First American(FAF) - 2025 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis of the company's financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of income, comprehensive income, stockholders' equity, and cash flows, along with detailed notes A. Condensed Consolidated Balance Sheets This section presents the company's condensed consolidated balance sheets, detailing assets, liabilities, and equity at specific reporting dates Assets (June 30, 2025 vs Dec 31, 2024) | Asset Category | June 30, 2025 (millions) | Dec 31, 2024 (millions) | Change (millions) | % Change | | :-------------------------------- | :----------------------- | :---------------------- | :---------------- | :--------- | | Cash and cash equivalents | $2,031.2 | $1,718.1 | $313.1 | 18.2% | | Accounts and accrued income receivable | $412.6 | $374.8 | $37.8 | 10.1% | | Investments (Total) | $8,817.0 | $8,042.6 | $774.4 | 9.6% | | Secured financings receivable | $975.1 | $690.0 | $285.1 | 41.3% | | Goodwill | $1,814.0 | $1,804.3 | $9.7 | 0.5% | | Total Assets | $16,273.9 | $14,908.6 | $1,365.3 | 9.2% | Liabilities & Equity (June 30, 2025 vs Dec 31, 2024) | Liability/Equity Category | June 30, 2025 (millions) | Dec 31, 2024 (millions) | Change (millions) | % Change | | :-------------------------------- | :----------------------- | :---------------------- | :---------------- | :--------- | | Deposits | $5,959.7 | $5,048.1 | $911.6 | 18.1% | | Secured financings payable | $883.8 | $643.8 | $240.0 | 37.3% | | Notes and contracts payable | $1,546.8 | $1,546.6 | $0.2 | 0.0% | | Total Liabilities | $11,124.6 | $9,981.6 | $1,143.0 | 11.4% | | Total stockholders' equity | $5,126.2 | $4,908.5 | $217.7 | 4.4% | | Total Equity | $5,149.3 | $4,927.0 | $222.3 | 4.5% | B. Condensed Consolidated Statements of Income This section provides the condensed consolidated statements of income, outlining revenues, expenses, and net income for the reported periods Three Months Ended June 30 (2025 vs 2024) | Metric | 2025 (millions) | 2024 (millions) | Change (millions) | % Change | | :-------------------------------- | :-------------- | :-------------- | :---------------- | :--------- | | Direct premiums and escrow fees | $704.2 | $632.7 | $71.5 | 11.3% | | Agent premiums | $716.5 | $616.3 | $100.2 | 16.3% | | Information and other revenue | $270.1 | $246.6 | $23.5 | 9.5% | | Net investment income | $160.2 | $129.9 | $30.3 | 23.3% | | Net investment losses | $(9.7) | $(13.2) | $3.5 | -26.5% | | Total Revenues | $1,841.3 | $1,612.3 | $229.0 | 14.2% | | Personnel costs | $571.1 | $509.0 | $62.1 | 12.2% | | Premiums retained by agents | $573.5 | $492.2 | $81.3 | 16.5% | | Other operating expenses | $309.4 | $277.0 | $32.4 | 11.7% | | Provision for policy losses and other claims | $81.9 | $79.5 | $2.4 | 3.0% | | Total Expenses | $1,646.1 | $1,460.7 | $185.4 | 12.7% | | Income before income taxes | $195.2 | $151.6 | $43.6 | 28.8% | | Net income attributable to the Company | $146.1 | $116.0 | $30.1 | 25.9% | | Basic EPS | $1.41 | $1.11 | $0.30 | 27.0% | | Diluted EPS | $1.41 | $1.11 | $0.30 | 27.0% | Six Months Ended June 30 (2025 vs 2024) | Metric | 2025 (millions) | 2024 (millions) | Change (millions) | % Change | | :-------------------------------- | :-------------- | :-------------- | :---------------- | :--------- | | Direct premiums and escrow fees | $1,265.3 | $1,133.6 | $131.7 | 11.6% | | Agent premiums | $1,371.1 | $1,180.1 | $191.0 | 16.2% | | Information and other revenue | $512.3 | $469.6 | $42.7 | 9.1% | | Net investment income | $295.4 | $257.8 | $37.6 | 14.6% | | Net investment losses | $(20.5) | $(4.2) | $(16.3) | 388.1% | | Total Revenues | $3,423.6 | $3,036.9 | $386.7 | 12.7% | | Personnel costs | $1,077.8 | $993.9 | $83.9 | 8.4% | | Premiums retained by agents | $1,099.0 | $940.0 | $159.0 | 16.9% | | Other operating expenses | $587.7 | $542.8 | $44.9 | 8.3% | | Provision for policy losses and other claims | $152.0 | $149.0 | $3.0 | 2.0% | | Total Expenses | $3,131.8 | $2,827.0 | $304.8 | 10.8% | | Income before income taxes | $291.8 | $209.9 | $81.9 | 39.0% | | Net income attributable to the Company | $220.3 | $162.7 | $57.6 | 35.4% | | Basic EPS | $2.12 | $1.56 | $0.56 | 35.9% | | Diluted EPS | $2.12 | $1.56 | $0.56 | 35.9% | C. Condensed Consolidated Statements of Comprehensive Income This section details the condensed consolidated statements of comprehensive income, including net income and other comprehensive income components Comprehensive Income (Three Months Ended June 30) | Metric | 2025 (millions) | 2024 (millions) | Change (millions) | | :-------------------------------- | :-------------- | :-------------- | :---------------- | | Net income | $147.1 | $116.4 | $30.7 | | Change in unrealized gains (losses) on debt securities | $19.0 | $(5.8) | $24.8 | | Change in foreign currency translation adjustment | $34.9 | $(3.8) | $38.7 | | Total other comprehensive income (loss), net of tax | $54.2 | $(9.2) | $63.4 | | Comprehensive income attributable to the Company | $200.3 | $106.8 | $93.5 | Comprehensive Income (Six Months Ended June 30) | Metric | 2025 (millions) | 2024 (millions) | Change (millions) | | :-------------------------------- | :-------------- | :-------------- | :---------------- | | Net income | $221.9 | $163.1 | $58.8 | | Change in unrealized gains (losses) on debt securities | $111.3 | $(56.4) | $167.7 | | Change in foreign currency translation adjustment | $38.8 | $(18.3) | $57.1 | | Total other comprehensive income (loss), net of tax | $150.8 | $(73.9) | $224.7 | | Comprehensive income attributable to the Company | $371.1 | $88.8 | $282.3 | D. Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in stockholders' equity, including net income, dividends, share repurchases, and other comprehensive income Changes in Stockholders' Equity (Six Months Ended June 30, 2025) | Item | Amount (millions) | | :-------------------------------- | :---------------- | | Balance at December 31, 2024 | $4,908.5 | | Net income attributable to the Company | $220.3 | | Dividends on common shares | $(111.0) | | Repurchases of Company shares | $(88.7) | | Other comprehensive income | $150.8 | | Balance at June 30, 2025 | $5,126.2 | - The company repurchased 1.5 million shares for $88.7 million during the six months ended June 30, 2025[23] E. Condensed Consolidated Statements of Cash Flows This section presents the condensed consolidated statements of cash flows, categorizing cash movements from operating, investing, and financing activities Cash Flow Summary (Six Months Ended June 30) | Cash Flow Activity | 2025 (millions) | 2024 (millions) | Change (millions) | | :-------------------------------- | :-------------- | :-------------- | :---------------- | | Cash provided by operating activities | $309.0 | $336.0 | $(27.0) | | Cash used for investing activities | $(957.7) | $(130.6) | $(827.1) | | Cash provided by (used for) financing activities | $947.8 | $(1,757.2) | $2,705.0 | | Net increase (decrease) in cash and cash equivalents | $313.1 | $(1,556.7) | $1,869.8 | | Cash and cash equivalents—End of period | $2,031.2 | $2,048.6 | $(17.4) | - Key investing activities for the six months ended June 30, 2025, included purchases of debt securities ($1,393.7 million) and significant advances ($18,613.4 million) and collections ($18,328.3 million) under secured financing agreements[29] - Key financing activities for the six months ended June 30, 2025, included a net increase in deposits ($911.6 million), borrowings ($18,071.3 million) and repayments ($17,831.3 million) under secured financing agreements, repurchases of company shares ($88.7 million), and payments of cash dividends ($111.0 million)[29] F. Notes to Condensed Consolidated Financial Statements This section provides detailed notes explaining the accounting policies, significant estimates, and specific financial statement line items Note 1 – Basis of Condensed Consolidated Financial Statements This note describes the basis of preparation for the unaudited condensed consolidated financial statements, adhering to U.S. GAAP and SEC regulations - The financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial information and SEC Regulation S-X[32] - Recently adopted accounting pronouncements (December 2023 FASB guidance on income tax disclosures and August 2023 FASB guidance on joint venture contributions) had no material impact on the condensed consolidated financial statements[33][34] - Pending FASB guidance on expense category disclosures (effective after December 15, 2026) is not expected to have a material impact on the financial statements, except for disclosure requirements[35] Note 2 – Trust Assets, Escrow and Other Deposits This note details the company's administration of trust assets, escrow, and other deposits, clarifying their treatment on the balance sheet - Escrow deposits totaled $10.7 billion at June 30, 2025, up from $8.9 billion at December 31, 2024, with $4.5 billion held at First American Trust, FSB[37] - Trust assets administered by FA Trust totaled $4.9 billion at June 30, 2025, up from $4.8 billion at December 31, 2024, with $150.3 million held at FA Trust[38] - Like-kind exchange funds administered by the Company totaled $2.3 billion at June 30, 2025, consistent with December 31, 2024[40] - Cash deposits for residential mortgage loan subservicing operations totaled $1.3 billion at June 30, 2025, up from $901.0 million at December 31, 2024, with $908.6 million held at FA Trust[41] - These funds are generally not considered assets of the Company and are not included in the consolidated balance sheets, but the Company could be held contingently liable for their disposition or if FA Trust breaches fiduciary duties[37][38][40][41] Note 3 – Debt Securities This note provides information on the company's debt securities portfolio, including fair values, unrealized gains/losses, and credit quality Debt Securities Portfolio (June 30, 2025 vs Dec 31, 2024) | Metric | June 30, 2025 (millions) | Dec 31, 2024 (millions) | Change (millions) | | :-------------------------------- | :----------------------- | :---------------------- | :---------------- | | Amortized cost | $8,334.2 | $7,730.9 | $603.3 | | Gross unrealized gains | $46.2 | $19.6 | $26.6 | | Gross unrealized losses | $(361.5) | $(484.6) | $123.1 | | Estimated fair value | $8,018.9 | $7,265.9 | $753.0 | - For the six months ended June 30, 2025, sales of debt securities resulted in $2.5 million in realized gains, $9.4 million in realized losses, and $507.0 million in proceeds[44] - As of June 30, 2025, the total estimated fair value of debt securities in an unrealized loss position was $4,989.9 million, with total unrealized losses of $(361.5) million, determined to be