Q2 2024 Fidelity National Financial Inc Earnings Call
Speaker Change: Good morning and welcome to FNF's second quarter earnings call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time.
Speaker Change: I would now like to turn the call over to Lisa Foxworthy-Parker, SVP, Investor and External Relations. Please go ahead. Lisa Foxworthy-Parker, SVP, Investor and External Relations.
Lisa Foxworthy-Parker: Great, thanks operator and welcome everyone. Joining me today are Mike Nolan, Chief Executive Officer, and Tony Park, Chief Financial Officer. We look forward to addressing your questions following our prepared remarks.
Speaker Change: Chris Blunt, F&G CEO , and Wendy Young, F&G CFO , will join us for the Q&A portion of today's call.
Speaker Change: Today's earnings call may include forward-looking statements and projections under the Private Securities Litigation Reform Act, which do not guarantee future events or performance. We do not undertake any duty to revise or update such statements to reflect new information, subsequent events, or changes in strategy.
Speaker Change: Please refer to our most recent quarterly and annual reports and other SEC filings for details on important factors that could cause actual results to differ materially from those expressed or implied.
Speaker Change: This morning's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules within our earnings materials available on our website at FNF.com.
Speaker Change: Today's call is being recorded and will be available at 3 p.m. Eastern Time today through webcast replay on our website and also telephone replay through August 13, 2024.
Speaker Change: And now, I'll turn the call over to our CEO , Mike Nolan.
Mike Nolan: Thank you, Lisa, and good morning. We are pleased to report a strong set of results for the second quarter. Our title business continues to perform very well in this low transactional environment as elevated mortgage rates and housing affordability continue to hamper U.S. home sales.
Speaker Change: We delivered adjusted pre-tax earnings in our title segment of $324 million and achieved an industry-leading adjusted pre-tax title margin of 16.2% for the quarter, as compared to 15.8% in the second quarter of 2023.
Speaker Change: The strong result reflects our disciplined operating strategy and our investments in innovative technologies and data.
Speaker Change: Our operational discipline focuses on actively managing our business to the trend in open orders and adjusting our headcount and footprint accordingly.
Speaker Change: Our technology investments focus on leveraging data and digital tools to increase operational efficiency and improve the overall experience of our clients and customers.
Speaker Change: To that end, I'd like to thank our employees as we have worked together to effectively navigate and adapt to the historically low volumes and deliver industry-leading performance to the trough of this cycle.
Speaker Change: We are optimistic that the industry is getting closer to more favorable market conditions.
Speaker Change: And that mortgage rates may have hit their peak, given current market expectations for an initial Fed rate cut in September .
Speaker Change: In the second quarter, we continue to see a pattern of normal seasonality with daily purchase opened orders showing a 9% sequential improvement over the first quarter.
Speaker Change: We would expect the normal seasonal fall off for the remainder of the year if mortgage rates remain at current levels.
Speaker Change: Although it could be better if mortgage rates move lower and generate an uplift in purchase volumes.
Speaker Change: Refinance volumes remain stable at the current floor. We continue to average about 1,000 opened orders per day, which has been relatively consistent over the past two years. A rebound in refinance volumes is also largely dependent on lower mortgage rates.
Speaker Change: Commercial volumes continue to be steady and resilient. We generated direct commercial revenue of $511 million in the first six months.
Speaker Change: Trending in line with the $1 billion in annual revenue that we delivered in 2015 through 2020 and in 2023.
Speaker Change: Asset classes have remained very consistent as well. Looking ahead we see the potential for higher commercial volumes as the office sector begins to transact and continue to see strength in the industrial, multifamily, and energy sectors among others.
Speaker Change: Looking at second quarter volumes more closely, daily purchased orders opened were up 2% over the second quarter of 2023, up 9% over the first quarter of 2024, and down 4% for the month of July versus the prior year.
Speaker Change: Our refinance orders open per day were down 1% from the second quarter of 2023, up 5% over the first quarter of 2024, and up 7% for the month of July versus the prior year.
Speaker Change: Our total commercial orders opened were $805 per day, up 3% over the second quarter of 2023, up 3% over the first quarter of 2024, and down 4% for the month of July versus the prior year.
Speaker Change: Overall, total orders opened averaged $5,500 per day in the second quarter, with April at $5,400, May at $5,400, and June at $5,600.
