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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, 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.

 

 

 


 

 

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

 

 

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)

 

 

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.

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,

 

 

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.

6


 

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.

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, 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