due to non-credit factors, and the company does not intend to sell these securities before recovery of their amortized cost basis[45] Credit Quality of Debt Securities Portfolio (June 30, 2025) | Rating Category | Estimated Fair Value (millions) | Percentage | | :-------------------------------- | :------------------------------ | :--------- | | A- or higher | $7,271.0 | 90.6% | | BBB+ to BBB- | $533.4 | 6.7% | | Non-Investment Grade | $214.5 | 2.7% | | Total | $8,018.9 | 100.0% | Note 4 – Equity Securities This note details the company's equity securities, distinguishing between marketable, non-marketable, and equity method investments Equity Securities Summary (June 30, 2025 vs Dec 31, 2024) | Category | June 30, 2025 (millions) | Dec 31, 2024 (millions) | | :-------------------------------- | :----------------------- | :---------------------- | | Marketable equity securities | $396.0 | $386.8 | | Non-marketable equity securities | $218.3 | $202.4 | | Equity method investments | $101.1 | $102.1 | | Total | $715.4 | $691.3 | - Net gains of $26.1 million (Q2 2025) and $19.1 million (YTD 2025) were recognized from changes in the fair values of marketable equity securities[57] - The carrying amount of non-marketable equity securities, primarily related to the venture investment portfolio, increased to $218.3 million at June 30, 2025[58] Note 5 – Allowance for Credit Losses – Accounts Receivable This note outlines the changes in the allowance for credit losses on accounts receivable, including provisions and write-offs Allowance for Credit Losses (Six Months Ended June 30) | Metric | 2025 (millions) | 2024 (millions) | | :-------------------------------- | :-------------- | :-------------- | | Balance at beginning of period | $21.5 | $21.8 | | Provision for expected credit losses | $4.7 | $2.8 | | Write-offs/recoveries | $(2.7) | $(3.2) | | Balance at end of period | $23.5 | $21.4 | Note 6 – Goodwill This note details the changes in goodwill, including additions from acquisitions and foreign currency translation adjustments Goodwill Changes (Six Months Ended June 30, 2025) | Item | Amount (millions) | | :-------------------------------- | :---------------- | | Balance at beginning of period | $1,804.3 | | Acquisitions | $4.5 | | Foreign currency translation | $5.2 | | Balance at end of period | $1,814.0 | - The Title Insurance and Services segment accounts for $1,773.1 million of the total goodwill[60] Note 7 – Other Intangible Assets This note provides information on other intangible assets, including finite-lived and indefinite-lived assets, and their amortization expense Other Intangible Assets, Net (June 30, 2025 vs Dec 31, 2024) | Category | June 30, 2025 (millions) | Dec 31, 2024 (millions) | | :-------------------------------- | :----------------------- | :---------------------- | | Finite-lived intangible assets (gross) | $248.9 | $266.5 | | Accumulated amortization | $(150.8) | $(158.2) | | Finite-lived intangible assets (net) | $98.1 | $108.3 | | Indefinite-lived intangible assets (Licenses) | $16.9 | $16.9 | | Total other intangible assets, net | $115.0 | $125.2 | - Amortization expense for finite-lived intangible assets was $18.6 million for the six months ended June 30, 2025, compared to $23.5 million for the same period in 2024[61] Estimated Amortization Expense for Finite-Lived Intangible Assets (Next Five Years) | Year | Amount (millions) | | :-------------------------------- | :---------------- | | Remainder of 2025 | $20.5 | | 2026 | $28.5 | | 2027 | $13.1 | | 2028 | $8.5 | | 2029 | $6.0 | Note 8 – Reserve for Known and Incurred But Not Reported Claims This note details the activity and composition of the reserve for known and incurred but not reported claims, including loss provision rates Reserve Activity (Six Months Ended June 30) | Metric | 2025 (millions) | 2024 (millions) | | :-------------------------------- | :-------------- | :-------------- | | Balance at beginning of period | $1,193.4 | $1,282.4 | | Provision related to current year | $171.7 | $165.7 | | Provision related to prior years | $(19.7) | $(16.7) | | Payments, net of recoveries | $(164.5) | $(179.4) | | Balance at end of period | $1,189.3 | $1,252.2 | - The provision for title insurance losses, as a percentage of title insurance premiums and escrow fees, was 3.0% for both the three and six months ended June 30, 2025 and 2024[63] - The 3.0% loss provision rate for 2025 reflects an ultimate loss rate of 3.75% for the 2025 policy year and reserve releases of 0.75% for prior policy years[64] Loss Reserve Composition (June 30, 2025) | (dollars in millions) | June 30, 2025 | Percentage | | :-------------------------------- | :-------------- | :--------- | | Known title claims | $54.8 | 4.6% | | Incurred but not reported claims | $1,105.4 | 93.0% | | Non-title claims | $29.1 | 2.4% | | Total loss reserves | $1,189.3 | 100.0% | Note 9 – Income Taxes This note discusses the company's effective income tax rates, valuation allowances, uncertain tax positions, and the impact of recent tax legislation - The effective income tax rates were 24.6% for the three months and 24.0% for the six months ended June 30, 2025, an increase from 23.2% and 22.3% respectively in the prior year[67] - The Company carried a valuation allowance of $27.9 million for deferred tax assets as of June 30, 2025[68] - Liabilities for