Speaker Change: For the month of July , total orders opened were 5,200 per day, down 7% versus June .
Speaker Change: Looking forward, at the current level of mortgage rates, we continue to view our performance in the second half of 2023 as a good proxy for the second half of 2024, all else being equal.
Speaker Change: During 2023, our adjusted pre-tax title margin remained in the mid-teens in the third quarter, declining in the fourth quarter, giving the typical seasonal pattern to residential purchase volumes.
Speaker Change: If we see lower mortgage rates in the second half of the year and into next year, we are poised to capture the upside from higher transaction volumes, given the scale and efficiencies that our diversified national footprint provides.
Speaker Change: On an annual basis, we continue to view the range for normalized adjusted pretext title margin of 15 to 20 percent as a good rule of thumb.
Speaker Change: We have been investing in data and technology for decades, having developed best-in-class capabilities.
Speaker Change: We will continue to innovate and lead the industry in this area by constantly developing and investing in technology that enhances our business operations and customer experiences.
Speaker Change: We are especially proud of our InHare digital platform that was launched three years ago. InHare is unique in the industry in providing an end-to-end digital transaction experience at scale that is fully integrated and rolled out across our direct residential footprint.
Speaker Change: We are especially pleased with the enhanced security and fraud mitigation, improved efficiency, and elevated customer experience that NHEAR offers on a 24-7 basis.
Speaker Change: We had over 1 million real estate professionals and consumers use InHERE in full year 2023 and nearly 700,000 in the first half of this year. The InHERE platform continues to be an integral part of our business.
Speaker Change: Additionally, we have named our Chief Artificial Intelligence Officer role this quarter, recognizing its importance for the future.
Speaker Change: We are committed to responsibly harnessing the new capabilities that AI can bring to drive greater efficiencies and productivity over time.
Speaker Change: Turning to our F&G business, F&G has profitably grown assets under management before flow of reinsurance to a record $61.4 billion at June 30th.
Speaker Change: Over the past four years since the 2020 merger, F&G has grown, diversified, and modernized its business while more than tripling its top-line sales and doubling gross AUM before flow reinsurance.
Speaker Change: F&G has achieved record gross sales of $4.4 billion for the second quarter, an increase of 47% over the second quarter of 2023.
Speaker Change: as the business is seeing strength across all of its sales channels.
Speaker Change: F&G is benefiting from strong demand for its products, its prior investments in building out its multi-channel sales platform, and continued strong investment performance.
Speaker Change: The F&G segment contributed 40% of F&F's adjusted net earnings for the first half of 2024, up from 28% for the first half of 2023.
unknown: up from 28% for the first half of 2023.
Speaker Change: providing an important complement to our title business.
Speaker Change: Looking ahead, F&G has compelling growth opportunities through its diversified new business platform and benefits from its profitable in-force book that has scaled considerably.
Speaker Change: F&G has also successfully executed on its accretive flow reinsurance and owned distribution strategies which are contributing to margin expansion and improved returns.
Speaker Change: FNF benefits from its majority ownership of F&G through its share of F&G's durable and growing earnings, cash dividend streams, and recognition of the value of F&G's market capitalization.
Speaker Change: which has increased from $2.9 billion at the time of the partial spinoff in December of 2022 to $5.4 billion at July 31st on a stand-alone basis.
Speaker Change: With that, let me now turn the call over to Tony to review F&F's second quarter financial performance and provide additional highlights.
Tony Park: Thank you, Mike.
Tony Park: Starting with our consolidated results, we generated $3.2 billion in total revenue in the second quarter. Excluding net recognized gains and losses, our total revenue was $3.2 billion, as compared with $3.1 billion in the second quarter of 2023.
Speaker Change: The net recognized gains and losses in each period are primarily due to mark-to-market accounting treatment of equity and preferred stock securities, whether the securities were disposed of in the quarter or continue to be held in our investment portfolio.
Speaker Change: We reported second quarter net earnings of $306 million, including net recognized losses of $88 million.
Speaker Change: versus $219 million, including $16 million of net recognized losses in the second quarter of 2023.
Speaker Change: Adjusted net earnings were $338 million, or $1.24 per diluted share, compared with $274 million, or $1.01 per share, for the second quarter of 2023.
Speaker Change: The title segment contributed $241 million, the F&G segment contributed $122 million, and the corporate segment contributed $2 million before eliminating $27 million of dividend income from F&G in the consolidated financial statements.
