First American Corporation (New) · NYSE:FAF
First American Corporation (New) — First American Financial — Investor Presentation (2023)
31 slides from First American Corporation (New)'s investor presentation, 2023
Slide 1: First American Financial Investor Discussions Fall 2023
FIRST AMERICAN FINANCIAL Investor Discussions Fall 2023 ©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 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 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 ADJUSTED TITLE SEGMENT INVESTMENT INCOME AND AN ADJUSTED DEBT TO CAPITALIZATI
Slide 4: Agenda
AGENDA Strong Track Record of Results Through the Cycle Key Markets at Trough Levels Due to High Interest Rates 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 $7.6B Total Revenue 21,150 Employees % 95 of Revenue (1) Title Segment % 25.1 Title Market Share 900 Offices % (1) 5 Specialty Insurance of Revenue Segment (Home Warranty) $15.0B Total Assets 8 Countries Trusted National Brand Largest Title Plant
Slide 6: Historical Financial Results
Historical Financial Results TOTAL REVENUE EARNINGS PER SHARE $10.0 $9.2 $12.00 $11.14 $9.0 $10.00 $8.0 $7.6 $7.1 $ in Billions $8.00 $6.22 $6.16 $7.0 $5.7 $6.2 $6.00 $6.0 $4.19 $4.00 $2.45 $5.0 $4.0 $2.00 $3.0 $0.00 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 Net investment gain/(loss) $(0.06
Slide 7: Historical Title Insurance Margin
Historical Title Insurance Margin Purchase Originations Refinance Originations Pretax Margin 20% $4,000 $3,500 15% $3,000 ($ in Billions) $2,500 10% $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 2021 20
Slide 8: Agenda
AGENDA Strong Track Record of Results Through the Cycle Key Markets at Trough Levels Due to High Interest Rates Consistent Strategy and Capital Management Priorities 8
Slide 9: High Mortgage Rates Cause Refinance to Settle at Trough Levels
High Mortgage Rates Cause Refinance to Settle at Trough Levels 5,000 6.00% 5.00% 4,000 4.00% Daily Open Orders 10-Year Treasury 3,000 3.00% 2,000 2.00% 1,000 1.00% - 0.00% Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22 Oct-22 Jan-23 Apr-23 Ju
Slide 10: Purchase Market Appears to Have Stabilized
Purchase Market Appears to Have Stabilized GROWTH RATE vs. PRIOR YEAR 50% Purchase Market 40% 30% ▪ Market demand has declined, as high mortgage 20% rates and home prices continue to significantly 10% 0% stress affordability -10% − Inventory remains low as homeowners -20% -30% remain in place -40% −
Slide 11: Commercial Market Expected to Rebound After a Trough Year
Commercial Market Expected to Rebound After a Trough Year Commercial Market Sales Volume(1) $ Millions FAF Direct Revenues $1,000 NCSD Local $1,200 1,026 1,042 $800 $1,000 855 142 160 753 767 730 $800 695 696 $600 112 638 124 109 583 601 102 573 $600 525 108 515 494 $400 454 432 884 883 84 425 $400
Slide 12: Investment Income Expected to Remain Elevated
Investment Income Expected to Remain Elevated $160 6.0% Title Segment (1) Investment Income Fed Funds Rate 5.5% $140 5.0% Each 25 basis point Fed move Title Segment Investment Income ($ in Millions) $120 impacts investment income 4.5% by ~$15 - $20 million/year(2) Fed Funds Rate 4.0% $100 3.5% $80 3
Slide 13: Agenda
AGENDA Strong Track Record of Results Through the Cycle Key Markets at Trough Levels Due to High Interest Rates 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 Expand Data and Actively Profitably Advantage to Invest in Grow Our Complementary Core Title Strengthen and the Core and Businesses Settlement Pursue Growth Where First Business Opportunities Ame