income taxes associated with uncertain tax positions were $33.2 million at June 30, 2025, an increase from $31.6 million at December 31, 2024[69] - The 'One Big Beautiful Bill Act,' signed July 4, 2025, is not expected to have a material effect on the Company's ongoing effective tax rate, despite anticipated impacts to deferred tax liability and income tax payable[74] Note 10 – Earnings Per Share This note provides a breakdown of net income attributable to the company and the corresponding basic and diluted earnings per share Net Income Attributable to the Company and EPS (Three Months Ended June 30) | Metric | 2025 (millions/per share) | 2024 (millions/per share) | | :-------------------------------- | :------------------------ | :------------------------ | | Net income attributable to the Company | $146.1 | $116.0 | | Basic EPS | $1.41 | $1.11 | | Diluted EPS | $1.41 | $1.11 | Net Income Attributable to the Company and EPS (Six Months Ended June 30) | Metric | 2025 (millions/per share) | 2024 (millions/per share) | | :-------------------------------- | :------------------------ | :------------------------ | | Net income attributable to the Company | $220.3 | $162.7 | | Basic EPS | $2.12 | $1.56 | | Diluted EPS | $2.12 | $1.56 | Note 11 – Employee Benefit Plans This note details the net periodic benefit costs and contributions made to the company's unfunded supplemental benefit pension plans Net Periodic Benefit Costs (Six Months Ended June 30) | Metric | 2025 (millions) | 2024 (millions) | | :-------------------------------- | :-------------- | :-------------- | | Service costs | $0.1 | $0.1 | | Interest costs | $4.7 | $4.8 | | Amortization of net actuarial loss | $0.9 | $1.1 | | Total Expense | $5.7 | $6.0 | - The Company contributed $7.5 million to its unfunded supplemental benefit pension plans during the six months ended June 30, 2025, and expects to contribute an additional $8.8 million during the remainder of 2025[76] Note 12 – Fair Value Measurements This note describes the company's fair value measurements, categorizing assets and liabilities into a three-level hierarchy based on input observability - The Company categorizes its assets and liabilities carried at fair value using a three-level hierarchy: Level 1 (unadjusted quoted market prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (unobservable inputs)[79][80] Assets Measured at Fair Value (June 30, 2025) | Asset Category | Total (millions) | Level 1 (millions) | Level 2 (millions) | Level 3 (millions) | | :-------------------------------- | :--------------- | :----------------- | :----------------- | :----------------- | | Debt securities | $8,018.9 | $— | $8,018.9 | $— | | Equity securities | $396.0 | $396.0 | $— | $— | | Total | $8,414.9 | $396.0 | $8,018.9 | $— | - During the six months ended June 30, 2025, the Company recorded $35.5 million in impairment losses on property and equipment related to internally developed software[84] Note 13 – Share-Based Compensation This note outlines the share-based compensation expense and amendments to the company's incentive compensation plan Share-Based Compensation Expense (Six Months Ended June 30) | Category | 2025 (millions) | 2024 (millions) | | :-------------------------------- | :-------------- | :-------------- | | RSUs | $39.2 | $25.8 | | PRSUs | $5.0 | $3.5 | | Employee stock purchase plan | $3.6 | $3.5 | | Total Expense | $47.8 | $32.8 | - The Company's 2020 Incentive Compensation Plan was amended in March 2025 to increase the number of shares available for grant by 2.0 million and extend the term until May 13, 2035[85] Note 14 – Stockholders' Equity This note details changes in stockholders' equity, including share repurchase plans and actual repurchases made during the period - In July 2025, the Company's board of directors approved a new share repurchase plan authorizing up to $300 million of common stock repurchases, terminating the prior plan[86] - During the six months ended June 30, 2025, the Company repurchased and retired 1.5 million shares of its common stock for $88.7 million under the previous authorization[86] Note 15 – Accumulated Other Comprehensive Income (Loss) ("AOCI") This note provides the balance and components of accumulated other comprehensive income (loss), highlighting changes from unrealized gains/losses and foreign currency adjustments AOCI Balance (June 30, 2025 vs Dec 31, 2024) | Component | June 30, 2025 (millions) | Dec 31, 2024 (millions) | | :-------------------------------- | :----------------------- | :---------------------- | | Unrealized gains (losses) on debt securities | $(242.4) | $(353.7) | | Foreign currency translation adjustment | $(72.2) | $(111.0) | | Pension benefit adjustment | $(31.0) | $(31.7) | | Total AOCI | $(345.6) | $(496.4) | - The change in AOCI for the six months ended June 30, 2025, was primarily driven by a $149.7 million change in unrealized losses on debt securities and a $39.6 million change in foreign currency translation adjustment, resulting in total other comprehensive income of $150.8 million, net of tax[88] Note 16 – Litigation and Regulatory Contingencies This note describes the company's involvement in ongoing legal and regulatory proceedings, including class action lawsuits and their potential financial impact - The Company is involved in ongoing routine legal and regulatory