Q1 2025 First American Financial Corp Earnings Call
Greetings, and welcome to the First American Financial Corporation, First Quarter,
At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
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A copy of today's press release is available on First American's website at www.firstam.com forward slash investor.
7-4-15 and enter the conference ID 137-53085 I will now turn the call over to Craig Barberio, Vice President and Investor Relations to make an introductory statement.
Speaker Change: Good morning everyone and welcome to First American's earnings conference call for the first quarter of 2025. Joining us today on the call will be our newly appointed Chief Executive Officer, Mark Seaton, and Matt Wajner, Chief Financial Officer.
Speaker Change: Some of the statements made today may contain forward looking statements that do not relate strictly to historical or current fact.
Speaker Change: These four-looking statements speak only as of the date they are made and the company does not undertake to update four-looking statements to reflect circumstances or events that occur after the date the four-looking statements are made.
Speaker Change: Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward looking statements.
Speaker Change: For more information on these risks and uncertainties, please refer to yesterday's earnings release and the risk factors discussed in our Form 10K and subsequent SEC
Speaker Change: 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.
Speaker Change: For more details on these non-GAAP financial measures, including presentation width and reconciliation to the most directly comparable GAAP financial s, please refer to the yesterday's earnings release, which is available on our website at www.firstam.com. I will now turn the call over to Mark Seaton.
Thank you, Craig.
I'll begin by commenting on a recent leadership changes.
Speaker Change: First, we announced that our prior CEO , Candid Giorgio, has departed the company
Speaker Change: Ken was a pillar of strength at First American for over 20 years. Many of us worked with Ken for many years and valued his commitment, intellect, and dedication to First American.
We wish him and his family all the best.
Speaker Change: We also announced that I have replaced Kenneth CEO . I've been with a company for 18 years serving as our chief financial officer for the last 12. I believe in our purpose, which is to deliver served the interest of power seamless real estate transactions.
Speaker Change: We have an amazing team and a great collection of businesses led by our core title and
Speaker Change: We also have several adjacent businesses that are synergistic to our core title business, including data analytics, home warranty, or bank, First American Trust, and service [inaudible]
Speaker Change: These adjacent businesses each have attractive growth characteristics and margin potential greater than our title business. We have a bright future given our people, unique assets and our commitment to be the best in the markets we operate in.
Speaker Change: Next we announce that Matt Wazner has been appointed our Chief Financial Officer.
Speaker Change: Matt has been with First American for 15 years, most recently serving as our treasurer and part of that Achievement Building Officer.
Speaker Change: Prior to First American, Matt Heldroll to JP Morgan Chase and PWC. He's a perfect fit for the role and has proven to be a great leader with sound judgment, a strong financial
Speaker Change: I look forward to our investor community getting to know more of Matt and Dave's in the weeks to come.
Speaker Change: Finally, we announce that our chairman of the board, Dennis Gilmore, will become our executive chairman. Dennis was our CEO for 12 years between 2010 and 2022, during which time we generated an 18% annual total shareholder return.
Speaker Change: I worked very closely with Dennis during that time and looked forward to working with him in our new roles.
Speaker Change: Turning to our business, I believe First American is poised for a good run. As we all know, our core business is title and escrow, which is driven by mortgage originations.
But we experienced revenue proven in both markets this quarter.
Speaker Change: Real estate goes in cycles and worth the very beginning of the next cycle. There's a lot of macro noise with tariffs, the passive interest rates, inflation, and uncertainty in the general economy, but I believe residential originations have hit a bottom and now we can debate the path and pace of growth.
Speaker Change: The commercial side of the business, which began declining in the second half of 2022, is seeing meaningful improvement. Commercial volumes started picking up in the second half of last year, and the momentum continues into 2025 as their revenue was up 29% this quarter.
Speaker Change: with the macro uncertainty, while the macro uncertainty may cause transactions to slow, we have a great pipeline heading into the second quarter.
Speaker Change: As I mentioned earlier, we're at the very beginning of another growth cycle and are poised to outperform the market given our extraordinary people, deep expertise.
Speaker Change: Unique Assets and Commitment to do what we need to do to win.
Speaker Change: For many years now, our data and analytics business has gained market share.
