Q3 2023 First American Financial Corp Earnings Call

Greetings and welcome to the first American Financial Corporation third quarter earnings Conference call.

Speaker 1: Greetings and welcome to the first American Financial Corporation third quarter earnings conference call. At this time all participants are in a listen-only mode. A brief question.

At this time all participants are in a listen only mode.

A brief question and answer session will follow the formal presentation.

Speaker 1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Speaker 1: A copy of today's press release is available on First American's website at www.firstam.com www.firstam.com.au

A copy of today's press release is available on first American's website at Www Dot first a M dot com forward slash investor.

Speaker 1: Please note that the call is being recorded and will be available for replay from the company's investor website and for a short time by dialing 877-660-6853 or 201612-7415 and enter the conference ID 137-416-73.

Please note that the call is being recorded and will be available for replay from the company's investor website in for short time by dialing 8776606853 or to your 161 to 7415 and enter the conference I D 1374.

1673.

Speaker 1: We will now turn the call over to Craig Barberio, Vice President Investor Relations, to make an introductory statement.

We will now turn the call over to Craig Barberio, Vice President of Investor Relations to make an introductory statement.

Yeah.

Speaker 2: Good morning everyone and welcome to First American's Earnings Conference call for the third quarter of 2020.

Good morning, everyone and welcome to first American's earnings conference call for the third quarter of 2023.

Speaker 2: Joining us today on the call will be our Chief Executive Officer, Ken DiGiorgio and Mark Seaton, Executive...

Joining us today on the call will be our Chief Executive Officer, Ken to Georgia, and Mark Seaton Executive Vice President and Chief Financial Officer.

Speaker 2: Some of the statements made today may contain forward looking statements that do not reflect or relate strictly to historical or current...

Some of the statements made today may contain forward looking statements do not reflect strength related 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 2: 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 statement.

Speaker 2: Risks and uncertainties exist that may cause results to differ materially from those set forth.

Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward looking statements.

Speaker 2: 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-K and subsequent SEC filings.

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-K, 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 for more details on these non-GAAP financial measures, including presentation with and reconciliation to the most.

Speaker 2: 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.

Speaker 2: including presentation with and reconciliation to the most repeat comparable- GAAP financial s.

Comparable GAAP financials. Please refer to this morning's earnings release, which is available on our website at www Dot first AAM dot com.

Speaker 2: available on our website at www.firstam.com.

I would now like to turn the call over to Ken to Georgia.

Speaker 3: Thank you, Craig. The rapid increase in interest rates to levels not seen in many years continues to produce challenging market conditions.

Thank you Craig the rapid increase in interest rates to levels not seen in many years continues to produce challenging market conditions.

Speaker 3: With housing affordability currently at its lowest point in over three decades, existing home sales this year have declined to the slowest annual pace since the global financial crisis.

With housing affordability currently at its lowest point in over three decades existing home sales. This year have declined to the slowest annual pace since the global financial crisis.

Speaker 3: Moreover, sales volumes in the commercial market have reverted to pandemic load levels and are down approximately 50% from the peak year of 2021.

Moreover, sales volume in the commercial market have reverted to pandemic low levels and are down approximately 50% from the peak year of 2021.

Despite these historically difficult conditions, our continued focus on expense management and strong growth in net investment income enabled us to deliver a pre tax title margin of 12% on an adjusted basis.

Speaker 3: Despite these historically difficult conditions, our continued focus on expense management and strong growth in net investment income, enabled us to deliver a pre-tax title margin of 12% on an adjusted base.

Speaker 3: On a consolidated basis, we generated adjusted earnings of $1.22 per diluted share.

On a consolidated basis, we generated adjusted earnings of $1 22 per diluted share.

Speaker 3: Our residential purchase business continues to reflect these market headwinds, but appears to have stabilized.

Our residential purchase business continues to reflect these market headwinds, but appears to have stabilized at trough levels.

Speaker 3: For the first three weeks in October , open purchase orders are down 7% compared with September , which is consistent with normal seasonality, but are up slightly compared with the previous year.

For the first three weeks in October open purchase orders are down 7% compared with September which is consistent with normal seasonality, but are up slightly compared with the prior year.

Speaker 3: While this performance is mostly driven by a historically low comparison period, it also reflects the results of our industry leading home builder division and is further indication that the market has stabilized.

While this performance is mostly driven by a historically low comparison period. It also reflects the results of our industry, leading homebuilder division and is further indication that the market has stabilized.

Speaker 3: Refinance open orders remained at trough levels in the third quarter, averaging 350 per day. A level they have held all year.

[noise] refinance open orders remained at trough levels in the third quarter, averaging 350 per day.

They have held all year.

Speaker 3: Given the current pool of mortgage loans outstanding and the outlook for interest grades, it remains unlikely we will see a significant uplift in refinance in the foreseeable future.

Given the current pool of mortgage loans outstanding and the outlook for interest rates. It remains unlikely we will see a significant uplift in refinance in the foreseeable future.

Our commercial business revenues declined 39% compared with last year consistent with the first half of the year.

Speaker 3: Our commercial business revenues declined 39% compared with last year, consistent with the first half of the year.

Speaker 3: Average revenue per order also declined again this quarter for the fifth consecutive quarter, which suggests that price discovery is well underway as the market correct.

Average revenue per order also declined again this quarter for the fifth consecutive quarter, which suggests that price discovery is well underway as the market corrects.

Speaker 3: Commercial open orders for the first three weeks of October are down 5% compared with last year and are down 3% sequentially.

Commercial open orders for the first three weeks of October are down, 5% compared with last year and are down 3% sequentially.

Speaker 3: There is still a high degree of uncertainty concerning the commercial market.

There is still a high degree of uncertainty concerning the commercial market.

Speaker 3: However, based on our market intelligence, we continue to expect higher commercial revenues in the fourth quarter, which is consistent with the normal seasonal past.

However, based on our market intelligence, we continue to expect higher commercial revenues in the fourth quarter.

Which is consistent with the normal seasonal pattern.

Speaker 3: While our key purchase, commercial and refinanced markets appear to have dropped, we expect a difficult market conditions to persist well into next year.

While our key purchase commercial and refinance markets appear to have troughs, we expect a difficult market conditions to persist well into next year.

Speaker 3: Despite the uncertainty of the timing of a recovery in these markets.

Despite the uncertainty of the timing of a recovery in these markets the strength of our business along with our financial discipline and strong balance sheet allow us to continue to invest for long term growth, while returning capital to our shareholders.

Speaker 3: The strength of our business, along with our financial discipline and strong balance sheet, allow us to continue to invest for long-term growth while returning capital to our shareholders.

Speaker 3: This quarter we raised our common stock dividend by 2% to an annual rate of $2.12 per share.

This quarter, we raised our common stock dividend by 2% to an annual rate of $2 12 per share.

Speaker 3: We also repurchased $9 million of our shares in the third quarter and have accelerated our purchases in October , already purchasing an additional $9 million of our common share.

We also repurchased $9 million of our shares in the third quarter and have accelerated our purchases in October already purchasing an additional $9 million of our common shares.

Speaker 3: In closing, given the importance of people to our business, I am pleased that First American has been named one of the best workplaces for women by great place to work and Fortune Magazine for the eighth consecutive year.

In closing given the importance of people to our business I am pleased that first American has been named one of the best workplaces for women by Great place to work in Fortune magazine for the eighth consecutive year.

Speaker 3: Disaccomplishment is a tribute to our workforce, approximately two-thirds of which are women.

This accomplishment is a tribute to our workforce approximately two thirds of which are women.

Speaker 3: I'm proud that first Americans commitment to advancing the careers of women in our world-class culture enable us to achieve this recognition year after year.

I'm proud that first american's commitment to advancing the careers of women in our world class culture enabled us to achieve this recognition year after year.