proceedings, including class action lawsuits, similar to those faced by competitors[90][92] - In the Sjobring vs. First American Title Insurance Company lawsuit, a jury rendered a verdict in favor of the Company on March 26, 2025, and the plaintiffs' motion for a new trial was denied on June 23, 2025, though plaintiffs filed a notice of appeal on July 1, 2025[92] - The Company does not believe that any pending examinations or investigations will have a material adverse effect on its financial condition, results of operations, or cash flows, but acknowledges potential changes to business practices[94] Note 17 – Segment Information This note provides financial information for the company's reportable segments: Title Insurance and Services, Home Warranty, and Corporate - The Company operates in three reportable segments: Title Insurance and Services, Home Warranty, and Corporate[96] Total Segment Revenue (Three Months Ended June 30) | Segment | 2025 (millions) | 2024 (millions) | $ Change | % Change | | :-------------------------------- | :-------------- | :-------------- | :------- | :------- | | Title Insurance and Services | $1,722.9 | $1,521.9 | $201.0 | 13.2% | | Home Warranty | $110.2 | $106.8 | $3.4 | 3.2% | | Corporate and Eliminations | $8.2 | $(16.4) | $24.6 | 150.0% | | Total Consolidated Revenue | $1,841.3 | $1,612.3 | $229.0 | 14.2% | Total Segment Revenue (Six Months Ended June 30) | Segment | 2025 (millions) | 2024 (millions) | $ Change | % Change | | :-------------------------------- | :-------------- | :-------------- | :------- | :------- | | Title Insurance and Services | $3,207.3 | $2,841.7 | $365.6 | 12.9% | | Home Warranty | $218.0 | $212.0 | $6.0 | 2.8% | | Corporate and Eliminations | $(1.7) | $(16.8) | $15.1 | 89.9% | | Total Consolidated Revenue | $3,423.6 | $3,036.9 | $386.7 | 12.7% | - The Title Insurance and Services segment's pretax margin increased to 12.6% for Q2 2025 (from 11.7% in Q2 2024) and 10.1% for YTD 2025 (from 8.8% in YTD 2024)[97][107][142] - The Home Warranty segment's pretax margin increased to 20.2% for Q2 2025 (from 15.4% in Q2 2024) and 21.6% for YTD 2025 (from 17.4% in YTD 2024), primarily due to lower claims frequency and severity[97][107][145][146] - The Corporate segment reported a loss before income taxes of $(43.8) million for Q2 2025 and $(78.7) million for YTD 2025, primarily due to net investment losses and increased interest expense[97][107][148] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed analysis of the company's financial performance, condition, and results of operations for the three and six months ended June 30, 2025 Summary This section summarizes the company's overall financial performance, highlighting key revenue drivers and transaction trends for the period - Total revenues for the second quarter of 2025 increased by $229.0 million, or 14.2%, to $1.8 billion compared to the second quarter of 2024[123] - The increase in revenues was primarily driven by a 16.3% increase in agent premiums and a 12.6% increase in direct premiums and escrow fees in the title insurance business[123] - Domestic commercial transactions increased by 32.6% and residential refinance transactions increased by 54.0% in Q2 2025, while domestic residential purchase transactions decreased by 3.4%[123] - Domestic title orders opened per day increased 5.8% in Q2 2025, with refinance orders up 34.2% and commercial orders up 10.6%, while residential purchase orders decreased 2.4%[125] Title Insurance and Services This section analyzes the financial performance of the Title Insurance and Services segment, focusing on premium growth, investment income, and operating expenses - Direct premiums and escrow fees increased by 12.6% to $600.4 million for Q2 2025 and by 13.2% to $1.1 billion for YTD 2025, driven by higher domestic average revenues per order and increased closed orders[127] - Agent premiums increased by 16.3% to $716.5 million for Q2 2025 and by 16.2% to $1.4 billion for YTD 2025[128] - Net investment income increased by 17.0% to $147.1 million for Q2 2025, primarily due to higher interest income from the investment portfolio[132] - Net investment losses of $5.4 million for Q2 2025 were primarily attributable to $35.5 million in asset impairments[133] - Personnel costs increased by 7.7% to $523.0 million for Q2 2025, mainly due to higher incentive compensation, salaries, employee benefits, and share-based compensation[134] - Other operating expenses increased by 14.0% to $277.8 million for Q2 2025, primarily due to higher production expenses, software, travel, and professional services[136] - Pretax margins for the segment improved to 12.6% for Q2 2025, up from 11.7% in Q2 2024[142] Home Warranty This section reviews the Home Warranty segment's financial results, including premium growth, claims experience, and pretax margin improvements - Direct premiums increased by 4.1% to $103.7 million for Q2 2025 and by 4.1% to $205.3 million for YTD 2025, primarily due to increases in the average price per policy[143] - The provision for home warranty claims, as a percentage of home warranty premiums, decreased to 41.3% for Q2 2025 (from 45.8% in Q2 2024) and 39.2% for YTD 2025 (from 43.7% in YTD 2024), primarily attributable to lower claims frequency and severity[145] - Pretax margins for the segment improved to 20.2% for Q2 2025 (from 15.4% in Q2 2024) and 