barclays global financial services conference sep. 13 2016 final

©2015 First American Financial Corporation and/or its affiliates. All rights reserved. q NYSE: FAF

First American Financial Barclays Global Financial Services Conference September 13, 2016

Safe Harbor Statement

2

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 EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE FACT THAT THEY DO NOT RELATE STRICTLY TO HISTORICAL OR CURRENT FACTS AND MAY CONTAIN THE WORDS “BELIEVE,” “ANTICIPATE,” “EXPECT,” “INTEND,” “PLAN,” “PREDICT,” “ESTIMATE,” “PROJECT,” “WILL BE,” “WILL CONTINUE,” “WILL LIKELY RESULT,” OR OTHER SIMILAR WORDS AND PHRASES OR FUTURE OR CONDITIONAL VERBS SUCH AS “WILL,” “MAY,” “MIGHT,” “SHOULD,” “WOULD,” OR “COULD.” THESE FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS REGARDING FUTURE OPERATIONS, PERFORMANCE, FINANCIAL CONDITION, PROSPECTS, PLANS AND STRATEGIES. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS THAT MAY PROVE TO BE INCORRECT. RISKS AND UNCERTAINTIES EXIST THAT MAY CAUSE RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE THE ANTICIPATED RESULTS TO DIFFER FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION: INTEREST RATE FLUCTUATIONS; CHANGES IN THE PERFORMANCE OF THE REAL ESTATE MARKETS; VOLATILITY IN THE CAPITAL MARKETS; UNFAVORABLE ECONOMIC CONDITIONS; IMPAIRMENTS IN THE COMPANY’S GOODWILL OR OTHER INTANGIBLE ASSETS; FAILURES AT FINANCIAL INSTITUTIONS WHERE THE COMPANY DEPOSITS FUNDS; CHANGES IN APPLICABLE GOVERNMENT REGULATIONS; HEIGHTENED SCRUTINY BY LEGISLATORS AND REGULATORS OF THE COMPANY’S TITLE INSURANCE AND SERVICES SEGMENT AND CERTAIN OTHER OF THE COMPANY’S BUSINESSES; THE CONSUMER FINANCIAL PROTECTION BUREAU’S EXERCISE OF ITS BROAD RULEMAKING AND SUPERVISORY POWERS; REFORM OF GOVERNMENT-SPONSORED MORTGAGE ENTERPRISES; LIMITATIONS ON ACCESS TO PUBLIC RECORDS AND OTHER DATA; CHANGES IN RELATIONSHIPS WITH LARGE MORTGAGE LENDERS AND GOVERNMENT-SPONSORED ENTERPRISES; CHANGES IN MEASURES OF THE STRENGTH OF THE COMPANY’S TITLE INSURANCE UNDERWRITERS, INCLUDING RATINGS AND STATUTORY CAPITAL AND SURPLUS; LOSSES IN THE COMPANY’S INVESTMENT PORTFOLIO; MATERIAL VARIANCE BETWEEN ACTUAL AND EXPECTED CLAIMS EXPERIENCE; DEFALCATIONS, INCREASED CLAIMS OR OTHER COSTS AND EXPENSES ATTRIBUTABLE TO THE COMPANY’S USE OF TITLE AGENTS; ANY INADEQUACY IN THE COMPANY’S RISK MITIGATION EFFORTS; SYSTEMS DAMAGE, FAILURES, INTERRUPTIONS AND INTRUSIONS, OR UNAUTHORIZED DATA DISCLOSURES; ERRORS AND FRAUD INVOLVING THE TRANSFER OF FUNDS; INABILITY TO REALIZE THE BENEFITS OF THE COMPANY’S OFFSHORE OPERATIONS; INABILITY OF THE COMPANY’S SUBSIDIARIES TO PAY DIVIDENDS OR REPAY FUNDS; INABILITY TO REALIZE THE BENEFITS OF, AND CHALLENGES ARISING FROM, THE COMPANY’S ACQUISITION STRATEGY; AND OTHER FACTORS DESCRIBED IN THE COMPANY’S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2016, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE TO UPDATE FORWARD-LOOKING STATEMENTS TO REFLECT CIRCUMSTANCES OR EVENTS THAT OCCUR AFTER THE DATE THE FORWARD-LOOKING STATEMENTS ARE MADE.