Speaker 3: Now I'd like to turn the call over to Mark for a more detailed discussion of our financial risks.

Now I'd like to turn the call over to Mark for a more detailed discussion of our financial results.

Speaker 4: Thank you Ken. This quarter we generated a loss of two cents per deluge.

Thank you Ken.

This quarter, we generated a loss of two cents per diluted share.

Speaker 4: Our adjusted earnings per share was $1.22.

Our adjusted earnings per share was $1.22. Our adjusted earnings exclude net investment losses of $164 million, primarily due to unrealized losses recognized on the venture portfolio and changes in the fair market value of equity Securities.

Speaker 4: Our adjusted earnings exclude net investment losses of 164 million. Primarily due to unrealized losses recognized in the venture portfolio and changes in the fair market value of equity security.

Speaker 4: as well as purchase related intangible amortization of 10.9.

As well as purchase related intangible amortization of $10 million.

Speaker 4: As of September 30th, the book value of our venture portfolio totaled 301 million, which equates to approximately 7% of our equity and 2% of our total assets.

As of September 30th the book value of our venture portfolio totaled $301 million, which equates to approximately 7% of our equity and 2% of our total assets.

Speaker 4: Revenue in our title segment was 1.5 billion. Down 19% compared with the same quarter of 2020.

Revenue in our title segment was $1 5 billion down 19% compared with the same quarter of 2022.

Commercial revenue was $160 million, a 39% decline over last year.

Speaker 4: Commercial revenue was 160 million, a 39% decline of relations.

Speaker 4: Our average revenue per order for commercial transactions declined 15% this quarter to $10,763 due to a combination of fewer large transactions and lower valuations as prices in the commercial sector declined.

Our average revenue per order for commercial transactions declined 15% this quarter to $10763 due to a combination of fewer large transactions and lower valuations as prices in the commercial market reset.

Speaker 4: Purchase revenue was down 15% during the quarter. Driven by an 18% decrease in the number of orders closed, partially offset by a 3% increase in the average revenue per order.

Purchase revenue was down 15% during the quarter driven by an 18% decrease in the number of orders closed partially offset by a 3% increase in the average revenue per order reefer.

Speaker 4: refinance revenue declined 41% relative to last year due to the increase in mortgage

Refinance revenue declined 41% relative to last year due to the increase in mortgage rates.

Speaker 4: In the agency business revenue was $665 million down 27% from...

In the agency business revenue was $665 million down 27% from last year, given the reporting lag in agent revenues of approximately one quarter. These results reflect remittances related in Q2 economic activity.

Speaker 4: Given the reporting lag and agent revenues of approximately one quarter, these results reflect remittances related to Q2 economic activity.

Our information and other revenues were $240 million down 14% relative to last year. This decline was the result of lower transaction levels across several business units driven by the company's data and property information products and post close and document generation services.

Speaker 4: Our information and other revenues were $240 million, down 14% relative to last year. This decline was the result of lower transaction levels across several business units driven by the company's data and property information products in post-close and document generation.

Speaker 4: Investment income within the title insurance and services segment was $142 million, a 35% increase relative to the prior year.

Investment income within the title insurance and services segment was 142, million% to 35% increase relative to the prior year.

Speaker 4: The increase was primarily due to rising interest rates, which drove higher investment income from the company's cash and investment portfolio, escrow balances, and tax-deferred property exchange balances.

The increase was primarily due to rising interest rates, which drove higher investment income from the property from the Companys cash and investment portfolio escrow balances and tax deferred property exchange balances.

Speaker 4: The impact of higher interest rates was partially offset by lower average balances, primarily in the company's escrow and tax-deferred exchange balances.

The impact of higher interest rates was partially offset by lower average balances primarily in the companys escrow and tax deferred exchange balances. 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 127 million and a net operating revenue.

Speaker 4: 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 $127 million, and our net operating revenue declined $253 million.

Declined $253 million.

The provision for policy losses, and other claims was $35 million, a quarter or 3.0% of title premiums and escrow fees down from the 4.0% loss provision rate in the prior year and down from the three 5% loss provision rate in the first half of this year.

Speaker 4: The provision for policy losses and other claims was $35 million in the quarter, or 3.0% of title premiums and escrow fees, down from the 4.0% loss provision rate in the prior year and down from the 3.5% loss provision rate in the first half of this year. The 3.0% loss rate reflects an ultimate loss rate of 3.75% for the current year, with a $9 million release for prior policy.

The 3.0% loss rate reflects an ultimate loss rate of 375% for the current year with a $9 million release for prior policy years.

Speaker 4: Over the last several quarters, we have highlighted the margin drag in the title segment related to three strategic initiatives, service max, endpoint, and instant decisioning for purchase transactions.

Over the last several quarters, we have highlighted the margin drag in the title segment related to three strategic initiatives service Mac endpoint and instant decisioning for purchase transactions.

Speaker 4: This quarter, these initiatives together generated a pre-tax loss of $12 million, impacting our pre-tax title margin by 110 basis points.

This quarter. These initiatives together generated a pretax loss of 12 million impacting our pretax title margin by 110 basis points.

Speaker 4: An improvement from the 130 basis point drag in Q2, primarily driven by deboarding fees received by services.

Improvement from the 130 basis point drag in Q2, primarily driven by deep 40 fees received by Servicemaster pretax.

Speaker 4: Pre-tax margin in the title segment was 10.5% or 12.0% on adjusted.

Pre tax margin in the title segment was 10, 5% or 12.0% on an adjusted basis.

Speaker 4: Total revenue in our home warranty visit totaled $108 million, a 3% increase compared with last year.

Total revenue in our home warranty business totaled $108 million, a 3% increase compared with last year.

Speaker 4: Pre-tax income in home warranty was $9.4 million, up 124% from the prior year. The loss ratio in home warranty was 55%, down from 59% in 2022, driven by lower frequency and severity of claims.

Pre tax income and home warranty was $9 4 million up 124% from the prior year the loss ratio and home warranty was 55% down from 59% in 2022, driven by lower frequency and severity of claims.

Speaker 4: The effective tax rate for the quarter was 29.4%, higher than our normalized rate of 24%, due primarily to the mix of income.

The effective tax rate for the quarter was 29, 4% higher 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 pays state premium tax in lieu of income taxes.

Speaker 4: between our insurance and non-insurance businesses, since our insurance business generally pays state premium tax in lieu of income.

Speaker 4: In the third quarter, we repurchased 161,000 shares for a total of $9 million at an average price of $57.87. So far in October , we have ramped up our purchases buying 162,000 shares for $9 million at an average price of $52.90.

In the third quarter, we repurchased 161000 shares for a total of $9 million at an average price of $57 87.

So far in October we have ramped up our purchases by 162000 shares for $9 million or an average price of $52.90 our debt to capital ratio as of September 30 years was 29, 7% excluding secured financings payable our debt to capital ratio was 23, 5% now.

Speaker 4: Our debt-to-capital ratio as of September 30th was 29.7%. Excluding secured financings payable, our debt-to-capital ratio was 23.5%. Now I would like to turn the call back over to.

I'd like to turn the call back over to the operator to take your questions.

Speaker 1: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad.

Thank you we will now be conducting a question and answer session.

Operator: Greetings, and welcome to the First American Financial Corporation, Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and their session will follow the formal presentation.

Operator: If anyone's a require operator assistance during the conference, please press star zero on your telephone keypad. A copy of today's press release is available on First American's website at www.firstam.com-foward-slash-investor. Please note that the call is being recorded and will be available for replay from the company's investor website and for a short time by dialing 877-660-6853 or 201612-7415, and enter the conference ID 137-416-73.

He would like to ask a question. Please press star one on your telephone keypad.

Speaker 1: A confirmation tone will indicate your line is in the question queue.

