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First American Financial Reports Third Quarter 2021 Results

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Reports Third Quarter Earnings of $4.00 per Diluted Share, or $2.15 per Share Excluding Net Realized Investment Gains

SANTA ANA, Calif., October 21, 2021--(BUSINESS WIRE)--First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today announced financial results for the third quarter ended Sept. 30, 2021.

Current Quarter Highlights

  • Total revenue of $2.6 billion, up 34 percent compared with last year

    • Title agent premiums up 38 percent to $998.5 million

    • Title direct premiums and escrow fees up 17 percent to $794.2 million

    • Commercial title revenues up 84 percent to $262.4 million

  • Net realized investment gains of $275.2 million, or $1.85 per diluted share

    • Recognized net realized investment gains on venture investments totaling $278.0 million, including $195.3 million from the company’s investment in Offerpad Solutions, Inc.

  • Title Insurance and Services segment pretax margin of 16.4 percent

  • Specialty Insurance segment pretax margin of (1.4) percent due to a pretax loss of $10.5 million in the company’s property and casualty business

    • Wind-down of property and casualty business remains on track for completion in third quarter 2022

  • Repurchased 208,700 shares for a total of $14.1 million at an average price of $67.37

  • Raised $650 million in a public offering of 10-year senior notes at 2.4 percent

  • Debt-to-capital ratio of 28.5 percent, or 22.7 percent excluding secured financings payable of $593.6 million

  • Cashflow from operations of $399.0 million, up 27 percent compared with last year

Selected Financial Information

($ in millions, except per share data)

Three Months Ended

September 30,

2021

2020

Total revenue

$

2,555.9

$

1,913.7

Income before taxes

603.2

243.4

Net income

$

445.3

$

182.3

Net income per diluted share

4.00

1.62

Total revenue for the third quarter of 2021 was $2.6 billion, an increase of 34 percent relative to the same quarter of 2020. Net income in the third quarter was $445.3 million, or $4.00 per diluted share, compared with net income of $182.3 million, or $1.62 per diluted share, in the third quarter of 2020. Net realized investment gains in the quarter were $275.2 million, or $1.85 per diluted share, compared with net realized investment gains of $45.0 million, or 30 cents per diluted share, in the same quarter of last year. The net realized investment gains in the quarter were primarily related to venture investments, while net realized investment gains in the third quarter of last year were primarily driven by the change in the fair value of marketable equity securities.

"The company once again delivered outstanding financial results," said Dennis J. Gilmore, chief executive officer at First American Financial Corporation. "Our title segment achieved a pretax margin of 16.4 percent resulting from record commercial and agency revenues which, along with continued growth in purchase, far outweighed the decline in refinance activity.

"We continue to realize strategic and financial benefits from the venture investments we’ve made over the past few years. This quarter, we recognized net realized investment gains totaling $278 million, the most significant of these gains coming from our investment in Offerpad Solutions, Inc.

"Looking to the fourth quarter and into 2022, we maintain a positive outlook based on the strength of the commercial and housing markets. We also remain highly focused on innovation and enhancing our leadership position in the digital transformation of the title business."

Title Insurance and Services

($ in millions, except average revenue per order)

Three Months Ended

September 30,

2021

2020

Total revenues

$

2,146.8

$

1,772.0

Income before taxes

$

352.4

$

337.5

Pretax margin

16.4

%

19.0

%

Title open orders(1)

318,800

410,600

Title closed orders(1)

252,700

291,500

U.S. Commercial

Total revenues

$

262.4

$

142.6

Open orders

34,600

31,100

Closed orders

20,200

15,900

Average revenue per order

$

13,000

$

9,000

(1) U.S. direct title insurance orders only.

Total revenues for the Title Insurance and Services segment during the third quarter were $2.1 billion, up 21 percent compared with the same quarter of 2020. Direct premiums and escrow fees were up 17 percent compared with the third quarter of 2020, driven by a 31 percent increase in the average revenue per direct title order closed, partly offset by a 13 percent decline in the number of direct title orders closed. The average revenue per direct title order rose to $2,884, primarily attributable to an increase in the average deal size in our commercial business and the impact of strong home price appreciation on residential purchase transactions. In addition, the shift in the order mix from lower-premium residential refinance transactions to higher-premium commercial and purchase transactions also impacted the average revenue per order. Agent premiums, which are recorded on approximately a one-quarter lag relative to direct premiums, were up 38 percent in the current quarter as compared with last year.

Information and other revenues were $307.6 million during the quarter, up 9 percent compared with the same quarter of last year, primarily due to higher demand for the company’s title information and loss mitigation products.

Investment income was $49.8 million in the third quarter, up $5.1 million, or 11 percent from the same quarter of last year. This increase was primarily attributable to higher average balances in the company’s investment portfolio. Net realized investment losses totaled $3.4 million in the current quarter, compared with net realized investment gains of $41.3 million in the third quarter of 2020.

Personnel costs were $561.5 million in the third quarter, an increase of $80.0 million, or 17 percent, compared with the same quarter of 2020. This increase was primarily attributable to higher salary expense due to an increase in the number of employees, and higher incentive compensation driven by growth in revenues and profitability.

