Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by our conference will be getting just a couple of minutes. Once again. Thank you for standing by our conference will begin in just a couple of minutes.
[music].
Greetings and welcome to the first American Financial Corporation first quarter 2020 earnings Conference call.
[laughter] sorry, all participants are no listen only mode.
A brief question and answer session will follow the formal presentation.
Once you require operator assistance during the conference. Please press star to zero on your telephone keypad.
A copy of today's press releases are available on first Americans website at Www Dot first <unk> M Dot com forward slash investor.
Please note that the call is being recorded and will be available for replay from the company's investor website. It for a short time by dialing 87766 06853.
For 2.161 to 7415, and you will enter conference I'd 137.
01584.
Well now turn the call up or to Craig Barbaria, Vice President of Investor relations to making it an injection.
And John Oh, My Gosh introductory statement.
Good morning, everyone and welcome to first Americans earnings Conference call for the first quarter of 2020.
Joining us today will be our chief Executive Officer, Dennis Gilmore, and marketing Executive Vice President and Chief Financial Officer.
Some of the statements made today, making forward looking statements that do not relate strictly to historical or current back. These forward looking statements speak only as of the date. The 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.
It's going to certainly as exist that may cause results to differ materially from those set forth any forward looking statements.
More information on the risk and uncertainty please refer to this morning's earnings release and the risk factors discussed in our form 10-K, and subsequent SEC filings.
Our presentation today also contain certain non-GAAP financial measures that we believe provides additional insight into the operational efficiency and proportion of the company relative to earlier periods and relative to the company's competitors for more details on these non-GAAP financial measures, including presentation with reconciliation to the most directly comparable GAAP financials.
Please refer to this morning earnings release, which is available on our website at Www Dot first am dot com.
I'll now turn the call over to Dennis Gilmore.
Good morning, and thank you for joining our call.
Today I will comment on first Americans response to the pandemic and its impact on our business.
Mark will comment on our first quarter earnings financial expectations for 2020 and capital management.
Throughout the pandemic, our first priority has been to keep our employees and their families safe.
Early in the process, we activated our business continuity plan, which includes giving our employees the ability to work from home.
Today, the vast majority of our workforce is working remotely.
For those that do come to the office, we are taking extra precautions and following CDC guidelines.
Consistent with our people first philosophy, we have committed to our employees that we will not make any layoffs through the ended the second quarter.
We strongly believe that this is the right approach given these unique circumstances.
We've taken a long term perspective and all this although this action will negatively impact our short term result.
We believe the benefits to our people our customers ultimately our shareholders will be worth the investment.
However, if the economy continues to deteriorate for an extended period, we will review all measures to control expenses as we have done consistently in the past.
Our second priority has been to maintain service levels to our customers.
The settlement services, we provide our critical and we have been deemed in a central surface across nearly all states.
Individual businesses and lenders need title and closing services for the transfer of real estate.
Or to secure a mortgage and we have worked tirelessly to maintain business continuity. Despite the disruption caused by the pandemic.
We've experienced minor disruption to our operation when the stay at home orders were first announce.
But those issues were quickly resolved.
These stay at home orders have come at a time when refinance volumes are surging amplify and the strain on the industry.
Throughout 2019, we've launched a number of automation efforts leveraging our deep data assets, including clear to go an engine design for our central refinance channel that has been expands to our branch in agency operations covering a significant portion of our refinanced transactions.
This has helped us increase productivity and managed service levels at a time when volumes of sort.
We will continue to focus on the advancement of numerous automation efforts across the business.
I'd like to shift gears now and discuss the current market environment. Our purchase business was off to a strong start in 2020 until mid March when orders fell sharply.
For the first three weeks of April open purchase or purchase orders are down 43% relative to the same three weeks of 2019.
We've seen west coast markets declined approximately 50%, while other places such as the Midwest have fallen only 35%.
The good news is although orders have fallen severely they appear to have stabilized.
The 43% drop we're currently experiencing has been consistent since the beginning of April and it appears we've reached a floor.
For the first three weeks in April refinance open orders have averaged 3000 per day.
420% over last year.
This strong volume is serving as a natural hedge to our declining resale business.