A confirmation tone will indicate your line is in the question queue.

Speaker 1: You may press star two if you would like to remove your question from the queue.

You May press star two if he would like to remove your question from the queue.

Speaker 1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing darkies one moment. Please while we poll for questions.

Yeah.

Thank you. Our first question comes from the line of John Campbell with Stephens. Please proceed with your question.

Speaker 1: Thank you. Our first question comes from the line of John Campbell with Stevens. Please proceed with your question.

Hey, guys good morning.

Speaker 5: Morning. Morning, John . Hey, I just want to make sure I heard you correctly on the order commentary for October . You said that purchase is trending up year over year thus far in October ?

Good morning, Good morning, John Hey, I, just want make sure I heard you correctly on the order commentary for October you said the purchase is trending up year over year, thus far in October.

Yeah. So purchase as you know it's up it's up slightly for the first three weeks in October very slightly.

Speaker 4: Yeah, so purchase is, you know, it's up, it's up slightly for the first three weeks in October , very slightly. And a lot of it is driven because, you know, included within the purchase transactions is, you know, resale, which is most of them. And we also have new homes and new homes is performing pretty well. So when you mix those two together, yeah, we do have a slight increase in purchase, which is, you know, nice to see the lines cross.

Craig Barberio: We will now turn the call over to Craig Barberio, Vice-President Investor Relations, to make an introductory statement. Good morning, everyone, and welcome to First American's Earnings Conference Call for the third quarter of 2023. Joining us today on the call will be our Chief Executive Officer, Ken DeGiorgio, and Mark Seaton, Executive Vice-President, and Chief Financial Officer.

And a lot of it is driven because you know included within the purchase transactions is.

Resale, which is most of them and we also have new homes and new homes is performing pretty well. So when you mix. Those two together, yes, we do have a slight increase in purchase which is nice to see the lines Cross here yeah.

Speaker 5: Yeah, absolutely. I mean, just given the backdrop of continued upward pressure and rates, that's a great outcome. Pneumone cells, I think, maybe a little bit less than 10% of the national mix. What does that look like for you guys?

Yeah, absolutely I mean, just given the backdrop of continued upward pressure on rates and that's a that's a great outcome.

Themselves I think maybe a little bit less than 10% of the national mix, what does that look like for you guys a little bit higher.

Craig Barberio: Some of the statements made today may contain forward-looking statements that do not reflect or relate to a 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. Risk 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 10K and subsequent SEC filings.

Speaker 4: It's a little bit higher. Historically, the long-term average is about 13% of our purchase orders are new home related. So far in October , they're 19%, a little overweight. So our mix is a little bit higher than the average.

It's a little bit higher historically, the long term averages about about 13% of our purchasers of new home related so far in October 19% little overweight. So that's our mix is a little bit higher than the average.

Okay I had to.

Speaker 3: I'd add to that, John , one thing to keep in mind, we have an outsized share of the market in new home, which obviously is a good competitive advantage.

That John I mean, one thing to keep in mind that we have an outsized share of the market in new home, which obviously the you know.

A good competitive advantage for us.

Speaker 5: Yeah, absolutely. And then last question here on the interest expense. That's obviously been up a good bit the last two quarters. I want to get a better grip on that. I know that's influenced by the bank deposit. So maybe if you could unpack that, kind of, you could decouple those two items, just the underlying interest expense versus the bank effect. And then how we should be thinking about the run rate of interest expense here, just assuming that rate stayed near current levels.

Yeah, absolutely and then last question here on the interest expense, that's obviously been a good bit the last two quarters I wanted to get a better grip on that I know that's influenced by the bank deposits. So maybe if you can unpack that kind of he could decouple. Those two items just underlying interest expense versus the bank effect and then how we should be thinking about the run rate of <unk>.

Craig Barberio: Our presentation today contains certain non-gap 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. For more details on these non-gap financial measures, including presentation width and reconciliation to the most reasonably comparable gap financials, please refer to this morning's earnings release, which is available on our website at www.firstam.com.

Interest expense here, just assuming that rates stayed near current levels.

Speaker 4: As a general statement, when you look at interest expense in our corporate segment, it runs $12, $13 million a quarter, and that's really primarily the interest expense that we pay on our bonds.

As a general statement when you look at interest expense in our in our corporate segment. It runs 12 13 million.

And that's really primarily the interest expense that we.

Ken DeGiorgio: I would now like to turn the call over to Ken DeGiorgio. Thank you, Craig.

You know pay our bonds, we also have.

Ken DeGiorgio: The rapid increase in interest rates to levels not seen in many years continues to produce challenging market conditions. With housing affordability currently at its lowest point in over three decades, existing home sales this year have declined to the slowest annual pace since the global financial crisis. Moreover, sales volumes in the commercial market have reverted to pandemic low levels and are down approximately 50% from the peak year of 2021. Despite these historically difficult conditions, our continued focus on expense management and strong growth in net investment income enabled us to deliver a pre-tax tidal margin of 12% on an adjusted base.

Speaker 4: interest expense in our title segment and that's really driven by kind of the cost of funds and our banking operations both at our bank, First American Trust, as well as our warehouse lending business pays interest expense too. So those are the two components that make up our...

Interest expense in our title segment, and that's really driven by kind of the cost of funds and our banking operations. Both at our Bank first American trust as well as our warehouse lending business pays pays interest expense too. So those are the two components that make up our <unk>.

Speaker 4: you know, the $23.5 million of interest expense we had in the title segment this quarter.

The $23 5 million of interest expense, we had an entitled San Francisco This quarter.

Okay. That's helpful. Thank you guys.

Thanks, John Thanks, John.

Speaker 1: Our next question comes from the line of Soham Bonsly with BTIJ. Please proceed with your question.

Our next question comes from the line of Soho I'm, Barnsley with B P. I G. Please proceed with your question.

Speaker 6: Hey guys, good morning. Hope you're doing well.

Hey, guys. Good morning, hope you're doing well.

Good morning.

Speaker 7: I guess the first one, just on the interest income, can you just, Mark, maybe update us on the year here, and then just maybe help us size what needs to be replaced from the roll-off in ServiceMAC, and how quickly you'd be able to do that? Thanks.

I guess the first one just on investment on the interest income.

Can you just mark maybe update us on on the year here and then just maybe help US size you know what needs to be replaced from sort of the roll off in service Mac and you know how quickly you'd be able to sort of do that thanks.

Ken DeGiorgio: Services. On a consolidated basis, we generated adjusted earnings of $1.22 per deluded share. Our residential purchase business continues to reflect these market headwinds, but appears to have stabilized at trough levels. For the first three weeks in October, open purchase orders are down 7% compared with September, which is consistent with normal seasonality, but are up slightly compared with the prior year. While this performance is mostly driven by a historically low comparison period, it also reflects the results of our industry leading home builder division and is further indication that the market has stabilized.

Yeah. Thanks for the question so on.

So in terms of the year I mean, you know we're obviously, we're three quarters done when we look at Q4, we think based on what we're seeing now investment income should dip a little bit in Q4 few million 5 million ish, let's say plus or minus and most of that is just driven by the fact that you know we did lose these home point long ago.

Speaker 4: So, in terms of the year, I mean, obviously we're three quarters done. When we look at Q4, we think, based on what we're seeing now, investment income should dip a little bit in Q4, a few million.

Speaker 4: $5 million-ish, let's say, plus or minus. And most of that is just driven by the fact that we did lose these home point loans, which we've talked about for a couple quarters.

We've talked about for a couple of quarters.

Speaker 4: And in the last 30 days or so, we've lost about $300 million of deposits related to that, which was really earning, let's call it Fed funds.

