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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)

 

 

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)

 

(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 October 25, 2022 there were 103,541,714 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 September 30, 2022 and December 31, 2021

 

 

5

 

 

 

 

 

 

 

 

 

 

B. Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021

 

 

6

 

 

 

 

 

 

 

 

 

 

C. Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021

 

 

7

 

 

 

 

 

 

 

 

 

 

D. Condensed Consolidated Statements of Stockholders’ Equity for each of the quarters within the nine months ended September 30, 2022 and 2021

 

 

8

 

 

 

 

 

 

 

 

 

 

E. Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021

 

 

10

 

 

 

 

 

 

 

 

 

 

F. Notes to Condensed Consolidated Financial Statements

 

 

11

 

 

 

 

 

 

 

 

Item 2.

 

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

 

 

30

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

 

40

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

 

40

 

 

 

 

 

 

 

 

PART II: OTHER INFORMATION

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

 

41

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

 

41

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

51

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

 

52

 

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