First American Corporation (New) · NYSE:FAF
First American Corporation (New) — First American Financial — Investor Presentation (September 2017)
28 slides from First American Corporation (New)'s investor presentation, September 2017
Slide 1: First American Financial Fall Investor Presentation
First American Financial Fall Investor Presentation September 2017 ©2015 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF
Slide 2: Safe Harbor Statement
Safe Harbor Statement 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 SECURITIE
Slide 3: Use of non-GAAP Financial Measures
Use of non-GAAP Financial Measures This slide presentation contains, and related commentary and answers to questions may contain certain financial measures that are not presented in accordance with generally accepted accounting principles (GAAP), including net operating revenue and success ratios. A
Slide 4: Company Overview
Company Overview • Since 1889, a market leader in title insurance and settlement services Leading position in • 26.5% market share in U.S. title insurance market with single national brand • #2 market share position in the US title insurance • Pursuing profitable share growth in key markets markets
Slide 5: Organizational Structure
Organizational Structure 2016 Revenue: $5.6B Total Revenue Trend 6.0 0.3 5.0 0.3 0.3 0.4 International 0.3 0.4 0.5 0.3 0.3 5% 0.4 0.5 4.0 0.3 0.6 0.6 0.4 Mortgage & U.S. Title 3.0 Data U.S. Title 78% 78% Solutions 2.0 4.0 4.3 9% 3.7 3.5 3.3 1.0 Specialty 8% - 2012 2013 2014 2015 2016 U.S. Title Mort
Slide 6: First American's Strategy
First American’s Strategy Vision: To be the premier title insurance and settlement services company Manage Profitably Strengthen and actively grow our the enterprise invest in core title and through data complementary settlement and process businesses that business advantage support or expand the co
Slide 7: Title Insurance Segment Margins
Title Insurance Segment Margins (1) (1) Purchase Originations Refinance Originations Pretax Margin $4,000 14% Target $3,500 12% 10% $3,000 8% ($ in Billions) $2,500 6% $2,000 4% $1,500 2% $1,000 0% $500 -2% $- -4% 2017E 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Slide 8: Refinance Market
Refinance Market Open Orders / Day Current Trend 3,000 2,500 • Open orders stabilized at ~1300 per day in 1H 2,000 • Significantly reduced resource 1,500 commitments in our refinance 1,000 focused businesses • Closely monitoring order levels as 500 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec alw
Slide 9: Purchase Market
Purchase Market Open Orders / Day Current Trend 2,600 2,400 • 12% revenue growth in 1H 2017 2,200 2,000 • Fees per file up 8% 1,800 • Closed orders up 3% 1,600 1,400 • Home price appreciation robust 1,200 • Strong buyer demand 1,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec • Lack of for sale
Slide 10: Commercial Market
Commercial Market Current Trend $800 Local NCS 696 595 98 661 • Revenues up 5% in 1H 2017 $600 546 102 81 89 • Seeing continued strength across $ in millions $400 most markets and asset classes 506 598 559 • Overall quality and size of deals 465 $200 remain high $0 • Capital availability and foreign
Slide 11: Capital Management Strategy
Capital Management Strategy Objective: Create Long-Term Shareholder Value • Capital Management Priorities: • Make value-creating investments in our core business • Acquire businesses that fit within our core strategy • Return excess capital to shareholders through dividends and share repurchases • M
Slide 12: Dividends
Dividends Dividends per share $1.75 Dividend Considerations: $1.50 $1.44 $1.20 First American should pay a meaningful $1.25 $1.00 dividend given the company’s cash flow $1.00 $0.84 generation and investment opportunities $0.75 $0.48 $0.50 $0.36 Dividend increases should be sustainable in $0.24 $
Slide 13: Capital Structure
Capital Structure As of June 30, 2017 ($ in millions) 4.3% senior notes due 2023 $248 4.6% senior notes due 2024 298 FAF has significant financial flexibility to seize strategic opportunities Trust deed notes 25 Other notes 4 Management’s target debt-to-capital ratio Revolving credit facility 16
Slide 14: Investment Portfolio
Investment Portfolio Insurance Portfolio $2.3 Billion Gov't Agency Consolidated Portfolio US 3% Municipal $5.3 Billion Treasury 7% 20% Corporate 35% Equity Gov't Agency 18% Municipal Gov't 4% Agency 21% MBS Avg. Rating: A 11% Duration: 4.7 US Treasury Foreign Corporate 6% Book Yield: 2.9% 3% 18% Equ