And you know in the last 30 days or so we've lost about $300 million of deposits related to that which was really earnings let's call. It fed funds. So that's kind of a headwind that we're going to see in the fourth quarter in terms of our investment income I will say that about 75% of that though is going to be a reduction in.

Ken DeGiorgio: Refinance open orders remained at trough levels in the third quarter, averaging 350 per day, a level they have held all year. Given the current pool of mortgage loans outstanding and the outlook for interest grades, it remains unlikely we will see a significant uplift in refinance in the foreseeable future. Our commercial business revenues declined 39% compared with last year, consistent with the first half of the year. Average revenue per order also declined again this quarter, for the fifth discovery as well underway as the market corrects.

Speaker 4: So that's kind of the headwind that we're going to see in the fourth quarter in terms of our investment income. I will say that about 75% of that, though, is going to be reduction in interest expense in the title segment, too. So it's not all fall to the bottom line, but about 25% of it.

In the interest expense in the title segment too. So it's not all fall to the bottom line, but about 25% of it well.

Okay.

Speaker 7: Okay. And then on endpoint, Ken, I think you've previously talked about the opportunity there sort of being twofold, right? Like where you could potentially get some efficiency gains, but then there's also sort of this enabling of better customer service. I was hoping you could maybe dig a little bit deeper on the efficiency piece of the value proposition there. You know, what sort of efficiencies do you sort of envision and how does that maybe translate to, you know, margins versus call it the legacy title?

And then on endpoint and Ken I think you've previously talked about the opportunity there is sort of being twofold, right like where you could potentially get some efficiency gains. But then there's also sort of is enabling a better customer service I was hoping you could maybe dig a little bit deeper on the efficiency piece of the value proposition there.

Ken DeGiorgio: Commercial open orders for the first three weeks of October are down 5% compared with last year and are down 3% sequentially. There is still a high degree of uncertainty concerning the commercial market. However, based on our market intelligence, we continue to expect higher commercial revenues in the fourth quarter, which is consistent with the normal seasonal pattern. While our key purchase, commercial and refinance markets appear to have troughed, we expect a difficult market condition to persist well into next year.

What sort of efficiencies do you sort of envision and how does that maybe translate to margins versus call. It the legacy title business.

Yeah.

Speaker 3: Yeah, thanks for the question. I mean, I think it's it's early days to exactly measure the efficiency.

For the question I mean, I think it's early days to exactly measure the efficiencies, but you know, we we anticipate sort of increasing the efficiency of an escrow office are you know fairly substantially again, it's hard to put a number on that at you know at this point.

Speaker 3: But, you know, we anticipate sort of increasing the efficiency of an escrow officer fairly substantially. Again, it's hard to put a number on that at this point, but we know there will be efficiency.

Ken DeGiorgio: Despite the uncertainty of the timing of a recovery in these markets, the strength of our business, along with our financial discipline and strong balance sheet, allow us to continue to invest for long-term growth while returning capital to our shareholders.

But we know there will be efficiency gains as we automate some of the you know some of the more mundane tasks that are in escrow officer does and frees them up to do the more more people intensive people intensive tasks and Theres also other sort of efficiencies that we'll gain and we have already started gaining from endpoint just by.

Speaker 3: as we automate some of the more mundane tasks that an escrow officer does and freeze them up to do the more people-intensive tasks.

Speaker 3: There's also other sort of efficiencies that we'll gain, and we have already started gaining from Endpoint just by deploying some of their technology in other parts of our company. We've mentioned in the past about Jot, which is our mobile notary management system. We've relied on third parties for that in the past. We're now able to do it more efficiently in-house.

Ken DeGiorgio: This quarter, we raised our common stock dividend by 2% to an annual rate of $2.12 per share. We also re-purchased $9 million of our shares in the third quarter and have accelerated our purchases in October, already purchasing an additional $9 million of our common shares.

By deploying some of their technology in other parts of our other parts of our company. We mentioned in the past about JAT, which is our which is our mobile notary management system. We rely on third parties for that in the past, we're now able to do it more efficiently our in house.

Ken DeGiorgio: In closing, given the importance of people to our business, I am pleased that first American has been named one of the best workplaces for women by a great place to work and fortune magazine for the eighth consecutive year. This accomplishment is a tribute to our workforce, approximately two-thirds of which are women. I am proud that first Americans commitment to advancing the careers of women in our world-class culture enable us to achieve this recognition year after year.

Speaker 3: And it made a lot of progress rolling that out in the in the direct division. There's, you know, it'll probably fully rolled out in the direct division sometime next year.

And it made a lot of progress rolling that out in the in the direct division there as you know and it would probably be fully rolled out in the direct division sometime next year.

Okay, and just one more mark I think on the loss provision rate I guess, you've lowered 25 basis points, but you know as we sort of going to next year and we potentially are in more sort of uneven macro environment right.

Speaker 7: And just one more, Mark. I think on the loss provision rate, I guess you loaded 25 basis points, but as we sort of go into next year and we potentially are in a more sort of uneven macro environment, right? I mean, how are you thinking about that on that line, I guess?

I mean, how do you how are you thinking about that on that on that line I guess.

Mark Seaton: Now I would like to turn the call over to Mark for a more detailed discussion of our financial results. Thank you, Ken. This quarter, we generated a loss of 2 cents per share. Our adjusted earnings per share was $1.22, of the United States. Our adjusted earnings exclude net investment losses of $164 million, primarily due to unrealized losses recognized in the venture portfolio and changes in the fair market value of equity securities, as well as purchase-related intangible amortization of $10 million.

You know that also this is Ken I'll start on that and yes. We did note we did lower the loss rate in it and one thing I'll point out as you'll recall during the pandemic, we actually took the rate up which I think it reflects our you know pretty conservative approach when it comes to building our reserves. The concerns we had when we did that in the pandemic.

Speaker 3: You know, all students can't all start on that. And yes, we did lower the loss rate. And one thing I'll point out as you were called during the pandemic, we actually took the rate up.

Speaker 3: I think it reflects our pretty conservative approach when it comes to building our reserves. The concerns we had when we did that in the pandemic didn't come to fruition. Some of the concerns we had during the current market also haven't come to bear. So we've built an extremely healthy level of reserves. In fact, we're probably pushing the upper bounds. I mean, and I want to emphasize the upper bounds.

It didn't didn't come to fruition some of the concerns we had during the current market. You know I also haven't haven't come to bear. So we've built an extremely healthy level of reserves and in fact, we're probably pushing the upper bounds I mean, and I want to emphasize the upper bounds.

Mark Seaton: As of September 30, the book value of our venture portfolio totaled $301 million, which equates to approximately seven percent of our equity and two percent of our total assets. Revenue in our title segment was $1.5 billion, down 19 percent compared with the same quarter of 2022. Commercial revenue was $160 million, a 39 percent decline over last year. Our average revenue per order for commercial transactions declined 15 percent and lower valuations as prices in the commercial market reset.

Speaker 3: of reasonableness and we think it was the right time to decline it. So we obviously continuously monitor our reserving level. The situation could change. But I think, you know, more directly to your question, I think we could probably expect this rate to prevail at least through twenty twenty four.

Of reasonableness and we think it was the right time to decline. It. So we obviously continuously monitor our reserving level the situation could change.

But I think more directly to your question I think what you could probably expect this rate to prevail at least through 2024.

Okay, great. Thanks, a lot.

Speaker 1: As a reminder, if you would like to ask a question, press star 1 on your telephone keypad.

As a reminder, if you would like to ask a question press star one on your telephone keypad.

Speaker 1: Our next question comes from the line of Bose George with KBW. Please receive your question.

Our next question comes from the line of Bose, George with K B W. Please proceed with your question.

Speaker 8: Again, good morning. Actually, first question, just on the desoriting fees from Service Mac, how much was that this quarter? And is there more of that to come before that fully rolls off?

Hey, guys good morning.

