior unsecured notes

 

 

 

 

 

(250.0

)

Repayments of other notes and contracts payable

 

 

(0.6

)

 

 

(1.8

)

Net activity related to noncontrolling interests

 

 

4.1

 

 

 

(1.1

)

Net payments in connection with share-based compensation

 

 

(8.0

)

 

 

(6.0

)

Repurchases of Company shares

 

 

(3.5

)

 

 

(30.4

)

Payments of cash dividends

 

 

(54.9

)

 

 

(53.8

)

Cash (used for) provided by financing activities

 

 

(1,932.2

)

 

 

423.7

 

Effect of exchange rate changes on cash

 

 

(4.6

)

 

 

1.6

 

Net (decrease) increase in cash and cash equivalents

 

 

(2,098.9

)

 

 

759.9

 

Cash and cash equivalents—Beginning of period

 

 

3,605.3

 

 

 

1,223.5

 

Cash and cash equivalents—End of period

 

$

1,506.4

 

 

$

1,983.4

 

Supplemental information:

 

 

 

 

 

 

Cash paid (received) during the period for:

 

 

 

 

 

 

Interest

 

$

36.2

 

 

$

25.9

 

Premium taxes

 

$

19.5

 

 

$

30.6

 

Income taxes paid

 

$

3.4

 

 

$

1.9

 

Income tax refunds

 

$

(12.7

)

 

$

(0.2

)

 

 

See notes to condensed consolidated financial statements.

10


 

 

FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES

Notes to Condensed Consolidated Financial Statements
(unaudited)

 

Note 1 – Basis of Condensed Consolidated Financial Statements

Basis of Presentation

The condensed consolidated financial information included in this report has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and Article 10 of Securities and Exchange Commission Regulation S-X. The principles for condensed interim financial information do not require the inclusion of all the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with the First American Financial Corporation (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2023. The condensed consolidated financial statements included herein are unaudited; however, in the opinion of management, they contain all normal recurring adjustments necessary for a fair statement of the consolidated results for the interim periods. All material intercompany transactions and balances have been eliminated upon consolidation.

Out-of-period adjustment

During the three months ended March 31, 2024, the Company identified certain uncollectible balances related to fees within its title insurance and services segment, which primarily related to reporting periods in 2023 and prior, that should have been previously written off. To correct for this error, the Company recorded an adjustment in the current quarter, which increased other operating expenses and increased accounts payable and accrued liabilities by $6.2 million.

Recently Adopted Accounting Pronouncements

In June 2022, the Financial Accounting Standards Board (“FASB”) issued updated guidance intended to increase the comparability of financial information across reporting entities that have investments in equity securities measured at fair value that are subject to contractual restrictions preventing the sale of those securities. The updated guidance clarified that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, as a result, should not be considered in measuring fair value. In addition, new disclosures were required about the nature of the restrictions and their remaining duration. The updated guidance, which was adopted on January 1, 2024, had no impact on the Company's condensed consolidated financial statements.

Pending Accounting Pronouncements

In December 2023, the FASB issued updated guidance intended to enhance the transparency and decision usefulness of income tax disclosures. The updated guidance requires disclosure of specific categories and greater disaggregation of information included in the rate reconciliation and additional disclosures related to income taxes paid. The updated guidance is effective for annual reporting periods beginning after December 15, 2024. Except for the disclosure requirements, the Company does not expect the adoption of this guidance to have a material impact its condensed consolidated financial statements.

In November 2023, the FASB issued updated guidance intended to improve financial reporting by requiring disclosure of incremental segment information to enable investors to develop more decision-useful financial analyses. The updated guidance improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The updated guidance is effective for annual reporting periods beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments in this update are required to applied retrospectively to all periods presented in the financial statements. Except for the disclosure requirements, the Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements.

11


FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)

(unaudited)

 

 

In August 2023, the FASB issued updated guidance that is intended to provide decision-useful information to investors and reduce diversity in practice in accounting for contributions made to a joint venture, upon formation, in a joint venture’s separate financial statements. The updated guidance will require joint ventures to recognize and initially measure their assets and liabilities at fair value, with certain exceptions to fair value measurement consistent with business combination guidance. The updated guidance is effective prospectively for all joint venture formations with a formation date on or after January 1, 2025, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements.

Note 2 –Trust Assets, Escrow and Other Deposits

The Company administers escrow deposits as a service to customers in its direct title operations. Escrow deposits totaled $8.9 billion and $10.6 billion at March 31, 2024 and December 31, 2023, respectively, of which $4.3 billion and $6.3 billion, respectively, were held at First American Trust, FSB (“FA Trust”). The remaining deposits were held at third-party financial institutions. Escrow deposits held at third-party financial institutions are not considered assets of the Company and, therefore, are not included in the accompanying condensed consolidated balance sheets. All such amounts are placed in deposit accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation. The Company could be held contingently liable for the disposition of these assets.

