10-Q 1 faf-10q_20220331.htm Q1 2022 FORM 10-Q faf-10q_20220331.htm
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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, 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 April 25, 2022 there were 107,405,227 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, 2022 and December 31, 2021

  

 

5

 

 

 

 

 

 

 

 

 

 

B. Condensed Consolidated Statements of Income for the three months ended March 31, 2022 and 2021

 

 

6

 

 

 

 

 

 

 

 

 

 

C. Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021

 

 

7

 

 

 

 

 

 

 

 

 

 

D. Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2022 and 2021

 

 

8

 

 

 

 

 

 

 

 

 

 

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

  

 

28

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

 

36

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

  

 

36

 

 

 

 

 

 

 

 

PART II: OTHER INFORMATION

  

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

  

 

37

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

  

 

37

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

 

47

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

  

 

48

 

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; 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,

2022

 

 

December 31,

2021

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

1,704

 

 

$

1,228

 

Accounts and accrued income receivable, less allowances of $14 and $14

 

464

 

 

 

441

 

Income taxes receivable

 

92

 

 

 

11

 

Investments:

 

 

 

 

 

 

 

Deposits with banks

 

56

 

 

 

58

 

Debt securities, includes pledged securities of $89 and $91 (amortized cost of
$9,388 and $9,317)

 

8,937

 

 

 

9,362

 

Equity securities

 

1,094

 

 

 

1,176

 

 

 

10,087

 

 

 

10,596

 

Secured financings receivable

 

606

 

 

 

565

 

Property and equipment, net

 

523

 

 

 

506

 

Operating lease assets

 

243

 

 

 

249

 

Title plants and other indexes

 

588

 

 

 

587

 

Deferred income taxes

 

14

 

 

 

14

 

Goodwill

 

1,598

 

 

 

1,588

 

Other intangible assets, net

 

208

 

 

 

218

 

Other assets

 

400

 

 

 

448

 

 

$

16,527

 

 

$

16,451

 

Liabilities and Equity

 

 

 

 

 

 

 

Deposits

$

5,773

 

 

$

5,069

 

Accounts payable and accrued liabilities

 

1,051

 

 

 

1,262

 

Deferred revenue

 

201

 

 

 

224

 

Reserve for known and incurred but not reported claims

 

1,301

 

 

 

1,284

 

Income taxes payable

 

6

 

 

 

24

 

Deferred income taxes

 

345

 

 

 

345

 

Operating lease liabilities

 

266

 

 

 

274

 

Secured financings payable

 

558

 

 

 

538

 

Notes and contracts payable

 

1,647

 

 

 

1,648

 

 

 

11,148

 

 

 

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—108.7 shares and 109.7 shares

 

 

 

 

 

Additional paid-in capital

 

2,103

 

 

 

2,179

 

Retained earnings

 

3,721

 

 

 

3,680

 

Accumulated other comprehensive loss

 

(461

)

 

 

(92

)

Total stockholders’ equity

 

5,363

 

 

 

5,767

 

Noncontrolling interests

 

16

 

 

 

16

 

Total equity

 

5,379

 

 

 

5,783

 

 

$

16,527

 

 

$

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
March 31,

 

 

 

2022

 

 

2021

 

Revenues

 

 

 

 

  

 

 

 

Direct premiums and escrow fees

 

$

774

  

 

$

786

  

Agent premiums

 

 

948

  

 

 

845

  

Information and other

 

 

309

  

 

 

279

  

Net investment income

 

 

46

  

 

 

49

  

Net investment (losses) gains (realized gains of $50 and $5)

 

 

(43

)

 

 

67

 

 

 

 

2,034

  

 

 

2,026

  

Expenses

 

 

 

 

 

 

 

 

Personnel costs

 

 

602

  

 

 

535

  

Premiums retained by agents

 

 

758

  

 

 

671

  

Other operating expenses

 

 

337

  

 

 

296

  

Provision for policy losses and other claims

 

 

122

  

 

 

140

  

Depreciation and amortization

 

 

41

  

 

 

38

  

Premium taxes

 

 

24

  

 

 

23

  

Interest

 

 

20

  

 

 

17

  

 

 

 

1,904

  

 

 

1,720

  

Income before income taxes

 

 

130

  

 

 

306

  

Income taxes

 

 

32

  

 

 

72

  

Net income

 

$

98

  