First question just on the de boarding fees from service Mac, how much was that this quarter and is there more of that to come before that fully rolls off.

Mark Seaton: Purchased revenue was down 15 percent during the quarter, driven by an 18 percent decrease in the number of orders closed, partially offset by a 3 percent increase in the average revenue per order. Refinance revenue declined 41 percent, relative to last year, due to the increase in mortgage rates. In the agency business revenue was $665 million, down 27 percent from last year. Given the reporting lag and agent revenues of approximately one quarter, these results reflect remittances related to Q2 economic activity.

Yeah.

Speaker 4: Yeah. Hi. Good morning, both. So this quarter, we had a $3 million benefit because of the deboarding fees. And roughly about 40% of the loans were deboarded. So we have another, call it 60%, to come at some point next year. We're not exactly sure about that.

Yeah, Hi, good morning, Bose. So this quarter, we had a $3 million benefit because of the boarding fees.

And roughly about 40% of the loans, where we're deep orders. So we have another call it 60% to come at some point next year, we're not exactly sure about the timing.

Okay, great. Thanks, and then can you just talk about capital return priorities could.

Speaker 8: Okay, great. Thanks. And then can you just talk about capital return priorities? You know, could we see the cadence that the buybacks, you know, pick up and just also from a leverage standpoint, you know, is that a constraint you keep in mind? Just, you know, just curious how you're thinking about it more broadly.

Mark Seaton: Our information and other revenues were $240 million, down 14 percent relative to last year. This decline was the result of lower transaction levels across several business units driven by the company's data and proper information products in post-close and document generation services. Investment income within the Title Insurance and Services segment was $142 million, a 35 percent increase relative to the prior year. The increase was primarily due to rising interest rates, which drove higher investment income from the company's cash and investment portfolio, escrow balances and tax-deferred property exchange balances.

Could we see the cadence of the buybacks you know pick.

Pick up and just also from a leverage standpoint, you know what is that a constraint you keep in mind just a you know just curious how youre thinking about it more broadly.

Yeah. Thanks for the question I'll start.

But it was the.

Obviously as we as we talked about earlier, we've accelerated the pace of buybacks. We've already in October bought back shares at the same pace. We did in the entire third quarter and right now I think our stock is attractive we've accelerated our repurchases and we think it's very attractive, but obviously, we right way.

Mark Seaton: The impact of higher interest rates was partially offset by lower average balances, primarily the company's escrow and tax-deferred exchange balances. We continue to manage expenses given the decline in transaction activity. Our success ratio was 50 percent, meaning that our personnel and other operating expenses declined $127 million, and our net operating revenue declined $253 million. The provision for policy losses and other claims was $35 million in the corner, or 3.0 percent the title premiums and escrow fees, down from the 4.0 percent loss provision rate in the prior year, and down from the 3.5 percent loss provision rate in the first half of this year.

Repurchases you know against other uses of capital such as you know reinvesting in the business and in M&A, but you know, we're obviously committed to return capital to our shareholders and we think buybacks right now are a pretty attractive alternative.

Speaker 3: you know against other uses of capital such as you know reinvesting in the business uh... and and m&a but uh... you know we're obviously committed to return capital to our shareholders and we think by-backs right now are a pretty attractive all-time

Speaker 4: And Boz, I'll just comment on the debt leverage part of that question. So our debt-to-cap, we look at it excluding secured financing as payable, because there's sort of a gross up there. And if you do that at 23.5% this quarter, we've talked about 18% to 20% being our long-term target. But we're very comfortable.

And Bose I'll just comment on the on the debt leverage part of that question. So our debt to cap, we look at it excluding secured financings payable because theres sort of a gross up there and if you. If you do that is 23, 5%. This quarter, we've talked about like 18 to 20 being our our long term target, but we're very comfortable especially here.

Speaker 4: Especially here at the trough of the market being higher than our target. So 23.5 is a very comfortable place to be. I think particularly since when you look at the balance sheet, we've got a billion dollars of AOCI and we feel really great about the credit.

At the trough of the market being higher than our target. So 23, and a half is a very comfortable place to be I think particularly since when you look at the balance sheet. We've got $1 billion of you know of OCI and we feel really great about the credit.

Mark Seaton: The 3.0 percent loss rate reflects an ultimate loss rate of 3.75 percent for the current year with a $9 million release for prior policy years. Over the last several quarters, we have highlighted the margin drag in the Title Segment related to three strategic issues, service MAC endpoint and instant decision for purchase transactions. This quarter, these initiatives together generate a pre-tax loss of $12 million, impacting our pre-tax title margin by 110 basis points, and improvement from the 130 basis point drag in Q2, primarily driven by de-border fees received by service.

Speaker 4: There so So we think that's temporary and that'll just kind of help our debt to cap as we go along So we're we're in a very comfortable place in terms of our

They are so so we think that's temporary and that will just kind of help our debt to cap as we go along so we're we're we're in a very comfortable place in terms of our.

Our debt right now.

Speaker 8: Great, great. Thanks. Actually, just one more, in terms of investment income, if the investment income is coming from deposits at your bank versus escrow that you send to third parties, does make a difference on the return or you're kind of agnostic in terms of that or could you sort of increase one of the other if the returns are better?

Okay, great. Thanks, actually just one more.

In terms of investment income if the investment income is coming from deposits at your bank versus escrow that you sent to third parties does it make a difference on the return or you're kind of agnostic in terms of that or could you know could you sort of increase one of the other if the returns are better.

Mark Seaton: Mark. Pretext margin in the title segment was 10.5% or 12.0% on an adjusted basis. Total revenue in our home warranty visit told us 108 million, a 3% increase compared with last year. Pretext income in home warranty was 9.4 million, up 124% from the prior year. The loss ratio in home warranty was 55% down from 59% in 2022, during by lower frequency and severity of claims. The effective tax rate for the quarter was 29.4%, higher than our normalized rate of 24%.

There there is a difference I mean typically when.

Speaker 4: There is a difference. I mean typically when we give our deposits to third party banks, the general rule of thumb is that we'll typically earn said funds.

When we give our deposits to third party banks. The general rule of thumb is they will typically earn fed funds.

Speaker 4: When we invested at the bank, our cash that the bank will earn Fed funds. And then the rest of it, most of the extra deposits we push to the bank, we buy mortgage-backed securities. And so we're really getting kind of a mortgage-backed security rate as opposed to Fed funds.

When we invested.

Invested at the bank.

Our cash that's at the bank will earn fed funds and then the rest of it most of the escrow deposits, we push the bank, we buy mortgage backed securities and so we're really getting kind of a mortgage backed security right as opposed to you know fed funds.

Mark Seaton: Due primarily to the mix of income between our insurance and non-insurance businesses, since our insurance business generally pays state premium tax in lieu of income taxes. In a third quarter, we repurchased 161,000 shares for total of $9 million an average price of $57.87. So far in October, we have ramped up our purchases buying 162,000 shares for $9 million an average price of $52.90. Our debt to capital ratio as of September 30 was 29.7%.

Speaker 8: And sometimes that could be higher and sometimes that could be lower than that funds right now. It's lower just because of the fact that rates have risen. Okay. It's helpful. Thanks a lot.

And sometimes that can be higher and some of that at times that could be lower than fed funds right. Now is lower just because of the fact that rates have risen.

Okay. That's helpful. Thanks, a lot.

Thank you both.

Speaker 1: Our next question comes from a line of Jeffrey Dunn with Dowling and Partners. Please receive it with your question.

Our next question comes from the line of Geoffrey Dunn with Dowling and partners. Please proceed with your question.

Speaker 9: Thanks good morning. What was that? I'm so glad you could talk about the commercial market. In particular, where are the large fields down the most? I'm assuming it's office, but I'm interested in the more color. And more importantly, where are the areas that you're seeing opportunity versus drag outside the office market?

