Part I [Item 1. Business](index=7&type=section&id=Item%201.%20Business) First American Financial Corporation is a leading provider of title insurance and settlement services, its primary business segment, accounting for 95.4% of 2023 consolidated revenues, with a strategy focused on core growth, data leverage, and complementary investments - The company's business is divided into three main segments: Title Insurance and Services, Home Warranty, and Corporate, with the Title Insurance and Services segment being the dominant revenue generator[17](index=17&type=chunk) Segment Revenue Contribution (2023) | Segment | Revenue Contribution | Source Chunk | | :--- | :--- | :--- | | Title Insurance and Services | 95.4% | 19 | | International Operations (as % of Title segment) | 6.5% | 34 | - The company's strategy involves profitably growing its core title insurance business, expanding its data advantage, and investing in complementary businesses, with a focus on digital transformation and customer experience[18](index=18&type=chunk) - As of December 31, 2023, the company employed **19,210 people**, with **12,244** in the U.S. and **6,966** internationally, and has received numerous awards for its workplace culture[49](index=49&type=chunk) - The company's federal savings bank subsidiary held assets of **$8.1 billion** and deposits of **$7.9 billion** as of December 31, 2023[44](index=44&type=chunk) [Item 1A. Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) The company faces strategic, operational, legal, compliance, and financial risks, including real estate market cyclicality, cyberattacks, regulatory oversight, and investment portfolio volatility - Strategic risks include the potential inadequacy of the risk management framework, increased claims from innovative initiatives like process automation, and disruption from other industry participants[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk) - Operational risks are significant, stemming from real estate market conditions (interest rates, inventory), unfavorable economic trends, and the integrity of IT systems, with explicit mention of cyberattack risks, referencing the December 2023 incident[69](index=69&type=chunk)[71](index=71&type=chunk)[84](index=84&type=chunk) - Legal and compliance risks arise from extensive government regulation (including CFPB), scrutiny of industry practices, and potential for class-action lawsuits, where changes in regulation, particularly in key states like California, Florida, and Texas, could significantly impact operations[93](index=93&type=chunk)[97](index=97&type=chunk)[99](index=99&type=chunk) - Financial risks include potential losses from failures at financial institutions where funds are deposited, impairment of goodwill, and volatility in both the primary investment portfolio and the high-risk venture investment portfolio, with actual claims experience potentially differing materially from reserves[101](index=101&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk) [Item 1C. Cybersecurity](index=25&type=section&id=Item%201C.%20Cybersecurity) The company's cybersecurity program, overseen by the Board, experienced a Q4 2023 incident resulting in an estimated 36-cent adjusted EPS shortfall and $11 million in direct expenses - Cybersecurity oversight is managed at the highest levels, with the Board's Audit Committee receiving quarterly reports from the CISO and the full Board receiving semi-annual briefings[115](index=115&type=chunk) - A cybersecurity incident in Q4 2023 had a material impact on the quarter's results, with the company's internal forecast for adjusted EPS at $1.00, while the actual result was $0.69, implying a **36-cent shortfall** largely attributed to the incident[118](index=118&type=chunk) - The Q4 2023 incident resulted in **$11 million of direct expenses**, which included the company's **$5 million insurance retention**, though the company does not believe the incident will have a material impact on its overall financial condition or ongoing operations[118](index=118&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=27&type=section&id=Item%205.%2E%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NYSE, declared a $0.53 per share quarterly dividend in January 2024, and has an active share repurchase program with $213.8 million remaining authorization as of December 31, 2023 - In January 2024, the board of directors declared a quarterly cash dividend of **$0.53 per share**[125](index=125&type=chunk) - As of December 31, 2023, the company had authority to repurchase an additional **$213.8 million** of its common stock under its share repurchase program[126](index=126&type=chunk) Share Repurchases (Q4 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2023 | 168,406 | $52.90 | | Nov 2023 | 151,657 | $54.59 | | Dec 2023 | 8,800 | $59.45 | | **Total Q4** | **328,863** | **$53.85** | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Total revenues for 2023 decreased 21.1% to $6.0 billion due to a real estate market downturn, impacting title insurance premiums, while the Home Warranty segment remained stable and liquidity remained strong Consolidated Revenue Overview (2023 vs. 2022) | Metric | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $6.0B | $7.6B | ($1.6B) | (21.1%) | - The revenue decline was primarily caused by a sharp drop in real estate transaction volumes, leading to a **27.0% decrease** in direct premiums and escrow fees and a **31.0% decrease** in agent premiums[170](index=170&type=chunk) - Net investment losses were **$206.4 million** in 2023, an improvement from the **$515.8 million loss** in 2022, with the 2023 loss including **$155.0 million** in net unrealized losses and impairments from the venture investment portfolio[170](index=170&type=chunk)[173](index=173&type=chunk) - The