So far in April revenues in our commercial business have dropped sharply down 44% from the same period of 2019.
Commercial transactions in industries, such as retail hotels multifamily have slowed considerably due to the uncertainty of underlying cash flows.
In other areas of our business low mortgage rates have triggered strong growth in volumes.
Our data business has benefited from strong demand as refinance volume has more than offset the decline in purchase.
Our talk you Tech acquisition, which we closed March 2nd has seen transaction volumes up over 150 per cent compared to 2019.
Talk you tech advances our ability to provide lender customers with end to end digital mortgage and settlement services.
The events of the last few weeks have accelerated the adoption curve for E close and first American as well positioned for this industry change.
Our home warranty business continues to perform well with purchase transactions declining we continue to focus on the direct to consumer channel.
As well as policy retention efforts our revenue growth is in line with our expectation and we've seen a slight reduction in loss rate.
Regarding title claims we have not seen any increase in the current claims.
However, since the current economic conditions could result in an increase in claims we've elected to raise our title loss provision rate to 5% this quarter.
We continue to have a strong reserve position on our balance sheet and Mark will comment on the title loss provision rate in detail in his comments.
Our team is rising to meet the challenge of providing great service to our customers and we believe customers increasingly wants to do business with a company that is built to last.
We entered this crisis with a strong balance sheet and we can put our capital to work in this market by continuing to fund our innovation efforts, they and by making opportunistic investments when others can't.
For the last several years, we have been on a journey to digitally transform our business and the recent events have validated that our strategic path is the right one.
We will continue to expand our data assets.
Further automate our title production and continue to digitize our closing process.
Well, we don't know when business will return to normal we're confident that we will emerge in an even stronger leadership position when it does.
I'd now like to turn the call over to Mark.
Thank you Dennis I'll comment on our first quarter earnings financial expectations for 2020 and capital management.
In the first quarter, we earned 55 cents per diluted share.
Excluding net realized investment losses of 65 million primarily related to a decline in the value of equity Securities. We earned one dollar and six cents per diluted share.
And the title segment pretax margin was 5.6% or 10.3%, excluding net realized investment losses.
To date, we have not seen an uptick in claims as a result of the current market environment.
In fact claims were significantly below our expectation there first quarter 2020.
Our incurred title claims in the first quarter were 26% below our actuarial expectation and 6% lower than prior year.
However title claims generally increase when economic conditions deteriorate.
We don't expect our loss rate to approach the levels experienced from 2005 to 2008, but we do expect some increase in claims.
It's quite possible that since we entered 2020 in such a strong reserve position that existing reserves will be adequate to cover this expected increase in claims.
But given market uncertainties, we believe it's prudent to raise the last 3% to 5%.
Our current expectation is to maintain a 5% loss rate until we have more visibility into how the current environment will affect our claims experience.
Turning to the specialty insurance segment pretax margin was 10.5% or 13.0%, excluding net realized investment losses.
Both the home warranty and property and casualty business lines achieve lower claim loss rate leading to a decline in the overall loss rate for this segment to 52% this quarter compared with 55% in the prior year.
First American is not traditionally provided guidance to investors. However in this uncertain environment, we wanted to provide our internal expectations for 2020.
Our forecast can be volatile and key assumptions are likely to change as the year progressive the forecast is not a goal or financial objective, but rather our most recent projection for 2020.
We are projecting a 45% year over year decline in open purchase orders and the second quarter with a gradual improvement in the second half of the year.
We also expect refinance orders to remain elevated throughout 2020.
This implies a mortgage origination market of 2.8 trillion in 2020 comprised of two trillion refinance and 800 billion purchase.
Our investment income will declined sharply in the second quarter, given the 150 basis point decline in the federal funds rate in March.
We expect investment income in our title segment to be in the range of 40 to 45 million per quarter.
For our commercial business, we expect to 50% decline in revenue in the second quarter.
The gradual improvement for the remainder of the year.
Using these assumptions, we expect title pretax margin to be between 9% to 11% and 2020, excluding net realized investment gains and losses.
Next I'll comment on our liquidity and capital position.
We have $420 million available on our 700 million dollar line of credit.