Thanks, Good morning.

Well, Jeff I was hoping you could talk a little bit about <unk>.

Actual market.

In particular, you know where the large deals down the most I'm, assuming it's office, but instead of a more color and more importantly, where are the areas that youre seeing opportunities versus drag outside the office market.

Mark Seaton: Excluding secured the call back over to the operator to take your questions. Thank you.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tommel indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star keys. One moment, please, while we pull for questions.

Operator: Thank you.

Speaker 4: Well, a couple things I'd say, first of all, when you just look at the large deals,

Well a couple of things I'd say first of all when you just look at the large deals.

Speaker 4: We had four, you know, what we call mega deals with premium over a million this quarter and a year ago it was seven. We're not seeing the same level, you know, of large deals. The large deals that we are seeing are really half of our multi-family. We had another one that was just a development site, but generally speaking out, we say the large deals are, we're just, at least just not there at this quarter. In terms of our, you know, our top asset classes, like where we see in business.

We had for you know what we call Mega deals with premium over a million this quarter.

A year ago. It was seven we're not seeing the same level of large deals large deals that we are seeing are really half of them are in multifamily we had.

Another one that was just a development site, but generally speaking I would say the large deals are were just at least just not there this quarter in terms of our you know our top asset classes like where are we seeing business.

John Campbell: Our first question comes from a line of John Campbell with Stevens. Please receive it with your question. Hey guys, good morning. Morning. Morning, young. Hey, I just want to share I heard you correctly on the order commentary for October. You said that purchase is trending up year over year. The far end October. Yeah, so purchase is, you know, it's up slightly for the first three weeks on October. Very slightly. And a lot of it's driven because, you know, included within the purchase transactions is, you know, retail, which is most of them.

Speaker 4: Multi-families, 22% of our commercial revenue, so we're seeing a lot of activity there. Industrial has always been strong, even through the pandemic, if 17% of our revenue, and then development sites, which are sort of these green field sites, it's 16%. So those are our top three. Retail's 10%, office, you mentioned that, Jeff, office is 5%. So that gives you a little bit more.

Multifamily is 22% of our commercial revenues. So we're seeing a lot of activity. There industrial has always been strong even through the pandemic at 17% of our of our revenue and then development sites, which are sort of these greenfield sites at 16%. So those are our top three.

John Campbell: And we also have new homes and new homes is performing pretty well. So when you mix those two together, yeah, we do have a slight increase in purchase, which is nice to see the lines cross here. Yeah, absolutely. I mean, just given the backdrop of continued upward pressure and rates, that's a great outcome. You know, new home sales, I think maybe a little bit less than 10% of the national next. What does that look like for you guys a little bit higher?

Retail is 10% office, you mentioned that Jeff office is 5%. So that gives you a little bit more flavor in terms of where our revenue now that doesn't all add up to 100, there's other asset classes. We got add we've got energy hospitality, but I referenced the big ones.

Speaker 4: flavor in terms of our revenue. Now that doesn't all add up to 100. There's other asset classes we got ag. We've got energy, hospitality, but I referenced the big one.

Speaker 3: You know, the thing I would add to Jeb in terms of, you know, sort of the outlook going forward on asset classes, I think the probably the more attractive ones are going to be the ones where we've already seen the most price discovery, like suburban office.

The thing I would add to Jeff in terms of sort of the outlook going forward on asset classes, I think probably the more attractive ones are going to be the ones, where we've already seen the most price discovery like suburban office.

Speaker 3: and multi-family and energy is also probably going to be a big asset class for us. Then thinking back on multi-family and when I face the bourbon office, it's going to be anything that's going to be outside of the big CBD areas. There's not going to be the central business districts are under strain.

And in multifamily in energy is also probably going to be a big asset class for us and then thinking back on multifamily and when I say suburban office, it's going to be anything that's going to be outside of the big CBD areas, you're just not going to you know the central business districts or are under.

John Campbell: It's a little bit higher, you know, historically, the long-term average is about about 13% of our purchase stores are due home related. So far in October, they're 19% a little overweight. So that's our mix is a little bit higher than the average.

Ken DeGiorgio: Okay, I did that, John. I mean, one of the key minds, we have an outsize share of the market in new home, which obviously is a good competitive advantage for us. Yeah, absolutely. And then last question here on the interest expense, that's obviously been up a good bit, the last two quarters. I want to get a better grip on that. I know that's influenced by the bank deposits, so maybe if you get unpacked that kind of, you could decouple those two items just to underlying interest expense versus the bank effect, and then how we should be thinking about the run rate of interest expense here, just assuming the rate stayed near current levels.

Strained right now for obvious reasons.

Right. So as you look out to 'twenty four I mean, your commentary is cautious in your press release.

Speaker 9: So as you look out to 24, your commentary is cautious and your press release.

Speaker 9: What is your number one concern? Is it commercial? Is it direct-resy? And what one is more?

What is your number one concern is it commercial is it direct Bradley.

One is more.

Uncertain at this point in your minds.

Well, I mean, I'm, a I'm uncertain and concerned about all of them, except refi I know, that's not going to get better. So I think there's concern in all of them I. You know I think if you forced me to weigh the two I'd, probably a little more optimistic about commercial just because I feel like we're making our way through this price discovery and.

Speaker 3: Well, I mean, I'm uncertain and concerned about all of them, except ReFy. I know that's not going to get better. So I think there's concern in all of them. I think if you force me to weigh the two, I probably a little more optimistic about commercial, just because I feel like we're making our way through this price discovery. And I think we anticipate the C-transactions levels pick up a little bit in commercial next year, albeit keep in mind at lower price.

Ken DeGiorgio: As a general statement, when you look at interest expense in our corporate segment, it runs 12, 13 million a quarter, and that's really primarily the interest expense that we pay on our bonds. We also have interest expense in our title segment, and that's really driven by kind of the cost of funds in our banking operations, both at our bank for American trust as well as our warehouse lending business pays interest expense too. So those are the two components to make up our, you know, the 23 and a half million of interest expense we had in the title segment this quarter. Okay, that's helpful. Thank you guys. Thanks John.

We anticipate to see transaction levels pick up a little bit in commercial next year, albeit you know keep in mind at lower prices.

Speaker 3: So we'll see more orders, but there'll be a lower price given this price discovery. But you know, I'm, let me be cautious about all of it in 2024. Now we may get some relief.

So, we'll see more orders, but they'll be at lower prices given this price discovery.

But you know I'm I'm I, we're cautious about about all of it into 2024 now we may get some relief.

Speaker 3: uh... with interest rates going down and when i last check the forward curve which with yesterday i don't know where it is today where they had three rate decreases next year beginning the middle of next year uh... now the forward curve is historically inaccurate but uh... if that comes to fruition that'll help but that's you know middle to end next year

If interest rates go down you know when I last checked the forward curve, which was yesterday I don't know where it is today and where they had three rate decreases next year beginning in the middle of next year are now the forward curve is historically inaccurate, but if that comes to fruition that will help but that's you know middle to end of next year.

Soham Bhonsle: Our next question comes from line of Soham Bhonsle with BTIJ. Please receive with your question. Hey guys, good morning. Hope you're doing well. I guess the first one, just an investment on the interest income, you know, can you just mark maybe update us on the year here and then just maybe help us size, you know, what needs to replace from sort of the rolloff in service MAC and you know, how quickly you'd be able to sort of do that.

Right. Okay. Thank you.

Yeah.

Speaker 10: Our next question comes from a line of Mark Hughes with Truist Security. Please receive your question. Yeah, thank you. I'm not sure.

Our next question comes from the line of Mark Hughes with true Securities. Please proceed with your question.

Yes. Thank you I'm not sure if that's maybe too granular, but im curious whether you saw any <unk>.