Use of non-GAAP Financial Measures

3

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. Although these exclusions represent actual gains, losses or expenses to the Company, they may mask the periodic income and financial and operating trends associated with the Company’s business. The Company is presenting these non-GAAP financial measures because they provide the Company’s management and investors with additional insight into the operational performance of the Company relative to earlier periods and relative to the Company’s competitors. The Company does not intend for these non-GAAP financial measures to be a substitute for any GAAP financial information. In the slide presentation these non-GAAP financial measures have been presented with, and reconciled to, the most directly comparable GAAP financial measures. Investors should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures.

Organizational Structure

2015 Revenue: $5.2B Total Revenue Trend

Specialty 7%

Mortgage & Data

Solutions 9%

International 6%

U.S. Title 78%

3.3 3.7 3.5

4.0

0.6

0.6 0.4

0.4 0.3

0.3 0.4

0.4 0.3

0.3 0.3

0.3

-

1.0

2.0

3.0

4.0

5.0

6.0

2012 2013 2014 2015

International Specialty Mortgage & Data Solutions U.S. Title 4

Strategy Evolution

5 5

2010-2013

2013-2016

2016 - 2020

Position FA post-spin & manage crisis fallout

Become more efficient & strengthen balance sheet

Grow profitably & innovate for productivity

Key business actions

• Standardized and centralized back-office operations

• Increased leverage of offshore assets

• Simplified operating structure

• Moderate market share growth

• Enhanced data capabilities

• Achieved cost leadership

• Continue to drive cost advantage

• Emphasize growth, primarily in direct and complementary businesses

• Leverage data for productivity

Key capital actions

• Simplified legal entity structure

• Strengthened balance sheet

• Increased dividend

• Deploy capital towards growth

• Distribute more cash to shareholders

Common themes

Focus on efficiency Value our people

Prudently manage our capital

First American’s Strategy

6

Vision: To be the premier title insurance and settlement services company

Innovation

Compliance and risk management

Focus M&A on enhancing the core

Optimize capital management strategy

People and culture

Profitably grow our

core title and settlement

business

Strengthen the enterprise through data and process advantage

Manage and actively

invest in complementary businesses that

support or expand the core

Deploy our capital to maximize long-term shareholder returns

Refinance Market

7

Current Trend

Outlook

• Strong pipeline going into 2H

• Open orders remain elevated, peaking in July

• No material resources added to handle the refinance surge

• Closely monitoring order levels as we approach seasonal slowdown

• Volatile market - dependent on interest rates

• Expecting long term decline in refinance volumes

500

1,000

1,500

2,000

2,500

3,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Open Orders / Day

2015 2016

500

700

900

1,100

1,300

1,500

1,700

1,900


Closed Orders / Day

2015 2016

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600


Open Orders / Day

2015 2016

Purchase Market

8

Current Trend

Outlook

• 5% revenue growth in 1H

• Fees per file grew 6%

• Closed orders down 1%

• Home price appreciation strong

• Strong buyer demand

• Lack of for sale inventory in existing homes a factor

• Expect continued growth in 2017 and beyond

1,000

1,500

2,000


Closed Orders / Day

2015 2016

9

Current Trend

Outlook

• Expect strength in commercial over the next 1-3 years, albeit below 2015 record levels

• Well positioned national platform

• Seeing continued strength across most markets and asset classes

• Overall quality and size of deals remain high, although deals greater than $1M in premium have slowed

• Capital availability and foreign flows continue to support market

$ in

mill

ion

s A

vera

ge R

even

ue

per

Ord

er

Clo

sed

Ord

ers

per

Day

273 261

45 48 465 506

598

81 89

98

$0

$200

$400

$600

$800

2013 2014 2015

Local NCS

546 595

696

318 309

YTD Jun 2015

YTD Jun 2016

313 308

200

240

280

320

360

400

$5

$6

$7

$8

$9

$10

6,989 7,652

8,583

310 309 322

200

250

300

350

400

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

2013 2014 2015

8,148 7,983

YTD Jun 2015

YTD Jun 2016

Commercial Market

Objective

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

$-

$700

$1,400

$2,100

$2,800

$3,500

$4,2002

00

0

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

E

Mortgage Originations Pretax Margin

($ in

Bill

ion

s)