Speaker Change: Turning to Q2 financial highlights specific to the title segment.
Speaker Change: Our title segment generated $2 billion in total revenue in the second quarter, excluding net recognized losses of $75 million, compared with $1.9 billion in the second quarter of 2023.
Speaker Change: Direct premiums increased 4% versus the prior year. Agency premiums increased 10%.
Speaker Change: An escrow, title-related, and other fees decreased 2%.
Speaker Change: Personnel costs increased 4% and other operating expenses decreased 6%.
Speaker Change: All in, the title business generated adjusted pre-tax title earnings of $324 million compared with $302 million for the second quarter of 2023, and a 16.2% adjusted pre-tax title margin for the quarter.
Speaker Change: versus 15.8% in the prior year quarter.
Speaker Change: Our title and corporate investment portfolio totaled $4.9 billion at June 30.
unknown: Interest and investment income in the title and corporate segments was $99 million, an increase of $6 million over the prior year quarter, primarily due to higher income from cash, short-term, and fixed income investment. Record retail sales were $3.2 billion, up 39% over the prior year quarter, driven by strong annuity sales. Primary capital allocation priorities support our $525 million annual dividend commitment.
Speaker Change: Interest and investment income in the title and corporate segments was $99 million, an increase of $6 million over the prior year quarter, primarily due to higher income from cash, short-term, and fixed income investments.
Speaker Change: Partially offset by lower income from our 1031 exchange business, resulting from declining balances.
Speaker Change: For the remainder of 2024, we expect quarterly interest and investment income to be stable at $95 to $100 million, with anticipated Fed funds cuts of 25 to 50 basis points through the second half of the year.
Speaker Change: As a rule of thumb, and all else being equal, every 25 basis point decrease in Fed funds is expected to result in an approximate $15 million annualized decline in interest and investment income.
Speaker Change: In addition, we expect over $100 million of annual dividend income from F&G to the corporate segment.
Speaker Change: This cash return reflects 85% of F&G's common dividend given our majority ownership stake and 100% of F&G's preferred dividend on the mandatory convertible preferred stock issued to F&F in January 2024.
Speaker Change: In our earnings release, both the common and preferred dividends are reported in the corporate and others segment and then eliminated in the eliminations column, such that the bottom line impact to FNF consolidated results is neutral to earnings.
Speaker Change: Our title claims paid of $70 million were $9 million higher than our provision of $61 million for the second quarter. Historically, about 60% of our claims are paid within 5 years of the policy being written.
Speaker Change: Therefore, we expect the dollar amount of paid claims to increase, representing the cyclically high level of policies issued in 2021 and 2022.
Speaker Change: The carried reserve for title claim losses is approximately $50 million or 3% above the actuary's central estimate.
Speaker Change: We continue to provide for title claims at 4.5% of total title premiums.
Speaker Change: Next, turning to financial highlights specific to the F&G segment, F&G hosted its earnings call this morning.
Speaker Change: and provided a thorough update, so I will focus on the key highlights for the quarter.
Speaker Change: F&G reported record gross sales of $4.4 billion in the second quarter, up 47% over the prior year quarter.
Speaker Change: Record retail sales were $3.2 billion, up 39% over the prior year quarter, driven by strong annuity sales.
Speaker Change: F&G's retail products are seeing strong demand as consumers want to secure relatively higher rates.
Speaker Change: Guaranteed tax-deferred growth and principal protection, which is particularly attractive to baby boomers who are approaching retirement, a significant demographic trend with a long tail.
Speaker Change: Robust institutional market sales, which are lumpy in nature, were $1.2 billion, up from $700 million in the prior year quarter. This included $300 million of pension risk transfer sales.
Speaker Change: and $900 million of funding agreements as F&G returned to the FABN market for the first time in two years given more favorable market conditions.
Speaker Change: F&G's retained sales were $3.4 billion in the second quarter, up 55% over the prior year quarter.
Speaker Change: F&G has profitably grown its retained assets under management to a record $52.2 billion at June 30.
Speaker Change: AUM before flow reinsurance was $61.4 billion.
Speaker Change: Adjusted net earnings for the F&G segment were $122 million in the second quarter. This includes alternative investment returns below our long-term expectations by $17 million, or $0.06 per share.
Speaker Change: and significant expense items of $10 million or $0.04 per share.