Speaker Change: while dramatically expanding its tidal plant, property, record database, and document image repositories. As the world becomes increasingly digitized and the power of artificial intelligence continues to grow exponentially, data is needed to drive automation, and since we have more of that data than anyone, it puts us in the driver's seat.
Speaker Change: We are leveraging our bank in new ways to add value to our customers and it also serves as a counter-sickical business that is helping to mitigate the challenging residential origination market that we face.
Speaker Change: We also have momentum with our technology initiatives, in many ways we're carrying redundant tech costs since we support both the new modern systems.
Speaker Change: and the legacy tech that our business depends on today. But when this transition is complete, we'll not only reduce costs by eliminating redundant platforms, but more importantly, enhance the productivity of our operations.
Speaker Change: This will enable us to be the lowest cost producer of our products and services, all while maintaining the high-touch customer experience our clients expect.
Speaker Change: Our business will always be a people business, but data and technology become more important every day, and First American is committed to winning with these capabilities.
Speaker Change: In the short-term, our over-counts are somewhat of a mixed bag.
Speaker Change: For the first three weeks in April , our open purchasers are down 4%
Speaker Change: Our refinance orders rose 52% relative to last year, but it's off a low base and the market continues to be challenged with mortgage rates hovering between six and a half and seven percent.
Speaker Change: Commercial orders are at 5% so far this month in line with the 5% growth we experienced during the first quarter.
Speaker Change: Finally, I'm pleased to report that we've been named one of the 100 best companies to work for by great places to work in the Fortune Magazine for the 10th consecutive year.
Speaker Change: This is an incredible accomplishment and a testament to our hardworking teams around the world who tirelessly service our customers and make First American a great place to be. Now I would like to turn the call back over to Matt for more detailed review of our financial results.
Matt: Thank you, Mark. This quarter we generated gap earnings of 71 cents per deluded share. Our adjusted earnings, which exclude the impact of net investment losses and purchase related intangible amortization was 84 cents per deluded share.
Matt: Revenue in our title segment was $1.5 billion, 12% compared with the same quarter of 2024.
Matt: Purchase Revenue was up 1% in the quarter driven by an 8% improvement in the average revenue per order, partly offset by a 6% decline in closed orders.
Matt: Refinance Accountant for just 5% of our direct revenue this quarter and highlights how challenge this market continues to be with mortgage rates hovering between six and a half and seven percent. [inaudible]
Matt: In the agency business, revenue was $655 million, up 16% from last year. Given the reporting lag in agent revenues of approximately one quarter, these results primarily reflect remittances related to fourth quarter economic activity.
Matt: Information and other revenues were $236 million during the quarter, up 9% compared with last year, primarily due to our Canadian operations seeing higher refinance activity.
Investment income was $138 million dollars in the first quarter
Matt: of $21 million, compared with the same quarter of last year, primarily due to a higher interest income from the company's investment portfolio, and an increase in average interest bearing deposit balances, which more than offset the reduction in investment income related to the Fed cutting rates by 100 basis points in the second half of 2024.
Matt: The provision for policy losses in other claims was $33 million in the first quarter or 3.0% of the final premiums and escrow fees.
Matt: Unchanged from the prior year. The first quarter rate reflects an ultimate loss rate of 3.75% for the current policy year and a net decrease of $8 million in the loss reserve estimate for prior policy years.
Matt: pre-tax margin in the title segment was 7.2% or 7.9% on an adjusted basis.
Turning to the home warranty segment.
Matt: Total revenue was $108 million dollars this quarter, up 2% compared with last year.
Matt: The loss ratio was 37% improving from 42% in the first quarter of 2024, driven primarily by lower claim severity. Pretext margin in the home warranty segment was 22.9% or 23.5% on an adjusted basis.
Matt: The effective tax rate in the quarter was 22.6%, which is slightly below the company's normalized tax rate of 24%. Our debt to capital ratio was 31.2%, excluding secured financing's payable, our debt to capital ratio was 23.5%.
Matt: In the first quarter, we repurchased $448,000 shares for a total of $28 million at an average price of $62.99 [inaudible]
Matt: So far in April , we repurchased 323,000 shares for $19 million at an average price of $59.95.
Matt: Now I'd like to turn the call back over to the operator to take your questions.
Thank you.