Borrowing on our line of credit increased 120 million in the first quarter to partially fund the Doc Tech acquisition.
Today, we have $153 million of cash at the holding company with an additional 506 million of dividend capacity available from our regulated subsidiaries for the remainder of 2020.
Our debt to capital ratio was 23% as of March 30 Onest.
This provides us with nearly 1.5 billion of potential debt capacity with $420 million readily available on our line.
None of our long term debt is due until 2023, so we have ample financial flexibility at our holding company.
If debt market conditions are favorable we will consider terming out the outstanding amount on our line of credit to take advantage of the low rate environment.
The investment portfolio at our insurance companies totaled 3 billion as of March 31st.
Of this amount.
87%, our debt securities and 13% or equities.
Of the debt securities, 46%, our governor back to Treasuries agency mortgages and agency bonds.
The average credit rating of the portfolio was double a minus.
We have just 4% of the debt securities portfolio rated below investment grade and we have no close or non agency mortgage backed securities.
The investment portfolio at our bank totaled 3.4 billion as of March 31st.
Of this amount, 100% our debt securities was 78% of the securities being government backed the average credit rating of the portfolio is double a plus.
On a consolidated basis the value of our investment Securities has rallied since the beginning of the year and we were an unrealized gain position of 95 million as of March 30 Onest.
Given the forecast I described earlier, we expect to add to this already strong financial position, but if we're wrong in the market takes a turn for the worse, we have ample liquidity and a strong capital position to lean on.
Given the price of our stock our long term optimism of the business and our strong capital position, we elected to repurchase shares in the first quarter.
We repurchased 1.7 million shares at an average price of $38.64, representing 1.5% of our shares outstanding.
Our strong balance sheet gives us the ability to play offense in this market will continue to be opportunistic with acquisitions and make organic investments that accelerate our digital transformation.
I would now like to turn the call back over to the operator to take your questions.
Thank you we will now be conducting a question and answer session.
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One moment, please while we pull for your questions.
Our first question comes from the line of Jack Masako. Sam. Please proceed with your question.
Hey, Jeff This is our safety.
Hi, guys good morning.
First question on the on the loss ratio increase.
Makes sense.
Our fleet I'm curious how much slot.
Given to.
The forbearance plans.
Enrolled al.
No.
Six months of loads.
Relief before we start seeing defaults.
And maybe a little bit context.
Around where I'll title only claim rates were.
Wedo nine we know there yet.
The combined loss ratio, but I'm just curious on occupancy declined the title only all losses not open will provide systems.
Okay. This is Dennis and I'll start and Mark will come back on the second part of that question.
Right well be current forbearance plans, we don't expect to see any material change in default rates for minimum to six months potentially even a year. So we think the market will be pretty stable right now from a default rate perspective, if we see any deterioration will probably be in the second or third quarter of 2021 actually.
And so we're just taking a cautious approach on this right now and I should also point out to entering this process is strong as we've ever been.
Our quality of our books very high high equity so.
It gets to the light moving forward, but it's a cautious right now.
And in terms of the the title loss ratios back and they'll find that weight in terms of our title segment.
They were generally between 10 and 13% the worst year. We had was windows seven was about 13% and Oh five through when we were somewhere in kind of them.
Okay, and I haven't had hurdle.
There's obviously a lot of reasons why we don't we don't think it's been a promotional levels.
Yes, sure Thats totally different underwriting environment today.
On the on the digital close you talked in the press release about.
In this environment driving that higher can you kind of frame for us what percent of the business is is fully digital today, where do you think that can get to and then aside question how much of the two away.
Million revenue was provided by Dr. check for the stub quarter. Thanks.
Yes, I'll start with ridicule, so we closed the acute care.
But the first couple of days in March and so in the quarter. We had 6.4 million of revenue related to dock Utac really just one full month and all that revenue within our information and other line item. So you really a one month of Deltatech round the corner.
Yes, just in terms and just in terms of the acceleration of.
Digital title and closing that's something that we've been really investing heavily bolt on title automation as well as.
Making our closing process are as good process more digital and the interesting thing is we've invested heavily in those two things that we think these events that have happened last.