provision for title insurance losses was set at a rate of **3.25%** of title premiums and escrow fees in 2023, down from **4.0%** in 2022, reflecting a **3.75% ultimate loss rate** for the current policy year and a **0.5% reserve release** for prior policy years[149](index=149&type=chunk)[185](index=185&type=chunk) [Results of Operations by Segment](index=38&type=section&id=Results%20of%20Operations%20by%20Segment) Title Insurance and Services Segment Performance (2023 vs. 2022) | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $5,724.8M | $7,546.9M | (24.1%) | | Direct Premiums & Escrow Fees | $1,856.4M | $2,662.9M | (30.3%) | | Agent Premiums | $2,449.3M | $3,547.6M | (31.0%) | | Income Before Income Taxes | $494.0M | $757.4M | (34.8%) | | Pretax Margin | 8.6% | 10.0% | (1.4 pts) | Home Warranty Segment Performance (2023 vs. 2022) | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $417.2M | $419.0M | (0.4%) | | Income Before Income Taxes | $54.3M | $44.6M | 21.7% | | Pretax Margin | 13.0% | 10.6% | +2.4 pts | | Claims Provision Rate | 48.8% | 51.3% | (2.5 pts) | Corporate Segment Performance (2023 vs. 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Investment Losses | ($162.3M) | ($353.4M) | | Loss Before Income Taxes | ($273.8M) | ($476.2M) | [Liquidity and Capital Resources](index=45&type=section&id=Liquidity%20and%20Capital%20Resources) - Cash provided by operating activities decreased to **$354.3 million** in 2023 from **$777.6 million** in 2022[208](index=208&type=chunk) - The holding company maintained liquidity of **$179.3 million** in cash and **$900.0 million** available on its revolving credit facility as of December 31, 2023[213](index=213&type=chunk) - The company repaid its **$250 million 4.30% senior unsecured notes** upon maturity in February 2023[213](index=213&type=chunk) Debt to Capitalization Ratio | Ratio | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Debt to Capitalization | 28.6% | 30.0% | | Adjusted Debt to Capitalization | 20.2% | 22.9% | - The company administers significant off-balance sheet customer funds, including **$10.6 billion** in escrow deposits and **$1.8 billion** in like-kind exchange funds as of year-end 2023[222](index=222&type=chunk)[225](index=225&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are interest rate, equity price, and credit risk, with a hypothetical 100 basis point interest rate increase impacting debt securities by $337.1 million - The company's main market risks are interest rate, equity price, and credit risk[228](index=228&type=chunk) - A hypothetical **100 basis point parallel increase** in interest rates would cause the fair value of the debt securities portfolio to decrease by an estimated **$337.1 million**, or **4.7%**, as of December 31, 2023[231](index=231&type=chunk) - A hypothetical **10% broad-based decline** in equity market prices would decrease the fair value of the marketable equity securities portfolio by an estimated **$42.5 million** as of December 31, 2023[234](index=234&type=chunk) - The debt securities portfolio maintains a high average credit quality rating of **AA**[238](index=238&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=51&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements for 2023-2021, including an unqualified auditor's opinion, with the valuation of the IBNR loss reserve for title claims identified as a critical audit matter Key Consolidated Financial Data (Year-End) | Metric (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | **Balance Sheet** | | | | Total Assets | $16,802.8M | $14,955.3M | | Total Liabilities | $11,940.0M | $10,274.1M | | Total Stockholders' Equity | $4,848.1M | $4,657.8M | | **Income Statement** | | | | Total Revenues | $6,003.5M | $7,605.2M | | Net Income Attributable to Company | $216.8M | $263.0M | | Diluted EPS | $2.07 | $2.45 | - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2023[245](index=245&type=chunk) - The critical audit matter identified by the auditor was the valuation of the Incurred But Not Reported (IBNR) loss reserve for title claims, due to the significant management judgment and complex assumptions involved in the estimate[254](index=254&type=chunk) [Item 9A. Controls and Procedures](index=125&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes during Q4 2023 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[513](index=513&type=chunk) - Based on the COSO framework, management determined that the company's internal control over financial reporting was effective as of December 31, 2023[517](index=517&type=chunk) - No changes in internal control over financial reporting occurred during Q4 2023 that materially affected, or are reasonably likely to materially affect, these controls[519](index=519&type=chunk) Part III [Items 10-14. Directors, Executive Compensation, and Corporate Governance](index=127&type=section&id=Items%2010-14.%20Directors%2C%20Executive%20Compensation%2C%20and%20Corporate%20Governance) Information for directors, executive compensation, and corporate governance is incorporated by reference from the company's forthcoming 2024 proxy statement - The detailed information for Part III (Items 10-14) is not included directly in the 10-K but is incorporated by reference from the forthcoming 2024 Proxy Statement[525](index=525&type=chunk) Part IV [Item 15. Exhibits and Financial Statement Schedules](index=128&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section provides an index of all financial statements, schedules, and exhibits filed with or incorporated by reference into the Form 10-K report - This section provides an index of all financial statements, schedules, and exhibits included with or incorporated by reference into the Form 10-K filing[533](index=533&type=chunk)