Other operating expenses were $298.1 million in the third quarter, up $46.8 million, or 19 percent, compared with the third quarter of 2020. The increase was primarily due to higher production-related costs, and higher software and professional services expense.

The provision for policy losses and other claims was $71.7 million in the third quarter, or 4.0 percent of title premiums and escrow fees, a decrease from a 5.0 percent loss provision rate in the prior year. The current quarter rate reflects an ultimate loss rate of 4.0 percent for the current policy year with no change in the loss reserve estimates for prior policy years.

Depreciation and amortization expense was $37.8 million in the third quarter, up $1.6 million, or 4 percent, compared with the same period last year, due to higher amortization of intangible assets.

Pretax income was $352.4 million in the third quarter, compared with $337.5 million in the third quarter of 2020. Pretax margin was 16.4 percent in the current quarter, compared with 19.0 percent last year. Excluding the impact of net realized investment losses and gains, the pretax margin was 16.5 percent this year, compared with 17.1 percent last year.

Specialty Insurance

($ in millions)

Three Months Ended

September 30,

2021

2020

Total revenues

$

132.2

$

136.3

Income before taxes

$

(1.9

)

$

(72.1

)

Pretax margin

(1.4

%)

(52.9

%)

Total revenues for the Specialty Insurance segment were $132.2 million in the third quarter of 2021, a decline of 3 percent compared with the third quarter of 2020. Pretax loss for the segment was $1.9 million, compared with a pretax loss of $72.1 million last year.

Home warranty revenues were up 7 percent this quarter to $107.9 million. The loss rate was 56.8 percent, compared with 64.5 percent last year, due to a decline in the number of claims, partly offset by higher average cost per claim. Home warranty’s pretax income was $8.6 million, compared with $3.6 million last year.

The wind-down of the property and casualty business remains on track for completion in the third quarter of 2022. At the close of the third quarter, policies-in-force had declined by 49 percent since the beginning of the year. The property and casualty business ended the quarter with a pretax loss of $10.5 million.

Corporate

Pretax income in the corporate segment was $252.7 million in the third quarter, up $274.7 million compared with the same quarter last year. During the quarter, a total of $278.0 million in net realized investment gains were recognized from venture investments, including a $195.3 million gain on the company’s investment in Offerpad Solutions, Inc.

Teleconference/Webcast

First American’s third-quarter 2021 results will be discussed in more detail on Thursday, Oct. 21, 2021, at 11 a.m. EDT, via teleconference. The toll-free dial-in number is 877-407-8293. Callers from outside the United States may dial +1-201-689-8349.

The live audio webcast of the call will be available on First American’s website at www.firstam.com/investor. An audio replay of the conference call will be available through Nov. 4, 2021, by dialing 201-612-7415 and using the conference ID 13724239. An audio archive of the call will also be available on First American’s investor website.

About First American

First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions that traces its heritage back to 1889. First American also provides title plant management services; title and other real property records and images; valuation products and services; home warranty products; banking, trust and wealth management services; and other related products and services. With total revenue of $7.1 billion in 2020, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2021, First American was named to the Fortune 100 Best Companies to Work For® list for the sixth consecutive year. More information about the company can be found at www.firstam.com.

Website Disclosure

First American posts information of interest to investors at www.firstam.com/investor. This includes opened and closed title insurance order counts for its U.S. direct title insurance operations, which are posted approximately 10 to 12 days after the end of each month.

Forward-Looking Statements

Certain statements made in this press release and the related management commentary contain, and responses to investor questions may contain, 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 venture capital 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 the company’s annual report on Form 10-Q for the quarter ended June 30, 2021, as filed with the Securities and Exchange Commission. 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.

Use of Non-GAAP Financial Measures

This news release and related management commentary contain certain financial measures that are not presented in accordance with generally accepted accounting principles (GAAP), including an adjusted debt to capitalization ratio, personnel and other operating expense ratios, success ratios, net operating revenues; and adjusted revenues, adjusted pretax income, adjusted earnings per share, and adjusted pretax margins for the company, its title insurance and services segment and its specialty insurance segment. The company is presenting these non-GAAP financial measures because they provide the company’s management and investors with additional insight into the financial leverage, operational efficiency and performance of the company relative to earlier periods and relative to the company’s competitors. The company does not intend for these non-GAAP financial measures to be a substitute for any GAAP financial information. In this news release, these non-GAAP financial measures have been presented with, and reconciled to, the most directly comparable GAAP financial measures. Investors should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. Because not all companies use identical calculations, the presentation of these non-GAAP measures may not be comparable to other similarly titled measures of other companies.

