NYSE:FAF First American Financial Q1 2023 Earnings Report $58.96 -1.80 (-2.96%) As of 04/16/2025 03:58 PM Eastern Earnings HistoryForecast First American Financial EPS ResultsActual EPS$0.49Consensus EPS $0.48Beat/MissBeat by +$0.01One Year Ago EPSN/AFirst American Financial Revenue ResultsActual Revenue$1.45 billionExpected Revenue$1.42 billionBeat/MissBeat by +$21.83 millionYoY Revenue GrowthN/AFirst American Financial Announcement DetailsQuarterQ1 2023Date4/27/2023TimeN/AConference Call DateThursday, April 27, 2023Conference Call Time11:00AM ETUpcoming EarningsFirst American Financial's Q1 2025 earnings is scheduled for Wednesday, April 23, 2025, with a conference call scheduled on Thursday, April 24, 2025 at 11:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by First American Financial Q1 2023 Earnings Call TranscriptProvided by QuartrApril 27, 2023 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00Greetings, and welcome to the First Quarter 2023 First American Financial Corporation Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. A copy of today's press release is available on First American's website at www.first at am.com/investor. Please note that the call is being recorded and will be available for replay from the and for a short time by dialing 877-66068 53 or 201-612-7415 and entering the conference ID 13738122. Operator00:00:54We will now turn the call over to Craig Barberio, Vice President, Investor Relations to make an introductory statement. Please go ahead, sir. Speaker 100:01:03Thank you. Good morning, everyone, and welcome to First American's earnings conference call for the Q1 of 2023. Joining us today on the call will be our Chief Executive Officer, Kim DiGiorgio and Mark Seaton, Executive Vice President and Chief Financial Officer. Some of the statements made today may contain forward looking statements that do not relate strictly to historical or current fact. These forward looking statements speak only as of the date they are made and 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. Speaker 100:01:38Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward looking statements. For more information on these risks and uncertainties, please refer to this morning's earnings release and the risk factors discussed in our Form 10 ks and subsequent SEC filings. Our presentation today contains certain non GAAP financial measures that we believe provide additional insight into the operational efficiency and performance of the company relative to earlier periods and relative to the company's competitors. Please refer to this morning's earnings release, which is available on our website at www.firstam.com. I would now like to turn the call over to Ken DiGiorgio. Speaker 200:02:29Thank you, Craig. Ongoing challenges and market conditions in the Q1 continued to weigh on our results, although a 136% increase in net investment income, along with our expense management efforts enabled us to deliver a pre tax title margin of 6.5%. Our Home Warranty segment had a strong quarter with a pre tax margin of 15.3%. On a consolidated basis, we earned $0.44 per share or $0.49 before net investment losses. A sharp decline in affordability driven by mortgage rates above 6% Along with low inventory and elevated home prices adversely impacted the housing market and as a result our residential purchase business. Speaker 200:03:18Currently, however, the purchase market appears to have stabilized. For the 1st 3 weeks of April, we are seeing typical seasonal improvement in the purchase order trend with open orders up over 5% compared with March. Refinance open orders remained at trough levels in the Q1, averaging $3.50 per day. The current pool of mortgage loans would need to see rates drop well below 5% to incentivize a significant uplift in refinance activity, which is highly unlikely in the near future. The weakness in the commercial market, which began in the back half of twenty twenty two, also impacted our results this quarter with our commercial revenue down 39%. Speaker 200:04:05The decline in activity was seen across all regions and asset classes, Including industrial and multifamily and large deals were down 50% from last year. Commercial open orders were down 28% in 1st quarter and that order trend has continued into the 1st 3 weeks of April with orders down 30%. We remain optimistic that transaction activity will improve in the second half of the year given the progress made on price discovery during the Q1 and ample capital availability notwithstanding the potential impact of the baking crisis on available credit. Our financial strength allows for continued investment in our innovation and other strategic initiatives, which are imperative to our long term growth strategy. We continue to make progress at Endpoint, our digital title and settlement company, which now has a national presence. Speaker 200:05:07This month, Endpoint announced the launch of its mobile notary platform, which streamlines the process of signing documents and real estate transactions. Our title company has begun to use the platform, the first time that the broader company has leveraged Endpoint's proprietary technology. As Endpoint continues to reengineer the closing process, it will drive efficiency and improve the customer experience not only for itself, but for other divisions of First American as well. During the last few quarters, we have discussed our initiative to develop instant title decisioning for purchase transactions, which also promises to improve our operational efficiency and expand our competitive advantage. Given the success of our early testing, we expect to deploy it in 2 markets within the next year. Speaker 200:05:58This next Generation Technology is made possible by a number of factors unique to First American, including our talented technology, data sciences and underwriting teams and the most comprehensive title and real property database in the industry, which is fueled by our proprietary data quarter and is now the 5th largest subservicer in the market after experiencing 62% revenue growth this quarter. In closing, I want to thank our employees who have shown resiliency through difficult market conditions. They've remained steadfast and committed to our company and our customers, enabling us to grow our market share by over 2 percentage First American has been named 1 of the 100 Best Companies to Work For by Great Place to Work and Fortune Magazine for the 8th consecutive year. This accomplishment is a tribute to our unique culture and our people, who in addition to delivering best in class service, call over to Mark for a more detailed discussion of our financial results. Speaker 300:07:29Thank you, Ken. This quarter, we earned $0.44 per diluted share. Included in this quarter's results were $0.05 of net investment losses. Excluding these losses, we earned $0.49 per diluted share. Revenue in our title segment was $1,300,000,000 down 32% compared with the same quarter of 2022. Speaker 300:07:50Commercial revenue was $148,000,000 a 39% decline over last year. Our average revenue per order for commercial transactions declined 25% this quarter to $9,900 due to a combination of lower valuations as prices in the commercial market reset and fewer large transactions. Purchase revenue was down 32% during the quarter, driven by a 33% decrease in the number of orders closed, partially offset by a 2% increase in the average revenue per order. Refinance revenue declined 75% relative to last year due to the increase in mortgage rates. In the agency business, revenue was $590,000,000 down 38% from last year. Speaker 300:08:36Given the reporting lag in agent revenues of approximately 1 quarter, These results reflect remittances related to Q4 economic activity. Our information and other revenues were $222,000,000 down 26% relative to last year. This decline was the result of lower transaction levels across several business units, including the company's data and property information products and post close and document generation services. Investment income within the Tile Insurance and Services segment was $125,000,000 a 136% increase relative to the prior year. Rising short term interest rates are benefiting the interest income we receive on our cash and investment portfolio, escrow balances and tax deferred property exchange balances. Speaker 300:09:22As short term rates have risen, we expect investment income to continue to be a tailwind for earnings in 2023. On the expense side, we continue to manage expenses given the decline in transaction activity. Our success ratio was 50%, meaning that our personnel and other operating expenses declined $206,000,000 and our net operating revenue declined 409,000,000 our commitment to continue to fund strategic initiatives. The provision for policy losses and other claims was $35,000,000 in the first quarter or 3.5 percent of title premiums and escrow fees, down from the 4.0% loss provision rate in the prior year. The 3.5% loss rate reflects an ultimate loss rate of 3.8% for the current year with a $3,000,000 release for prior policy years. Speaker 300:10:20As of now, we expect to book at 3.5% for the remainder of 2023, but that may change depending on claims activity. As Ken highlighted, we continue to invest in businesses and innovation initiatives that we believe will positively contribute to our profitability in the long term, but at this point in their life cycle adversely impact our financial results. We have discussed 3 initiatives ServiceMac, endpoint and instant decisioning for purchase transactions, which together generated a pre tax loss of $18,000,000 this quarter, impacting our pre tax title margin by 150 basis points. Pre tax margin in the title segment was 6.5% or 6.1% excluding net investment gains. Included in this result were $10,000,000 of intangible asset amortization related to acquisitions and $4,000,000 severance incurred during the quarter. Speaker 300:11:13Beginning this quarter, we moved our property and casualty results to our corporate segment and are disclosing our home warranty results as a standalone reporting segment. Total revenue in our home warranty business totaled $104,000,000 slightly ahead of last year. Pre tax income in home warranty was $16,000,000 unchanged from the prior year. The loss ratio in home warranty was 47%, up from 46% in 2022, driven by a higher severity of claims, partially offset by lower frequency. The effective tax rate for the quarter was 22.8%, lower than our normalized rate of 24%, due primarily to the mix of income between our insurance and non insurance businesses since our insurance business generally paid state premium tax in lieu of income taxes. Speaker 300:12:01In the Q1, we repurchased 556,000 shares for a total of $30,000,000 at an average price of $54.75 Our debt to capital ratio as of March 31 was 28.4%. This ratio was impacted by both our accumulated other comprehensive loss and our secured financings payable. Excluding these two items, which is more in line with our bank's EBITDA ratio, our debt to capital ratio was 20.1%. As we discussed last quarter, on February 1, we repaid $250,000,000 of senior unsecured notes that matured using cash on hand at the holding company. Later in the year, we expect to draw on our line to partially replace this debt. Speaker 300:12:45Now I would like to turn the call back over to the operator to take your questions. Operator00:12:53Thank you. We will now be conducting a question and answer session. One moment please while we poll for questions. Our first question comes from Bose George with KBW. Please proceed with your question. Speaker 400:13:30Hey, guys. Good morning. Actually, I wanted to ask about margins. Is there Just given the weakness in sort of the broader markets, can you just talk about margin expectations for the year? And if this persists, is there more you can do on the expense side Speaker 300:13:48Thanks for the question, Bose. So The challenge we have is obviously the market. When you look at purchase and commercial refinance, which really drives our business, I mean, all those are going to be headwinds going into this year, certainly relative to last year. The good news is that we've seen evidence of the purchase in the refi markets have really bottomed out and commercial is really close to getting there. But yet, we'll still face year over year headwinds. Speaker 300:14:11I think on the positive side for margins this year, investment income obviously is going to be a tailwind for us looking at a year over year basis. We've got the full year of a few acquisitions we did last year that will be incorporated this year. It's not material, but it will be a little bit of help for us. We still are going to get a lot of efficiencies based off of some of the expense measures we took last year. And we've Talked about these strategic investments and we think that the loss will continue to narrow this year. Speaker 300:14:39You saw that we lowered the loss rate 3.5%, obviously that's going to help our margins. And then lastly, I'll just say that our P and C business lost $18,000,000 last And obviously that loss is going to narrow this year. So when you mix that all together, I mean even though we're in a what we think is going to be a trough year, we're still looking at double digit margins this year. And in terms of can we do more, I mean there's always more that we can do if the market is sort of worse than our expectations. But we're looking at least double digit margins in 2023 based on what we see today. Speaker 400:15:13Okay, great. That's helpful. Thanks. And then actually on interest income, you noted that it remains a tailwind. Any change The guidance you gave in the past, obviously, forward rate expectations have changed a little bit? Speaker 300:15:27Well, What I'd say for that is going back to Q3, we said that we could hit $600,000,000 of investment income in 2023, assuming 2 things happened. 1 is that the forward curve for Fed funds rate played out Like the market thought it was going to. And the second thing was that balances were even with Q3 levels that they didn't change. And what's happened now is the Fed funds rate has really played out like the market has thought, but balances have fallen. And certainly, our commercial business was down 40% And so our investment income was down sequentially just because balances fell. Speaker 300:16:13So when we look at Kind of the outlook for investment income this year, we feel like Q1 of $125,000,000 of investment income entitled to trough. We don't see it getting any lower than that. We sort of update we're going to update our sort of guidance that we gave and we just took March balances and kept them flat and Assume the forward curve. Now we look at somewhere around $535,000,000 of investment income this year, but again that's based off of March balances. And March balances are typically lower than the average balances. Speaker 300:16:45So as commercial sort of picks up throughout the year, we think we'll hit higher than that. So we're still positive on investment income, but it was just down this quarter just because of balances. Speaker 400:16:57Okay, great. That's helpful. Thank you. Operator00:17:03Our next question comes from Mark Hughes with Truist. Please proceed with your question. Speaker 500:17:10Yes, thank you. Just Mark to your last point there about how balances ought to build as the year progresses. Is there decent visibility for that? I think you gave the commercial orders down, was it 30% in the 1st 3 weeks of April? But Is there reason to think the balances will progress from here? Speaker 200:17:33Hi, Mark. This is Ken. I'll answer that one. I mean, I think there is cause for optimism that the commercial market is going to rebound in the second half of the year and obviously commercial drives those balances. About 70% of our balances are tied to our commercial business. Speaker 200:17:52And a lot of that is based on our as I mentioned in my comments, our customer feedback, they're expecting a stronger second half, Mostly because price discovery will have concluded or largely concluded. And there's still at least we're hearing anecdotally, Still adequate capital despite the banking