First American Corporation (New) · NYSE:FAF
First American Corporation (New) — First American Financial — Barclays Global Financial Services Conference 2016
22 slides from First American Corporation (New)'s conference presentation, Sep 13, 2016
Slide 1: First American Financial
First American Financial Barclays Global Financial Services Conference September 13, 2016 ©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 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 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: Organizational Structure
Organizational Structure 2015 Revenue: $5.2B Total Revenue Trend 6.0 5.0 0.3 0.3 International 0.3 0.4 0.3 0.3 0.4 0.4 6% 4.0 0.3 0.6 0.4 0.6 Mortgage & U.S. Title 3.0 Data 78% Solutions 2.0 4.0 3.7 3.5 9% 3.3 1.0 Specialty 7% - 2012 2013 2014 2015 International Specialty Mortgage & Data Solutions U
Slide 5: Strategy Evolution
Strategy Evolution 2016 - 2020 2013-2016 Grow profitably & 2010-2013 innovate for productivity Become more efficient & Position FA post-spin & strengthen balance sheet manage crisis fallout • Standardized and • Moderate market • Continue to drive cost centralized back-office share growth advantage o
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: Refinance Market
Refinance Market Open Orders / Day Current Trend 3,000 2,500 • Strong pipeline going into 2H 2,000 • Open orders remain elevated, peaking in July 1,500 • No material resources added to 1,000 handle the refinance surge 500 • Closely monitoring order levels as Jan Feb Mar Apr May Jun Jul Aug Sep Oct N
Slide 8: Purchase Market
Purchase Market Open Orders / Day Current Trend 2,600 2,400 • 5% revenue growth in 1H 2,200 2,000 • Fees per file grew 6% 1,800 • Closed orders down 1% 1,600 1,400 • Home price appreciation strong 1,200 • Strong buyer demand 1,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec • Lack of for sale in
Slide 9: Commercial Market
Commercial Market Current Trend $800 Local NCS 696 595 98 • Seeing continued strength across $600 546 89 most markets and asset classes $ in millions 81 $400 • Overall quality and size of deals 318 309 598 45 48 remain high, although deals greater 465 506 $200 than $1M in premium have slowed 273 261
Slide 10: Title Insurance Segment Margins
Title Insurance Segment Margins Mortgage Originations (1) Pretax Margin $4,200 14% Objective $3,500 12% 10% ($ in Billions) $2,800 8% YTD June 2016 6% $2,100 4% $1,400 2% 0% $700 -2% $- -4% 2016E 2012 2014 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2013 2015 1) Source: Mortgage Bank
Slide 11: Capital Management Strategy
Capital Management Strategy Objective: Create Long-Term Shareholder Value • Capital Management Priorities: • Make value-creating investments to build our business • Acquire businesses that fit within our strategy • Return excess capital to shareholders through dividends and share repurchases • Maint
Slide 12: Dividends
Dividends Dividends per share Dividend Considerations: $1.75 • Announced 31% increase to dividend in $1.50 $1.20 $1.36 August $1.25 $1.00 $1.00 $0.84 • Forecasted cash flows are sufficient to $0.75 support continued investments in the core $0.48 $0.50 $0.36 business, strategic acquisitions and $0.24
Slide 13: Legal Entity Re-alignment Increased Dividend Capacity
Legal Entity Re-alignment Increased Dividend Capacity 2012 2015 First American First American Financial Corp Financial Corp First American First American First American First American First American Title Title Republic Title Property and Data Property and Insurance Insurance (Agent) Casualty Compan
Slide 14: Enhanced Statutory Capital
Enhanced Statutory Capital US$ in millions 2011 2012 2013 2014 2015 Q2'16 Beginning Surplus 868 849 956 996 979 1,104 • Recently completed a multi-year effort to Net Income 92 301 199 393 192 86 enhance the financial strength and flexibility of Di vi dend to Pa rent (47) (219) (139) (263) (60) - the
Slide 15: 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 • Structural cost reductions have enhanced earnings power ‒
Slide 16: Total Shareholder Return
Total Shareholder Return 3.50 FAF S&P 500 3.00 2.50 2.00 1.50 1.00 1 year 3 year 5 year 0.50 First American 13.9% 30.7% 26.0% S&P 500 12.5% 12.3% 14.7% 0.00 8/31/2011 8/30/2012 8/30/2013 8/30/2014 8/30/2015 8/29/2016 8/31/2016 Note: Annualized returns as of August 31,2016 16
Slide 17: Appendix
Appendix ©2015 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF
Slide 18: Balance Sheet
Balance Sheet As of June, 30 2016 ($ millions) Assets Return on Equity Cash & equivalents $1,242 TTM Net income $312 Investments 5,087 Average Equity $2,799 Other assets 1,474 ROE 11.1% Goodwill & intangibles 1,034 Total assets $8,837 Debt-to-capital 16.4% Liabilities & Equity Demand Deposits $3,100
Slide 19: Investment Portfolio
Investment Portfolio Insurance Portfolio $2.1 Billion Gov't Agency Municipal Consolidated Portfolio 3% 18% $4.9 Billion US Treasury 6% Corporate Gov't Agency Equity 38% 7% Municipal 17% 16% Gov't US Treasury Agency Corporate Avg. Rating: A+ 3% MBS 19% 11% Duration: 4.4 Foreign 7% Book Yield: 2.9% Eq
Slide 20: Ultimate Loss Ratios by Policy Year
Ultimate Loss Ratios by Policy Year (2) Paid to Date Ultimate Loss Ratio - Policy Year (1) Paid Losses - Calendar Year (2) Forecast 16.0% 400 14.0% 350 Paid Losses by Calendar Year ($ in Millions) 13.4% Ultimate Loss Ratios by Policy Year 12.0% 300 10.6% 10.0% 9.6% 9.5% 250 86% 8.0% 7.7% 200 88% 85%
Slide 21: 2015 Incurred Claims Detail
2015 Incurred Claims Detail Claim Cause Process Cause File Shortages Underwriting (3%) (8%) Other (15%) Escrow/Closing Defective Title (18%) (7%) Basic Risks (19%) Exam (16%) Disputed Procedure (1%) Escrow/Closing Other (4%) Fraud (8%) (4%) GVS / PVII (4%) Unclassified (3%) No Error (52%) Encumbranc
Slide 22: Title Segment Success Ratio
Title Segment Success Ratio YTD June 2016 Calculation Target YTD June ($ in millions) 2016 2015 Change • < 60% when NOR increases • > 60% when NOR decreases Personnel and other operating expenses $1,106 $1,095 +11 • 60% target is only sustainable until optimized margin is achieved Total revenues 2,3
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