Speaker Change: Ladies and gentlemen, we will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad, and a confirmation tunnel indicate your one is in the question queue. You may press star two if you would like to remove your question from the queue. [inaudible]
Speaker Change: for participants using speaker equipment. It may be necessary to pick up your handset before personal
Speaker Change: And our first question comes from the line of Terry Ma with Barclays. Please proceed.
Terry MA: Hey, thank you. Good morning. Maybe just to start off with commercial, you saw some strong revenue growth in the quarter. It actually came in ahead of your January update. So can you maybe just talk more about what you're seeing in commercial? How the pipeline is shaping up, particularly just given all the macro uncertainty in recent weeks.
Speaker Change: Yeah, Jerry, thanks for the question. I think we're cautiously optimistic about commercial. This is the third corner in a row where we've seen some meaningful improvement on a year of your basis.
Speaker Change: and we've got broad-based training commercial. We track 11 asset classes in commercial and nine of them were up year-to-year.
Speaker Change: and, you know, coast to coast, we've got roughly 45 commercial offices and they're all busy with deals these days. We've got strength across asset classes, we've got strength across geography, and one thing we're seeing,
Speaker Change: is that the bit asked for it between buyers and sellers is narrowing. So we've talked about this price discovery here, the last couple quarters, and we're getting to the end of price discovery.
Speaker Change: and even office, which has been a challenging commercial market the last couple of years, we had more office mega deal, this quarter than any asset class, so we are seeing a lot of strength.
Speaker Change: and we've seen volatility in the macro here these last couple weeks but our business hasn't slowed down as of yet and so we feel really good about the pipeline heading into the second quarter we feel like the momentum is going to continue. Thank you.
Speaker Change: and based on what we're seeing now, we feel like the year's going to be good, but we'll see how it turns out and overall I think we're pleased with how commercial is performing right now.
Speaker Change: Got it. It's very helpful color. And then on NII for the quarter it was just a little bit under your guide so any puts and takes there and how should we kind of think about that as we kind of progress through the year. Thank you.
Speaker Change: Hi Terry, this is Matt. I'll take that question. So net interest or interest income or investment income for the quarter. If you're saying it was down a little bit, I assume you're talking about sequentially from Q4 to Q1.
Speaker Change: and that was really impacted by two things. One is lower average interest earning balances in the quarter.
Speaker Change: and Q1, I'll just remind you, is kind of our seasonally low asset investment deposit earning balances just because of the seasonal flow of business and the other impact was due to our mortgage warehouse funding business, interest income was down in that business sequentially as well.
Speaker Change: Year over year, you know, we had pretty good growth. That was driven by the portfolio rebalancing that we completed last year, so increased interest income for investment portfolio. And then we had growth in our average balances year over year.
Speaker Change: So when we turn towards the full year, we expect that we're going to have modest improvement over 24 for full year 25.
Speaker Change: We also expect that Q1 will be the low point for the year, so we expect it to grow from here. And just for the reminder, that's including what we see today in the forward curve of approximately three and a half rate cuts is considered in that.
Speaker Change: I'll also remind you that we expect, you know, for each rate cut, approximately 15 million of annual impact negatively to our investment income.
The next question comes from the line out.
John Campbell with Stephen's Inc. Please proceed.
John Tample: Hey guys, good morning and Matt congrats on the new role looking forward to working with you and Mark congrats on the move into the COC that's exciting
Speaker Change: Mark, maybe start with you. I mean, you've been in this business for a while. I'm curious about kind of how you're viewing the path forward, whether you're looking to stick with the strategy in place or if there are areas of the business you're looking to tweak or address
Yeah, thanks for the question, John .
Speaker Change: I think at least, you know, in a short term in the medium term, there's not going to be any dramatic immediate changes with our strategy. I mean, I feel really good about the path we're on and we work on it as a team.
Speaker Change: You know, Ken and I, the rest of the executive team, I mean, we're a team here and we work on it together and I've fully bought into the strategy that we're on and not just in the last couple of years but for the last 10 years.
Speaker Change: So really good about the businesses we're in. I feel like the core title business is a good past.
It's a good industry to be in.
Speaker Change: And again, like I said, we're at the first pitch of the first inning here of the next real estate cycle. I think that's a good place to be. I think when you look at our adjacent businesses, we're very optimistic about those two. I think they've got as much as we like the title business, I think some of these adjacent businesses we have have higher growth.