SANTA ANA, Calif.--(BUSINESS WIRE)--First American Data & Analytics, a leading national provider of property-centric information, risk management and valuation solutions and a division of First American Financial Corporation (NYSE: FAF), today released its January 2024 Home Price Index (HPI) report. The report tracks home price changes less than four weeks behind real time at the national, state and metropolitan (Core-Based Statistical Area) levels and includes metropolitan price tiers that segment sale tra ...

SANTA ANA, Calif.--(BUSINESS WIRE)--First American Title Insurance Company, a leading provider of title insurance and settlement services and the largest subsidiary of First American Financial Corporation (NYSE: FAF), today announced that it was named by HousingWire as a 2024 HW Tech100™ Real Estate winner. The HW Tech100 awards recognize the most innovative and impactful organizations in housing and the transformative impact these companies have made, propelling the real estate sector into new realms of ef ...

First American Financial Corporation (FAF) reported fourth-quarter 2023 operating income per share of 69 cents, which missed the Zacks Consensus Estimate by 8%. The bottom line declined 48.9% year over year.Operating revenues of $1.4 billion decreased 15.2% year over year due to lower direct premiums and escrow fees, agent premiums, and information and other. However, the top line beat the Zacks Consensus Estimate by 2.8%.The insurer’s mixed results reflect soft performances in the Title Insurance and Servi ...

First American Financial (FAF) came out with quarterly earnings of $0.69 per share, missing the Zacks Consensus Estimate of $0.75 per share. This compares to earnings of $1.35 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of -8%. A quarter ago, it was expected that this financial services company would post earnings of $1.09 per share when it actually produced earnings of $1.22, delivering a surprise of 11.93%.Over the last fou ...

Analysts on Wall Street project that First American Financial (FAF) will announce quarterly earnings of $0.75 per share in its forthcoming report, representing a decline of 44.4% year over year. Revenues are projected to reach $1.39 billion, declining 17.5% from the same quarter last year.Over the last 30 days, there has been an upward revision of 9.8% in the consensus EPS estimate for the quarter, leading to its current level. This signifies the covering analysts' collective reconsideration of their initia ...