Several weeks are really going to accelerate that adoption. So we just need increasing over time, and we're well positioned to capitalize on that trim.
Right. Thanks, that's it.
Thank you.
Our next questions come from the line of Curtis Gamma Tony or Compass point. Please proceed with your questions.
Good morning, everyone.
Good morning.
What does start at the agent channel I recognized.
The investments you've made and being able to handle the current operational environment. I was wondering if any smaller agents are how they're dealing with the current stay at home orders disruptions you might not have nearly the investment capacity as you.
I think what we're going to see on that it's going to be literally a mixed all over the board depending on how people go into the crisis.
So it will just depend and will will partner very closely where agents and then overall for our perspective, we're going into this situation stronger than we've ever been so we're very confident with how we're going to come through this process.
Yes, I was I was wondering if maybe you would see more shifts to direct.
If there are disruptions and the agent channel.
Probably not but I think it will probably create some interesting opportunities for acquisitions going forward, but from a capital deployment standpoint, I think there's a lot of really interesting opportunities probably that will present themselves over the next 12 or 15 month.
And on that acquisition I mean, its side the normal tuck in is that most all mostly on the data side.
Both data and tuck in on the title side. So again, I mean assets, we've been pretty pretty pricey coming into the situation. So it's a really good situation, we have coming into this with such strong liquidity.
I, just think again I think they're going to be great opportunities coming forward over the next 12 to 15 months.
Okay.
And I fully acknowledge the commentary you gave about.
Personally main maintaining personnel for the second quarter I was wondering how this situation impacts.
Land investments other spend and I'll be in the other operating line and how you're managing more fixed cost or investment spend rather the personnel.
Generally speaking I would say the other operating expenses are just coming down obviously, we're traveling a lot less these days.
In the second quarter, we did have some.
I would say unusual items just in terms of.
When the pandemic broken me, we rushed to buy as many laptops as we could for employees to enable them to work from homes, we had about 6 million of.
He related expenses, mostly laptops and we also had about 4 million of professional services related to the to the back you take acquisition that hit this quarter, but generally speaking we do have some some flex in in Opex.
Okay perfect. Thank you so much thank you.
Okay.
Our next question is coming from the line of Bose George of KBW. Please proceed with your question.
Hi.
Hey, both.
Well both.
Oh, yes.
Yes, we can hear you know.
Okay great.
So you say thanks, a lot for the the margin guidance at the most helpful. Given all the volatility out there.
So a couple of questions related to that first so the 2.8 trillion.
You know that's like the M.B. I think its right to 0.4. So is that based on your answer it. So your internal forecast for the market.
And then secondly, the 9% to 11% margin.
Guided choose the variance there on what happens on the revenue side or on the expense side or just curious what's driving that range.
Oh. This is Dennis let me start on the forecast I think we've got to continue to see a lot of volatility on that number from a lot of people. So that's right now thats, our best estimate, but let me kind of tell you what's happening on the market I think it's important right linear original stay at home orders will put in place we saw market will decline in volumes and purchase like for example in some markets.
60 plus percent.
And in some markets more in the 30% range, what we've seen probably more importantly, right now is over the last three weeks, it's our call right now we've not only hit a bottom or floor. If you will we're actually starting to seem trend back upwards. So no question purchase will be difficult in the second and third quarter. We're forecasting right now this the purchase to be down four.
If I understand that I think again I'm optimistic we potentially could even be better than that and then the other part of that forecast as a refinance volumes.
And we ended the quarter really hot on refinance volumes, we had a few days over 4000 orders per day.
Right now, we're averaging 3000 orders per day, but put that in perspective were up well over 120% from a year ago and so again I think on the refinance probably the most volatile part of the forecast what we're seeing right now is the mortgage markets, what settling down they're getting more clarity, we'll probably see additional capacity come into the markets what I expect to see is refund.
Yes, well stay at around 3000 or accelerate going forward and I'll tell you will well suited to handle that right. Now so long answer I think the forecast are going to be volatile, but we're pretty optimistic with what's happened looking forward right now.
Okay, and Bose and follow up on just a follow up on the mortgage origination. So the MBJ at 2.4 trillion in words viewpoint need but the mix is very different so I mean worst hearing or seeing or refinance volumes more than double.