Speaker Change: To bring it all together, F&F's Consolidated Adjusted Net Earnings, excluding significant items in the F&G segment, were $365 million or $1.34 per diluted share in the second quarter.
Speaker Change: From a capital and liquidity perspective, we are maintaining a strong balance sheet and remain focused on ensuring a balanced capital allocation strategy as we navigate the current environment.
Speaker Change: We held $696 million in cash and short-term liquid investments at the holding company level at June 30. This is up nearly $80 million compared with the sequential quarter, despite the historic low volumes in the title business.
Speaker Change: Our consolidated debt outstanding increased to $4.2 billion at June 30, reflecting a $300 million net increase in F&G segment debt for the successful refinance and partial tender offer of its upcoming 2025 senior note maturity.
Speaker Change: Our consolidated debt-to-capitalization ratio, excluding AOCI, remains in line with our long-term target range of 20 to 30 percent.
Speaker Change: Primary capital allocation priorities support our $525 million annual dividend commitment.
Speaker Change: Thank you.
Speaker Change: Bye for now.
Speaker Change: You know, we're roughly $50 million above the central estimate. Feel good about that. If you compare us to our competitors, sometimes we use a different...
unknown: So we do 4.5% of the title premium, but that equates to 3.9% of title and escrow fees, and so some of our competitors look at it that way, but at any rate, yes, I feel good about it at this point.
Speaker Change: basis for the percentage. So we do four and a half percent of title premiums, but that equates to 3.9% of title and escrow fees and so some of our Competitors look at it that way, but at any rate yes feel feel good about it at this point
Speaker Change: Okay, that's helpful. And then on the title-filled staff, I mean, I think that was up 3% sequentially. That's just normal seasonality, I believe. But year-over-year, that's down 3%. That's down a little bit faster than both open and closed orders. So as you guys look ahead...
Speaker Change: I'm just curious how you're thinking about the staffing levels and maybe how much excess capacity you have and then if you get, you know, a sharper increase in volumes than you're expecting, just maybe your ability to flex with more overtime pay.
Mike Nolan: Yeah, sure, John , it's Mike. Thanks for the question. We feel like we're in a good position on staffing and as we thought about this year we really wanted to be a little lighter than we were last year and we've achieved that as you pointed out and that that 3% reduction includes
Mike Nolan: You know, we'll just follow the direction of the orders and and with rates maybe coming off as we've seen the last couple days
Mike Nolan: You know, there could be an opportunity for more volumes in the back half of the year. I think we would, of course, always go to overtime first.
Mike Nolan: But just depending on the magnitude of any potential increases, you know, we've always got the ability to go back and add staff on a kind of as-needed basis, as-market basis.
Speaker Change: Okay, that's helpful. If I could maybe squeeze in one quick one here. On the July orders, maybe you could talk to the cadence, kind of how that looked week to week, and then I don't know how much insights you have in August , but especially the last couple days with rates peeling back a bit here, if you could maybe give us some commentary on what that's looked like over the last couple days.
John: Yeah, I really no no commentary on August John I would say in July it was it was fairly consistent
Speaker Change: Although I would note that it was interesting that, you know, our refi orders were up 7% over the prior July .
Speaker Change: And as you looked at rates in July , you know, they traded down through the month about 30 plus basis points. So, you know, you can't always tell if your orders are up in direct relation to that, but.
Speaker Change: But it's interesting that, you know, rates fell off and we saw, you know, a little bump in our refi open orders.
Speaker Change: Okay, that's very helpful. Thank you guys.
Speaker Change: Thank you. Our next question is from the line of Mark Hughes with Truist Securities. Please go ahead.
Mark Hughes: Yeah, thank you very much.
Speaker Change: Other operating costs down year over year, if you look at the last couple of years, those costs have stepped down sequentially from Q2 to Q3.
Mark Hughes: How should we think about those costs this year in the third quarter? How are they shaping up?
Speaker Change: Yeah, thanks Mark. Yeah, a couple of the items in that decline. Facilities, we've worked hard as we've said in the past over the years to
Speaker Change: Reduce our footprint when the market came down.
Speaker Change: I think we're down about 1.3 million square feet and about 100 leases if you go back a few years. So part of it was that, I can't remember the exact number, but part of the decline is there. We also had some cost of sales.