Mark Seaton, Kenneth DeGiorgio
Speaker Change: You know, we've got to have the best people in the industry, and I think we do.
Speaker Change: and we've got to win with data and technology, and I think with data...
Speaker Change: I think we're waiting. I think with technology, we're doing an okay job. I think there's a lot of improvement we can make but
Speaker Change: We'll change over time, but you know you're not going to you know wake up and see some pressureally saying we get into some big business that has nothing to do with our core title and escrow business and so I as a general statement I like the path and there might be some changes around the margins, but you know we're on a good path right now.
Speaker Change: Okay. Makes a lot of sense. And then on this success ratio for this year, I know there's always a lot of moving parts, but you know, assuming you're going to get enough growth for that to matter, and then, you know, on the investment side, it does seem like you've tapered back a good bit, but just, you know, as far as what you have your mark for this year as far as investment activity, taking that into account. What do you expect?
You know, to abide by your, you know, typical success ratio this year.
Speaker Change: Yeah, we've talked about the 60% success ratio and we were 51 in the first quarter I think.
Speaker Change: And I think that's, you know, I would say somewhere between 50 to 60 for the full year and, you know, quarters are going to be volatile. But for the full year, I think we'll buy by that.
Speaker Change: and we are becoming more productive, too. I mean, we haven't quite filed the queue yet, but our capex is down another 19% year over year, and so we're continuing to make progress on those fronts, but from a successful perspective, I think 50 to 60 is reasonable for this year.
Speaker Change: Okay, great, and I'm going to take a squeeze in one more. Just on the April title order data on purchase, you know, down four, it looks like from a sequential standpoint, that's a pretty...
Speaker Change: Death and Step Down Road, which you usually see from March to April .
Speaker Change: I know 30-year rates have been a bit volatile. I mean, I think in early, maybe mid-part of April , we hit a 2025 low and then here of late, we're back above the 7% level. So, just curious about if you have this granularity just the week to week facing, was there a pretty big step down later in the month or just kind of how that looked?
Thank you.
Speaker Change: We were up 5%. Second week, we're down 10. Third week, we're down 6. That's purchased, so that includes reseal and new home and with new home. There's more volatility in that number. So as the general stable with our purchase orders down down 4 in April , we have seen
Speaker Change: We saw a big decline in the second week. It's not as bad as the third week, but we have seen that. I would say, you know, relative to the beginning of the year.
Speaker Change: and even relative to the last, you know, Ernst Coe, we had in February . I think our outlook for the year is...
Speaker Change: is less than what we thought, heading into the year, we thought purchase revenue is going to be up kind of high single digits and now we're looking at maybe low single digits, but on a net basis, I think we're more optimistic about the business today than we work a couple months ago.
Speaker Change: Yeah, makes a lot of sense. It's like commercial is certainly got some strength. I appreciate the time, guys.
Thanks a lot, John.
Speaker Change: The next question comes from the line of Bose George with KBW, please proceed.
Boze George: Hey guys, good morning and I go to the congratulations to Mark and Matt. Actually a couple of questions of some expenses. Actually first on the margin impact from endpoint in Sequoia, what was that at this quarter?
Thank you. Bye.
so
This Corp was 130 basis points, and maybe just a couple things on that, Bose is...
It hasn't come down.
Boze George: You know, in the last couple of quarters, Q1s are seeing this little business, obviously for earnings, right? So earnings are more depressed in the first quarter. I mean, that number is going to be higher, so we would expect it to narrow.
Boze George: We've really started breaking out the end point in Sequoia or in separately because we really
Boze George: Wanted investors to think about our core business differently, right? We wanted to separate it out, so investors could really monitor how our core business is doing without this.
Boze George: You know, the drag, let's say, of some other innovation initiatives, but really for both endpoint and Sequoia, for both of those, we're in their early stages of integrating them into our core business right now, and so I think at some point here...
Boze George: Soon, if not today, it's not going to make as much sense to disclose that separately, because now we're at the point where we think investors should judge us kind of on a consolidated basis, because we need to get the value out of these investments.
Boze George: Even though we still track it today, it's starting to get more integrated into our business and it's just not going to be as meaningful to track and we think that's fine for investors to judge us with those being included, if that makes sense to those.
