Fidelity National Financial(FNF) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements for Q1 2022 show total assets increased to $60.9 billion, while total equity decreased to $8.1 billion from $9.5 billion at year-end 2021, primarily due to a significant comprehensive loss, with total revenues slightly increasing to $3.17 billion from $3.10 billion in Q1 2021, but net earnings attributable to common shareholders significantly decreased to $397 million from $605 million year-over-year, driven by net recognized losses on investments Condensed Consolidated Balance Sheets As of March 31, 2022, total assets slightly increased to $60.86 billion, while total liabilities rose to $52.74 billion, leading to a decrease in total equity from $9.46 billion to $8.12 billion Condensed Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Investments | $43,727 | $42,775 | | Total Assets | $60,857 | $60,690 | | Total Liabilities | $52,739 | $51,233 | | Total Equity | $8,118 | $9,457 | | Total Liabilities and Equity | $60,857 | $60,690 | Condensed Consolidated Statements of Earnings For Q1 2022, total revenues slightly increased to $3.17 billion, but a $469 million net recognized loss on investments, compared to a $43 million gain in Q1 2021, resulted in net earnings attributable to common shareholders decreasing to $397 million, or $1.40 per diluted share, from $605 million, or $2.08 per diluted share, in Q1 2021 Q1 Earnings Summary (in millions, except per share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Total Revenues | $3,165 | $3,100 | | Recognized gains and losses, net | $(469) | $43 | | Total Expenses | $2,613 | $2,343 | | Net Earnings Attributable to FNF | $397 | $605 | | Diluted EPS | $1.40 | $2.08 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities remained stable at $667 million in Q1 2022, while net cash used in investing activities significantly increased to $3.41 billion from $1.06 billion, primarily due to higher investment security purchases, leading to a $1.57 billion decrease in cash and cash equivalents during the quarter Cash Flow Summary (in millions) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $667 | $665 | | Net Cash used in Investing Activities | $(3,414) | $(1,060) | | Net Cash from Financing Activities | $1,180 | $702 | | Net (Decrease) Increase in Cash | $(1,567) | $307 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail business segments, accounting policies, and financial items, including the Board's approval to distribute 15% of F&G's common stock to FNF shareholders and ongoing litigation against a subsidiary for which reserves are deemed adequate, with the Title segment's pre-tax earnings decreasing to $249 million from $439 million YoY - The company is a leading provider of title insurance, real estate/mortgage technology, and annuity/life insurance products through its F&G subsidiary[22] - On March 14, 2022, the Board approved a plan to distribute 15% of F&G's common stock to FNF shareholders as a taxable dividend, targeted for late Q3 or early Q4 2022, with FNF intending to retain an 85% ownership stake[24] - The company is defending against several lawsuits related to an alleged fraud scheme involving an escrow account at its subsidiary, Chicago Title, and management believes reserves are adequate based on settlements and analysis of remaining claims[32][42][43] Segment Pre-Tax Earnings (in millions) | Segment | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Title | $249 | $439 | | F&G | $341 | $356 | | Corporate and Other | $(38) | $(38) | | Total | $552 | $757 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the impact of rising interest rates on the Title segment, noting a significant decrease in refinance transactions partially offset by commercial market strength, while the F&G segment saw significant sales growth driven by new institutional channels, with consolidated net earnings declining due to mark-to-market losses on the investment portfolio, and the company maintaining a strong liquidity position and continuing its share repurchase program Business Trends and Conditions The Title segment faces reduced refinance volumes due to rising mortgage rates, though purchase transactions are forecasted to slightly increase, while the commercial real estate market remains strong with record average fees per file, and the F&G segment benefits from an aging U.S. population driving demand for retirement products - The Mortgage Bankers Association forecasts a significant drop in residential refinance transactions in 2022 to $0.8 trillion from $2.3 trillion in 2021 due to rising interest rates[191] - The commercial real estate business experienced high volumes, with the average fee per file increasing to a first-quarter record of $13,248 in Q1 2022, up from $11,290 in Q1 2021[197] - The aging U.S. population, with over 10,000 people turning 65 daily over the next 