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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, 2021

 

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 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.

 

 


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 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;

3


 

 

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.

 

 

4


 

 

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.

 

5


 

 

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.

 

 

6


 

 

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.

 

 

7


 

 

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.


8


 

 

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.

 

 

 

9


 

 

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

 

 

(6,282,240

)

 

 

(3,028,490

)

Collections of secured financings receivable

 

 

6,284,739

 

 

 

2,835,789

 

Capital expenditures

 

 

(28,582

)

 

 

(29,213

)

Proceeds from sales of property and equipment

 

 

688

 

 

 

14,141

 

Proceeds from insurance settlement

 

 

754

 

 

 

 

Cash used for investing activities

 

 

(779,290

)

 

 

(692,840

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net change in deposits

 

 

1,303,579

 

 

 

93,916

 

Borrowings under secured financing agreements

 

 

5,234,634

 

 

 

2,998,687

 

Repayments of secured financings payable

 

 

(5,105,259

)

 

 

(2,835,442

)

Borrowings under unsecured credit facility

 

 

 

 

 

120,000

 

Repayments of notes and contracts payable

 

 

(1,599

)

 

 

(1,338

)

Net activity related to noncontrolling interests

 

 

(2,095

)

 

 

(1,328

)

Net payments in connection with share-based compensation

 

 

(8,378

)

 

 

(14,378

)

Repurchases of Company shares

 

 

(64,786

)

 

 

(65,785

)

Payments of cash dividends

 

 

(50,985

)

 

 

(49,702

)

Cash provided by financing activities

 

 

1,305,111

 

 

 

244,630

 

Effect of exchange rate changes on cash

 

 

828

 

 

 

(11,918

)

Net increase (decrease) in cash and cash equivalents

 

 

750,558

 

 

 

(435,974

)

Cash and cash equivalents—Beginning of period

 

 

1,275,466

 

 

 

1,485,959

 

Cash and cash equivalents—End of period

 

$

2,026,024

 

 

$

1,049,985

 

Supplemental information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

10,803

 

 

$

9,462

 

Premium taxes

 

$

29,400

 

 

$

25,049

 

Income taxes, less refunds of $114 and $71

 

$

7,470

 

 

$

3,239

 

 

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, 2020.  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.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued updated guidance intended to simplify and improve the accounting for income taxes.  The updated guidance eliminates certain exceptions and clarifies and amends certain areas of the guidance.  The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2020.  The adoption of this guidance on a prospective basis, effective January 1, 2021, did not have a material impact on its condensed consolidated financial statements.

Note 2 – Exit of Property and Casualty Insurance Business

During 2020, the Company initiated a plan to exit its property and casualty insurance business. In January 2021, the Company entered into book transfer agreements with two third party insurers, which will provide qualifying agents and customers of the Company an opportunity to transfer their policies.  The Company expects the transfers to be completed by the end of the third quarter of 2022.  The Company will seek to non-renew policies that are not transferred and, except in certain limited circumstances, is no longer issuing new policies.

Note 3 – Escrow Deposits, Like-kind Exchange Deposits and Trust Assets

The Company administers escrow deposits and trust assets as a service to its customers.  Escrow deposits totaled $9.2 billion and $7.1 billion at March 31, 2021 and December 31, 2020, respectively, of which $4.4 billion and $3.1 billion, respectively, were held at First American Trust, FSB.  The escrow deposits held at First American Trust, FSB 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 First American Trust, FSB totaled $4.4 billion at March 31, 2021 and December 31, 2020.  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.

11


 

 

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

 

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 held by the Company totaled $3.0 billion and $2.9 billion at March 31, 2021 and December 31, 2020, 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.

 

 

Note 4 – Debt and Equity Securities

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

 

(in thousands)

 

Amortized
cost

 

 

Allowance for credit losses

 

 

Gross unrealized

 

 

Estimated
fair value

 

 

 

 

 

 

Gains

 

 

Losses

 

 

 

March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds

 

$

158,348

 

 

$

 

 

$

519

 

 

$

(2,750

)

 

$

156,117

 

Municipal bonds

 

 

1,406,091

 

 

 

 

 

 

65,205

 

 

 

(17,678

)

 

 

1,453,618

 

Foreign government bonds

 

 

206,289

 

 

 

 

 

 

2,604

 

 

 

(3,601

)

 

 

205,292

 

Governmental agency bonds

 

 

299,347

 

 

 

 

 

 

6,189

 

 

 

(2,031