crisis. Obviously, we're watching that closely, Watching loan availability, particularly in the smaller to medium sized commercial market, but everything we're hearing so far is that we anticipate to have it that commercial End up fairly strong this year. So obviously, it will be down compared to a record 2022. Speaker 500:18:36Yes. When we think about the cost structure, just looking back, your direct premiums and escrow fees, Pretty similar this quarter to what you had in 1Q 2019 when you had If I'm looking at it properly, 10% pretax margin in title on a lot less Investment income is could you maybe give some perspective or thoughts on that? Is that The expense structure was built up these last few years as you had very strong volume And there's an amount that could be taken out if you didn't see a rebound coming. I know you've talked about these investments you're making in these growth initiatives. But I just wonder if you could Give some reflections on Speaker 600:19:36how Speaker 500:19:37the cost structure is different now than it might have been 4 years, this is a while ago, But it's a striking comparison. Speaker 300:19:47Well, I'll just say back in 2019, It was certainly a better market, particularly when you look at the number of transactions. So you look at what really the big three markets that drive our business, commercial, purchase, Refining was all much stronger back in 2019. 2023, at least so far, in terms of transaction counts, we're seeing Those we haven't seen since the great financial crisis and even before that in some of those markets. So when you look at like the cost Our individual business units, whether it's our commercial business or direct, it's very similar. It's just we have been investing more in some of these initiatives We've been talking about and just technology in general. Speaker 300:20:28So that's what I'd just say relative to 2019. Speaker 200:20:33Mark, the one thing I would add to is that I'm sorry. Mark, I guess the one thing I would add to is when it comes to the Strategic initiatives and as Mark mentioned in his comments, the investments are significant. We can obviously slow those down or shut them off. We don't want to do that. We don't think it makes sense from a long term strategic perspective, but we that's a lever we have. Speaker 500:21:00Yes. And then on the home warranty business, I wonder if you could Maybe give some thoughts about what you think might happen with the top line there? Speaker 200:21:14Yes. I think, well, our home warranty business had a strong quarter as we noted. I think on the top line, I mean, there's 2 channels in the home warranty business, the real channel and the direct to consumer channel. The real estate channel, there's a high degree of correlation with our purchase business. So as we see real estate transactions Fall, if they continue to fall, that will put pressure on their revenue. Speaker 200:21:37But they've had a lot of success in the direct to consumer In the direct to consumer business, in the Q1, for example, it was up 12%, whereas in the real estate channel was down almost 35%. So there's opportunity there. The other thing we're seeing is some good performance with respect to renewals In both channels actually, the real estate channel, the renewals have been up almost 5% and direct to consumer just over 14%. So we think there's some opportunity there, but they're facing certainly in the real estate channel the same headwinds that our residential title businesses. Speaker 500:22:21Thank you very much. Appreciate Operator00:22:33Our next question comes from Mark DeVries with Barclays. Please proceed with your question. Speaker 600:22:40Yes, thanks. I wanted to drill down a little more on the commercial outlook for the back half of the year. Appreciate all the color you provided. I think one question is The price discovery issue, is that impacting the larger transactions sizes more? And if so, as we Find an equilibrium at these higher rates, does that kind of have an upward impact on the fee per file? Speaker 600:23:10And the second question is how much concern is there from you hearing from your customers that even as they begin to reach that equilibrium and fine price discovery That banks tightening in the wake of this regional banking crisis kind of tightened disproportionately on their CRE business And you see kind of a lack of supply of credit just as commercial investors are looking to transact. Speaker 200:23:40Yes. Mark, I think I mean, it's not clear if the price discovery is impacting large transactions larger It's much more substantially than others. So I guess we could probably infer from the fact that our large transaction volume counts were down 50% in the Q1, Probably suggest that price discovery is having an impact on them. Now with respect to the fee per file, I think if we see large transactions come back into the market, yes, that will have a positive impact on our average revenue per order. But with that said, we're anticipating that on the whole, large transactions are going to go down in value as well. Speaker 200:24:24I mean, we're seeing 10% to 15% decline in prices in the commercial market, 25% in the office. So prices across the Spectrum, I think are going to come down. Speaker 600:24:38Okay, got it. And any concerns Around the availability of funding from banks? Speaker 200:24:45Yes. I mean, as I've mentioned, we're hearing anecdotally that there's adequate capital. But no, there is we have Some moderate concern about it. We're keeping an eye on it. You certainly read a lot in the trade media about Particularly mid tier banks making credit available to on smaller and medium sized commercial deals. Speaker 200:25:08So it is a concern. It's something we're watching. But at least what we're hearing from our customer base is it's they don't see an issue right now. But obviously, there's much Remains to be seen. Speaker 600:25:23Okay, got it. And next question, I mean, this environment has got to be particularly challenging for subscale players Title business. Are you seeing improving opportunities to do acquisitions here just given some of the distress some of these players may be under? And if so, are you Prepared to be aggressive in acquiring? Speaker 200:25:43Yes. I mean, it's interesting, Mark. I mean, we're not we haven't seen a lot of Attractive opportunities, we've seen some opportunities, particularly like in the prop tech space that are not too compelling. But given where the market is, We expect to see some opportunities. If the current challenges ultimately prove to be prolonged, Yes, I think there will be opportunities and the good news is we have the capital to seize on them. Speaker 200:26:13But as always, we'll be very disciplined about About our M and A activity, but we think they're coming. Speaker 600:26:22Okay, great. Thank you. Operator00:26:28Our next question comes from Geoffrey Dunn with Dowling and Partners. Please proceed with your question. Speaker 700:26:33Thanks. Good morning. Good morning. Mark, I know you put it in the queue, but can you front run and then give the actual balances for escrow deposits in tenthirty 1 as Speaker 300:26:51At the end of the quarter, we had $2,100,000,000 of 1031 exchange deposits. Was that your question, 1031? Speaker 700:27:02Yes, that's part of it. Do you have the escrow as well? Speaker 300:27:04Oh, I'm sorry. Yes. So escrow Total escrow deposits, we had 10 point about $10,000,000,000 Speaker 700:27:13So that's flat? Speaker 300:27:18Sequentially, it was about $11,000,000,000 Yes. So we're going from $11,000,000,000 I'm looking at bank balances in the Q, we report book A slight difference on timing. But at the end of the year in terms of bank balances for escrow, we had $11,000,000,000 and As of March 31, we had $10,300,000,000 So they're down sequentially. That's on escrow. Speaker 700:27:44Okay. So I guess, I mean, so sequentially, your net investment income was down a decent amount. What type of yield are you getting on tenthirty 1? It seems like it's a really big Swing for a $700,000,000 decline in 10.31 balances where your balance sheet assets