First American Financial Earnings 2021-03-31

First American Financial Earnings 2021-03-31

FAF 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

faf-10q_20210331.htm

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, 2021

☐	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

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 19, 2021 there were 109,741,163 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, 2021 and December 31, 2020	5

	B. Condensed Consolidated Statements of Income for the three months ended March 31, 2021 and 2020	6

	C. Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020	7

	D. Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020	8

	E. Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020	10

	F. Notes to Condensed Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

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	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53

Item 5.	Other Information	53

Item 6.	Exhibits	54

Items 3 and 4 of Part II have been omitted because they are not applicable with respect to the current reporting period.

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 THE PERFORMANCE OF THE REAL ESTATE MARKETS;

•

VOLATILITY IN THE CAPITAL MARKETS;

•

UNFAVORABLE ECONOMIC CONDITIONS;

•

THE CORONAVIRUS PANDEMIC AND RESPONSES THERETO;

•

IMPAIRMENTS IN THE COMPANY’S GOODWILL OR OTHER INTANGIBLE ASSETS;

•

UNCERTAINTY FROM THE EXPECTED DISCONTINUANCE OF LIBOR AND TRANSITION TO ANY OTHER INTEREST RATE BENCHMARK;

•

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 OTHER INVESTMENTS;

•

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;

•

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;

•

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.

PART I: FINANCIAL INFORMATION

Item 1.Financial Statements.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated Balance Sheets

(in thousands, except par values)

(unaudited)

	March 31, 2021			December 31, 2020
Assets
Cash and cash equivalents	$	2,026,024		$	1,275,466
Accounts and accrued income receivable, less allowances of $12,924 and $13,994		404,441			385,086
Income taxes receivable		1,581			951
Investments:
Deposits with banks		45,359			45,856
Debt securities, includes pledged securities of $92,784 and $93,586 (amortized cost $7,109,478 and $6,121,004; allowance for credit losses of $109 and $132)		7,211,498			6,354,822
Equity securities		419,606			464,126
Other investments		424,767			350,016
		8,101,230			7,214,820
Secured financings receivable		745,813			748,312
Property and equipment, net		445,378			445,132
Operating lease assets		255,065			265,963
Title plants and other indexes		590,401			584,785
Deferred income taxes		14,484			14,484
Goodwill		1,371,712			1,378,628
Other intangible assets, net		186,515			194,474
Other assets		289,259			287,887
	$	14,431,903		$	12,795,988
Liabilities and Equity
Deposits	$	4,580,528		$	3,276,949
Accounts payable and accrued liabilities		1,113,351			979,733
Deferred revenue		252,665			271,977
Reserve for known and incurred but not reported claims		1,203,169			1,178,004
Income taxes payable		87,107			53,784
Deferred income taxes		291,220			291,220
Operating lease liabilities		283,211			295,762
Secured financings payable		645,530			516,155
Notes and contracts payable		1,009,447			1,010,756
		9,466,228			7,874,340
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, $0.00001 par value; Authorized—500 shares; Outstanding—none		—			—
Common stock, $0.00001 par value; Authorized—300,000 shares; Outstanding—109,741 shares and 110,353 shares		1			1
Additional paid-in capital		2,173,859			2,214,935
Retained earnings		2,837,241			2,655,495
Accumulated other comprehensive (loss) income		(55,828	)		39,541
Total stockholders’ equity		4,955,273			4,909,972
Noncontrolling interests		10,402			11,676
Total equity		4,965,675			4,921,648
	$	14,431,903		$	12,795,988

See notes to condensed consolidated financial statements.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Income

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended March 31,
	2021		2020
Revenues
Direct premiums and escrow fees	$	785,675	$	620,637
Agent premiums		845,292		599,682
Information and other		278,892		211,512
Net investment income		49,053		45,874
Net realized investment gains (losses)		66,833		(64,762	)
		2,025,745		1,412,943
Expenses
Personnel costs		535,182		429,660
Premiums retained by agents		671,301		475,381
Other operating expenses		295,403		257,240
Provision for policy losses and other claims		140,447		117,477
Depreciation and amortization		38,298		31,449
Premium taxes		22,586		17,315
Interest		16,506		12,097
		1,719,723		1,340,619
Income before income taxes		306,022		72,324
Income taxes		71,564		8,478
Net income		234,458		63,846
Less: Net income attributable to noncontrolling interests		842		642
Net income attributable to the Company	$	233,616	$	63,204
Net income per share attributable to the Company’s stockholders (Note 10):
Basic	$	2.10	$	0.56
Diluted	$	2.10	$	0.55
Cash dividends declared per share	$	0.46	$	0.44
Weighted-average common shares outstanding (Note 10):
Basic		111,113		113,556
Diluted		111,414		113,959

