First American Financial Corp [FAF] Filings

 

 

 

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, 2023

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 October 23, 2023 there were 103,181,278 shares of common stock outstanding.

 

 

 

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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, 2023 and December 31, 2022			5
		B. Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022			6
		C. Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022			7
		D. Condensed Consolidated Statements of Stockholders’ Equity for each of the quarters within the nine months ended September 30, 2023 and 2022			8
		E. Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022			10
		F. Notes to Condensed Consolidated Financial Statements			11
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			39
Item 4.		Controls and Procedures			39
PART II: OTHER INFORMATION
Item 1.		Legal Proceedings			40
Item 1A.		Risk Factors			40
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			50
Item 3.		Defaults Upon Senior Securities			50
Item 4.		Mine Safety Disclosures			50
Item 5.		Other Information			50
Item 6.		Exhibits			51

 

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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:

 

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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.

 

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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, 2023				December 31, 2022
Assets
Cash and cash equivalents		$	1,579.1			$	1,223.5
Accounts and accrued income receivable, less allowance for credit losses of    $20.5 and $21.3			389.3				367.1
Income taxes receivable			32.8				22.0
Investments:
Deposits with banks			55.3				63.4
Debt securities (amortized cost of $8,414.7 and $9,169.6; pledged of $98.8     and $86.0)			7,227.2				8,169.6
Equity securities			708.7				754.2
		$	7,991.2			$	8,987.2
Secured financings receivable			655.5				422.7
Property and equipment, net			730.9				636.9
Operating lease assets			237.0				248.0
Title plants and other indexes			647.8				639.8
Deferred income taxes			54.5				54.5
Goodwill			1,800.1				1,798.2
Other intangible assets, net			162.4				193.8
Other assets			397.0				361.6
		$	14,677.6			$	14,955.3
Liabilities and Equity
Deposits			5,613.1				5,519.7
Accounts payable and accrued liabilities			810.9				915.0
Deferred revenue			207.7				196.9
Reserve for known and incurred but not reported claims			1,299.5				1,325.3
Income taxes payable			8.2				10.0
Deferred income taxes			18.8				18.8
Operating lease liabilities			254.8				269.3
Secured financings payable			530.4				366.3
Notes and contracts payable			1,392.2				1,645.8
		$	10,135.6			$	10,267.1
Commitments and contingencies (Note 17)
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—103.3 shares and 103.2 shares			—				—
Additional paid-in capital			1,797.8				1,812.4
Retained earnings			3,739.0				3,721.3
Accumulated other comprehensive loss			(1,009.6	)			(868.9	)
Total stockholders’ equity		$	4,527.2			$	4,664.8
Noncontrolling interests			14.8				23.4
Total equity		$	4,542.0			$	4,688.2
		$	14,677.6			$	14,955.3

 

See notes to condensed consolidated financial statements.

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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,
		2023				2022				2023				2022
Revenues
Direct premiums and escrow fees		$	595.5			$	757.8			$	1,713.0			$	2,428.5
Agent premiums			664.5				909.7				1,879.6				2,794.7
Information and other			245.7				282.3				722.9				900.5
Net investment income			139.1				100.6				423.4				199.2
Net investment gains (losses) (realized of $(5.1),    $(50.1), $(12.4), $(6.6))			(163.6	)			(226.1	)			(164.7	)			(402.4	)
			1,481.2				1,824.3				4,574.2				5,920.5
Expenses
Personnel costs			485.8				569.8				1,487.9				1,789.8
Premiums retained by agents			531.4				724.8				1,496.8				2,230.8
Other operating expenses			273.8				312.1				804.8				992.8
Provision for policy losses and other claims			91.1				131.5				262.9				380.4
Depreciation and amortization			47.3				41.4				138.9				124.0
Premium taxes			17.7				23.9				47.7				71.3
Interest			35.8				24.0				99.2				63.4
			1,482.9				1,827.5				4,338.2				5,652.5
(Loss) income before income taxes			(1.7	)			(3.2	)			236.0				268.0
Income tax (benefit) expense			(0.5	)			(5.6	)			54.8				57.3
Net (loss) income			(1.2	)			2.4				181.2				210.7
Less: Net income (loss) attributable to noncontrolling    interests			0.5				0.4				(1.5	)			2.0
Net (loss) income attributable to the Company		$	(1.7	)		$	2.0			$	182.7			$	208.7
Net (loss) income per share attributable to the Company's    stockholders (Note 11):
Basic		$	(0.02	)		$	0.02			$	1.75			$	1.94
Diluted		$	(0.02	)		$	0.02			$	1.75			$	1.93
Cash dividends per share		$	0.53			$	0.52			$	1.57			$	1.54
Weighted-average common shares outstanding (Note 11):
Basic			104.2				105.3				104.4				107.8
Diluted			104.2				105.5				104.7				108.1

 

See notes to condensed consolidated financial statements.

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FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Comprehensive Income

(in millions)

(unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2023				2022				2023				2022
Net (loss) income		$	(1.2	)		$	2.4			$	181.2			$	210.7
Other comprehensive income (loss), net of tax:
Unrealized losses on debt securities			(171.6	)			(262.7	)			(141.2	)			(901.1	)
Foreign currency translation adjustment			(14.4	)			(35.8	)			(0.6	)			(58.0	)
Pension benefit adjustment			0.4				1.1				1.1				3.3
Total other comprehensive loss, net of tax			(185.6	)			(297.4	)			(140.7	)			(955.8	)
Comprehensive (loss) income			(186.8	)			(295.0	)			40.5				(745.1	)
Less: Comprehensive income (loss) attributable to    noncontrolling interests			0.5				0.4				(1.5	)			2.0
Comprehensive (loss) income attributable to the Company		$	(187.3	)		$	(295.4	)		$	42.0			$	(747.1	)

 

See notes to condensed consolidated financial statements.

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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, 2022			103.2			$	—			$	1,812.4			$	3,721.3			$	(868.9	)		$	4,664.8			$	23.4			$	4,688.2
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				3,712.3				(755.9	)			4,756.5				22.4				4,778.9
Net income (loss) for three months    ended June 30, 2023			—				—				—				138.5				—				138.5				(2.1	)			136.4
Dividends on common shares			—				—				—				(53.6	)			—				(53.6	)			—				(53.6	)
Repurchases of Company shares			(0.2	)			—				(15.3	)			—				—				(15.3	)			—				(15.3	)
Shares issued in connection with    share-based compensation			0.1				—				6.0				(1.0	)			—				5.0				—				5.0
Share-based compensation			—