15 years, is expected to drive demand for F&G's retirement savings and income products[206] Results of Operations Consolidated revenues increased slightly to $3.17 billion, but pre-tax earnings fell to $552 million from $757 million YoY, primarily due to investment losses, with the Title segment's pre-tax earnings decreasing 43% to $249 million as a 36% drop in closed order volume offset a higher average fee per file, while the F&G segment's pre-tax earnings were stable at $341 million, with total sales growing 57% to $2.59 billion - In the Title segment, closed orders from refinance transactions fell from 66% of the total in Q1 2021 to 45% in Q1 2022, while purchase transactions increased from 34% to 55%[222] - The average fee per file in direct title operations increased significantly to $2,891 in Q1 2022 from $1,944 in Q1 2021, reflecting a higher mix of purchase and commercial transactions[226] F&G Segment Sales by Product (in millions) | Product | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Total Annuity | $1,435 | $1,514 | | Index Universal Life (IUL) | $27 | $15 | | Funding Agreements (FABN/FHLB) | $600 | $125 | | Pension Risk Transfer (PRT) | $527 | $— | | Total Sales | $2,589 | $1,654 | - F&G's adjusted net earnings increased to $82 million in Q1 2022 from $78 million in Q1 2021, including a $38 million valuation allowance on deferred tax assets, offset by favorable items like gains on CLO redemptions[280] Liquidity and Capital Resources The company maintains a strong liquidity position with $2.8 billion in cash and cash equivalents, $1.7 billion in short-term investments, and $800 million available under its revolving credit facility as of March 31, 2022, with cash from operations remaining stable at $667 million YoY, and the company repurchasing 2.75 million shares for $134 million while declaring a quarterly dividend of $0.44 per share - The company believes its cash requirements will be met from internally generated funds, dividends from subsidiaries, and other available sources of liquidity[327] - Under the 2021 Repurchase Program, the company bought back 2.75 million shares of FNF common stock in Q1 2022 for approximately $134 million, at an average price of $48.68 per share[337] - On May 10, 2022, the Board of Directors declared a cash dividend of $0.44 per share, payable on June 30, 2022[325] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company reported no material changes in its market risks from those described in its Annual Report on Form 10-K for the year ended December 31, 2021 - There have been no material changes in the market risks described in the company's 2021 Annual Report on Form 10-K[342] Item 4. Controls and Procedures Based on an evaluation as of March 31, 2022, the company's principal executive officer and principal financial officer concluded that disclosure controls and procedures are effective, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period[343] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[344] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section incorporates by reference the discussion of legal proceedings from Note F of the financial statements, which details ongoing litigation matters - For information on legal proceedings, the report refers to the discussion in Note F of the Condensed Consolidated Financial Statements[347] Item 1A. Risk Factors The company identified new risk factors related to the proposed distribution of 15% of F&G's common stock, including the uncertainty of the transaction's completion, potential diversion of management's attention, and the possibility that the distribution could adversely affect FNF's future earnings since F&G is a significant contributor - The planned distribution of 15% of F&G common stock is subject to inherent risks, including the ability to satisfy necessary conditions and the final terms of the transaction[348] - As F&G contributes a significant portion of FNF's earnings, any separation of a portion of F&G's business could adversely affect FNF's earnings[349] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2022, FNF repurchased a total of 2.75 million shares of its common stock at an average price of $48.68 per share, for a total cost of approximately $134 million, under its publicly announced repurchase program Share Repurchases in Q1 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2022 | 250,000 | $52.60 | | Feb 2022 | 200,000 | $47.28 | | Mar 2022 | 2,300,000 | $48.37 | | Total Q1 | 2,750,000 | $48.68 | Item 6. Exhibits The report lists several exhibits filed, including amendments to employment agreements for executives Michael Nolan and Raymond R. Quirk, as well as certifications required by the Sarbanes-Oxley Act of 2002 - Exhibits filed with the 10-Q include amendments to executive employment agreements and certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[353][356]