First American Financial Earnings 2020-06-30

First American Financial Earnings 2020-06-30

FAF 10Q Quarterly Report

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

faf-10q_20200630.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, 2020

☐	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 20, 2020 there were 111,519,078 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, 2020 and December 31, 2019	5

	B. Condensed Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019	6

	C. Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020 and 2019	7

	D. Condensed Consolidated Statements of Stockholders’ Equity for each of the quarters within the six months ended June 30, 2020 and 2019	8

	E. Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019	10

	F. Notes to Condensed Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48

Item 4.	Controls and Procedures	48

PART II: OTHER INFORMATION

Item 1.	Legal Proceedings	49

Item 1A.	Risk Factors	50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60

Item 6.	Exhibits	61

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 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;

•

USE OF SOCIAL MEDIA BY THE COMPANY AND OTHER PARTIES;

•

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;

•

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)

	June 30, 2020		December 31, 2019
Assets
Cash and cash equivalents	$	1,523,344	$	1,485,959
Accounts and accrued income receivable, less allowances of $12,172 and $12,676		354,674		324,385
Income taxes receivable		6,773		10,967
Investments:
Deposits with banks		39,311		44,422
Debt securities, includes pledged securities of $93,904 and $91,636 (amortized cost of $5,714,833 and $5,796,755; allowance for credit losses of $1,380 at June 30, 2020)		5,925,068		5,913,636
Equity securities		386,356		392,318
Other investments		301,448		239,067
		6,652,183		6,589,443
Secured financings receivable		579,596		287,459
Property and equipment, net		459,563		442,014
Operating lease assets		281,444		291,385
Title plants and other indexes		580,014		579,674
Deferred income taxes		18,283		18,283
Goodwill		1,388,586		1,150,908
Other intangible assets, net		203,329		91,833
Other assets		240,230		246,857
	$	12,288,019	$	11,519,167
Liabilities and Equity
Deposits	$	3,417,777	$	3,337,431
Accounts payable and accrued liabilities		781,477		820,356
Deferred revenue		250,421		252,331
Reserve for known and incurred but not reported claims		1,095,494		1,063,044
Income taxes payable		102,128		25,475
Deferred income taxes		266,108		266,108
Operating lease liabilities		309,782		322,776
Secured financings payable		478,598		278,412
Notes and contracts payable		1,010,623		728,232
		7,712,408		7,094,165
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—111,519 shares and 112,476 shares		1		1
Additional paid-in capital		2,259,491		2,300,926
Retained earnings		2,294,552		2,161,049
Accumulated other comprehensive income (loss)		11,356		(41,492	)
Total stockholders’ equity		4,565,400		4,420,484
Noncontrolling interests		10,211		4,518
Total equity		4,575,611		4,425,002
	$	12,288,019	$	11,519,167

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				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Revenues
Direct premiums and escrow fees	$	651,984	$	668,018	$	1,272,621	$	1,182,220
Agent premiums		597,895		543,847		1,197,577		1,045,384
Information and other		231,169		200,669		442,681		373,561
Net investment income		58,420		77,711		104,294		159,979
Net realized investment gains		69,261		8,375		4,499		41,057
		1,608,729		1,498,620		3,021,672		2,802,201
Expenses
Personnel costs		451,487		447,027		881,147		858,639
Premiums retained by agents		472,398		429,086		947,779		825,693
Other operating expenses		250,088		222,348		507,328		418,795
Provision for policy losses and other claims		138,688		109,130		256,165		206,842
Depreciation and amortization		40,976		32,884		72,425		65,818
Premium taxes		16,354		16,740		33,669		31,403
Interest		13,443		11,908		25,540		23,844
		1,383,434		1,269,123		2,724,053		2,431,034
Income before income taxes		225,295		229,497		297,619		371,167
Income taxes		53,601		42,226		62,079		74,092
Net income		171,694		187,271		235,540		297,075
Less: Net income attributable to noncontrolling interests		1,039		616		1,681		845
Net income attributable to the Company	$	170,655	$	186,655	$	233,859	$	296,230
Net income per share attributable to the Company's stockholders (Note 10):
Basic	$	1.52	$	1.65	$	2.07	$	2.62
Diluted	$	1.52	$	1.64	$	2.06	$	2.61
Cash dividends declared per share	$	0.44	$	0.42	$	0.88	$	0.84
Weighted-average common shares outstanding (Note 10):
Basic		112,309		113,050		112,939		112,881
Diluted		112,555		113,498		113,270		113,366

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 June 30,					Six Months Ended June 30,
	2020		2019			2020			2019
Net income	$	171,694	$	187,271		$	235,540		$	297,075
Other comprehensive income (loss), net of tax:
Unrealized gains on debt securities		58,467		53,174			71,086			112,679
Unrealized gains on debt securities for which credit-related portion was recognized in earnings		62		—			147			—
Foreign currency translation adjustment		14,373		3,444			(19,183	)		10,332
Pension benefit adjustment		399		(75	)		798			(151	)
Total other comprehensive income, net of tax		73,301		56,543			52,848			122,860
Comprehensive income		244,995		243,814			288,388			419,935
Less: Comprehensive income attributable to noncontrolling interests		1,039		616			1,681			844
Comprehensive income attributable to the Company	$	243,956	$	243,198		$	286,707		$	419,091

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, 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
Net income for three months ended June 30, 2020		—			—		—			170,655			—			170,655			1,039		171,694
Dividends on common shares		—			—		—			(48,996	)		—			(48,996	)		—		(48,996	)
Purchase of Company shares		(71	)

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	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	2020-07-23	Earnings, Exhibits
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-31.A	faf-ex31a_69.htm
EX-31.B	faf-ex31b_70.htm
EX-32.A	faf-ex32a_71.htm
EX-32.B	faf-ex32b_72.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company