First American Financial Corporation

Summary of Consolidated Financial Results and Selected Information

(in thousands, except per share amounts and title orders, unaudited)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Total revenues

$

2,555,928

$

1,913,721

$

6,848,048

$

4,935,393

Income before income taxes

$

603,174

$

243,371

$

1,308,612

$

540,990

Income tax expense

152,709

59,780

320,281

121,859

Net income

450,465

183,591

988,331

419,131

Less: Net income attributable to noncontrolling interests

5,215

1,312

7,166

2,993

Net income attributable to the Company

$

445,250

$

182,279

$

981,165

$

416,138

Net income per share attributable to stockholders:

Basic

$

4.01

$

1.62

$

8.84

$

3.69

Diluted

$

4.00

$

1.62

$

8.81

$

3.68

Cash dividends declared per share

$

0.51

$

0.44

$

1.43

$

1.32

Weighted average common shares outstanding:

Basic

110,956

112,584

111,000

112,913

Diluted

111,368

112,843

111,344

113,176

Selected Title Insurance Segment Information

Title orders opened(1)

318,800

410,600

1,011,500

1,116,300

Title orders closed(1)

252,700

291,500

811,400

748,700

Paid title claims

$

34,180

$

43,134

$

107,022

$

120,852

(1) U.S. direct title insurance orders only.

First American Financial Corporation

Selected Consolidated Balance Sheet Information

(in thousands, unaudited)

September 30,

December 31,

2021

2020

Cash and cash equivalents

$

1,953,987

$

1,275,466

Investments

10,356,604

7,150,689

Goodwill and other intangible assets, net

1,604,866

1,573,102

Total assets

16,686,064

12,795,988

Reserve for claim losses

1,261,515

1,178,004

Notes and contracts payable

1,648,863

1,010,756

Total stockholders’ equity

$

5,597,135

$

4,909,972

First American Financial Corporation

Segment Information

(in thousands, unaudited)

Three Months Ended

Title

Specialty

Corporate

September 30, 2021

Consolidated

Insurance

Insurance

(incl. Elims.)

Revenues

Direct premiums and escrow fees

$

921,336

$

794,215

$

127,121

$

Agent premiums

998,534

998,534

Information and other

310,145

307,616

2,789

(260

)

Net investment income

50,670

49,827

1,682

(839

)

Net realized investment gains (losses)

275,243

(3,413

)

634

278,022

2,555,928

2,146,779

132,226

276,923

Expenses

Personnel costs

584,649

561,461

22,708

480

Premiums retained by agents

794,165

794,165

Other operating expenses

333,195

298,149

25,103

9,943

Provision for policy losses and other claims

155,300

71,710

83,590

Depreciation and amortization

39,238

37,792

1,410

36

Impairment losses on exit of business

Premium taxes

26,981

25,679

1,302

Interest

19,226

5,457

13,769

1,952,754

1,794,413

134,113

24,228

Income (loss) before income taxes

$

603,174

$

352,366

$

(1,887

)

$

252,695

Three Months Ended

Title

Specialty

Corporate

September 30, 2020

Consolidated

Insurance

Insurance

(incl. Elims.)

Revenues

Direct premiums and escrow fees

$

807,947

$

680,910

$

127,037

$

Agent premiums

722,434

722,434

Information and other

285,882

282,671

3,450

(239

)

Net investment income

52,466

44,726

2,105

5,635

Net realized investment gains

44,992

41,252

3,740

1,913,721

1,771,993

136,332

5,396

Expenses

Personnel costs

511,298

481,417

22,271

7,610

Premiums retained by agents

572,780

572,780

Other operating expenses

281,079

251,304

20,899

8,876

Provision for policy losses and other claims

157,836

70,167

87,669

Depreciation and amortization

38,227

36,194

1,995

38

Impairment losses on exit of business

73,264

73,264

Premium taxes

19,885

17,522

2,363

Interest

15,981

5,129

10,852

1,670,350

1,434,513

208,461

27,376

Income (loss) before income taxes

$

243,371

$

337,480

$

(72,129

)

$

(21,980

)

First American Financial Corporation

Segment Information

(in thousands, unaudited)

Nine Months Ended

Title

Specialty

Corporate

September 30, 2021

Consolidated

Insurance

Insurance

(incl. Elims.)

Revenues

Direct premiums and escrow fees

$

2,624,462

$

2,238,956

$

385,506

$

Agent premiums

2,748,723

2,748,723

Information and other

890,476

881,262

9,994

(780

)

Net investment income

155,797

139,963

5,432

10,402

Net realized investment gains

428,590

45,405

19,403

363,782

6,848,048

6,054,309

420,335

373,404

Expenses

Personnel costs

1,708,097

1,622,432

69,361

16,304

Premiums retained by agents

2,183,890

2,183,890

Other operating expenses

959,317

860,223

71,468

27,626

Provision for policy losses and other claims

445,677

199,508

246,169

Depreciation and amortization

118,475

113,976

4,392

107

Impairment losses on exit of business

Premium taxes

72,034

67,195

4,839

Interest

51,946

16,500

35,446

5,539,436

5,063,724

396,229

79,483

Income before income taxes

$

1,308,612

$

990,585

$

24,106

$

293,921

Nine Months Ended

Title

Specialty

Corporate

September 30, 2020

Consolidated

Insurance

Insurance

(incl. Elims.)

Revenues

Direct premiums and escrow fees

$

2,080,568

$

1,712,946

$

367,622

$

Agent premiums

1,920,011

1,920,011

Information and other

728,563

719,196

9,992

(625

)

Net investment income

156,760

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