Which is way higher than what the Indians and we also on the purchase Dnbi and purchase down 2%. This year and we're obviously seeing a much bigger drop in that so we've basically we kind of look at our order forecast and we project now what we think it's going to happen for the year and then we kind of translate that new mortgage origination.
So thats, how we kind of the 2.0.
Okay that makes sense. Thanks, and then just on the marketing.
I mean, obviously lot of volatility so I'm not asking for more precise, but just curious whats kind of driving range.
Well the range.
Again, as Dennis said, the forecasted so volatile, especially in this market.
But given everything we know today given all the assumptions that we outlined we're coming in at somewhere between a 911% margin now last year, we were at 15, but obviously the environments change investment income it's following the fed funds zero.
And we between the decline in.
Commercial and purchase that we expect and the strength and.
And refinanced and that also includes a loss ratio, 5% for the rest of year now.
We don't know thats going to happen or not but given all those assumptions were coming in somewhere the range of 911 for the for the titles.
And just on the cost side. If you just in terms of let me versus commercial you have more flexibility and that's that's outside here's where you have.
Sort of more ability to cut your cost.
Yeah, I mean, I think where there's there's cost that are that are there. Obviously that we can we can reduce as Dennis talked about.
Really hold the line on the personnel cost right now because we think we can we can do it and we we don't think we're going to be in long drawn out.
You know periods. So there's definitely reflect on the personnel side on them that said, we're going to we're going to hold the line for at least that in second quarter, We did see what happens with the market.
Okay. Thanks.
Thanks.
Our next questions come from the line of John Campbell of Stephens. Please proceed with your questions.
Hey, guys good morning.
Good morning.
Mark I really appreciate.
Come in formal guidance I think that was super helpful and kind of friends step up.
I wanted to check on one thing, though on the 2.8 trillion origination market can you talk about in the home price appreciation kind of what you guys, you're assuming maybe over the near term and for the balance of the year.
Yeah.
Yes, when we look at our.
Our average fee per file and it really really mostly applies on the purchase side.
We've seen a 4% increase in the average fee per file in the first quarter, and we think thats going to be somewhere in the 2% to 3% range for the rest of the year, it's not like an exact science and so obviously you know we have some sharp decline in home prices, that's going to affect our model, but we're basically assuming flat to slightly up.
Each period from from here and I'll only add on that is why were taken at assumption right. Now is we've got such inventory shortages cross and all of the markets right now.
I really don't see a lot of pressure on prices now that that could obviously change in 21, if we see a spike in default rates, but right now we're thinking that because of the inventory situation that.
<unk>.
Purchase price pressures will be in that kind of ranges.
That makes sense I think were in lockstep with you guys for the for the market outlook for sure.
On the Docie Tech, though I want to touch on the accretion I know you guys had said, maybe 10% or maybe 10 cents EPS accretion.
Could you talk to may be.
I guess you remember if you said occur sent to the EPS accretion or if you said an actual dollar amount. So could you touch back on the accretion and then.
Mark on the 6.4 million of revenue contribution how seasonal is that in transactional is that a good kind of run rate for the rest of the year.
I'll start with it so when we initially.
Closed the dock UTEC acquisition, our internal expectation was that it would be.
10 cents accretive to 2020 earnings about 2.1%.
However, since we closed the deal the volumes of really just exploded. So it's got to be higher than that now and we haven't gone back and reforecasted that but.
The volumes the dock Utac the revenue doubled where it was last year and we're getting margin expansion now just because of the.
A lot of its automated so we're feeling really good about that deal right now yeah I'll just add the margins I think we'll continue expand there it's a high level high leverage business. Our timing is very good here and so as we quickly move down we really accelerated by the pandemic drive to an easy solution.
First our enterprise and the closing of the mortgages Docie Tech will play a key role there.
Yes every time we acquisition.
Yes, Sir.
John I'm, sorry, just a trend so in March we got about 6.4 million of revenue and it's hard to say what the.
What can happen for the year, but we think refi volumes are going to be elevated for the rest of year. So I think that's a pretty good pretty good room night, John Let me also out it's not directly part of your question, but just to put it out there right now.