are up and your escrow Speaker 800:28:03is flat. Can you dig Speaker 700:28:04into that a little bit more? Speaker 300:28:06Yes. So the average rate that we're getting on tenthirty one right now is about well, It's average. Average for the quarter is 4.55. But as a general statement, we get Fed funds. Obviously, Fed funds changed throughout the quarter. Speaker 300:28:21So as a general statement, we're getting fed funds for our 10/31 business. Speaker 700:28:26And how does that compare to escrow? Speaker 300:28:30Escrow, we're getting about Fed funds as well, same thing, maybe a little bit less. We get probably a little bit more on 1031, but it's generally about Fed funds. Speaker 700:28:40Okay. All right. And then the other question, obviously, You just talked about M and A and having the capital for that. How do you weigh buyback Capital return in a tough macro environment. Last year, you indicated you were going to increase that activity, you did. Speaker 700:29:00How do you think about that in the current macro challenges? Speaker 200:29:06Yes, Jed, this is Ken. I mean, Listen, our priorities always remain the same. One is to reinvest in the business, which as we've talked about a couple of times today, We're doing with Endpoint and Title Decisioning and other innovations and strategic initiatives. And then M and A, which I talked about earlier. And then thirdly, returning capital to shareholders. Speaker 200:29:29With respect to repurchases, I mean, the current price is Certainly attractive. In Q1, we repurchased over 550,000 shares. Last year, we repurchased Over 7% of our shares outstanding. But we're going to be opportunistic given all the demands on our capital, Including as I've mentioned our expectation that there's going to be some attractive M and A opportunities forthcoming. Speaker 700:30:00Okay. Thank Operator00:30:13Our next question comes from John Campbell with Stephens. Please proceed with your question. Speaker 700:30:18Hey, guys. Good morning. Speaker 300:30:20Good morning. Speaker 800:30:22Hey, so back to the margin For title, I mean, if we back out the investment income impact and then if you add back the severance charge and then the $18,000,000 in investment headwinds you guys called out, getting to like a negative 2% kind of underlying title pre tax margin. I think you have to go back to 1Q 'nine, so during the housing crisis to see a similar margin. On Mark's question, you guys provided a couple moving parts there. But I'm trying to get a better sense for maybe the excess costs you might be carrying, because it does sound like you guys expect Things to improve a bit on the resi side as well as commercial, which we agree with for sure. But as a hypothetical, if you looked at next Next one, Q, if you just hold everything flat, what type of margin lift do you think you might get from just kind of pairing some of these investments and then maybe taking cost actions if this current environment kind of holds? Speaker 300:31:14Well, there's a few things there, Sean. I mean one thing I'd say is that Just backing out our investment income, like you have and others have and we've done that same thing too. It really discounts all of the like operating costs that we have at businesses that generate the income. So for Our bank, if you just exclude all the revenue from the bank and you have all the personnel costs and all the other operating associated with the bank and not just the bank, but our 1031 business. It's not quite apples and oranges, I would say. Speaker 300:31:52The other thing is our bank pays interest expense too. So you sort of have to back that out. So that's one thing I'd point to. Again, going back to 2019, it's just tough because again it was sort of an Olympic cycle ago. But Basically, when we think about the margins, I mean, as I said, we're looking at double digit margins this year and we feel like that's a good outcome considering just the tough market conditions. Speaker 300:32:19So, when we look out 2024, 2025 and beyond, we feel like we're going to get a lot of lifts for a few different areas. Number 1, obviously, we'll have hopefully market Tailwinds. Number 2 is a lot of our just I'll call it normal operating expense management will continue to pay off and we've seen that with the success ratio here in these last And 3, hopefully some of these strategic initiatives will continue to pay dividends for us. And so when you wrap that all together, We've really the highest margins we've seen at least our company is 15%. We saw that in 2021. Speaker 300:32:54Now we're having a trough market this year, But we will inch closer to 15 in the outer years once these things materialize. Speaker 800:33:03Okay. That's a great point. I Didn't really think about the incremental excess cost that kind of comes with that higher level of investment income, so that's a good point. On the outlook, Mark, you mentioned kind of expectations for a baseline or the low point of like at least 10% title pre tax margins this year. I'm curious if that's 100% contingent on the resi market improving as well as commercial, at least what you saw in 1Q? Speaker 800:33:28Or do you think you'd still be able to get there with call facts and if the market sags a little bit? Speaker 300:33:36No, I would say that's Assuming a pretty tough environment, I mean we're sitting here in April, so we have visibility into sort of June revenue based off of the So for the first half, we pretty much know what we're going to do more or less. The second half, there's still uncertainty, particularly on commercial, particularly how strong is Q4 going to be. But I would say that double digit margin assumption doesn't assume the market picks up. We don't we're not assuming Big recovery on the residential side. It assumes kind of a flat purchase market and no pickup in refis and some normal seasonality with commercial. Speaker 300:34:12So there's not a and there's no stretch assumptions with that. Speaker 800:34:16Okay. That's helpful. And last one for me, just a housekeeping question. With P and C being moved into corporate, just want to make sure I get a better grip on that. I saw the $1,700,000 of claims costs. Speaker 800:34:27How much incremental Expense is tied to P&C that's falling into commercial now or excuse me, into corporate? Speaker 300:34:40So for the quarter, we had about $5,000,000 Of losses at corporate because of P&C, we think that's really going to narrow to a couple of million here in the next quarter or 2. We don't have any remaining policies outstanding. We've got Roughly about 300 claims that we're still kind of working through the pipeline and we just have very minimal operating expense. So I would say it's negligible from here on out. Operator00:35:15There are no additional questions at this time. This concludes this morning's call. We'd like to remind listeners that today's call will be availableRead moreRemove AdsPowered by Conference Call Audio Live Call not available Earnings Conference CallFirst American Financial Q1 202300:00 / 00:00Speed:1x1.25x1.5x2xRemove Ads Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) First American Financial Earnings HeadlinesFirst American Financial Corporation Elevates Mark E. Seaton to Chief Executive OfficerApril 15 at 9:15 AM | businesswire.comZacks Research Has Positive Estimate for FAF Q1 EarningsApril 15 at 1:35 AM | americanbankingnews.comGet Your Bank Account “Fed Invasion” Ready with THESE 4 Simple StepsStarting as soon as a few months from now, the United States government will make a sweeping change to bank accounts nationwide. It will give them unprecedented powers to control your bank account.April 17, 2025 | Weiss Ratings (Ad)Zacks Research Has Positive Estimate for FAF Q2 EarningsApril 13, 2025 | americanbankingnews.comFirst American upgraded to Outperform from Market Perform at Keefe BruyetteApril 9, 2025 | markets.businessinsider.comKeefe, Bruyette & Woods Upgrades First American Financial (FAF)April 9, 2025 | msn.comSee More First American Financial Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like First American Financial? Sign up for