 

$

234

  

Net income per share (Note 10):

 

 

 

 

 

 

 

 

Basic

 

$

0.89

  

 

$

2.10

  

Diluted

 

$

0.88

  

 

$

2.10

  

Cash dividends declared per share

 

$

0.51

  

 

$

0.46

  

Weighted-average common shares outstanding (Note 10):

 

 

 

 

 

 

 

 

Basic

 

 

110.4

  

 

 

111.1

  

Diluted

 

 

110.8

  

 

 

111.4

  

 

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,

 

 

 

2022

 

 

2021

 

Net income

 

$

98

 

 

$

234

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

Unrealized losses on debt securities

 

 

(371

)

 

 

(100

)

Foreign currency translation adjustment

 

 

1

 

 

 

3

 

Pension benefit adjustment

 

 

1

 

 

 

1

 

Total other comprehensive loss, net of tax

 

 

(369

)

 

 

(96

)

Comprehensive (loss) income

 

(271

)

 

$

138

 

 

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

 

 

 

  

 

 

  

 

 

  

 

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

  

  

 

 

 

 

 

 

 

43

 

 

 

 

 

 

43

 

Other comprehensive loss

 

 

 

  

 

 

  

 

 

  

 

 

 

 

(369

)

 

 

(369

)

 

 

 

 

 

(369

)

Balance at March 31, 2022

 

 

108.7

  

  

$

  

  

$

2,103

  

  

$

3,721

  

 

$

(461

 

$

5,363

 

 

$

16

 

 

$

5,379

  

 

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, 2020

 

 

110.4

 

 

$

 

 

$

2,215

 

 

$

2,655

 

 

$

40

 

 

$

4,910

 

 

$

12

 

 

$

4,922

  

Net income

 

 

 

  

 

 

  

 

 

  

 

234

  

 

 

 

 

 

234

  

 

 

 

 

 

234

  

Dividends on common shares

 

 

 

  

 

 

  

 

 

  

 

(51

 

 

 

 

 

(51

)

 

 

 

 

 

(51

)

Repurchases of Company shares

 

 

(1.2

)

 

 

 

 

 

(65

)

 

 

 

 

 

 

 

 

(65

)

 

 

 

 

 

(65

)

Shares issued in connection with share-based compensation

 

 

0.5

  

  

 

 

  

 

(7

)

  

 

(1

 

 

 

 

 

(8

)

 

 

 

 

 

(8

)

Share-based compensation

 

 

 

  

 

 

  

 

31

  

  

 

 

 

 

 

 

 

31

 

 

 

 

 

 

31

 

Net activity related to noncontrolling interests

 

 

 

  

 

 

  

 

 

  

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Other comprehensive loss

 

 

 

  

 

 

  

 

 

  

 

 

 

 

(96

)

 

 

(96

)

 

 

 

 

 

(96

)

Balance at March 31, 2021

 

 

109.7

  

  

$

  

  

$

2,174

  

  

$

2,837

  

 

$

(56

 

$

4,955

 

 

$

11

 

 

$

4,966

  

 

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,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

98

 

 

$

234

 

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

 

 

 

 

 

 

 

 

Provision for policy losses and other claims

 

 

122

 

 

 

140

 

Depreciation and amortization

 

 

41

 

 

 

38

 

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

 

 

11

 

 

 

11

 

Net investment losses (gains)

 

 

43

 

 

 

(67

)

Share-based compensation

 

 

43

 

 

 

31

 

Equity in earnings of affiliates, net

 

 

(4

)

 

 

(1

)

Dividends from equity method investments

 

 

2

 

 

 

3

 

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

 

 

 

 

 

 

 

 

Claims paid, including assets acquired, net of recoveries

 

 

(101

)

 

 

(118

)

Net change in income tax accounts

 

 

25

 

 

 

64

 

Decrease (increase) in accounts and accrued income receivable

 

 

6

 

 

 

(8

)

Decrease in accounts payable and accrued liabilities

 

 

(246

)

 

 

(82

)

Decrease in deferred revenue

 

 

(24

)

 

 

(19

)

Other, net

 

 

24

 

 

 

(2

)

Cash provided by operating activities

 

 

40

 

 

 

224

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Net cash effect of acquisitions/dispositions

 

 

(9

)

 

 

 

Net decrease in deposits with banks

 

 

2

 