Just post a pandemic moving everybody working from home, we're now working over 80% at home. We issue we instituted the plan very early probably two weeks earlier than anybody else as Mark mentioned, we front loaded laptops into the quarter and other things it's been incredible how well our people adapted our productivity lines are very good I taught.
Production is highly efficient right now highly automated actually.
And our closing what we had some issues.
Issues early on all of those issues have dissipated so when people have the issue.
The concerns are we running smoothly we are running very smoothly, we really don't have any material issues going on in the production lines right now in closing the deals.
Makes sense good work thanks, guys.
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Next question Scott the lineup Mark Hughes of Suntrust. Please proceed with your questions.
Thank you very much.
On the commercial I think you gave guidance on the revenue down 50%. What are you seeing in terms of open order trends here recently.
Let me start to give it a little bit high level and Mark will come back in the order trends, we're guiding at 50% were actually you're running low fortys right now so we're running a little bit better than our guidance.
Commercial dropped off very very quickly and some of the key markets led by New York Chicago When the stay at home orders were put in place I will tell you right now we're starting to see some optimism that some transactions are starting to move again. So no question is going to be a difficult second quarter, but.
I think it will probably bottom in second and start to clearly improve as we get people I think going into Claire.
The cyclical trends in orders, yes, so so far in April.
For the first three weeks in April our commercial open orders were down 37% from from the same period.
Right.
And then is there any a nuance on purchase versus refinance.
On commercial.
Hi, there there's subtle differences in price, but I would say it negligible is not nearly the degree to done that residential side. So I would say, it's not it's not material.
Then just in terms of mix, so you're getting more refined.
No I would say that the mix is is the same as it's been we're not seeing any any any real differences between purchase and refi.
I mentioned that or open orders were down 37%. The thing that we really track is revenue because you know orders can be lumpy and you need to big deals, there's some smaller deals and at least so far.
In the month, our revenue in commercial down about 44% from prior year and that's the metric that we track.
More than the order count the commercial.
On the residential recall I am curious in your budget kind of how you see those orders tapering if were.
Running a 3000 per day I think you got it suggest to you might see that.
Actually accelerate a bit but as we progress through the year, how should that look as we go into Q3 Q4, you know early thinking.
Again.
Little optimistic on this right now we're running we're forecasting 3000 day through the rest of the year, but our call on the market, maybe maybe a little different in that sense as the market itself with net purchase excuse me the mortgage market a lot of disruption over last three or four weeks spreads really widened out capacity came and those kind of issues but.
What we're seeing right now some stability starting to enter back into the market some better clarity for the lenders and so I think if not at around the possibility that you see the 3000 accelerate as we move into probably into the third quarter and the on one well, we'll see we'll see where interest rates are regardless of how it turns out really well positioned to handle the volumes.
We've got or any increasing volumes, we have in the future with the staffs we've got.
Then a final question the.
The no lay off the agreed that sounds like a great policy.
Did you a measure how much of an impact that could be in terms of gross margin in Q2 specific.
Well I want to answer you on the margin question, but what I'll tell you is what it really means financially short term, it's probably an impact to our short term performance of 15 to 20 million, but I got it I got to say that it's clearly the right thing to do right. Now we are facing such a different situation that we've ever faced before.
We never dealt with a global pandemic our people across all we're going to organization and others are highly stressed right now so we thought it's absolutely the right thing to do it's actually the smart thing to do our people are highly focused highly committed right now delivering an incredible level of service. So I actually think we'll look back on this in five years in will be.
One of the pivotal decisions we've made.
I agree thank you very much.
Thanks Mark.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
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Our next questions come from the line of Geoffrey Dunn of Dowling and partners. Please proceed with your question.
Thanks, Good morning, good morning.
First question and can you just maybe explain a little bit how closings are largely being done are you primarily seeing more drive through closings in the hardest areas are you primarily seeing remote closings as it looks like a lot of states up at least temporarily adopt did you notice.
Nation and he signatures.
What is the predominant means of closing all this activity.
In the harder markets I do acknowledge obviously, there's parts of the country, although not as hit us as heavily as maybe to close.