(1)

1) Source: Mortgage Bankers Association

Title Insurance Segment Margins

10

YTD June 2016

Capital Management Strategy

11

• 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

• Maintain “A-” financial strength ratings and strong capital levels

• Manage our capital structure prudently

• Maintain ample financial flexibility and holding company liquidity

Objective: Create Long-Term Shareholder Value

32%

15%

28%

39% 38% 40%

45%

0%

20%

40%

60%

2011 2012 2013 2014 2015 2016E 2017E

Payout Ratio

Dividends

12

Dividend Considerations:

• Announced 31% increase to dividend in August

• Forecasted cash flows are sufficient to support continued investments in the core business, strategic acquisitions and increased dividend payments

• Dividend viewed as sustainable through the cycle

• Dividend payout ratio rises to 45% based on 2017 consensus estimate

• The company is not committed to increasing the dividend every year.

(1)

1) Calculated using Consensus EPS estimate for 2016 and 2017

$0.24 $0.36

$0.48

$0.84 $1.00

$1.20 $1.36

$0.00

$0.25

$0.50

$0.75

$1.00

$1.25

$1.50

$1.75

2011 2012 2013 2014 2015 2016E 2017E

Dividends per share

(1)

Legal Entity Re-alignment Increased Dividend Capacity

2015

First American Title

Insurance Company

First American Financial Corp

Republic Title (Agent)

First American Property and

Casualty

First American Data

Company

First American Trust

First American Home Buyers

Protection

First American Title Company

– Hawaii (Agent)

First American Professional Real Estate

Services


– Texas (Agent)


(Agent)

Note: Legal structure as of June 30, 2012; not a complete list of legal entities

2012 Actual dividends to Holding Company excluding FATICO

Other Subsidiaries $12M

2012

First American Property and

Casualty

Other Subsidiaries

First American Data

Company

50%

First American Financial Corp

First American Title

Insurance Company

50%

2015 Actual dividends to Holding Company excluding FATICO

Other Subsidiaries $83M

13

849

956 996 979

1,104

1,208

105% 73%

54%

28% 15% 14%

0%

50%

100%

150%

200%

0

200

400

600

800

1,000

1,200

1,400

2011 2012 2013 2014 2015 Q2'16

Surplus Affiliates % of Surplus

US$ in millions

Enhanced Statutory Capital

14

• Recently completed a multi-year effort to enhance the financial strength and flexibility of the company

• ~50% of free cash flow between 2011-2015 was used to grow the investment portfolio, primarily to strengthen the surplus quality of our primary underwriter - FATICO

• Future cash flows at FATICO will primarily be up-streamed to the holding company for capital deployment (dividend, M&A, etc.)

1,050 1,013 1,015 949 936

912

58%

86%

107%

121%

147%

165%

0%

50%

100%

150%

200%

0

200

400

600

800

1,000

1,200

1,400

2011 2012 2013 2014 2015 Q2-16

Reserves Mkt Securities % of Reserves

US$ in millions

US$ in millions 2011 2012 2013 2014 2015 Q2'16

Beginning Surplus 868 849 956 996 979 1,104

Net Income 92 301 199 393 192 86

Dividend to Parent (47) (219) (139) (263) (60) -

Other (65) 26 (20) (148) (7) 18

Ending Surplus 849 956 996 979 1,104 1,208

Dividend to Parent:

Cash 45 - 40 - 60 -

Non-cash 2 219 99 263 - -

Total 47 219 139 263 60 -

Total Non-cash dividend to Parent for the prior 5 years 582

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

‒ Expect earnings and margin growth as purchase market improves

‒ Anticipate cash flow to increase from both higher earnings and lower paid claims over the next few years