Trust assets administered by FA Trust totaled $4.6 billion and $4.4 billion at March 31, 2024 and December 31, 2023, respectively, of which $127.4 million and $197.1 million, respectively, were held at FA Trust. The remaining trust assets were held at third-party financial institutions. Trust assets, which are administered by FA Trust and held at third-party institutions, are fiduciary client assets and are not considered assets of the Company and, therefore, are not included in the accompanying condensed consolidated balance sheets. The Company could be held contingently liable if FA Trust were to breach any of its fiduciary duties.

In conducting its operations, the Company often holds customers’ assets in escrow, pending completion of real estate transactions and, as a result, the Company has ongoing programs for realizing economic benefits with various financial institutions. The results from these programs are included as income or a reduction in expense, as appropriate, in the condensed consolidated statements of income based on the nature of the arrangement and benefit received.

The Company facilitates tax-deferred property exchanges for customers pursuant to Section 1031 of the Internal Revenue Code and tax-deferred reverse exchanges pursuant to Revenue Procedure 2000-37. As a facilitator and intermediary, the Company holds the proceeds from sales transactions and takes temporary title to property identified by the customer to be acquired with such proceeds. Upon the completion of each such exchange, the identified property is transferred to the customer or, if the exchange does not take place, an amount equal to the sales proceeds or, in the case of a reverse exchange, title to the property held by the Company is transferred to the customer. Like-kind exchange funds administered by the Company totaled $1.7 billion and $1.8 billion at March 31, 2024 and December 31, 2023, respectively. The like-kind exchange deposits are held at third-party financial institutions and, due to the structure utilized to facilitate these transactions, the proceeds and property are not considered assets of the Company and, therefore, are not included in the accompanying condensed consolidated balance sheets. All such amounts are placed in deposit accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation. The Company could be held contingently liable to the customer for the transfers of property, disbursements of proceeds and the returns on such proceeds.

In conducting its residential mortgage loan subservicing operations, the Company administers cash deposits on behalf of its clients. Cash deposits totaled $1.0 billion and $830.5 million at March 31, 2024 and December 31, 2023, respectively, of which $623.2 million and $485.7 million, respectively, were held at FA Trust. The remaining deposits were held at third-party financial institutions. Cash deposits held at third-party financial institutions are not considered assets of the Company and, therefore, are not included in the accompanying condensed consolidated balance sheets. All such amounts are placed in deposit accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation. The Company could be held contingently liable for the disposition of these assets. In connection with certain accounts, the Company has ongoing programs for realizing economic benefits with various financial institutions whereby it earns economic benefits either as income or as a reduction in expense.

12


FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements – (Continued)

(unaudited)

 

 

Deposit balances held at FA Trust are temporarily invested in cash and cash equivalents and debt securities, with offsetting liabilities included in deposits in the accompanying condensed consolidated balance sheets.

Note 3 – Debt Securities

Investments in debt securities, classified as available-for-sale, are as follows:

 

 

Amortized

 

 

Gross unrealized

 

 

Estimated

 

(in millions)

 

cost

 

 

Gains

 

 

Losses

 

 

fair value

 

March 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds

 

$

163.1

 

 

$

 

 

$

(5.9

)

 

$

157.2

 

Municipal bonds

 

 

1,381.2

 

 

 

7.1

 

 

 

(139.0

)

 

 

1,249.3

 

Foreign government bonds

 

 

209.9

 

 

 

0.2

 

 

 

(10.7

)

 

 

199.4

 

Governmental agency bonds

 

 

214.3

 

 

 

 

 

 

(13.9

)

 

 

200.4

 

Governmental agency mortgage-backed securities

 

 

4,316.7

 

 

 

2.2

 

 

 

(573.0

)

 

 

3,745.9

 

U.S. corporate debt securities

 

 

1,075.4

 

 

 

4.4

 

 

 

(58.6

)

 

 

1,021.2

 

Foreign corporate debt securities

 

 

498.4

 

 

 

4.0

 

 

 

(21.4

)

 

 

481.0

 

 

$

7,859.0

 

 

$

17.9

 

 

$

(822.5

)

 

$

7,054.4

 

December 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds

 

$

203.3

 

 

$

0.5

 

 

$

(4.5

)

 

$

199.3

 

Municipal bonds

 

 

1,373.7

 

 

 

8.8

 

 

 

(136.7

)

 

 

1,245.8

 

Foreign government bonds

 

 

228.4

 

 

 

1.4

 

 

 

(10.5

)

 

 

219.3

 

Governmental agency bonds

 

 

207.7

 

 

 

0.2

 

 

 

(12.5

)

 

 

195.4

 

Governmental agency mortgage-backed securities

 

 

4,396.2

 

 

 

6.3

 

 

 

(526.8

)

 

 

3,875.7

 

U.S. corporate debt securities

 

 

1,007.0

 

 

 

6.6

 

 

 

(55.2

)