Speaker Change: Declines in our service link business in the valuations area because that business is off year over year And I think our title plant costs
Speaker Change: Did you want to add anything, Mike? Yeah, just to add, I think that the facility savings that we've seen, and it was...
Mike Nolan: almost 7% over the second quarter of last year. You know, those are a bit more durable, we don't really see adding back the need to add back new leases in any significant way as we go into the third quarter. So I think we continue to see
Speaker Change: Some savings there. I don't know if it's, you know, it'll be 7%, but that should hold up. And we've also had some savings in the title plant area.
Speaker Change: Understood. What's the thinking in terms of the tempo of buybacks? How active do you plan on being in the near term here?
Speaker Change: Yeah, good question. I said earlier in my commentary that we're looking at our cash flow generation and first need to cover the $525 million dividend and then maybe the $80 to $100, I think it's $80 million of interest expense at the hold code level.
unknown: That gets us to six, and then maybe $200 to $300 million in acquisition capital. And so once we're in the $800 to $900 million range, or exceeding that in terms of cash flow generation to a holding company, I think that's when the board is going to feel comfortable about, okay, let's set aside some money for buybacks. I don't know exactly when that will be. It could be soon. But that's kind of what we're looking at.
Speaker Change: That gets us to six and then maybe two hundred to three hundred million dollars in acquisition capital and so once we're in the eight to nine hundred million dollar range or exceeding that in terms of cash flow generation to a holding company
Speaker Change: I think that's when the board's going to feel comfortable about, okay, let's set aside some money for buybacks. I don't know exactly when that is. It could be soon.
unknown: We did renew our authorization, as you probably saw, $25 million share buyback authorization from the board. That was more just a timing thing. The prior authorization expired at the end of July, and so we put that news out there following that.
Speaker Change: But you know that's kind of what we're looking at. We did renew our authorization as you probably saw 25 million share
Speaker Change: Buy back authorization from the board. That was more just a timing thing. We, the prior authorization expired at the end of July . And so we put that put that news out there following that.
Speaker Change: And then on commercial.
Speaker Change: What was the the July experience in commercial in terms of open orders and then I think you talked about kind of stability in the first half relative to some earlier years.
unknown: Is that a good way to think about the back half, or obviously, it depends on interest rates, but do you think that that picks up a bit? Yeah, Mark, it's
Speaker Change: is that a good way to think about the back half or obviously depends on interest rates but but do you think that that picks up a bit
Speaker Change: Yeah, Mark, it's Mike. So the July number was it was down 4% over last July . You know, I wouldn't read too much into a monthly number, particularly in commercial, as you know, it can be a little lumpy.
Speaker Change: What I really look to is through July our open orders are up 4% over the seven months of last year.
Speaker Change: And I think what's important, we've seen National performing stronger. That's up 8% through July . And National was also up 11% over the second quarter of 23. And I think that points to potential even stronger second half.
Speaker Change: We've kind of said all along that we...
Speaker Change: We thought 24 would look a lot like 23. We did just under a billion one.
Speaker Change: and Commercial Direct Revenue in 23, and I think, you know, there's always a range of outcomes, but...
Speaker Change: I would think we'd do that with the potential to do more.
Speaker Change: Based on the National Improvement in Orders, based on potentially lower rates.
Speaker Change: and based on potential uptick in...
Speaker Change: In office transactions, and we've seen a little bit of that. I wouldn't say it's significant yet, but we've definitely seen some markets where either through distressed sales or just sales, we're starting to see a little bit more office activity.
Operator: Our next question is from Terry Ma with Barclays. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question is from Terry Ma with Barclays. Please go ahead.
Terry MA: Hi, thank you. Good morning.
Terry MA: Hi, thank you. Good morning.
Terry MA: So do you guys feel pretty comfortable about the mid-teens margin guide for the full year? You guys put up some pretty decent margin expansion in the first half for closed orders that were kind of flat to modestly down. So, should we expect kind of a better than normal seasonality if volumes were to pick up in the back half of the year?
Terry MA: So do you guys feel pretty comfortable about the mid-teens margin guide for the full year?
Speaker Change: You guys put up some pretty decent margin expansion in the first half for closed orders that were kind of flat to modesty down. So should we expect kind of a better than normal seasonality if volumes were to pick up in the back half of the year?
Mike: Terry, Terry, it's Mike. I'll start.