21.6% for YTD 2025 (from 17.4% in YTD 2024)[146] Corporate This section discusses the Corporate segment's financial performance, detailing investment losses, interest expense, and other operating costs - The Corporate segment reported a loss before income taxes of $(43.8) million for Q2 2025 and $(78.7) million for YTD 2025[148] - Net investment losses of $(3.7) million for Q2 2025 and $(10.2) million for YTD 2025 were primarily related to unrealized losses on the Company's investment in Offerpad Solutions Inc[149] - Interest expense increased by 22.6% to $15.2 million for Q2 2025 and by 22.1% to $30.4 million for YTD 2025, primarily due to additional interest on the $450.0 million senior unsecured notes issued in September 2024[151] - Personnel costs and other operating expenses increased to $37.0 million for Q2 2025 and $47.9 million for YTD 2025, primarily due to higher severance and share-based compensation expense[150] Eliminations This section notes the immaterial impact of inter-segment eliminations on the company's consolidated financial statements - The Company's inter-segment eliminations were not material for the three and six months ended June 30, 2025 and 2024[152] Income Taxes This section analyzes the effective income tax rates and the factors influencing them, including the impact of recent tax legislation - The effective income tax rates were 24.6% for the three months and 24.0% for the six months ended June 30, 2025, compared with 23.2% and 22.3% for the respective periods of the prior year[153] - The differences in effective tax rates are primarily due to the impact of state income taxes and permanent differences between financial statement and income tax reporting[153] - The 'One Big Beautiful Bill Act,' signed July 4, 2025, is not expected to have a material effect on the Company's ongoing effective tax rate[155] Net Income and Net Income Attributable to the Company This section presents the net income and net income attributable to the company, along with corresponding diluted earnings per share - Net income for the three months ended June 30, 2025, was $147.1 million, up from $116.4 million in the prior year[156] - Net income attributable to the Company for the three months ended June 30, 2025, was $146.1 million, or $1.41 per diluted share, compared with $116.0 million, or $1.11 per diluted share, in the prior year[156] - Net income attributable to the Company for the six months ended June 30, 2025, was $220.3 million, or $2.12 per diluted share, compared with $162.7 million, or $1.56 per diluted share, in the prior year[156] Liquidity and Capital Resources This section assesses the company's liquidity position, capital resources, and capital allocation strategy, including share repurchases and dividends - Management believes the Company's resources are sufficient to satisfy anticipated operational cash requirements and obligations for at least the next twelve months[157] - Cash provided by operating activities totaled $309.0 million for the six months ended June 30, 2025, compared to $336.0 million in the prior year[159] - In July 2025, the board approved a new share repurchase plan authorizing up to $300 million of common stock, terminating the prior plan[161] - The Company expects to continue paying quarterly cash dividends at or above the current level of 54 cents per common share[160] - As of June 30, 2025, the holding company had $114.2 million in cash and cash equivalents and $900.0 million available on its revolving credit facility[163] Debt to Capitalization Ratios (June 30, 2025 vs Dec 31, 2024) | Metric | June 30, 2025 | Dec 31, 2024 | | :-------------------------------- | :------------ | :----------- | | Debt to capitalization ratio | 32.1% | 30.8% | | Adjusted debt to capitalization ratio (excluding secured financings payable) | 23.1% | 23.9% | - The Company's investment portfolio is high quality and liquid, with 95% consisting of debt securities, of which 71% were United States government-backed or rated AAA, and 97% were rated or classified as investment grade as of June 30, 2025[166] Off-balance sheet arrangements This section describes the company's off-balance sheet arrangements, primarily related to administered escrow deposits and trust assets - The Company administers $10.7 billion in escrow deposits, $4.9 billion in trust assets, $2.3 billion in like-kind exchange funds, and $1.3 billion in residential mortgage loan subservicing cash deposits as of June 30, 2025[168][169][172][173] - These funds are primarily held at third-party financial institutions and are not included in the Company's consolidated balance sheets, though the Company could be held contingently liable for their disposition[168][169][172][173] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary exposure to market risk is interest rate risk associated with certain financial instruments. There have been no material changes in these market risks since the previous annual report, and the company does not extensively use derivative financial instruments for hedging - The Company's primary exposure to market risk relates to interest rate risk associated with certain financial instruments[174] - There have been no material changes in the Company's market risks since the filing of its Annual Report on Form 10-K for the year ended December 31, 2024[175] - The Company