First American Financial Corp [FAF] Filings

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10-Q 1 faf-10q_20220630.htm Q2 2022 FORM 10-Q faf-10q_20220630.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 June 30, 2022

☐	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 July 25, 2022 there were 104,161,735 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 June 30, 2022 and December 31, 2021	5

	B. Condensed Consolidated Statements of Income for the three and six months ended June 30, 2022 and 2021	6

	C. Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021	7

	D. Condensed Consolidated Statements of Stockholders’ Equity for each of the quarters within the six months ended June 30, 2022 and 2021	8

	E. Condensed Consolidated Statements of Cash Flows for the six months ended June 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.

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;

•

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; 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 millions, except par values)

(unaudited)

	June 30, 2022			December 31, 2021
Assets
Cash and cash equivalents	$	1,745		$	1,228
Accounts and accrued income receivable, less allowances of $16 and $14		418			441
Income taxes receivable		248			11
Investments:
Deposits with banks		67			58
Debt securities, includes pledged securities of $76 and $91 (amortized cost of $9,257 and $9,317)		8,450			9,362
Equity securities		969			1,176
		9,486			10,596
Secured financings receivable		505			565
Property and equipment, net		562			506
Operating lease assets		262			249
Title plants and other indexes		608			587
Deferred income taxes		14			14
Goodwill		1,802			1,588
Other intangible assets, net		221			218
Other assets		391			448
	$	16,262		$	16,451
Liabilities and Equity
Deposits	$	6,127		$	5,069
Accounts payable and accrued liabilities		1,015			1,262
Deferred revenue		202			224
Reserve for known and incurred but not reported claims		1,308			1,284
Income taxes payable		4			24
Deferred income taxes		314			345
Operating lease liabilities		284			274
Secured financings payable		429			538
Notes and contracts payable		1,646			1,648
		11,329			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—105.0 shares and 109.7 shares		—			—
Additional paid-in capital		1,891			2,179
Retained earnings		3,775			3,680
Accumulated other comprehensive loss		(750	)		(92	)
Total stockholders’ equity		4,916			5,767
Noncontrolling interests		17			16
Total equity		4,933			5,783
	$	16,262		$	16,451

See notes to condensed consolidated financial statements.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Income

(in millions, except per share amounts)

(unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2022			2021		2022			2021
Revenues
Direct premiums and escrow fees	$	897		$	917	$	1,671		$	1,703
Agent premiums		937			905		1,885			1,750
Information and other		308			302		617			581
Net investment income		53			56		99			105
Net investment (losses) gains (realized (losses) gains of $(7), $6, $43, $11)		(133	)		86		(176	)		153
		2,062			2,266		4,096			4,292
Expenses
Personnel costs		618			588		1,220			1,123
Premiums retained by agents		748			719		1,506			1,390
Other operating expenses		344			331		681			627
Provision for policy losses and other claims		127			150		249			290
Depreciation and amortization		42			41		83			79
Premium taxes		23			22		47			45
Interest		19			16		39			33
		1,921			1,867		3,825			3,587
Income before income taxes		141			399		271			705
Income taxes		31			95		63			167
Net income		110			304		208			538
Less: Net income attributable to noncontrolling interests		1			2		1			2
Net income attributable to the Company	$	109		$	302	$	207		$	536
Net income per share attributable to the Company's stockholders (Note 10):
Basic	$	1.01		$	2.73	$	1.89		$	4.83
Diluted	$	1.01		$	2.72	$	1.89		$	4.81
Cash dividends declared per share	$	0.51		$	0.46	$	1.02		$	0.92
Weighted-average common shares outstanding (Note 10):
Basic		107.9			110.9		109.1			111.0
Diluted		108.1			111.2		109.4			111.3

See notes to condensed consolidated financial statements.

FIRST AMERICAN FINANCIAL CORPORATION

AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Comprehensive Income

(in millions)

(unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2022			2021		2022			2021
Net income	$	110		$	304	$	208		$	538
Other comprehensive income (loss), net of tax:
Unrealized (losses) gains on debt securities		(267	)		37		(638	)		(63	)
Foreign currency translation adjustment		(23	)		7		(22	)		9
Pension benefit adjustment		1			—		2			2
Total other comprehensive (loss) income, net of tax		(289	)		44		(658	)		(52	)
Comprehensive (loss) income		(179	)		348		(450	)		486
Less: Comprehensive income attributable to noncontrolling interests		1			2		1			2
Comprehensive (loss) income attributable to the Company	$	(180	)	$	346	$	(451	)	$	484

See notes to condensed consolidated financial statements.

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			—			—			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
Net income for three months ended June 30, 2022		—			—		—			109			—			109			1		110
Dividends on common shares		—			—		—			(54	)		—			(54	)		—		(54	)
Repurchases of Company shares		(3.9	)		—		(227	)		—			—			(227	)		—		(227	)
Shares issued in connection with share-based compensation		0.2			—		6			(1	)		—			5			—		5
Share-based compensation		—			—		9			—			—			9			—		9
Other comprehensive loss		—			—		—			—			(289	)		(289	)		—		(289	)
Balance at June 30, 2022		105.0		$	—	$	1,891		$	3,775		$	(750	)	$	4,916		$	17	$	4,933

See notes to condensed consolidated financial statements.

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 for three months ended March 31, 2021		—			—		—			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

First American Financial Corp [FAF] Filings
10-Q	[2022-07-28]
10-Q	[2022-04-29]
10-K	[2022-02-17]
10-Q	[2021-10-22]
10-Q	[2021-07-23]
10-Q	[2021-04-23]
10-K	[2021-02-17]
10-Q	[2020-10-22]
10-Q	[2020-07-23]
10-Q	[2020-04-29]
10-K	[2020-02-18]
10-Q	[2019-10-24]
10-Q	[2019-07-25]
10-Q	[2019-04-25]
10-K	[2019-02-20]
10-Q	[2018-10-25]
10-Q	[2018-07-26]
10-Q	[2018-04-26]
10-K	[2018-02-16]
10-Q	[2017-10-26]
10-Q	[2017-07-27]
10-Q	[2017-04-27]
10-K	[2017-02-17]
10-Q	[2016-10-20]
10-Q	[2016-07-21]
10-Q	[2016-04-21]
10-K	[2016-02-19]
10-Q	[2015-10-22]
10-Q	[2015-07-23]
10-Q	[2015-04-23]
10-K	[2015-02-23]
10-Q	[2014-10-23]
10-Q	[2014-07-24]
10-Q	[2014-04-24]
10-K	[2014-02-25]
10-Q	[2013-10-24]
10-Q	[2013-07-25]
10-Q	[2013-04-26]
10-K	[2013-02-28]
10-Q	[2012-10-26]
10-Q	[2012-07-30]
10-Q	[2012-05-01]
10-K	[2012-02-27]