The market expects First American Financial (FAF) to deliver a year-over-year decline in earnings on lower revenues when it reports results for the quarter ended December 2023. This widely-known consensus outlook is important in assessing the company's earnings picture, but a powerful factor that might influence its near-term stock price is how the actual results compare to these estimates.The earnings report, which is expected to be released on February 7, 2024, might help the stock move higher if these ke ...

SANTA ANA, Calif.--(BUSINESS WIRE)--First American Financial Corporation (NYSE: FAF), a premier provider of title, settlement and risk solutions for real estate transactions and the leader in the digital transformation of its industry, today announced that its board of directors has declared a quarterly cash dividend of 53 cents per common share. The cash dividend is payable on March 15, 2024 to shareholders of record as of March 8, 2024. About First American First American Financial Corporation (NYSE: F ...

Financial Data and Key Metrics Changes - Commercial revenue was $160 million, a 39% decline compared to the previous year [6] - Average revenue per order for commercial transactions decreased by 15% to $10,763 [6] - Total revenue in the home warranty business was $108 million, a 3% increase year-over-year, with pretax income up 124% to $9.4 million [31] - Adjusted earnings per share were $1.22, excluding net investment losses of $164 million [81] - The effective tax rate for the quarter was 29.4%, higher than the normalized rate of 24% [31] Business Line Data and Key Metrics Changes - Purchase revenue decreased by 15%, driven by an 18% decrease in the number of orders closed, partially offset by a 3% increase in average revenue per order [30] - Refinance revenue declined by 41% due to rising mortgage rates [30] - Commercial open orders for the first three weeks of October were down 5% year-over-year and down 3% sequentially [28] - The title segment's pre-tax margin was 10.5%, or 12.0% on an adjusted basis [89] Market Data and Key Metrics Changes - Existing home sales have declined to the slowest annual pace since the global financial crisis, with commercial market sales down approximately 50% from the peak year of 2021 [85] - Open purchase orders in October were down 7% compared to September but up slightly year-over-year [79] - The company has an outsized share of the new home market, with new home-related purchase orders at 19% in October, above the historical average of 13% [11][12] Company Strategy and Development Direction - The company is focused on expense management and has highlighted the importance of investing for long-term growth while returning capital to shareholders [73] - The company is committed to enhancing operational efficiency through technology initiatives like Endpoint and instant decisioning for purchase transactions [20][42] - The company anticipates a cautious outlook for 2024, with concerns across all business segments, particularly in commercial and residential markets [67] Management's Comments on Operating Environment and Future Outlook - Management noted that refinance open orders remain at low levels, averaging 350 per day, and do not expect significant improvement in the near future [4] - The company expressed optimism about potential recovery in the commercial market, anticipating higher revenues in Q4 consistent with seasonal patterns [28] - Management acknowledged the challenges posed by rising interest rates and their impact on housing affordability, which is at its lowest point in over three decades [85] Other Important Information - The company repurchased $9 million of its shares in Q3 and has accelerated purchases in October, buying an additional $9 million [80] - The debt-to-capital ratio was reported at 29.7%, with a comfortable level of 23.5% when excluding secured financings payable [113] Q&A Session Summary Question: What is the outlook for investment income in Q4? - Management expects investment income to dip slightly in Q4 by about $5 million due to market conditions [17] Question: How is the company managing interest expense? - Interest expense in the title segment was $23.5 million this quarter, influenced by the cost of funds in banking operations [36] Question: What are the expectations for the commercial market? - Management noted a decline in large deals, with only four mega deals this quarter compared to seven a year ago, indicating a cautious outlook [64] Question: How is the home warranty business performing? - The home warranty business is performing well, with a loss ratio of 55%, down from 59% in 2022, driven by lower claim frequency and severity [31][58] Question: What is the company's approach to share buybacks? - The company has accelerated share repurchases, viewing them as an attractive alternative for returning capital to shareholders [46]

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 September 30, 2023 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) (State or o ...