Boze George: Okay, great. Yeah, that definitely makes sense. And then Mark, just going back to the comment you made right at the beginning just about the cost of the new and legacy systems. Is that, you know, sort of referring to these investments as well, or could you just kind of elaborate on that? And kind of how that plays out?
Yeah, it's it's
Mark Seaton: It's primarily related to these investments and really we've got these new platforms whether it's title in the case of Sequoia or whether it's closing an escrow in the case of end point.
Mark Seaton: And, you know, we've got systems that we've been running on for 20 years that support 99% of our orders. I mean, our business runs on these systems and we've been developing these new modern
Mark Seaton: Systems on the side, and they're working. We're very pleased with the milestones and I can go into details on this and and hope to at some point, but we're very pleased that this is going to. We're very pleased that this is going to.
Mark Seaton: really propell us into the next generation to make us more competitive.
Management of All
Mark Seaton: and it's not going to happen in the quarter, but we are in the process of doing that and once we're fully rolled out, well then we can start, you know...
Mark Seaton: sort of dismantling the old systems and we'll be running on new technology that's going to make it more productive and so we're really kind of have these redundant costs here but at over time we'll get savings from that and I don't think we're going to be spending any more than we are now. I think that, you know, as I mentioned before like our Capux is down 19% and we're we're doing a good job of just becoming a lot more efficient with our tech spend so I don't. So I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Mark Seaton: I think we're spending as much as we need to right now. I think our spend will go down. And we'll see productivity improvements gradually, you know, over the next couple of weeks and we'll sit and become more of a bit more of a discussion.
Thank you.
Speaker Change: Breaking up a little bit dead, but thanks very much, I think I got it.
Speaker Change: As a reminder, ladies and gentlemen, if you would like to ask a question, please press store one on your telephone, keep that.
Speaker Change: The next question comes from the line of Mark Hughes with true securities, please proceed.
Okay, thank you. Good morning and congrats Mark and Matt.
Um...
Speaker Change: Part of what we say if we do go there recession, how do you see this in take, could you be enthusiastic, in terms of the impact potential lower interest rates on the housing market?
Speaker Change: How would commercial react in that? Just a few thoughts on what you might anticipate.
Speaker Change: Thanks a lot for the question, Mark, and you were kind of broken up a little bit here on this side, so maybe we have a faulty line here. But let me try to answer your question just about how our business would impact the impact in the recession. I think
Speaker Change: You know, there's good news and bad news, you know, with a recession. I think the general statement, a recession, you know, isn't good for the purchase market.
Speaker Change: But again, the purchase market's pretty low. I mean, last year we, the industry had as many, you know, existing home sales as we did in 1995. I mean, it's really, you know, the purchase market's like a one out of 10 right now. And so, yeah, would it be impacted with the recession? Sure, but it's pretty, it's pretty low right now.
Speaker Change: I think with a recession, it depends on what happens with rates obviously and most recessions what happens is rates lower and we get a re-fi wave and so that typically serves as somewhat of an offset for us and so I think the re-fi business would...
Speaker Change: would pop a little bit, and then on the commercial side commercial would typically follow purchase, right, they're not exactly 100% correlated, but if we're in a recession I mean that would...
Speaker Change: that would cause some decline in early some softness in the commercial market. So I wouldn't say we're hoping for recession. I don't think that would be a good thing for the economy. It wouldn't be a good thing for First American, but we do have some offsets in that scenario.
Speaker Change: Any change in philosophy that you might have around share buybacks? I think the company historically has been fairly deliberate in the buybacks. You've been active here lately, but how do you view buybacks as a use of capital?
Hey there.
For more information, please visit our website at www.cdc.gov.
Speaker Change: We have to think our stock is undervalued, which we do now and
Peter Antigone and John Connery.
I appreciate it. It's really, it's a pleasure.
Speaker Change: So we should be buying back our stock every single trading day of the year forever. I think there's windows that were open, where it's a good thing for our shareholders. I think there's times when it's not a good thing for long term shareholders.
Speaker Change: and so the windows open and close, but I think the windows open now because I do think our stock is undervalued, and I feel great about the future of the company and the trajectory of our earnings, and so because of those reasons we repurchase shares, but that's kind of how we think about it going forward.