Mike: Tony may want to weigh in, too. But yeah, you know, as we said with margins, there's always kind of this range of outcomes. And it is tough to predict. And as we've talked about before, at these lower revenue net levels, it doesn't take a lot to move margins around. And you have to look at the mix of direct and agency, etc.
Speaker Change: Any way to think about that?
Speaker Change: Terry, Terry, it's Mike. I'll start. Tony may want to weigh in too, but yeah, you know, as we said with margins, there's always kind of this range of outcomes, and it is tough to
Speaker Change: as we've talked about before, at these lower revenue net levels, it doesn't take a lot to move margins around and you got to look at the mix of direct and agency, et cetera. But
Speaker Change: If we, and I think we might have said in the opening remarks, if we see better volumes in the second half, if these rates that went down in the last couple days kind of hold,
Speaker Change: And we'll just have to see. I think there's an opportunity to outperform the margins we had in the back half of last year. I think we did...
unknown: Yeah, was it like 15-something and then 11 or 12?
Speaker Change: 15 something in the third quarter but maybe yeah was it like 15 something and then 11 or 12 yeah 11 or 11 or 12 so I think I think there's the opportunity certainly to outperform that with with better volumes and maybe a little pick up in commercial and that could get us full year
Speaker Change: Maybe the lower end of that range, you know, the 15 to 20, but I'm really excited about as well, just what that might hold for for 25 and the potential for just getting back to a more normal battle market. And then then you'll see us.
Speaker Change: Got it. That's helpful. And then just to follow up on commercial, the commercial fee profile was better than what we were expecting and also higher year-over-year. Any color on what kind of drove that and how we should think about that in the back half?
Speaker Change: Yeah, Terry, that was really, you know, we had some really big deals that closed that kind of pushed that up, you know, a handful of transactions. You don't always know that you're going to get those and they kind of, you know, could come in and out. I think...
Speaker Change: That sort of 10,000 number for total commercial fee per file is still a pretty good number to think about. You can always get upside to it. And on the national side, 13,500 to 14,000 range is probably a good way to think about it.
Speaker Change: But as I pointed out to Mark's question, we are seeing more strength in the National Open Orders, so that could be a little helpful on the fee profile.
Speaker Change: Okay, great, thank you.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Bose George with KBW. Please go ahead.
Bose George: Hey guys, good afternoon. You're about one year out now from potentially being able to spin out F&G, so just any updated thoughts on what you guys might do?
Bose George: Yeah, Bose, thanks. This is Tony, and Mike might weigh in as well, but, you know, as we've said in prior quarters, the board's been very pleased.
Speaker Change: With F&G's performance and the validation of the thesis behind the acquisition, which has been a real compliment to the title business, as you probably heard us say, you know, 40% of our adjusted net earnings in the first half were generated by F&G.
Speaker Change: With a strong leadership team, a strong company there, and frankly, it's outperformed even probably our best or highest expectations. And so at this point,
Speaker Change: I think I mean there's there's optionality out there you've seen us do deals in the past
Speaker Change: But but at this point, like I said, the board is.
Speaker Change: Board's very pleased about F&G's performance and I would say it's been, other than the last few days, I think it's been, you know, it's been recognized in the share price, in both of our share prices, and, you know, it's been a positive experience so far.
Speaker Change: Yeah, I would just add that, you know, it's a valuable growing business led by a fantastic team.
Speaker Change: We're very focused on the current market opportunity to continue to grow AUM.
Speaker Change: When you think about Bose, when we bought the business, the sales were, and Chris and Wendy can correct me if I get the wrong number, running around.
Speaker Change: $3 billion annually, and we're probably 4 or 5x that now on an annual basis. It's just an unbelievable growth story.
Speaker Change: Okay, makes sense. Thanks. And actually just one more on F&G. You know, is there a scenario where the dividend coming out of F&G could increase over the next couple of years or is the, you know, the earnings there really supporting the strong growth that we're seeing over there?
Speaker Change: Yeah, that's a good question, Bose. Maybe I'll let Chris or Wendy weigh in. I mean, my thoughts are that F&G will probably raise their common dividend over time, which, you know, generates for us about, I don't know, $22 million.
Speaker Change: A quarter or something along those lines and then we get another five ish million dollars from the preferred convertible stopped stock that we invested in. I don't know Chris or Wendy if you want to weigh in on what you think the dividend policy might be it at FG.
Chris Blunt: Yeah, no, I think you nailed it, Tony. I think there's capacity to periodically grow the dividend and fund growth.