does not currently use derivative financial instruments on any significant scale to hedge these risks[174] Item 4. Controls and Procedures The company's chief executive officer and chief financial officer concluded that the disclosure controls and procedures were effective as of June 30, 2025. No material changes in internal control over financial reporting occurred during the quarter - The Company's chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[176] - There was no change in the Company's internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting[177] PART II: OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, defaults, and other miscellaneous disclosures relevant to the company Item 1. Legal Proceedings This section incorporates by reference the details of legal proceedings and regulatory contingencies from Note 16 of the condensed consolidated financial statements - Refer to Note 16 Litigation and Regulatory Contingencies in Item 1. Financial Statements for information on legal proceedings[179] Item 1A. Risk Factors This section outlines various strategic, operational, legal, compliance, financial, and general risks that could materially and adversely affect the company's business, operations, reputation, financial position, or future financial performance Strategic Risk Factors This section identifies strategic risks, including inadequate risk management, challenges from innovation, and potential market disruptions - The Company's risk management framework, including enterprise risk management, information security, and underwriting policies, could prove inadequate, leading to adverse effects[181] - Pursuing innovative initiatives, such as utilizing artificial intelligence in product delivery, carries risks including design defects, misapplication of technologies, reliance on inadequate data, increased third-party costs, information security vulnerabilities, and failure to meet customer expectations, potentially resulting in increased claims or reputational damage[182] - Potentially disruptive innovation by other participants in the real estate industry could adversely impact the Company's businesses by changing demand for its products and services, fulfillment methods, and profitability, requiring significant additional investment and management attention[183] Operational Risk Factors This section details operational risks such as real estate market sensitivity, economic downturns, model reliance, catastrophic events, and data security vulnerabilities - Demand for a substantial portion of the Company's products and services is generally impacted by conditions in the real estate market, with high mortgage interest rates and elevated home prices contributing to historically weak residential purchase activity[184][188] - Unfavorable economic conditions can adversely affect the Company by reducing funds received from third parties held in trust, negatively impacting returns on deposited funds, and increasing the likelihood of losses in its investment portfolio[185][186][187][189] - The Company's use of models, particularly those relying on artificial intelligence, involves inherent risks and uncertainties that could lead to erroneous outputs, imprudent business decisions, inadequate risk management, or heightened regulatory supervision[190] - Severe weather conditions, health crises, terrorist attacks, and other catastrophes could adversely affect the Company's business, operations, and financial results, including increasing home warranty claims and impacting investment values and reinsurance availability[191][192][193][194] - Difficulties in acquiring necessary data due to federal, state, and local regulations, as well as changes in relationships with large mortgage lenders or government-sponsored enterprises, could adversely affect the Company[195][196] - A downgrade by ratings agencies, reductions in statutory capital and surplus, or a deterioration in other measures of financial strength could adversely affect the Company's results of operations, competitive position, and liquidity[197] - The issuance of title insurance policies and related activities by independent title agents could adversely affect the Company due to agents' failure to fulfill fiduciary duties or contractual obligations, potentially leading to increased claims and costs[198][199] - Systems damage, failures, interruptions, cyberattacks, intrusions, and unauthorized data disclosures by the Company or its service providers may disrupt business, harm reputation, result in material claims for damages, or otherwise adversely affect the Company[200][201][202][203][204] - Errors and fraud involving the transfer of funds, including fraudulent attacks targeting the Company or its agents, may result in lost funds, financial losses, reputational harm, or loss of customers[205] - The Company's failure to recruit and retain qualified employees, risks associated with its global workforce, and adverse effects from acquisitions (e.g., integration difficulties, unanticipated liabilities) may impair or disrupt business operations[207][208][209] Legal and Compliance Risk Factors This section outlines legal and compliance risks, including regulatory changes, data privacy laws, governmental scrutiny, and title insurance rate regulation - Regulatory oversight and changes in government regulation could require