Earnings360's daily newsletter to receive timely earnings updates on First American Financial and other key companies, straight to your email. Email Address About First American FinancialFirst American Financial (NYSE:FAF), through its subsidiaries, provides financial services. It operates through Title Insurance and Services, and Home Warranty segments. The Title Insurance and Services segment issues title insurance policies on residential and commercial property, as well as offers related products and services internationally. This segment also provides closing and/or escrow services; products, services, and solutions to mitigate risk or otherwise facilitate real estate transactions; and appraisals and other valuation-related products and services, lien release and document custodial services, warehouse lending services, default-related products and services, document generation services, mortgage loans subservicing, and related products and services, as well as banking, trust, and wealth management services. In addition, it accommodates tax-deferred exchanges of real estate; and maintains, manages, and provides access to title plant data and records. This segment offers its products through a network of direct operations and agents in various states and in the District of Columbia, as well as in Canada, the United Kingdom, Australia, New Zealand, South Korea, and internationally. The Home Warranty segment provides home warranty products, including residential service contracts that cover residential systems, such as heating and air conditioning systems, and various appliances against failures that occur as the result of normal usage during the coverage period. This segment operates in various states and the District of Columbia. The company was founded in 1889 and is headquartered in Santa Ana, California.View First American Financial ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Tesla Stock Eyes Breakout With Earnings on DeckJohnson & Johnson Earnings Were More Good Than Bad—Time to Buy? 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There are 9 speakers on the call. Operator00:00:00Greetings, and welcome to the First Quarter 2023 First American Financial Corporation Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. A copy of today's press release is available on First American's website at www.first at am.com/investor. Please note that the call is being recorded and will be available for replay from the and for a short time by dialing 877-66068 53 or 201-612-7415 and entering the conference ID 13738122. Operator00:00:54We will now turn the call over to Craig Barberio, Vice President, Investor Relations to make an introductory statement. Please go ahead, sir. Speaker 100:01:03Thank you. Good morning, everyone, and welcome to First American's earnings conference call for the Q1 of 2023. Joining us today on the call will be our Chief Executive Officer, Kim DiGiorgio and Mark Seaton, Executive Vice President and Chief Financial Officer. Some of the statements made today may contain forward looking statements that do not relate strictly to historical or current fact. These forward looking statements speak only as of the date they are made and 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. Speaker 100:01:38Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward looking statements. For more information on these risks and uncertainties, please refer to this morning's earnings release and the risk factors discussed in our Form 10 ks and subsequent SEC filings. Our presentation today contains certain non GAAP financial measures that we believe provide additional insight into the operational efficiency and performance of the company relative to earlier periods and relative to the company's competitors. Please refer to this morning's earnings release, which is available on our website at www.firstam.com. I would now like to turn the call over to Ken DiGiorgio. Speaker 200:02:29Thank you, Craig. Ongoing challenges and market conditions in the Q1 continued to weigh on our results, although a 136% increase in net investment income, along with our expense management efforts enabled us to deliver a pre tax title margin of 6.5%. Our Home Warranty segment had a strong quarter with a pre tax margin of 15.3%. On a consolidated basis, we earned $0.44 per share or $0.49 before net investment losses. A sharp decline in affordability driven by mortgage rates above 6% Along with low inventory and elevated home prices adversely impacted the housing market and as a result our residential purchase business. Speaker 200:03:18Currently, however, the purchase market appears to have stabilized. For the 1st 3 weeks of April, we are seeing typical seasonal improvement in the purchase order trend with open orders up over 5% compared with March. Refinance open orders remained at trough levels in the Q1, averaging $3.50 per day. The current pool of mortgage loans would need to see rates drop well below 5% to incentivize a significant uplift in refinance activity, which is highly unlikely in the near future. The weakness in the commercial market, which began in the back half of twenty twenty two, also impacted our results this quarter with our commercial revenue down 39%. Speaker 200:04:05The decline in activity was seen across all regions and asset classes, Including industrial and multifamily and large deals were down 50% from last year. Commercial open orders were down 28% in 1st quarter and that order trend has continued into the 1st 3 weeks of April with orders down 30%. We remain optimistic that transaction activity will improve in the second half of the year given the progress made on price discovery during the Q1 and ample capital availability notwithstanding the potential impact of the baking crisis on available credit. Our financial strength allows for continued investment in our innovation and other strategic initiatives, which are imperative to our long term growth strategy. We continue to make progress at Endpoint, our digital title and settlement company, which now has a national presence. Speaker 200:05:07This month, Endpoint announced the launch of its mobile notary platform, which streamlines the process of signing documents and real estate transactions. Our title company has begun to use the platform, the first time that the broader company has leveraged Endpoint's proprietary technology. As Endpoint continues to reengineer the closing process, it will drive efficiency and improve the customer experience not only for itself, but for other divisions of First American as well. During the last few quarters, we have discussed our initiative to develop instant title decisioning for purchase transactions, which also promises to improve our operational efficiency and expand our competitive advantage. Given the success of our early testing, we expect to deploy it in 2 markets within the next year. Speaker 200:05:58This next Generation Technology is made possible by a number of factors unique to First American, including our talented technology, data sciences and underwriting teams and the most comprehensive title and real property database in the industry, which is fueled by our proprietary data quarter and is now the 5th largest subservicer in the market after experiencing 62% revenue growth this quarter. In closing, I want to thank our employees who have shown resiliency through difficult market conditions. They've remained steadfast and committed to our company and our customers, enabling us to grow our market share by over 2 percentage First American has been named 1 of the 100 Best Companies to Work For by Great Place to Work and Fortune Magazine for the 8th consecutive year. This accomplishment is a tribute to our unique culture and our people, who in addition to delivering best in class service, call over to Mark for a more detailed discussion of our financial results. Speaker 300:07:29Thank you, Ken. This quarter, we earned $0.44 per diluted share. Included in this quarter's results were $0.05 of net investment losses. Excluding these losses, we earned $0.49 per diluted share. Revenue in our title segment