Speaker Change: Very good. And then finally, the bank contribution to earnings and the contribution to...
I guess I just ...
Speaker Change: as a cyclical offset, perhaps. Could you maybe just expand on...
Speaker Change: Any initiatives or what we might expect out of the bank in the next year or two and maybe you can even throw in, if the economy does show some volatility, how might that influence the bank contribution?
The bank is a real strategic asset for us.
Speaker Change: It makes our escrow operations extremely efficient because title companies work with banks every single day and since we have a bank and a title company, we can integrate our systems
Speaker Change: The thing that's exciting about our bank to us is there's a lot of growth potential, so historically we've really had one big customer in its first American title.
Speaker Change: But every single month, we're signing up new customers and we have what's called an agent baking strategy where
We're trying to and having success with…
Speaker Change: Banking title agents that are out there having title agents put their espert deposits at First American Trust and every single month we're signing up new agents and getting more deposits. There's also synergies with
with Service Makers, Subsurbersur, who carries certain types of deposits.
Speaker Change: that we have at our bank and so we're opening it up to third parties more and we're having a lot of success with that.
Speaker Change: We stumbled early because we needed to invest in new technologies, we needed to create a customer service team but we finally...
Speaker Change: figured out the system, and the flywheel is really going right now with the agent banking, so we're really excited about the future. I would say, as a general statement too, the higher the, when I said offsets, you know, earnings offset in my script,
Speaker Change: You know, when we have a higher Fed funds rate and higher rates, it's generally not good for the residential business, the resident, as I said before, residential business is like a 1 out of 10.
Speaker Change: But the bank is going to have record earnings this year. I mean, we won't have higher earnings than we will in 2025 from the bank so higher interest rates are a good thing for the bank. Now, if we get a lower interest rate environment, obviously that's going to help our title business and it's not going to be as good for the bank.
Speaker Change: But we have taken more duration in the bank because we just feel like we kind of want to lock in these good spreads that we have. So the bank is a real strategic asset and we feel like we can grow it over time. And it's unique because none of our competitors have one and it's a good thing to have.
Appreciate that detail. Thank you.
Mark Devries: The next question comes from the line of Mark DeVries with Gorsha Bank, please proceed.
Mark Devries: Yes, thanks. Mark, could you give us an update on where you stand with the rollout of Endpoint in Sequoia?
Sure. So, with Sequoia, we've had...
Mark Devries: We've had a pilot in two markets in Phoenix and Riverside. When we started the pilot, the goal was to have 50% of purchase transactions automated, 50%.
Mark Devries: and we've got clear line of sight into 50%. So our hit rates are higher than what we initially thought and we're going to be able to do it for lower cost than we thought. So we've exceeded our base case with respect to Sequoia.
Mark Devries: The next step with Sequoia is we're in the early stages of rolling it out through the entire state of California, so that's sort of early stages right now, and we're coming up right now with the national rollout time. Don't have it yet but the team's working on it.
Mark Devries: for Sequoia, or I'm sorry for endpoint, we've made so much progress with the system itself.
Mark Devries: We are running it live in Seattle. It's working really, really well. I think it's exceeded our expectations.
Mark Devries: Now, we're kind of in the early stages, and it's going to be a lot harder to roll out, you know, the technologies with an endpoint than it is on Sequoia for a lot of different reasons. But we're in the early stages of coming up with kind of a national rule out of plan to try to figure out how we can get this technology and other technologies that we have in the hands of our esgraffers.
to really, with the goal of eliminating more the...
Mark Devries: The administrative tasks and giving our escrow officers more time with their customers more time.
Mark Devries: Closing Transactions where they can get paid more and they can just deal with these edge cases where things go wrong and it's going to transaction as opposed to spending so much time on administrative tasks. So that's the vision.
Speaker Change: and I would say we're going to have a national rollout plan by the end of the year, with endpoint, we're coming up with it right now to figure out which offices we want to do and what type of people we want to roll it out to, but we're going to have a rollout plan by the end of this year, the bill.
by the end of the year two.
Speaker Change: Great, that's helpful. And any updates on what the status is of the proposed rate cut in Texas and some of the efforts to push back on the initial proposal?