the Company to raise capital, make it more difficult to deploy capital (including dividends and share repurchases), prohibit or limit operations, or increase costs[210][211][213][214] - An increasing number of federal, state, and international laws and regulations apply to the collection, use, retention, protection, disclosure, and transfer of personal data, with compliance costs and potential adverse effects if not followed[212] - Scrutiny of the Company's businesses and the industries in which it operates by governmental entities and others could result in changes that adversely affect operations, including inquiries, lawsuits, fines, or restrictions on conduct[215][216][217] - Regulation of title insurance rates, which varies by state, could hinder the Company's ability to promptly adapt to changing market dynamics through price adjustments, adversely affecting results of operations[218] Financial Risk Factors This section addresses financial risks such as bank failures, goodwill impairment, investment portfolio volatility, claims reserve accuracy, and capital requirements - Failures at financial institutions where the Company deposits substantial funds, including third-party escrow and like-kind exchange deposits, could lead to unrecovered funds and potential liability for third-party funds[219] - Unfavorable economic or other conditions could cause the Company to write off a portion of its goodwill and other intangible assets, materially affecting its results of operations and financial condition[220] - The Company's substantial investment portfolio, primarily fixed income debt securities, is subject to credit, interest rate, and liquidity risks, with changes in fair values potentially having a material adverse effect on results of operations, statutory surplus, financial condition, and cash flow[221] - The Company's venture investment portfolio, comprised of investments in private venture-stage companies, is volatile and subject to risks that could cause material fluctuations in quarterly results of operations[222] - Actual claims experience could materially vary from the expected claims experience reflected in the Company's reserve for incurred but not reported claims, particularly with changes in laws or regulations[223][224] - The Company may have to provide capital to one or more of its subsidiaries, which could negatively affect its debt-to-capital ratio and liquidity position[225] - A reduction in the deposits at the Company's federal savings bank subsidiary, particularly when real estate transactions decline or interest rates rise, could require the Company to borrow funds to maintain liquidity[227] General Risk Factors This section covers general risks including anti-takeover provisions and challenges in protecting intellectual property or avoiding infringement claims - Certain provisions of the Company's bylaws and certificate of incorporation, such as a staggered board and restrictions on stockholder actions, along with regulatory hurdles, may reduce the likelihood of any unsolicited acquisition proposal or potential change of control[228][230][231] - The Company may be susceptible to claims of intellectual property infringement and may not be able to adequately protect its own intellectual property, especially with the expanded use of innovative technologies and open-source code, potentially leading to litigation, damages, or loss of competitive advantage[232] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not issue any unregistered common stock during the second quarter of 2025. It repurchased over 1 million shares for approximately $58 million under its prior share repurchase program, which had $56.7 million remaining authorization as of June 30, 2025. A new $300 million share repurchase plan was approved in July 2025 - The Company did not issue any unregistered common stock during the quarter ended June 30, 2025[234] Purchases of Equity Securities by the Issuer (Q2 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :-------------------------------- | :------------------------------- | :--------------------------- | | April 1 to April 30, 2025 | 366,129 | $59.92 | | May 1 to May 31, 2025 | 274,652 | $56.11 | | June 1 to June 30, 2025 | 403,277 | $57.43 | | Total | 1,044,058 | $57.95 | - As of June 30, 2025, the Company had $56.7 million remaining authorization under its prior share repurchase program[236] - In July 2025, the Company's board of directors approved a new share repurchase plan authorizing up to $300 million of common stock, terminating the prior plan[236] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[237] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the Company[238] Item 5. Other Information No other material information was reported for the quarter ended June 30, 2025. Specifically, no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or Section 16 officers - No director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025[240] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, employment agreements, the incentive compensation plan, and certifications by the Chief Executive Officer and Chief Financial Officer - The exhibits include the Restated Certificate of Incorporation, Bylaws, Employment Agreements for key executives, the 2020 Incentive Compensation Plan (as amended), and certifications by the CEO and CFO[242]