Speaker Change: Okay, great. Thanks.
Speaker Change: Thanks.
Speaker Change: Thank you. Our next question is from the line of Mark DeVries with Deutsche Bank. Please go ahead.
Mark Devries: Yeah, thanks. Had to add another question for you on S&G.
Speaker Change: Wanted to get your thoughts, Chris, on kind of...
Mark Devries: What your expectations are for how the moving rates that we've already seen...
Mark Devries: will impact sales going forward. And also maybe more mechanically, how we should think about kind of the normal lag between a move in rates and a change to your crediting rates and ultimately to having that impact demand.
Speaker Change: Yeah, great question. So I would say a couple things. One, we talked about on the FG call this morning, we've hedged out about two-thirds of our floating rate exposure.
Speaker Change: So right now it's about, I think about six and a half percent of our portfolio is in floaters. So we got the huge benefit when rates rose because that number was closer to 20%. And we bought a lot of those securities when short-term rates were near zero, frankly.
Speaker Change: So I think you'll see a lot less exposure to rates coming down.
Speaker Change: There's a ton of cash on the sidelines, so I think the near-term impact of rates coming down will probably be even more demand.
Speaker Change: for our products. That's my, my prediction there. And so, yeah, as to repricing the products, it technically happens monthly, but in in a really volatile environment like this, I mean, we can do it.
Speaker Change: Pretty much on any day you want to give a handful of days heads up to your distribution partner, so you don't want to be whipping
Speaker Change: rates around too quickly. But, you know, we've gotten a capacity to reprice. And remember, bulk of the profits are in the in-force block, the $61 billion of AUM. And that's really locked in other than the small percentage inflator. So hopefully that helps.
unknown: Yeah, that's great. Thank you.
Speaker Change: Yeah, that's great. Thank you.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, a reminder, if you wish to ask a question, please press star and one.
Speaker Change: Our next question is from the line of John Campbell with Stephen Zink. Please go ahead.
John Campbell: Hey guys, thanks for the follow-up. Just a little bit of a in-the-weeds type question so we can circle back later if you guys don't have this on hand, but on the Just DPS ad back, it looks like purchase amortizations...
John Campbell: so up a good bit year-over-year. I know you've got some M&A in the mix but
John Campbell: It seems like more like tuck-in bills. If I look at the F&G ad back, they had a big jump in purchase amortization. So I'm thinking that's probably the primary driver. So I'm hoping if you could provide some clarity there and then also how we should be thinking about purchase amortization for your ad back going forward.
Tony Park: Yeah, John , this is Tony. On the title side and the corporate side, there was very little in terms of purchase price amortization ad back. So I'm
Speaker Change: I don't know specifically what that...
John Campbell: What that represents so we might have to do a follow-up to give you an idea of what that looks like
John Campbell: Unless Wendy has anything, because in the prior second quarter, to your point, it was only $6 million. So it went from $6 million to $19 million.
Wendy Young: that we've done in the first, in the second quarter.
Speaker Change: And that 19, is that then that you would expect that to be the run rate?
Speaker Change: I think it will fluctuate. So when we do a big acquisition, as we did in the second quarter, that bumped up. So it will depend on future acquisition.
Speaker Change: Yep.
Speaker Change: So absent future acquisitions somewhere near that $19 million coming from FTE is a good number to go with.
Speaker Change: Correct.
Speaker Change: Okay, that's helpful. Thank you guys.
Speaker Change: Thanks.
Speaker Change: Thank you. Ladies and gentlemen, this will conclude our question and answer session. I will now turn the conference back over to CEO Mike Nolan for closing remarks.
Mike Nolan: Thank you. We are very pleased with our performance through the first half of the year for both the title segment and F&G. The title segment is outperforming in the current market, poised for a rebound in transactional levels, and we are continuing to build and expand the business for the long term.
Mike Nolan: Likewise, F&G's opportunities are compelling, with many prospects ahead to drive asset growth, deliver margin expansion, and generate accretive returns.
Mike Nolan: As you can see, both businesses are well-positioned for the current market as well as for longer-term growth.
Mike Nolan: Thank you for your time this morning. We appreciate your interest in FNF and look forward to updating you on our third quarter earnings call.
Speaker Change: Thank you. The conference of FNF has now concluded. Thank you for your participation. You may now disconnect your lines.