First American Financial Corp
For the period ended May 21, 2024. Filed Apr 1, 2024.
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May 21, 2024 · Filed Apr 1, 2024
Contents
Performance Overview
Our Company's financial performance is largely realized through providing title insurance, settlement services and related products and services in support of real estate transactions. This links our performance to broader trends in the real estate market, which is highly cyclical. Fluctuations in interest rates, real estate inventory levels, real estate pricing and general economic conditions, among other factors, impact the real estate market and, therefore, demand for our products and services.
Compensation Discussion and Analysis
The downward phase of the real estate cycle that began early in 2022 continued into 2023, which saw high mortgage rates, rising prices and low inventory drive housing affordability to its lowest point in over three decades, resulting in the lowest level of existing home sales since the global financial crisis. The rapid increase in interest rates, while bolstering the Company's investment income, also drove a significant decrease in transaction volumes in the commercial real estate market. The Company was performing well in a challenging market ahead of the cybersecurity incident that occurred in December 2023. To address the incident, the Company elected to take its systems offline, which materially impacted the Company's operations and, consequently, our fourth quarter financial results. Amidst the challenges presented by these obstacles, the Committee believes the management team performed well in 2023, with their effectiveness being reflected in the Company's sustained financial performance (despite the financial impact of the cybersecurity incident) and execution against strategic objectives.
Execution on Company StrategyOur Company continued executing on our strategic goals this year against a difficult economic backdrop. The Company's accomplishments continue to validate our Company's strategy, including our efforts to digitally transform the process of transacting real estate, and vision to be the premier title insurance and services company. Highlights for 2023 include:
| Financial Results | •Maintained total revenues of over $6.0 billion, or $6.2 billion adjusted for net investment losses•Generated pretax earnings in the title insurance and services segment of $494.0 million, or $532.2 million adjusted for net investment losses, despite continuing market headwinds•Achieved an 8.6% pretax margin in the title insurance and services segment, or 9.2% adjusted for net investment losses•Delivered a return on equity of 4.5%, or 6.6% adjusted to exclude net gains/losses from the investment portfolio and net gains/losses from the venture investment portfolio•Generated earnings per share of $2.07, or $3.53 per share adjusted to exclude $1.46 per share of net investment losses•Increased investment income in the title insurance and services segment to $540.2 million, up 50.4% on a year-over-year basis•Home Warranty segment achieved a pretax margin of 13.0%, or 14.2% adjusted for net investment losses |
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| Execution on Strategic Objectives | •Profitably grew our domestic title insurance market share by 1.3% on a trailing twelve month basis as of the third quarter of 2023•Significantly mitigated the impact of historically difficult market conditions, largely through disciplined expense management |
Compensation Discussion and Analysis
| efforts and continued growth in title insurance and services segment investment income•Launched new initiatives that improve the customer experience, make our business more efficient and mitigate risk•Maintained leadership in title data coverage in all data asset categories, including leveraging our proprietary data extraction technology to increase our title plant footprint to include over 1,800 counties •Continued investing in innovation, including in progress on our digital title and settlement effort and achieving significant advancements with our instant title decisioning initiative for purchase transactions•Successfully executed on compliance and risk management efforts, including effective management of underwriting risk, legal and regulatory compliance | |
| Environmental, Social and Governance ("ESG") Initiatives | •Named to the Fortune 100 Best Companies to Work For® list for the eighth consecutive year and Fortune Best Workplaces for Women® list for the eighth consecutive year•Named to People® Magazine's Companies that Care list for the third consecutive year•Awarded a score of 100 on the Human Rights Campaign Foundation's Corporate Equality Index (CEI), the nation's leading benchmarking survey measuring corporate policies and practices relating to LGBTQ+ equality, for the sixth consecutive year•Remained committed to our diversity, equity and inclusion strategy through our Company's Diversity, Equity and Inclusion (DEI) Council, which is focused on the development of employee-centered actions to enhance the recruitment, engagement, development, and retention of diverse employees, and the growing number of employee resource groups formed by the DEI Council•Published our 2022 annual sustainability report, which was aligned to Sustainability Accounting Standards Board (SASB) standards and which, among other highlights, indicates that our Company decreased our energy consumption by 15.0% year-over-year for our United States owned facilities |
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| Stockholder Outcomes | •Delivered a 27.6% total shareholder return in 2023, along with a 11.4% and 11.2% total shareholder return for the three- and five-year periods ending December 31, 2023, respectively, compared to the total shareholder return of the S&P MidCap 400 Index of 16.4%, 8.1%, and 12.6% for the one-, three-, and five-year periods, respectively•Raised the quarterly dividend by 1.9%, returning $216.6 million to stockholders through dividends in 2023 |
Compensation Discussion and Analysis
Returned $72.7 million to stockholders through the repurchase of 1.3 million shares at an average price of $55.18
The charts below reflect certain GAAP financial results of the Company for the year, along with the two preceding years.
Total Revenues (in billions) $6.2 $7.1 $9.2 Net income attributable to the Company $707 $696 $1241 Pretax Margin (Title Segment) 16.1% 15.7% 16.3% Return on Equity 17.3% 14.9% 23.2% 2019 2020 2021
Note: The charts above reflect Company results under GAAP. The Committee makes certain non-GAAP adjustments in connection with its compensation programs, which are further described below.
2023 Performance Metric Results
Compensation Discussion and Analysis
The executive officer's AIP cash and equity bonuses paid out at 60% of target for Messrs. DeGiorgio and Seaton and at 72% of target for Ms. Cornehl and Messrs. Adams and Wajner for the year. These payout amounts reflect the results of the two financial metrics utilized by the Committee: return on equity and pretax margin. Target and actual results of these metrics for 2023, as modified by the Discretionary Adjustment, were as follows.
| Target | Actual 2023Results | |
|---|---|---|
| Pretax Margin(1) | 10.0% | 7.7% |
| Return on Equity(1) | 9.0% | 6.8% |
| Performance Total | — | 60% |
| Discretionary Adjustment | — | 12% (2) |
| Total | 100% | 72% |
(1) The Committee’s definitions of pretax margin and return on equity are described on page 38 below. Actual results set forth above have been adjusted to exclude current year net investment gains/losses from the investment portfolio and certain current year net investment gains/losses from our Company’s venture investment portfolio. Return on equity also excludes accumulated other comprehensive income/loss and noncontrolling interests. These are non-GAAP financial measures. Please see Appendix A for the rationale behind the presentation of these measures and a reconciliation of these amounts to the nearest GAAP financial measures.
(2) For 2023, the Committee elected to make a Discretionary Adjustment increasing the payouts for Ms. Cornehl and Messrs. Adams and Wajner, with payout amounts remaining at metric levels for Messrs. DeGiorgio and Seaton.
The AIP gives the Committee discretion to adjust the metric-driven payout amounts by up to 30 percentage points to account for unanticipated external factors, performance against strategic initiatives designed to create long-term stockholder value, or ESG actions or initiatives (the "Discretionary Adjustment"), which factors and their application are further described in the Annual Incentive Compensation section beginning on page 37 below. For 2023, at management's request, the Committee elected to make a Discretionary Adjustment to increase the payouts for Ms. Cornehl and Messrs. Adams and Wajner by 12 percentage points from 60% to 72% of target, a level which the Committee determined to reflect the Company's and these executive officers' performance before the adverse financial impact of the cybersecurity incident. Additionally at management's request, as part of the Company's broader expense management efforts, the Committee did not apply the Discretionary Adjustment to the payouts for Messrs. DeGiorgio or Seaton, notwithstanding the Committee's positive view of their individual performance.
Compensation Discussion and Analysis
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.