First American Corporation (New) · NYSE:FAF
First American Corporation (New) — First American Financial — Investor Presentation (2022)
32 slides from First American Corporation (New)'s investor presentation, 2022
Slide 1: First American Financial Investor Discussions Spring 2022
FIRST AMERICAN FINANCIAL Investor Discussions Spring 2022 ©2018 First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF
Slide 2: Safe Harbor Statement
Safe Harbor Statement CERTAIN STATEMENTS MADE IN THIS PRESENTATION AND ANY 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 SECURITIES
Slide 3: Use of non-GAAP Financial Measures
Use of non-GAAP Financial Measures THIS PRESENTATION AND RELATED MANAGEMENT COMMENTARY CONTAIN CERTAIN FINANCIAL MEASURES THAT ARE NOT PRESENTED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP), INCLUDING AN ADJUSTED DEBT TO CAPITALIZATION RATIO, PERSONNEL AND OTHER OPERATING EXPEN
Slide 4: Agenda
AGENDA Strong Track Record of Results Market Conditions in Transition Consistent Strategy and Capital Management Priorities 4
Slide 5: Leader in the Title and Settlement Services Industry
Leader in the Title and Settlement Services Industry $9.2B Total Revenue 22,200 Employees % 90 of Revenue, Title Segment % 23.1 Title Market Share 770 Offices % 6 Insurance Segment of Revenue, Specialty $16.5B Total Assets 9 Countries % of Revenue, Corporate 4 Segment including Venture Portfolio Tru
Slide 6: Past 5 Years: Achieved Strong Financial Results
Past 5 Years: Achieved Strong Financial Results TOTAL REVENUE EARNINGS PER SHARE $10.0 $9.2 $12.00 $11.14 $9.0 $10.00 $8.0 $7.1 $8.00 $ in Billions $7.0 $6.2 $6.22 $6.16 $6.00 $5.8 $5.7 $6.0 $3.76 $4.19 $4.00 $5.0 $4.0 $2.00 $3.0 $0.00 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021 CASH FROM OPER
Slide 7: Historical Title Insurance Margin
Historical Title Insurance Margin Purchase Originations Refinance Originations Pretax Margin $4,500 20% $4,000 15% $3,500 $3,000 ($ in Billions) 10% $2,500 $2,000 5% $1,500 $1,000 0% $500 $- -5% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Slide 8: Agenda
AGENDA Strong Track Record of Results Market Conditions in Transition Consistent Strategy and Capital Management Priorities 8
Slide 9: Rising Mortgage Rates Bring an End to Refinance Boom
9 Daily Open Orders 1,000 2,000 3,000 4,000 5,000 - Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Refinance Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 10-Year % Aug-20 Sep-
Slide 10: Purchase Market Cooling Down
Purchase Market Cooling Down 50% GROWTH RATE vs. PRIOR YEAR 40% Purchase Market 30% ▪ Market demand continues to exceed supply in 20% most markets 10% − Mortgage rates still reasonably supportive 0% − Favorable demographics -10% − Pandemic-related demand waning − Investor demand a factor -20% − Home
Slide 11: Commercial Volumes Remain Elevated
Commercial Volumes Remain Elevated Commercial Market Sales Volume(1) $ Millions FAF Direct Revenues $ Billions NCSD Local $1,000 $1,200 1,026 $1,000 $800 846 142 800 750 753 767 725 $800 696 $600 661 112 109 638 583 600 102 573 $600 99 108 514 494 $400 454 431 884 379 $400 644 655 242 311 562 594 16
Slide 12: Investment Income – Expect Strong Growth Ahead
Investment Income – Expect Strong Growth Ahead $76 2.5% Title Segment Investment Income(1) Fed Funds Rate $66 Each 25 basis point Fed move Title Segment Investment Income ($ in Millions) 2.0% impacts investment income $56 by ~$15 - $20 million/year(2) 1.5% Fed Funds Rate $46 1.0% $36 0.5% $26 $16 0.
Slide 13: Agenda
AGENDA Strong Track Record of Results Market Conditions in Transition Consistent Strategy and Capital Management Priorities 13
Slide 14: First American Strategy
First American Strategy VISION: To Be the Premier Title Insurance and Settlement Services Company Manage and Actively Profitably Strengthen Invest in Grow Our the Enterprise Complementary Core Title Through Data Businesses and and Process Settlement Where First Advantage American has a Business Stra
Slide 15: Profitably Grow our Core Title and Settlement Business
Profitably Grow our Core Title and Settlement Business ▪ Sustain leadership in Title and Settlement Services ▪ Maintain and grow profitable market share ▪ Opportunistically expand use of multi-brand marketing ▪ Focus on innovation to lead the digital transformation ▪ Develop value-added services tha
Slide 16: Strengthen the Enterprise through Data and Process Advantage
Strengthen the Enterprise through Data and Process Advantage ▪ Further develop data advantage Expand coverage of property data elements and geographies ▪ Achieve market-leading title automation Leverage data advantage together with data science capability Pillar 2 Strategic ▪ Find new businesses tha
Slide 17: First American has Strongest Data Foundation in the Industry
First American has Strongest Data Foundation in the Industry No. of counties Population (%) Market position Assessor/property ownership 3,143 100 1st Proprietary title plants 1,650 78 1st Deeds, Mortgages, Foreclosures 3,106 99 1st Assignments and releases 2,682 99 1st Parcel Boundaries 3,103 99 1st