• Strong balance sheet and financial flexibility

‒ Legal entity re-alignment increases dividend capacity

• Commitment to return capital to shareholders

‒ Raised dividend 31% this quarter - 3.2% dividend yield, 45% payout ratio

15

Total Shareholder Return

Note: Annualized returns as of August 31,2016 16

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

8/31/2011 8/30/2012 8/30/2013 8/30/2014 8/30/2015 8/29/2016

FAF S&P 500

8/31/2016

1 year 3 year 5 year

First American 13.9% 30.7% 26.0%

S&P 500 12.5% 12.3% 14.7%

Balance Sheet

18

As of June, 30 2016 ($ millions)

Assets

Cash & equivalents $1,242

Investments 5,087

Other assets 1,474

Goodwill & intangibles 1,034

Total assets $8,837

Liabilities & Equity

Demand Deposits $3,100

Other Liabilities 1,219

Reserves 995

Debt 579

Equity 2,944

Total liabilities & equity $8,837

Return on Equity

TTM Net income $312

Average Equity $2,799

ROE 11.1%

Debt-to-capital 16.4%

Book value per share $26.81

Tangible equity $1,910

Statutory surplus $1,208

Investment Portfolio

Consolidated Portfolio $4.9 Billion

Insurance Portfolio $2.1 Billion

Bank Portfolio $2.8 Billion

19

Note: Debt and equity securities as of June 30, 2016

Avg. Rating: AA-

Duration: 2.9

Book Yield: 2.1%

Avg. Rating: A+

Duration: 4.4

Book Yield: 2.9%

Avg. Rating: AA-

Duration: 1.9

Book Yield: 1.4%

US Treasury 3%

Gov't Agency 7% Municipal

16%

Corporate 19%

Gov't Agency MBS 45%

Foreign 3%

Equity 7%

US Treasury

6%

Gov't Agency

3% Municipal

18%

Corporate 38%

Gov't Agency

MBS 11% Foreign

7%

Equity 17%

Gov't Agency

10%

Municipal 14%

Corporate 4%

Gov't Agency

MBS 72%

(2)

Ultimate Loss Ratios by Policy Year

Paid

Lo

sses

by

Cal

end

ar Y

ear

($ in

Mill

ion

s)

Ult

imat

e Lo

ss R

atio

s b

y Po

licy

Year

20 1) Ultimate loss ratios are estimates and calculated as a percentage of title premiums and escrow fees for a given policy year as of June 30, 2016

2) Paid claims forecast assumes 5% ultimate loss ratio and 3% premium growth rate for 2016-2018

(2)

(1)

-

50

100

150

200

250

300

350

400

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Paid to Date Ultimate Loss Ratio - Policy Year Paid Losses - Calendar Year

Forecast

93%

92%

90% 91% 88%

86%

85%

81%

78% 71%

56% 45% 37%

5.3% 5.2%

7.7%

9.6%

10.6%

9.5%

6.2%

5.1% 5.0%

3.4% 3.8%

4.8%

13.4%

4.3%

10%

2015 Incurred Claims Detail

Claim Cause Process Cause

21

Liens (22%) Encumbrances (17%)

Fraud (8%)

Basic Risks (19%)

Other (15%)

File Shortages (3%)

Defective Title (7%)

Disputed Procedure (1%)

Escrow/Closing (4%)

GVS / PVII (4%)

No Error (52%)

Escrow/Closing (18%)

Underwriting (8%)

Exam (16%)

Other (4%)

Unclassified (3%)

Title Segment Success Ratio

• < 60% when NOR increases

• > 60% when NOR decreases

• 60% target is only sustainable until optimized margin is achieved

• Success ratio is less meaningful when NOR is stable

• Due to the seasonality, success ratio is most useful when comparing period to prior year

Target YTD June 2016 Calculation

($ in millions) 2016 2015 Change

Personnel and other operating expenses Total revenues

$1,106

2,354

$1,095

2,247

+11

Less: Premiums retained by agents 809 738

Net investment income 52 48

Net realized investment gains 11 2

Net operating revenues (NOR) $1,482 $1,459 +23

Success Ratio 47% 22

YTD June

barclays global financial services conference sep. 13 2016 final

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