 

 

 

Purchases of debt securities

 

 

(742

)

 

 

(1,408

)

Proceeds from sales of debt securities

 

 

296

 

 

 

191

 

Proceeds from maturities of debt securities

 

 

368

 

 

 

432

 

Purchases of equity securities

 

 

(22

)

 

 

(19

)

Proceeds from sales of equity securities

 

 

83

 

 

 

68

 

Net change in other investments

 

 

1

 

 

 

(19

)

Advances under secured financing agreements

 

 

(5,381

)

 

 

(6,282

)

Collections of secured financings receivable

 

 

5,339

 

 

 

6,285

 

Capital expenditures

 

 

(43

)

 

 

(29

)

Proceeds from sales of property and equipment

 

 

 

 

 

1

 

Proceeds from insurance settlement

 

 

1

 

 

 

1

 

Cash used for investing activities

 

 

(107

)

 

 

(779

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net change in deposits

 

 

704

 

 

 

1,304

 

Borrowings under secured financing agreements

 

 

5,369

 

 

 

5,235

 

Repayments of secured financings payable

 

 

(5,351

)

 

 

(5,106

)

Repayments of other notes and contracts payable

 

 

(2

)

 

 

(2

)

Net activity related to noncontrolling interests

 

 

(1

)

 

 

(2

)

Net payments in connection with share-based compensation

 

 

(12

)

 

 

(8

)

Repurchases of Company shares

 

 

(108

)

 

 

(65

)

Payments of cash dividends

 

 

(56

)

 

 

(51

)

Cash provided by financing activities

 

 

543

 

 

 

1,305

 

Effect of exchange rate changes on cash

 

 

 

 

 

1

 

Net increase in cash and cash equivalents

 

 

476

 

 

 

751

 

Cash and cash equivalents—Beginning of period

 

 

1,228

 

 

 

1,275

 

Cash and cash equivalents—End of period

 

$

1,704

 

 

$

2,026

 

Supplemental information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

18

 

 

$

11

 

Premium taxes

 

$

44

 

 

$

29

 

Income taxes

 

$

7

 

 

$

7

 

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 (“SEC”) 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, 2021.  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.

Note 2 –Trust Assets, Escrow and Other Deposits

The Company administers escrow deposits and trust assets as a service to its customers.  Escrow deposits totaled $15.2 billion and $10.8 billion at March 31, 2022 and December 31, 2021, respectively, of which $5.4 billion and $4.9 billion, respectively, were held at First American Trust, FSB (“FA Trust”).  The escrow deposits 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.  The remaining escrow deposits were held at third-party financial institutions.

Trust assets held or managed by FA Trust totaled $4.4 billion and $4.6 billion at March 31, 2022 and December 31, 2021, respectively.  Escrow deposits held at third-party financial institutions and trust assets 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 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 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 $5.7 billion and $6.0 billion at March 31, 2022 and December 31, 2021, 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.

11


 

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

 

In conducting its residential mortgage loan servicing, subservicing, originations and sales operations, the Company administers cash deposits on behalf of investors, mortgagors and subservicing clients.  Cash deposits, which are held at third-party financial institutions, totaled $526 million and $433 million at March 31, 2022 and December 31, 2021, respectively.  These cash deposits 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.

 

 

Note 3 – Debt Securities

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

 

(in millions)

 

Amortized
cost

 

 

Gross unrealized

 

 

Estimated
fair value

 

 

 

 

Gains

 

 

Losses

 

 

 

March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds

 

$

94

 

 

$

 

 

$

(6

)

 

$

88

 

Municipal bonds

 

 

1,596

 

 

 

12

 

 

 

(87

)

 

 

1,521

 

Foreign government bonds

 

 

235

 

 

 

 

 

 

(12

)

 

 

223

 

Governmental agency bonds

 

 

153

 

 

 

 

 

 

(6

)

 

 

147

 

Governmental agency mortgage-backed securities

 

 

5,668

 

 

 

11

 

 

 

(298

)

 

 

5,381

 

U.S. corporate debt securities

 

 

1,141

 

 

 

4

 

 

 

(49

)

 

 

1,096

 

Foreign corporate debt securities

 

 

501

 

 

 

2

 

 

 

(22

)

 

 

481

 

 

 

$

9,388

 

 

$

29

 

 

$

(480

)

 

$

8,937