See notes to condensed consolidated financial statements.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2021			2020
Net income	$	234,458		$	63,846
Other comprehensive income (loss), net of tax:
Unrealized (losses) gains on debt securities		(99,453	)		12,619
Unrealized (losses) gains on debt securities for which credit-related portion was recognized in earnings		(293	)		85
Foreign currency translation adjustment		3,374			(33,556	)
Pension benefit adjustment		1,002			399
Total other comprehensive loss, net of tax		(95,370	)		(20,453	)
Comprehensive income		139,088			43,393
Less: Comprehensive income attributable to noncontrolling interests		841			642
Comprehensive income attributable to the Company	$	138,247		$	42,751

See notes to condensed consolidated financial statements.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

(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		110,353		$	1	$	2,214,935		$	2,655,495		$	39,541		$	4,909,972		$	11,676		$	4,921,648
Net income for three months ended March 31, 2021		—			—		—			233,616			—			233,616			842			234,458
Dividends on common shares		—			—		—			(50,985	)		—			(50,985	)		—			(50,985	)
Purchase of Company shares		(1,226	)		—		(64,786	)		—			—			(64,786	)		—			(64,786	)
Shares issued in connection with share-based compensation		614			—		(7,493	)		(885	)		—			(8,378	)		—			(8,378	)
Share-based compensation		—			—		31,203			—			—			31,203			—			31,203
Net activity related to noncontrolling interests		—			—		—			—			—			—			(2,115	)		(2,115	)
Other comprehensive loss		—			—		—			—			(95,369	)		(95,369	)		(1	)		(95,370	)
Balance at March 31, 2021		109,741		$	1	$	2,173,859		$	2,837,241		$	(55,828	)	$	4,955,273		$	10,402		$	4,965,675

See notes to condensed consolidated financial statements.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Stockholders’ Equity – (Continued)

(in thousands)

(unaudited)

	First American Financial Corporation Stockholders
	Shares			Common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total stockholders’ equity			Noncontrolling interests		Total
Balance at December 31, 2019		112,476		$	1	$	2,300,926		$	2,161,049		$	(41,492	)	$	4,420,484		$	4,518	$	4,425,002
Net income for three months ended March 31, 2020		—			—		—			63,204			—			63,204			642		63,846
Dividends on common shares		—			—		—			(49,702	)		—			(49,702	)		—		(49,702	)
Purchase of Company shares		(1,703	)		—		(65,785	)		—			—			(65,785	)		—		(65,785	)
Shares issued in connection with share-based compensation		644			—		(13,547	)		(831	)		—			(14,378	)		—		(14,378	)
Share-based compensation		—			—		25,903			—			—			25,903			—		25,903
Net activity related to noncontrolling interests		—			—		72			—			—			72			4,417		4,489
Other comprehensive loss		—			—		—			—			(20,453	)		(20,453	)		—		(20,453	)
Balance at March 31, 2020		111,417		$	1	$	2,247,569		$	2,173,720		$	(61,945	)	$	4,359,345		$	9,577	$	4,368,922

See notes to condensed consolidated financial statements.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2021			2020
Cash flows from operating activities:
Net income	$	234,458		$	63,846
Adjustments to reconcile net income to cash provided by operating activities:
Provision for policy losses and other claims		140,447			117,477
Depreciation and amortization		38,298			31,449
Amortization of premiums and accretion of discounts on debt securities, net		11,251			9,952
Net realized investment (gains) losses		(66,833	)		64,762
Share-based compensation		31,203			25,903
Equity in (earnings) losses of equity method investments, net		(1,088	)		228
Dividends from equity method investments		2,795			1,402
Changes in assets and liabilities excluding effects of acquisitions and noncash transactions:
Claims paid, including assets acquired, net of recoveries		(118,208	)		(108,538	)
Net change in income tax accounts		64,092			5,181
Increase in accounts and accrued income receivable		(7,825	)		(45,747	)
Decrease in accounts payable and accrued liabilities		(81,789	)		(149,960	)
Decrease in deferred revenue		(19,310	)		(15,753	)
Other, net		(3,582	)		23,952
Cash provided by operating activities		223,909			24,154
Cash flows from investing activities:
Net cash effect of acquisitions/dispositions		—			(386,231	)
Net (increase) decrease in deposits with banks		(295	)		2,095
Purchases of debt and equity securities		(1,411,674	)		(588,327	)
Proceeds from sales of debt and equity securities		259,503			211,370
Proceeds from maturities of debt securities		432,159			320,523
Investments in unconsolidated entities		(14,928	)		(44,795	)
Net change in other investments		(19,414	)		298
Advances under secured financing agreements		(