was $1,300,000,000 down 32% compared with the same quarter of 2022. Speaker 300:07:50Commercial revenue was $148,000,000 a 39% decline over last year. Our average revenue per order for commercial transactions declined 25% this quarter to $9,900 due to a combination of lower valuations as prices in the commercial market reset and fewer large transactions. Purchase revenue was down 32% during the quarter, driven by a 33% decrease in the number of orders closed, partially offset by a 2% increase in the average revenue per order. Refinance revenue declined 75% relative to last year due to the increase in mortgage rates. In the agency business, revenue was $590,000,000 down 38% from last year. Speaker 300:08:36Given the reporting lag in agent revenues of approximately 1 quarter, These results reflect remittances related to Q4 economic activity. Our information and other revenues were $222,000,000 down 26% relative to last year. This decline was the result of lower transaction levels across several business units, including the company's data and property information products and post close and document generation services. Investment income within the Tile Insurance and Services segment was $125,000,000 a 136% increase relative to the prior year. Rising short term interest rates are benefiting the interest income we receive on our cash and investment portfolio, escrow balances and tax deferred property exchange balances. Speaker 300:09:22As short term rates have risen, we expect investment income to continue to be a tailwind for earnings in 2023. On the expense side, we continue to manage expenses given the decline in transaction activity. Our success ratio was 50%, meaning that our personnel and other operating expenses declined $206,000,000 and our net operating revenue declined 409,000,000 our commitment to continue to fund strategic initiatives. The provision for policy losses and other claims was $35,000,000 in the first quarter or 3.5 percent of title premiums and escrow fees, down from the 4.0% loss provision rate in the prior year. The 3.5% loss rate reflects an ultimate loss rate of 3.8% for the current year with a $3,000,000 release for prior policy years. Speaker 300:10:20As of now, we expect to book at 3.5% for the remainder of 2023, but that may change depending on claims activity. As Ken highlighted, we continue to invest in businesses and innovation initiatives that we believe will positively contribute to our profitability in the long term, but at this point in their life cycle adversely impact our financial results. We have discussed 3 initiatives ServiceMac, endpoint and instant decisioning for purchase transactions, which together generated a pre tax loss of $18,000,000 this quarter, impacting our pre tax title margin by 150 basis points. Pre tax margin in the title segment was 6.5% or 6.1% excluding net investment gains. Included in this result were $10,000,000 of intangible asset amortization related to acquisitions and $4,000,000 severance incurred during the quarter. Speaker 300:11:13Beginning this quarter, we moved our property and casualty results to our corporate segment and are disclosing our home warranty results as a standalone reporting segment. Total revenue in our home warranty business totaled $104,000,000 slightly ahead of last year. Pre tax income in home warranty was $16,000,000 unchanged from the prior year. The loss ratio in home warranty was 47%, up from 46% in 2022, driven by a higher severity of claims, partially offset by lower frequency. The effective tax rate for the quarter was 22.8%, lower than our normalized rate of 24%, due primarily to the mix of income between our insurance and non insurance businesses since our insurance business generally paid state premium tax in lieu of income taxes. Speaker 300:12:01In the Q1, we repurchased 556,000 shares for a total of $30,000,000 at an average price of $54.75 Our debt to capital ratio as of March 31 was 28.4%. This ratio was impacted by both our accumulated other comprehensive loss and our secured financings payable. Excluding these two items, which is more in line with our bank's EBITDA ratio, our debt to capital ratio was 20.1%. As we discussed last quarter, on February 1, we repaid $250,000,000 of senior unsecured notes that matured using cash on hand at the holding company. Later in the year, we expect to draw on our line to partially replace this debt. Speaker 300:12:45Now I would like to turn the call back over to the operator to take your questions. Operator00:12:53Thank you. We will now be conducting a question and answer session. One moment please while we poll for questions. Our first question comes from Bose George with KBW. Please proceed with your question. Speaker 400:13:30Hey, guys. Good morning. Actually, I wanted to ask about margins. Is there Just given the weakness in sort of the broader markets, can you just talk about margin expectations for the year? And if this persists, is there more you can do on the expense side Speaker 300:13:48Thanks for the question, Bose. So The challenge we have is obviously the market. When you look at purchase and commercial refinance, which really drives our business, I mean, all those are going to be headwinds going into this year, certainly relative to last year. The good news is that we've seen evidence of the purchase in the refi markets have really bottomed out and commercial is really close to getting there. But yet, we'll still face year over year headwinds. Speaker 300:14:11I think on the positive side for margins this year, investment income obviously is going to be a tailwind for us looking at a year over year basis. We've got the full year of a few acquisitions we did last year that will be incorporated this year. It's not material, but it will be a little bit of help for us. We still are going to get a lot of efficiencies based off of some of the expense measures we took last year. And we've Talked about these strategic investments and we think that the loss will continue to narrow this year. Speaker 300:14:39You saw that we lowered the loss rate 3.5%, obviously that's going to help our margins. And then lastly, I'll just say that our P and C business lost $18,000,000 last And obviously that loss is going to narrow this year. So when you mix that all together, I mean even though we're in a what we think is going to be a trough year, we're still looking at double digit margins this year. And in terms of can we do more, I mean there's always more that we can do if the market is sort of worse than our expectations. But we're looking at least double digit margins in 2023 based on what we see today. Speaker 400:15:13Okay, great. That's helpful. Thanks. And then actually on interest income, you noted that it remains a tailwind. Any change The guidance you gave in the past, obviously, forward rate expectations have changed a little bit? Speaker 300:15:27Well, What I'd say for that is going back to Q3, we said that we could hit $600,000,000 of investment income in 2023, assuming 2 things happened. 