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: Expand Data Advantage to Strengthen the Core and Pursue Growth Opportunities
Expand Data Advantage to Strengthen the Core and Pursue Growth Opportunities ▪ 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 ne
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 3,142 100 1st Proprietary title plants 1,700 79 1st Deeds, Mortgages, Foreclosures 3,108 99 1st Assignments and releases 2,710 99 1st Parcel Boundaries 3,118 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 Pillar 3 ▪ Grow international business in core geographies Strategic Invest for long-term growth
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 DIVIDENDS PER SHARE Dividend Considerations $2.25 $2.10 $2.06 $1.94 $2.00 $1.78 ▪ First American expects to pay a meaningful dividend $1.75 $1.60 $1.68 given the company’s cash flow generation and investment opportunities $1.50 $1.25 ▪ Dividend increases are intended to be sustainable in p
Slide 22: Share Repurchases
Share Repurchases SHARE REPURCHASE HISTORY $90 1 ▪ Share repurchases will be dependent upon capital levels, market conditions and Share Buyback Period $80 0.9 $70 0.8 alternative uses of capital, among other $60 0.7 factors 0.6 Share Buyback Period Share Buyback Period $50 ▪ A new $400 million share
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) ▪ St
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 Q1’20 Q2’20 Q3’20 Q4’20 Q1’21 Q2’21 Q3’21 Q4’21 Q1’22 Q2’22 Q3’22 Q4’22 Q1’23 Q2’23 Q3’23 Net Investment Income $59.7 $43.2 $44.7 $51.6 $42.7 $47.5 $49.8 $48.4 $52.7 $69.3 $105.
Slide 26: Investment Portfolio
Investment Portfolio CONSOLIDATED PORTFOLIO INSURANCE PORTFOLIO Gov't Agency 0% Municipal Corporate Corporate US Treasury 16% Municipal 22% 15% 4% 16% Gov't Agency 3% Equity $2.9B US Treasury 14% Gov't Agency 2% Avg. Rating : AA- MBS Equity Duration: 5.6 yrs. 32% Foreign 3% 5% $7.6B Foreign 7% Bank
Slide 27: Capital Structure
Capital Structure As of September 30, 2023 ($ in Millions) 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) Unamortized Discounts and Debt Issuance Costs ($11) ▪
Slide 28: Ultimate Loss Ratios by Policy Year
Ultimate Loss Ratios by Policy Year Paid to Date Ultimate Loss Ratio - Policy Year Paid Losses - Calendar Year 14.0% 400 13.2% 0.5% 350 12.0% Paid Losses by Calendar Year ($ in Millions) 11.3% Ultimate Loss Ratios by Policy Year 0.4% 300 10.0% 9.7% 9.8% 0.3% 0.5% 250 8.0% 200 6.4% 12.8% 0.4% 6.0% 5.
Slide 29: U.S. Title Total Revenue Trend
U.S. TITLE DIRECT AGENCY COMMERCIAL MORTGAGE SOLUTIONS $8.0 Total Revenue Trend First American Financial Total Revenue $7.2 $7.0 $6.5 1.0 $6.0 $5.6 0.4 1.1 $4.8 $ in Billions $5.0 $4.6 0.6 0.2 $3.5B 0.8 0.8 0.3 2.1 1.7 Agent $4.0 0.2 0.2 $1.1B 46% $3.0 1.4 1.8 Other 1.3 $6.5B 16% $7.6B U.S. Title 86
Slide 30: Home Warranty Total Revenue Trend
HOME WARRANTY First American Financial Total Revenue Total Revenue Trend $450 $400 $ in Millions $350 $300 $250 $200 394 422 419 344 370 Specialty Segment $0.4B $150 6% $7.6B $100 $50 $0 2018 2019 2020 2021 2022 Home Warranty 30
Slide 31: 2022 Revenue Breakdown
2022 Revenue Breakdown FIRST AMERICAN FINANCIAL TITLE SEGMENT $8.0 $7.0 Agency $6.0 46% $5.0 Other $4.0 $7.5 4% $3.0 International $7.5B U.S. Title 6% $2.0 $1.0 Data & Analytics 4% $0.4 Direct $0.0 -$0.4 Commercial 23% Mortgage Solutions 14% 3% -$1.0 Title Segment Specialty Segment Corporate Segment
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