Speaker Change: It's going to go into effect your life first. I know there's a lot of groups fighting it. We're operating under the assumption it's going to happen. And so we're planning for it.
Speaker Change: There's things we can do on the margins to mitigate the risk, but we're not going to be able to mitigate the entire blunt of it, but one of the things that's helpful for us is we're-
Speaker Change: A big national business with scale. I think it really hurts a lot of the tidal agents in Texas that don't have the scale where a hundred percent of business comes from Texas. It's a lot worse for the smaller title companies and I don't think it's good for the industry as a whole, but we're planning on it happening as a job first.
Speaker Change: Okay, I got it. It didn't finally, you know, you made the point a couple of times, did.
Speaker Change: The Macro uncertainty could cause a slowdown in commercial. Are you just saying that out of either abundance of caution or past experience, are you actually seeing anything tangible, whether it's in conversations with customers that point you to that?
Speaker Change: When we look back the last couple of recessions, we've had the purchase in the commercial market both to climb together. So there is evidence of that. Now what I'd say is we haven't seen it yet. We haven't seen it yet. Now we've seen one deal that I'm aware of in the US.
Speaker Change: But when I say Post-Bell, these are refinanced deals that are going to happen eventually and we just thought they were going to close in the first quarter and now they're pushed off So we haven't seen a decline at all and we always see a strength right now in commercial but if we see a recession, if we go into recession we're going to see a recession.
Speaker Change: You know, I got to imagine our commercial businesses getting it softer because that's how it's always been on our few recessions.
Okay, got it. Thank you.
Take part.
Speaker Change: And the next question comes from Milan of Geoffrey Dunn with Dowling and Partners. Please proceed.
Good morning.
Good job.
Speaker Change: I appreciate your thoughts on, you know, a philosophy of buyback, but I was aware if you could walk us through how you're thinking about the resources for buyback, if the window remains open.
Speaker Change: Can you walk through some math with respect to, you know, expected cash flows, op-code dividend capacity, you know, common dividend and debt service obligations, you know, what's the actual pool that could be an opportunity for buy back as we think about here?
Dr. John Campbell, Dr. John Campbell,
Speaker Change: Hi, Geoff. This is Matt. I'll start on that one. So, you know, at the end of Q1, when we look at, you know, what's the capital that we have available for, you know, those type of activities?
Speaker Change: At the holding company, we had about 100 million of cash.
Speaker Change: and we feel good about that level of cash is kind of what we need.
Speaker Change: and then when we turn to Fatico, the way we look at Fatico and measure what we believe is
Speaker Change: Capital in Fatico is we try to approximate what we believe we need for rating agencies requirements and then also to run our business so we think we have about 160 million roughly in excess capital at Fatico as well.
Speaker Change: So, you know, those right there, that's resources that we could use.
Speaker Change: We're also generating meaningful earnings every month, right? So that's a potential.
Speaker Change: is, you know, we have our corporate revolver with $900 million, so if we were to need, you know, additional liquidity or capital.
Speaker Change: We could access our revolver, and then when we think about dividend capacity, right now Fatico's dividend capacity is $535 million, so
Speaker Change: There's no regulatory constraints for what we would need to be able to pull out of Fatico if he wanted to access some of that excess capital.
Speaker Change: And when we look at our debt to cap, we're at a comfortable 23.5% right now. It's a little bit over what our target would be through the cycle, which is 20%, but we're very comfortable at 23.5% given where we are in the cycle.
Speaker Change: and where we think we want to be is generally not over 25% for a sustained period of time, but
Speaker Change: You know, for rating agency purposes, you know, as long as we're not over 30% for a sustained period of time, the rating agencies would be fine. Our covenants are at 35%.
Speaker Change: So we do have quite a bit of kind of capacity to access debt if we needed to you on our facility so those are kind of that's kind of the pool that we think of of capital available.
Thank you. That's helpful.
Thank you.
Thank you.
Speaker Change: There are no additional questions at this time, and that will conclude this morning's call.
Speaker Change: We'd like to remind listeners that today's call will be available for replay on the company's website.
Speaker Change: or by calling 877-660-6853 or 201-612-7415 and enter the conference ID 1-3753.
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Speaker Change: The company will like to thank you for your participation. This concludes today's conference call. You may now have us connect.