Slide 15: Impact of Higher Interest Rates
Impact of Higher Interest Rates Benefits Risks Insurance portfolio investment income Decreased value of fixed income portfolio • Yield on new investments will be Impact to refinance volumes greater than current book yield • Refinance represented 17% of direct Banking Profitability revenue premiums i
Slide 16: Investment Considerations
Investment Considerations • “Pure play” in title and mortgage markets • Strong competitive position in title and settlement services ‒ Continue to pursue profitable market share gains ‒ Strengthening the enterprise through data capabilities • Record title segment margins with longer-term upside rema
Slide 17: Total Shareholder Return
Total Shareholder Return FAF Total Shareholder Return FAF S&P 500 17.8% 1 year 16.2% 23.7% 3 year 9.5% 23.6% 5 year 14.3% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Source: Annualized return through 8/31/2017 17
Slide 18: Appendix
Appendix ©2015 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF
Slide 19: Balance Sheet
Balance Sheet As of June, 30 2017 ($ millions) Assets Return on Equity Cash & equivalents $1,167 TTM Net income $369 Investments 5,459 Average Equity $3,067 Other assets 1,578 ROE 12.0% Goodwill & intangibles 1,110 Total assets $9,314 Debt-to-capital 18.7% Liabilities & Equity Demand Deposits $3,098
Slide 20: Ultimate Loss Ratios by Policy Year
Ultimate Loss Ratios by Policy Year (2) Paid to Date Ultimate Loss Ratio - Policy Year Paid Losses - Calendar Year 14.0% 350 13.1% 12.0% 300 Paid Losses by Calendar Year ($ in Millions) 10.8% Ultimate Loss Ratios by Policy Year 9.8% 9.8% 10.0% 250 91% 7.7% 8.0% 200 90% 87% 92% 6.3% 6.0% 91% 150 5.2%
Slide 21: 2016 Incurred Claims Detail
2016 Incurred Claims Detail Claim Cause Process Cause Underwriting File Shortages (3%) Other (9%) Escrow/Closing (4%) (27%) Basic Risks (22%) Defective Title (8%) Exam (9%) Disputed Procedure (0%) Escrow/Closing Escrow/Closing(2%) (6%) Other (5%) Fraud (12%) Unclassified GVS GVS/ /PVII PVII(4%) (2%)
Slide 22: Capital Expenditures
Capital Expenditures Capital Expenditures • Fixed Assets $140 – ~$35 million annually Millions $120 • Software $100 – Customer-facing technology $80 – Integrated mortgage disclosure $60 readiness $40 – Production system (FAST) $20 enhancements $0 • Title Plant 2011 2012 2013 2014 2015 2016 Software
Slide 23: 2016 Revenue Breakdown
2016 Revenue Breakdown First American Financial 2016 Revenue: $5.6B Specialty Title Segment Segment 8% 92% Specialty Segment Title Segment 2016 Revenue: $0.4B 2016 Revenue: $5.1B Agency U.S. Title Home 45% Warranty 69% International U.S. Title 6% 78% Property & Mortgage & Casualty Data Direct 31% So
Slide 24: Industry Structure
Industry Structure Industry Premiums - $14.3B Underwriter Market Share 2016 2016 Regionals, FAF, 26.5% 14.4% Direct 38% STC, 11.2% Agent 62% ORI, 14.8% FNF, 33.1% Source: ALTA 24
Slide 25: Industry Premiums by State
Industry Premiums by State 20% Top 5 = 49% of premiums Top 20 = 83% of premiums 15% 15% Percent of Industry Premiums 12% Direct 10% 10% Agent 8% 5% 4% IL NJ AZ CO OH WA MI VA GA MA MD OR UT TN WI TX CA FL NY PA 0% 0% 15% 30% 45% 60% 75% 90% Cumulative Percent of Industry Premiums Source: ALTA (2016
Slide 26: First American Footprint
First American Footprint Distribution Strategy Direct • Local presence in 26 states • Positioned in top metro areas • Offices must support fixed costs through the cycle Agency • Underwriter in 49 states • Business in both rural and metro areas • Highly variable cost structure FAF Direct Operations 2
Slide 27: Industry Distribution by State
Industry Distribution by State Western states have a greater mix of direct distribution Direct Premium Mix(1) Less than 20% 20% - 35% 35% - 50% Greater than 50% (1) Source: ALTA; data for 2016 27
Slide 28: Title Segment Success Ratio
Title Segment Success Ratio Full Year 2016 Calculation Target ($ in millions) 2016 2015 Change • < 60% when NOR increases • > 60% when NOR decreases Personnel and other operating expenses $2,343 $2,237 +105 • 60% target is only sustainable until optimized margin is achieved Total revenues 5,134 4,78
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