Yeah, Joe Let me let me just started on when it's a little it's a little of all of the above we've done the drive throughs. We did that early on we've done by appointment only when we bring anybody that they office is always will be appropriate social distancing and all the probably precautions and so what we saw early Jeff on the closing issue with some some some some issues within.
Notaries, but they really quickly work themselves out.
So specifically to the future the future aspect of the bonds in the notes.
Think thats, probably going to play itself out and accelerate.
Quicker over the next few quarters than what it has typically been adopted so not a big issue right now, but I think it will be quicker for an adoption curve going into the second third and fourth quarters. So really optimistic about that and we've made some investments there. So again just one more time in that the way we're doing it right now it's been.
Traditionally the way it's been done with all of the appropriate caution involved I think how we're going to see going forward. There was a quicker adoption the wrong.
Okay and then.
The capital management standpoint.
I think you indicated for you remain watchful of opportunities in the market I'm just curious what the stock down here and you buying back stock in Q1 below 40 on average do you think your acquisition opportunities in the central returns there remain more attractive than buying your stock out in the low fortys.
Hey, Jeff I'd say, it's a it's a it's going to be a balance and it's going to be a mixed approach I mean on the one and we think the value of our stock is really attractive at the current price.
And we've got a you know we've got a strong balance sheet and were in its really good position, where we want to put it the working market. So I think it's going to be a kind of a mix of acquisitions and depending on where you know our shares traded.
It could be buybacks as well.
But it'll be a blended approach.
Okay, but I mean, you guys have tended to be very.
Very opportunistic on the stock. So these are levels, where we could see activity.
Yeah, I mean, we we bought it 38 and change in the first quarter and so you know what levels were definitely interested in we're not we're not too far from have right now it's about somebody check so we do think it the attractive.
Okay, great. Thank you.
Yes.
Our next questions come from the lineup Mark Devries of Barclays. Please proceed with your questions.
Yes. Thanks, I'm just follow up on on capital deployment here can you just give a sense of how much.
More capacity you can you had to do other buybacks or or acquisition, but your your current the cat.
Yeah, Mark So one of the things that we look at is you know we track our.
Our excess capital.
And we look at how much cash we have the holding company and we always want have one year of cash at the holding company, we track how much excess capital we haven't for Chico, which is our primary insurance company.
And we track our obviously our debt we've got we've got excess debt capacity today. So when we look at all those three things.
As of yet in March we had about $400 million of what we would considered excess capital, but I would say that's a that's a conservative number just because in that we assume a stressed environment and we're already in stressed environment and so I would say at a minimum at a very minimum its 400 million. We've obviously got a lot more flexibility than that.
Got it.
Yeah, well not a follow up question on the on the margin guidance that.
This is a 9% range kind of assume is that there is more or like what you're assuming today for the development on the market and 11% might be it did that.
Become the opens up faster than had been a market evolves.
Thanks, Dennis is optimistic that maybe we could see is that a fair way to think about it or is it isn't quite that simple.
I would you say you know we have is we have this point estimate which is.
Resales open down open down 45% in Q2 with a gradual improvement we've got commercial revenue now 50% when the gradual improvement and we've got to refinance orders, which currently we're at 3000, a day and we assume that's going on for the whole year. So thats our point estimate and if you use that you get to 10% margins and then we do some sensitivities about slightly higher in place.
The lower than that's how we get to the 911.
Okay got it it's helpful.
And then just.
One last one on expenses.
Yeah understanding that near term there won't be any layoffs. If revenue remains challenged over the course here how do you how should we think about the the success ratio and and you know and how you'll look to to manage expenses relative to revenues.
Well I would just say elements success ratio.
That we have been for years now we've been targeting 50% success ratio would and we've had success with that and that's one of reasons why last year. You know we had the highest margin we've ever had because we we've really been focused on on hitting that and I think especially in the last six weeks or so we have not really been focused on success ratio. We that's not a metric that we.
It really we're really focused on at least in at least you know in the current and the current market environment. So there's no question that our success ratio was going to is gonna be sacrifice because of that.
Okay got it thank you.
Thanks Mark.
There are no additional questions at this time.
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