Slide 18: Manage and Actively Invest in Complementary Businesses
Manage and Actively Invest in Complementary Businesses where First American has a Strategic Advantage ▪ Grow Home Warranty Accelerate direct-to-consumer growth while maintaining strong operating margins ▪ Grow international business in core geographies Pillar 3 Invest for long-term growth in Canada,
Slide 19: Capital Management Strategy
Capital Management Strategy ▪ Objective: Create long-term shareholder value ▪ Capital management priorities: ▪ Make value-creating investments in our core business ▪ Acquire or invest in businesses that fit within our strategy ▪ Return excess capital to shareholders through dividends and share repur
Slide 20: Disciplined M&A Strategy Drives Growth
Disciplined M&A Strategy Drives Growth Focused Strategy ▪ Title companies that expand our footprint in key markets ▪ Data and information companies that enhance our data capabilities or advance title automation Pursuing targets ▪ Opportunities complementary to title that support or leverage our core
Slide 21: Dividends
Dividends Dividend Considerations DIVIDENDS PER SHARE $2.25 $2.04 ▪ First American expects to pay a meaningful dividend $1.94 $2.00 $1.78 given the company’s cash flow generation and $1.75 $1.60 $1.68 investment opportunities $1.44 $1.50 ▪ Dividend increases are intended to be sustainable $1.25 in p
Slide 22: Share Repurchases
Share Repurchases SHARE REPURCHASE HISTORY $90 1 0.9 ▪ Share repurchases will be dependent upon Share Buyback Period $80 capital levels, market conditions and Share Buyback Period $70 0.8 $60 0.7 alternative uses of capital, among other $50 0.6 factors Share Buyback Period Share Buyback Period 0.5 ▪
Slide 23: Investment Considerations
Investment Considerations ▪ Focused strategy as “pure play” in title and settlement markets ▪ Attractive industry characteristics ▪ Strong competitive position in title and settlement services ▪ Opportunity to grow through focus on innovation and by leveraging unique assets (e.g. bank and data) ▪ Ve
Slide 24: Appendix
APPENDIX 24
Slide 25: Title Segment Net Investment Income Non-GAAP Reconciliation
Title Segment Net Investment Income Non-GAAP Reconciliation Net Investment Income Less Affiliate Investments $ in Millions Q1 '18 Q2 '18 Q3 '18 Q4’18 Q1’19 Q2’19 Q3’19 Q4’19 Q1’20 Q2’20 Q3’20 Q4’20 Q1’21 Q2’21 Q3’21 Q4’21 Q1’22 Net Investment Income $41.4 $51.7 $60.9 $69.3 $70.1 $71 $72 $69.8 $59.7
Slide 26: Uses of Free Cash Flow and Debt Proceeds
Uses of Free Cash Flow and Debt Proceeds CUMULATIVE 5 YEAR USES Pension termination Share repurchases 0% 6% Dividends Venture Investments 21% 7% ▪ 49% of cash flow went into the investment portfolio to strengthen the balance sheet ▪ Moving forward, further balance sheet Acquisitions strengthening no
Slide 27: Investment Portfolio
Investment Portfolio CONSOLIDATED PORTFOLIO INSURANCE PORTFOLIO Gov't Agency 1% Municipal Corporate 16% 23% Corporate US Treasury 15% 3% Municipal 16% $3.2B Gov't Agency Equity Gov't Agency 1% 18% MBS Avg. Rating : A+ US Treasury 27% Duration: 4.5 yrs. 1% Book Yield: 2.4% Foreign Equity 6% $9.5B For
Slide 28: Capital Structure
Capital Structure As of March 31, 2022 ($ in Millions) 4.3% Senior Notes Due 2023 $250 4.6% Senior Notes Due 2024 $300 4.0% Senior Notes Due 2030 $450 ▪ Management targets debt-to-capital ratio of 18-20% 2.4% Senior Notes Due 2031 $650 (excluding secured financings payable) ▪ Supports target financi
Slide 29: Ultimate Loss Ratios by Policy Year
Ultimate Loss Ratios by Policy Year Paid to Date Ultimate Loss Ratio - Policy Year Paid Losses - Calendar Year 14.0% 400 13.3% 0.7% 350 12.0% 11.3% Paid Losses by Calendar Year ($ in Millions) 0.6% Ultimate Loss Ratios by Policy Year 300 10.0% 9.7% 9.8% 0.3% 0.6% 250 8.0% 6.5% 200 12.6% 0.6% 6.0% 5.
Slide 30: U.S. Title Total Revenue and Trend
U.S. TITLE DIRECT AGENCY COMMERCIAL MORTGAGE SOLUTIONS First American Financial Total Revenue Total Revenue Trend $8.0 $7.2 $7.0 1.0 $3.7B $6.0 $5.6 0.4 Agent $4.6 $4.6 $4.8 $ in Billions 39% 0.6 $5.0 0.3 2.1 0.8 $2.0B $4.0 0.7 0.8 Other $9.2B $7.2B 0.3 0.2 0.2 1.8 22% U.S. Title $3.0 1.3 1.3 1.4 78
Slide 31: Specialty Insurance Total Revenue and Trend
SPECIALTY INSURANCE PROPERTY & CASUALTY HOME WARRANTY First American Financial Total Revenue Total Revenue Trend $600 $532 $541 $506 $500 $465 $469 119 138 136 $ in Millions $400 139 125 $300 Specialty Segment $0.5B 6% $9.2B $200 327 344 370 394 422 $100 $0 2017 2018 2019 2020 2021 Home Warranty Pro
Slide 32: 2021 Revenue Breakdown
2021 Revenue Breakdown FIRST AMERICAN FINANCIAL 6% Specialty Segment 90% 4% Corporate $9.2B Title Segment including Venture Portfolio SPECIALTY SEGMENT TITLE SEGMENT Agency 45% Other Home 5% International U.S. Title $0.5B Warranty 78% 4% $8.3B Property & Casualty Data & Analytics 4% Direct 22% Mortg
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