1 is that the forward curve for Fed funds rate played out Like the market thought it was going to. And the second thing was that balances were even with Q3 levels that they didn't change. And what's happened now is the Fed funds rate has really played out like the market has thought, but balances have fallen. And certainly, our commercial business was down 40% And so our investment income was down sequentially just because balances fell. Speaker 300:16:13So when we look at Kind of the outlook for investment income this year, we feel like Q1 of $125,000,000 of investment income entitled to trough. We don't see it getting any lower than that. We sort of update we're going to update our sort of guidance that we gave and we just took March balances and kept them flat and Assume the forward curve. Now we look at somewhere around $535,000,000 of investment income this year, but again that's based off of March balances. And March balances are typically lower than the average balances. Speaker 300:16:45So as commercial sort of picks up throughout the year, we think we'll hit higher than that. So we're still positive on investment income, but it was just down this quarter just because of balances. Speaker 400:16:57Okay, great. That's helpful. Thank you. Operator00:17:03Our next question comes from Mark Hughes with Truist. Please proceed with your question. Speaker 500:17:10Yes, thank you. Just Mark to your last point there about how balances ought to build as the year progresses. Is there decent visibility for that? I think you gave the commercial orders down, was it 30% in the 1st 3 weeks of April? But Is there reason to think the balances will progress from here? Speaker 200:17:33Hi, Mark. This is Ken. I'll answer that one. I mean, I think there is cause for optimism that the commercial market is going to rebound in the second half of the year and obviously commercial drives those balances. About 70% of our balances are tied to our commercial business. Speaker 200:17:52And a lot of that is based on our as I mentioned in my comments, our customer feedback, they're expecting a stronger second half, Mostly because price discovery will have concluded or largely concluded. And there's still at least we're hearing anecdotally, Still adequate capital despite the banking crisis. Obviously, we're watching that closely, Watching loan availability, particularly in the smaller to medium sized commercial market, but everything we're hearing so far is that we anticipate to have it that commercial End up fairly strong this year. So obviously, it will be down compared to a record 2022. Speaker 500:18:36Yes. When we think about the cost structure, just looking back, your direct premiums and escrow fees, Pretty similar this quarter to what you had in 1Q 2019 when you had If I'm looking at it properly, 10% pretax margin in title on a lot less Investment income is could you maybe give some perspective or thoughts on that? Is that The expense structure was built up these last few years as you had very strong volume And there's an amount that could be taken out if you didn't see a rebound coming. I know you've talked about these investments you're making in these growth initiatives. But I just wonder if you could Give some reflections on Speaker 600:19:36how Speaker 500:19:37the cost structure is different now than it might have been 4 years, this is a while ago, But it's a striking comparison. Speaker 300:19:47Well, I'll just say back in 2019, It was certainly a better market, particularly when you look at the number of transactions. So you look at what really the big three markets that drive our business, commercial, purchase, Refining was all much stronger back in 2019. 2023, at least so far, in terms of transaction counts, we're seeing Those we haven't seen since the great financial crisis and even before that in some of those markets. So when you look at like the cost Our individual business units, whether it's our commercial business or direct, it's very similar. It's just we have been investing more in some of these initiatives We've been talking about and just technology in general. Speaker 300:20:28So that's what I'd just say relative to 2019. Speaker 200:20:33Mark, the one thing I would add to is that I'm sorry. Mark, I guess the one thing I would add to is when it comes to the Strategic initiatives and as Mark mentioned in his comments, the investments are significant. We can obviously slow those down or shut them off. We don't want to do that. We don't think it makes sense from a long term strategic perspective, but we that's a lever we have. Speaker 500:21:00Yes. And then on the home warranty business, I wonder if you could Maybe give some thoughts about what you think might happen with the top line there? Speaker 200:21:14Yes. I think, well, our home warranty business had a strong quarter as we noted. I think on the top line, I mean, there's 2 channels in the home warranty business, the real channel and the direct to consumer channel. The real estate channel, there's a high degree of correlation with our purchase business. So as we see real estate transactions Fall, if they continue to fall, that will put pressure on their revenue. Speaker 200:21:37But they've had a lot of success in the direct to consumer In the direct to consumer business, in the Q1, for example, it was up 12%, whereas in the real estate channel was down almost 35%. So there's opportunity there. The other thing we're seeing is some good performance with respect to renewals In both channels actually, the real estate channel, the renewals have been up almost 5% and direct to consumer just over 14%. So we think there's some opportunity there, but they're facing certainly in the real estate channel the same headwinds that our residential title businesses. Speaker 500:22:21Thank you very much. Appreciate Operator00:22:33Our next question comes from Mark DeVries with Barclays. Please proceed with your question. Speaker 600:22:40Yes, thanks. I wanted to drill down a little more on the commercial outlook for the back half of the year. Appreciate all the color you provided. I think one question is The price discovery issue, is that impacting the larger transactions sizes more? And if so, as we Find an equilibrium at these higher rates, does that kind of have an upward impact on the fee per file? Speaker 600:23:10And the second question is how much concern is there from you hearing from your customers that even as they begin to reach that equilibrium and fine price discovery That banks tightening in the wake of this regional banking crisis kind of tightened disproportionately on their CRE business And you see kind of a lack of supply of credit just as commercial investors are looking to transact. Speaker 200:23:40Yes. Mark, I think I mean, it's not clear if the price discovery is impacting large transactions larger It's much more substantially than others. So I guess we could probably infer from the fact that our large transaction volume counts were down 50% in the Q1, Probably suggest that price discovery is having an impact on them. Now with respect to the fee per file, I think if we see large transactions come back into the market, yes, that will have a positive impact on our average revenue per order. But with that said, we're anticipating that on the whole, large transactions are going to go down in value as well. Speaker 200:24:24I mean, we're seeing 10% to 15% decline in prices in the commercial market, 25% in the office. So prices across the Spectrum, I think are going to come down. Speaker 600:24:38Okay, got it. And any concerns Around the availability of funding from banks? Speaker 200:24:45Yes. I mean, as I've mentioned, we're hearing anecdotally that there's adequate capital. But no, there is we have Some moderate concern about it. We're keeping an eye on it. You certainly read a lot in the trade media about Particularly mid tier banks making credit available to on smaller and medium sized commercial deals. Speaker 200:25:08So it is a concern. It's something we're watching. But at least what we're hearing from our customer base is it's they don't see an issue right now. But obviously, there's much Remains to be seen. Speaker 600:25:23Okay, got it. And next question, I mean, this environment has got to be particularly challenging for subscale players Title business. Are you seeing improving opportunities to do acquisitions here just given some of the distress some of these players may be under? And if so, are you Prepared to be aggressive in acquiring? Speaker 200:25:43Yes. I mean, it's interesting, Mark. I mean, we're not we haven't seen a lot of Attractive opportunities, we've seen some opportunities, particularly like in the prop tech space that are not too compelling. But given where the market is, We expect to see some opportunities. If the current challenges ultimately prove to be prolonged, Yes, I think there will be opportunities and the good news is we have the capital to seize on them. Speaker 200:26:13But as always, we'll be very disciplined about About our M and A activity, but we think they're coming. Speaker 600:26:22Okay, great. Thank you. Operator00:26:28Our next question comes from Geoffrey Dunn with Dowling and