Price	57.94	EPS	5
Shares	114	P/E	11
MCap	6,590	P/FCF	11
Net Debt	-1,711	EBIT	746
TEV	4,879	TEV/EBIT	7
TTM 2019-09-30, in MM, except price, ratios

10-Q	2021-03-31	Filed 2021-04-23
10-K	2020-12-31	Filed 2021-02-17
10-Q	2020-09-30	Filed 2020-10-22
10-Q	2020-06-30	Filed 2020-07-23
10-Q	2020-03-31	Filed 2020-04-29
10-K	2019-12-31	Filed 2020-02-18
10-Q	2019-09-30	Filed 2019-10-24
10-Q	2019-06-30	Filed 2019-07-25
10-Q	2019-03-31	Filed 2019-04-25
10-K	2018-12-31	Filed 2019-02-20
10-Q	2018-09-30	Filed 2018-10-25
10-Q	2018-06-30	Filed 2018-07-26
10-Q	2018-03-31	Filed 2018-04-26
10-K	2017-12-31	Filed 2018-02-16
10-Q	2017-09-30	Filed 2017-10-26
10-Q	2017-06-30	Filed 2017-07-27
10-Q	2017-03-31	Filed 2017-04-27
10-K	2016-12-31	Filed 2017-02-17
10-Q	2016-09-30	Filed 2016-10-20
10-Q	2016-06-30	Filed 2016-07-21
10-Q	2016-03-31	Filed 2016-04-21
10-K	2015-12-31	Filed 2016-02-19
10-Q	2015-09-30	Filed 2015-10-22
10-Q	2015-06-30	Filed 2015-07-23
10-Q	2015-03-31	Filed 2015-04-23
10-K	2014-12-31	Filed 2015-02-23
10-Q	2014-09-30	Filed 2014-10-23
10-Q	2014-06-30	Filed 2014-07-24
10-Q	2014-03-31	Filed 2014-04-24
10-K	2013-12-31	Filed 2014-02-25
10-Q	2013-09-30	Filed 2013-10-24
10-Q	2013-06-30	Filed 2013-07-25
10-Q	2013-03-31	Filed 2013-04-26
10-K	2012-12-31	Filed 2013-02-28
10-Q	2012-09-30	Filed 2012-10-26
10-Q	2012-06-30	Filed 2012-07-30
10-Q	2012-03-31	Filed 2012-05-01
10-K	2011-12-31	Filed 2012-02-27
10-Q	2011-09-30	Filed 2011-11-02
10-Q	2011-06-30	Filed 2011-08-02
10-Q	2011-03-31	Filed 2011-05-02
10-K	2010-12-31	Filed 2011-03-01
10-Q	2010-09-30	Filed 2010-11-01
10-Q	2010-06-30	Filed 2010-08-09
10-Q	2010-03-31	Filed 2010-05-28

8-K	2021-02-11
8-K	2020-10-30
8-K	2020-10-22
8-K	2020-07-23
8-K	2020-05-15
8-K	2020-05-08
8-K	2020-05-05
8-K	2020-04-23
8-K	2020-02-13
8-K	2019-10-24
8-K	2019-07-25
8-K	2019-05-28
8-K	2019-05-07
8-K	2019-04-30
8-K	2019-04-25
8-K	2019-02-14
8-K	2018-10-25
8-K	2018-07-26
8-K	2018-05-08
8-K	2018-04-26
8-K	2018-02-08

EX-3.2	faf-ex32_55.htm
EX-31.A	faf-ex31a_51.htm
EX-31.B	faf-ex31b_52.htm
EX-32.A	faf-ex32a_53.htm
EX-32.B	faf-ex32b_54.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company