Speaker 11: impact in the purchase market through these weeks of October with the interest rate fluctuation.

Impact in the purchase market through are these the weeks of October with the interest rate fluctuations.

Soham Bhonsle: Thanks. Yeah, thanks for the questions on. So in terms of the year, I mean, we're obviously we're three quarters done. When we look at Q4, we think, you know, based on what we're seeing now, investment income should dip a little bit in Q4, few million, five million, let's say, plus or minus. And most of that is just driven by the fact that, you know, we did lose these home point loans, which we've talked about for a couple quarters and, and, you know, in the last 30 days or so, we've lost about 300 million of deposits related to that, which was really earning, let's call it Fed funds.

Speaker 4: No, we haven't seen it, Mark, and it's been a little surprising because when you look at our purchase orders,

No we haven't seen it mark and it's a it's been a little surprising because when you look at the when you look at our purchase orders.

Speaker 4: They've been following the typical long-term seasonality pattern all year long.

They've been falling to the typical long term seasonality pattern all year long.

Speaker 4: So, our purchase order is on the Red National side. I mean, they're at low levels now.

So we're our purchase orders on the residential side I mean, they're at low levels now, but they haven't gotten any worse than you know, they're getting worse now just because of seasonality, but when you look at the normal seasonality curve for the last nine and a half months its been right on the normal curve and that's surprising, especially recently given the fact that mortgage rates have climbed a particularly in the <unk>.

Speaker 4: but they haven't gotten any worse. They're getting worse now just because of seasonality. But when you look at the normal seasonality curve for the last nine and a half months, it's been right on the normal curve and that's surprising, especially recently given the fact that mortgage rates are...

Speaker 4: climbed, particularly in the last 90 days here, we're tickling 8%. But the answer to the question, no, we haven't seen any fall off in purchase stores because the recent climbing...

90 days, you were tickling, 8%, so but to answer your question no. We haven't seen any falloff in purchase stores because of the recent climate race.

Soham Bhonsle: So that's kind of the headwind that we're going to see in the fourth quarter in terms of our investment income. I will say that about 75% of that though is going to be reduction in interest expense and title segment two. So it's not all fall to the bottom line, but about 25% of it will. Okay. And then on endpoint, Ken, I think you've previously talked about the opportunity there sort of being twofold, right?

Speaker 11: And then in the warranty business, I think I've heard you say this.

And then the in the warranty business I think I've heard you say the direct to consumer has been.

Speaker 11: Director Consumer has been a good channel with real estate being weak. How is that holding up for you seeing success?

Good channel with real estate being weak.

Is that holding up are you seeing success there.

Yeah, I mean, we are in general seeing success with with DTC and I think you know I think we've demonstrated we turned the dial up on our marketing expense that we see the you know the.

Speaker 3: Yeah, I mean, we are in general seeing success with DTC. And I think we've demonstrated, if we turn the dial up on our marketing expense, we see the, you know, the almost, well, we see the immediate impact on or on contracts and DTC, though it takes some time for profitability to be realized.

Soham Bhonsle: Like where you could potentially get some efficiency gained, but then there's also sort of this enabling of better customer service. I was hoping you could maybe dig a little bit deeper on the efficiency piece of the value proposition there. You know, what sort of efficiencies you sort of envision and how does that maybe translate to, you know, margins versus call it the legacy title business? Yeah, thanks for the question. I mean, I think it's it's early days to exactly measure the efficiencies, but, you know, we anticipate sort of increasing the efficiency of an escrow officer, you know, fairly substantial.

Almost well, we see the immediate impact on or on our contracts in DTC, though it. It takes some time for profitability to be to be realized.

Speaker 3: I think the story with the home warranty is that they've done a really good job of managing claims in an inflationary environment. So that's been helping the frequencies down because of the lower policy counts, but severity down.

I think the story with the home warranty is that they've done a really good job of managing claims in an inflationary environment. So that's been helping your frequency is down because of the lower policy counts, but severity is down.

Soham Bhonsle: Again, it's hard to put a number on that at, you know, at this point, but we know there will be efficiency gains as we automate, you know, some of the, you know, some of the more mundane tasks that an escrow officer does and frees them up to do the more more people intensive and people intensive tasks. And there's also other sort of efficiencies that we'll gain. And we have already started gaining from endpoint just by deploying some of their technology and other parts of our other parts of our company.

Speaker 3: And then we're realizing more and more of the time goes on the benefit of some pricing actions we've taken. So we're pretty, we're very positive on home born.

And then we're realizing you know more of a more and more as time goes on the benefit of some pricing actions. We've taken so we're we're pretty we're very positive on an on home warranty and were you know real positive on the on the strive for that that group is made on the on the DTC channel. So there's real opportunity there.

Speaker 3: And we're real positive on the strides that that group is made on the BTC channel. So there's real opportunity there.

Understood and then finally any update on instant decisioning either from a rollout.

Speaker 11: either from the roll out, potential benefits.

Potential benefit.

Standpoint.

Speaker 3: Yeah, it's still early days there. Though we are anticipating rolling out two markets on a test basis at the beginning of next year. So they're hitting their milestones and we're real positive about that. As we mentioned in the past, the great thing is it's hard to do. It's impossible to do if you don't have the data and we've got more data than anyone. So it's trending well.

Yeah, you know it's it.

It's still early early days, there, though we are anticipating rolling out.

Soham Bhonsle: We mentioned the past about jot, which is our, which is our mobile, notary management system. We've relied on third parties for that in the past. We're now able to do it more efficiently in house. And it made a lot of progress rolling that out in the in the directivision. There's, you know, it'll probably fully roll out in the directivision sometime next year, of the year. Okay, and just one more, Mark. I think, you know, on the loss provision rate, I guess you lowered it 25 basis points, but, you know, as we sort of go into next year, and we potentially are in a more sort of uneven macro environment, right?

Two markets on a test basis at the beginning of next year, so they're they're hitting their milestones and we're you know we're real positive about that and you know what.

As we've mentioned in the past that the great thing is it's hard to do it's impossible to give you don't have the data and we've got more data than anyone and so it's you know where it's trending well.

Thank you very much.

Thanks Mark.

Speaker 1: Thank you. We have reached the end of the allotted time we had for questions and that concludes this morning's call.

Thank you we have reached the end of the allotted time, we had for questions and that concludes this morning's call.

Soham Bhonsle: I mean, how are you thinking about that on that line, I guess? You know, all students can, I'll start on that. And yes, we did lower the loss rate. And one thing I'll point out is you recalled during the pandemic, we actually took the rate up, which I think reflects our, you know, pretty conservative approach when it comes to building our reserves. The concerns we had when we did that in the pandemic didn't, didn't come to fruition.

Speaker 1: We would like to remind listeners that today's call will be available for replay on the company's website or by dialing 877-660-6853 or 201-612-7415 and enter the conference ID-137-416-73

We would like to remind listeners that today's call will be available for replay on the company's website or by dialing 8776606853 well.

0161 to 7415 and enter the conference I D 137 for Wednesday seven three.

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Soham Bhonsle: Some of the concerns we had during the current market, you know, I also haven't, haven't come to bear. So, we've built an extremely healthy level of reserves. In fact, we're probably pushing the upper bounds. I mean, and I want to emphasize the upper bounds of reasonableness, and we think it was the right time to decline it. So, you know, we obviously continuously monitor our reserving level. The situation could change, but I think, you know, more directly to your question, I think we could probably expect this rate to prevail at least through 2024. Okay, great. Thanks a lot.

Operator: As a reminder, if you would like to ask a question, press star one on your telephone keypad.