Partners. Please proceed with your question. Speaker 700:26:33Thanks. Good morning. Good morning. Mark, I know you put it in the queue, but can you front run and then give the actual balances for escrow deposits in tenthirty 1 as Speaker 300:26:51At the end of the quarter, we had $2,100,000,000 of 1031 exchange deposits. Was that your question, 1031? Speaker 700:27:02Yes, that's part of it. Do you have the escrow as well? Speaker 300:27:04Oh, I'm sorry. Yes. So escrow Total escrow deposits, we had 10 point about $10,000,000,000 Speaker 700:27:13So that's flat? Speaker 300:27:18Sequentially, it was about $11,000,000,000 Yes. So we're going from $11,000,000,000 I'm looking at bank balances in the Q, we report book A slight difference on timing. But at the end of the year in terms of bank balances for escrow, we had $11,000,000,000 and As of March 31, we had $10,300,000,000 So they're down sequentially. That's on escrow. Speaker 700:27:44Okay. So I guess, I mean, so sequentially, your net investment income was down a decent amount. What type of yield are you getting on tenthirty 1? It seems like it's a really big Swing for a $700,000,000 decline in 10.31 balances where your balance sheet assets are up and your escrow Speaker 800:28:03is flat. Can you dig Speaker 700:28:04into that a little bit more? Speaker 300:28:06Yes. So the average rate that we're getting on tenthirty one right now is about well, It's average. Average for the quarter is 4.55. But as a general statement, we get Fed funds. Obviously, Fed funds changed throughout the quarter. Speaker 300:28:21So as a general statement, we're getting fed funds for our 10/31 business. Speaker 700:28:26And how does that compare to escrow? Speaker 300:28:30Escrow, we're getting about Fed funds as well, same thing, maybe a little bit less. We get probably a little bit more on 1031, but it's generally about Fed funds. Speaker 700:28:40Okay. All right. And then the other question, obviously, You just talked about M and A and having the capital for that. How do you weigh buyback Capital return in a tough macro environment. Last year, you indicated you were going to increase that activity, you did. Speaker 700:29:00How do you think about that in the current macro challenges? Speaker 200:29:06Yes, Jed, this is Ken. I mean, Listen, our priorities always remain the same. One is to reinvest in the business, which as we've talked about a couple of times today, We're doing with Endpoint and Title Decisioning and other innovations and strategic initiatives. And then M and A, which I talked about earlier. And then thirdly, returning capital to shareholders. Speaker 200:29:29With respect to repurchases, I mean, the current price is Certainly attractive. In Q1, we repurchased over 550,000 shares. Last year, we repurchased Over 7% of our shares outstanding. But we're going to be opportunistic given all the demands on our capital, Including as I've mentioned our expectation that there's going to be some attractive M and A opportunities forthcoming. Speaker 700:30:00Okay. Thank Operator00:30:13Our next question comes from John Campbell with Stephens. Please proceed with your question. Speaker 700:30:18Hey, guys. Good morning. Speaker 300:30:20Good morning. Speaker 800:30:22Hey, so back to the margin For title, I mean, if we back out the investment income impact and then if you add back the severance charge and then the $18,000,000 in investment headwinds you guys called out, getting to like a negative 2% kind of underlying title pre tax margin. I think you have to go back to 1Q 'nine, so during the housing crisis to see a similar margin. On Mark's question, you guys provided a couple moving parts there. But I'm trying to get a better sense for maybe the excess costs you might be carrying, because it does sound like you guys expect Things to improve a bit on the resi side as well as commercial, which we agree with for sure. But as a hypothetical, if you looked at next Next one, Q, if you just hold everything flat, what type of margin lift do you think you might get from just kind of pairing some of these investments and then maybe taking cost actions if this current environment kind of holds? Speaker 300:31:14Well, there's a few things there, Sean. I mean one thing I'd say is that Just backing out our investment income, like you have and others have and we've done that same thing too. It really discounts all of the like operating costs that we have at businesses that generate the income. So for Our bank, if you just exclude all the revenue from the bank and you have all the personnel costs and all the other operating associated with the bank and not just the bank, but our 1031 business. It's not quite apples and oranges, I would say. Speaker 300:31:52The other thing is our bank pays interest expense too. So you sort of have to back that out. So that's one thing I'd point to. Again, going back to 2019, it's just tough because again it was sort of an Olympic cycle ago. But Basically, when we think about the margins, I mean, as I said, we're looking at double digit margins this year and we feel like that's a good outcome considering just the tough market conditions. Speaker 300:32:19So, when we look out 2024, 2025 and beyond, we feel like we're going to get a lot of lifts for a few different areas. Number 1, obviously, we'll have hopefully market Tailwinds. Number 2 is a lot of our just I'll call it normal operating expense management will continue to pay off and we've seen that with the success ratio here in these last And 3, hopefully some of these strategic initiatives will continue to pay dividends for us. And so when you wrap that all together, We've really the highest margins we've seen at least our company is 15%. We saw that in 2021. Speaker 300:32:54Now we're having a trough market this year, But we will inch closer to 15 in the outer years once these things materialize. Speaker 800:33:03Okay. That's a great point. I Didn't really think about the incremental excess cost that kind of comes with that higher level of investment income, so that's a good point. On the outlook, Mark, you mentioned kind of expectations for a baseline or the low point of like at least 10% title pre tax margins this year. I'm curious if that's 100% contingent on the resi market improving as well as commercial, at least what you saw in 1Q? Speaker 800:33:28Or do you think you'd still be able to get there with call facts and if the market sags a little bit? Speaker 300:33:36No, I would say that's Assuming a pretty tough environment, I mean we're sitting here in April, so we have visibility into sort of June revenue based off of the So for the first half, we pretty much know what we're going to do more or less. The second half, there's still uncertainty, particularly on commercial, particularly how strong is Q4 going to be. But I would say that double digit margin assumption doesn't assume the market picks up. We don't we're not assuming Big recovery on the residential side. It assumes kind of a flat purchase market and no pickup in refis and some normal seasonality with commercial. Speaker 300:34:12So there's not a and there's no stretch assumptions with that. Speaker 800:34:16Okay. That's helpful. And last one for me, just a housekeeping question. With P and C being moved into corporate, just want to make sure I get a better grip on that. I saw the $1,700,000 of claims costs. Speaker 800:34:27How much incremental Expense is tied to P&C that's falling into commercial now or excuse me, into corporate? Speaker 300:34:40So for the quarter, we had about $5,000,000 Of losses at corporate because of P&C, we think that's really going to narrow to a couple of million here in the next quarter or 2. We don't have any remaining policies outstanding. We've got Roughly about 300 claims that we're still kind of working through the pipeline and we just have very minimal operating expense. So I would say it's negligible from here on out. Operator00:35:15There are no additional questions at this time. This concludes this morning's call. We'd like to remind listeners that today's call will be availableRead moreRemove AdsPowered by