Bose George: Our next question comes from line of Bose George with KVW, please receive your question. Thank you. Good morning. Actually, first question, just on the deporting fees from Service Mac, how much was that this quarter? And is there more of that to come before that fully rolls off? Yeah, hi. Good morning, Bose. So, this quarter we have a $3 million benefit because the deporting fees. And roughly about 40% of the loans were de-borted. So, we have another call at 60% to come at some point next year. We're not exactly sure about the timing.

Bose George: Okay, great. Thanks.

Mark Seaton: And then can you just talk about capital return priorities? You know, could we see the cadence of the buybacks? You know, pick up and just also from a leverage standpoint, you know, is that it constrained to keep in mind just, you know, just curious how you're thinking about it more broadly? Thanks for the question. I'll start those. The, you know, obviously, as we as we talked about earlier, we've accelerated the pace of buybacks.

Mark Seaton: We've already in October bought back shares at the same pace we did in the entire third quarter. And right now, I think our stock is attractive. We've accelerated repurchases and we think it's very attractive. But obviously, we rate way repurchases, you know, against other uses of capital, such as, you know, reinvesting in the business and M&A. But, you know, we're obviously committed to return capital to our shareholders. And we think buybacks right now are a pretty attractive alternative.

Mark Seaton: And Bose, I'll just comment on the debt leverage part of that question. So, our debt to cap, we look at it excluding secured financing payable because there's sort of a gross up there. And if you do that at 23.5% this quarter, we've talked about like 18 to 20 being our long-term target. But we're very comfortable, especially here at the trough of the market being higher than our, you know, target. So 23.5 is a very comfortable place to be.

Mark Seaton: I think particularly since, when you look at the balance sheet, we've got a billion dollars of, you know, of AOCI and we feel really great about the credit there. So, we think that's temporary and then I'll just kind of help our debt to cap as we go along. So, we're in a very comfortable place in terms of our debt, Yeah.

Mark Seaton: Okay, great. Thanks.

Mark Seaton: Just one more. In terms of investment income, if the investment income is coming from deposits that you've banked versus escrow that you send to third parties, does it make a difference on the return, or are you kind of agnostic in terms of that, or could you sort of increase one of the other if the returns are better? There is a difference. I mean, typically when we give our deposits to third party banks, the general rule of thumb is that we'll typically earn Fed funds.

Mark Seaton: When we invested at the bank, our cash that the bank will earn Fed funds. And then the rest of it, most of the extra deposits we've pushed to the bank, we buy mortgage-backed securities. And so we're really getting kind of a mortgage-backed security rate as opposed to, you know, Fed funds. And sometimes that could be higher and sometimes that could be lower than Fed funds right now. It's lower just because of the fact that rates have risen. Okay. It's helpful. Thanks a lot. Thank you both.

Jeffrey Dunne: Our next question comes from a line of Jeffrey Dunne with Dowling and Partners. Please proceed with your question. Thanks. Good morning. I'm so glad you can talk about the commercial market. In particular, where are the large fields down the most? I'm assuming it's office, but I'm interested in the more color. And more importantly, where are the areas that you're seeing opportunity versus drag outside the office market?

Ken DeGiorgio: Well, a couple of things I'd say. First of all, when you just look at the large deals, we had four, you know, what we call mega deals with premium over a million this quarter and a year ago it was seven. We're not seeing the same level, you know, of large deals. The large deals that we are seeing are really half of our multi-family. We had another one that was just a development site, but generally speaking out to the large deals are we're just at least just not there at this quarter.

Ken DeGiorgio: In terms of our, you know, our top asset classes, like where we see in business, multi-family is 22% of our commercial revenues. So we're seeing a lot of activity there. Industrial has always been strong even through, you know, the pandemic at 17% of our revenue and then development sites, which are sort of these green field sites at 16%. So those are our top three. Retail's 10%. Office, you mentioned that, Jeff, office is 5%.

Ken DeGiorgio: So that gives you a little bit more flavor in terms of revenue. Now, that doesn't all add up to 100. There's other asset classes we've got ag, we've got energy, hospitality, but I reference the big ones. You know, the thing I would add to Jeff in terms of, you know, sort of the outlook going forward on asset classes, I think the probably the more attractive ones are going to be the ones where we've already seen the most price discovery, like suburban office and multi-family and energy is also probably going to be a big asset class for us.

Ken DeGiorgio: And then thinking back on multi-family and when I say suburban office, it's going to be anything that's going to be outside of the big CBD areas. You're just not going to, you know, the central business districts are under strain right now for obviously, of this reason.

Ken DeGiorgio: So as you look out to 24, your commentary is cautious and your press release. What is your number one concern? Is it commercial? Is it direct-resie? What one is more uncertain at this point in your mind? Well, I'm uncertain and concerned about all of them except refile. I know that's not going to get better. So I think there's concern in all of my—you know, I think if you have forced me to weigh the two, I probably a little more optimistic about commercial just because I feel like we're making our way through this price discovery.

Ken DeGiorgio: And I think we anticipate the C-transactions levels pick up a little bit in commercial next year, albeit keep in mind at lower prices. So we'll see more orders, but there'll be at lower prices given this price discovery. But, you know, we're cautious about all of it in to 2024. Now we may get some relief if interest rates go down. You know, when I last checked the Forward Curve, which was yesterday, I don't know where it is today or they had three rate decreases next year, beginning the middle of next year. Now the Forward Curve is historically inaccurate, but if that comes to fruition, that'll help, but that's you know, middle to end next year.

Ken DeGiorgio: All right. Okay, thank you.

Mark Hughes: Our next question comes from a line of Mark Hughes with Truist Security. Please receive your question. Yeah, thank you.

Ken DeGiorgio: I'm not sure if it's maybe too granular, but I'm curious when you saw any impact in the purchase market through these weeks and back to over with the interest rate fluctuations. Now we haven't seen it, Mark, and it's been a little surprising because when you look at the, when you look at our purchase orders, they've been following the typical long-term seasonality pattern all year long. So we're our purchase orders on the residential side.

Ken DeGiorgio: I mean, they're at low levels now, but they haven't gotten any worse. They're getting worse now just because of the seasonality. But when you look at the normal seasonality curve for the last nine and a half months, it's been right on the normal curve, and that's surprising, especially recently given the fact that mortgage rates have climbed particularly in the last 90 days here, we're tickling 8%. So, but the answer question though, we haven't seen any fall-off in purchase orders because the recent climate rates.

Ken DeGiorgio: And then in the warranty business, I think I've heard you say that the direct to consumer has been a good channel with real estate being weak. How is that holding up for you seeing success there? Yeah, I mean, we are in general seeing success with DTC, and I think we've demonstrated, if we turn the dial-up on our marketing expense, that we see the, you know, the almost, well, we see the immediate impact on or on contracts and DTC though it takes some time for profitability to be realized.

Ken DeGiorgio: You know, I think the story with the home warranty is that they've done a really good job of managing claims in an inflationary environment, so that's been helping the frequencies down because of the lower policy counts, but severity down. And then we're realizing more and more of the time goes on the benefit of some pricing actions we've taken. So, we're pretty, we're very positive on, on home board, and we're, you know, real positive on the, on the strive for the fact group is made on the, on the BTC channel.

Ken DeGiorgio: So there's, there's real opportunity there. It's at the beginning of next year. So they're, they're hitting their milestones and we're, you know, we're real positive about that. And, you know, as we mentioned in the past, the, the great thing is it's hard to do. It's impossible to do if you don't have the data and we've got more data than anyone. And so it's, you know, we're, it's, it's trending well. Thank you very much. Thanks, Mark. Thank you.

Operator: We have reached the end of the allotted time we had for questions and that concludes this morning's call. We would like to remind listeners that today's call will be available for replay on the company's website or by dialing 877-660-6853. Or 201-612-7415 and enter the conference ID 137-416-73. The company would like to thank you for your participation.

Operator: This concludes today's conference call. You may now disconnect.