Good morning and welcome to FNF's First Quarter 2022 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. As a reminder, this conference call is being recorded. I would now like to turn the call over to Lisa Foxworthy-Parker, Senior Vice President Investor and External Relations. Please, go ahead.

Great. Thanks, operator, and welcome again, everyone. Before we begin and as a reminder, 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. Please refer to our most recent quarterly and annual reports and other SEC filings for a discussion of the factors that could cause actual results to differ materially from those expressed or implied. We will be discussing certain non-GAAP measures on this call which we believe are relevant in assessing the financial performance of the business and you'll find reconciliations of these metrics within our earnings materials available on the company's website. Yesterday, we issued a press release which is also available on our website. And today's conference call will be available for webcast replay at fnf.com. It will also be available through telephone replay beginning at 2:00 PM Eastern today through May 18, 2022. Joining me this morning, to discuss the business momentum we are seeing at FNF and F&G and our results in further detail, are Mike Nolan, CEO; Tony Park, CFO; and Chris Blunt, F&G's CEO. We look forward to addressing your questions following conclusion of our prepared remarks. And with that, I'll now turn the call over to Mike.

Thank you, Lisa, and good morning. Overall, we had a great start to the year, with total revenue of $3.2 billion, the best first quarter in FNF history. Our title business is performing well, as we had our second best first quarter in terms of adjusted pre-tax earnings and adjusted pre-tax margin. Similarly F&G continues to deliver on its diversified growth strategy and we are excited about the recently announced dividend distribution of 15% ownership stake in F&G to FNF shareholders, which is on track to be completed in the late third quarter or early fourth quarter of this year. Focusing on the title business, we have entered a period of rising interest rates coming off the historically low mortgage rates over the last two years. The average 30-year fixed mortgage rate has driven from roughly 3% at year-end to around 4% at the end of the first quarter and more recently to over 5% at the end of April. We have seen steady levels of residential purchase origination demand, although, given the current environment, we are not seeing the typical increase heading into the spring selling season. While current residential purchase demand is trailing last year, 2021 was a record year for the US residential purchase market and current forecasts indicate 2022 will still be one of the strongest purchase origination markets in the last decade. We also continue to benefit from strength in the commercial market and home price appreciation in the residential purchase market. Commercial fee per file increased 35% and residential purchase fee per file increased 9% versus the prior year, which taken together have served to buffer reduced refinance volumes. For the first quarter, total orders opened averaged 8,600 per day. For the month of April, total orders opened were 7,400 per day. Aside from…

Thanks Mike. The first quarter kicked off a strong start to 2022. We achieved sales of $2.6 billion, which boosted ending assets under management to $38.6 billion as of March 31st. Our success in expanding distribution under FNF's ownership now gives us the ability to source premiums from five distinct channels versus one at the time of the acquisition in June of 2020. Our first quarter retail sales totaled $1.5 billion in line with the prior year quarter. The relatively flat sales from our agent bank and broker-dealer channels in the quarter reflected pricing actions taken in response to the macro environment in the fourth quarter, which carried into early first quarter results. We took a measured approach in reflecting the move up in rates in our pricing during the early part of 2022, but have subsequently seen record levels of submitted annuity premium in March and April and are well-positioned to resume our strong growth trajectory in the second quarter. Turning to institutional markets, which we launched in mid-2021, our first quarter sales totaled $1.1 billion. The first quarter marked our largest single pension risk transfer transaction to-date with over $500 million in premium transferred and we were ranked eighth in total market share for the full year 2021 according to LIMRA. This demonstrates our leadership in the large and growing addressable markets we plan. We foresee that demographic trends will provide tailwinds to give us significant room to continue growing in the untapped middle market, as well as the opportunity to migrate consumers from bank CDs to attractive fixed annuity products in a rising rate environment. Our business model gives us a sustainable competitive advantage within our markets, given our long-standing relationships with distribution, durable investment management edge through our Blackstone partnership and a track record of attracting…

Thank you, Chris. Starting with our consolidated results, we generated $3.2 billion in total revenue in the first quarter, with the Title segment producing $2.4 billion, F&G producing $748 million and the Corporate segment generating $34 million. First quarter net earnings were $397 million including net recognized losses of $469 million versus net earnings of $605 million including $43 million of net recognized gains in the first quarter of 2021. 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. Excluding net recognized gains and losses, our total revenue was $3.6 billion as compared with $3.1 billion in the first quarter of 2021. Adjusted net earnings from continuing operations was $388 million or $1.37 per diluted share compared with $455 million or $1.56 per diluted share for the first quarter of 2021. The Title segment contributed $334 million, F&G contributed $82 million and the Corporate segment had an adjusted net loss of $28 million. Turning to the Title segment financial highlights. Our Title segment generated $2.6 billion in total revenue, excluding net recognized losses of $175 million in the first quarter compared with $2.6 billion in the first quarter of 2021. Direct premiums increased by 3% versus the first quarter of 2021, agency premiums grew by 4% and escrow title-related and other fees decreased by 11% versus the prior year. Personnel costs increased by 3% and other operating expenses decreased by 2%. All in, the Title business generated a 17.1% adjusted pre-tax title margin for the quarter, a decrease of 280 basis points versus the record 19.9% in the prior year quarter. Our Title and Corporate investment portfolio totaled $6.5…

Thank you. Our first question comes from the line of Mark Hughes with Truist. Please proceed with your question.

Yes. Thank you. Good morning.

Good morning.

Good morning.

The acceleration you saw in sales in March and April was that a pricing action on your part? Was that just a broader uptick in demand on FIAs given the interest rate environment and the, I guess the equity market volatility?

Yeah. Great question. I think it was really a function of we were a little late to move pricing. Rates moved up quite quickly particularly in the liquid credit part of the market. And we just want to make sure that that was sustainable. And once we kind of moved with competitors and kind of move back to our traditional margin, we've seen sales jump pretty dramatically.

And then with this kind of backdrop, do you look to expand spreads either in the FIA category overall, or is that going to be a steady spread and whatever additional interest rate goes with the policyholder?

No, I think we do look at this as an environment to take a little bit of extra spread. Obviously you need to remain competitive. You need to have good competitive renewal rates. It's incredibly important to both policyholders, but also distribution partners but some spread expansion just happens even if you're not attempting to do that just given the movements that we've seen on the rate side. Meaning we're pricing product we're bringing in premium. And by the time, we actually get it invested, you're in most cases grabbing a couple of extra basis points of spread. So I do think this is an environment we can continue to grow. We can continue to be very competitive, take market share, and at the same time, probably get a little extra spread along the way.

And then one quick question, if I might on the Title business purchase you described down 6% in April. Any sense of the trajectory of that given the interest rates have been moving so fast, how stable has that been? What's your experience been kind of in a recent week or two?

Sure, Mark, it's Mike. I would say it will all be dependent of course on whether rates stabilize or continue to move up. But as I mentioned in the opening, we're not seeing the typical increase as you move into the May, June time frame which are typically the peak months in a year. And we just may see – I would expect that, we'll see purchase orders kind of flattish through that time frame instead of increasing and then probably start to see just the typical month-over-month slight decline as you move through the back end of the year.

Thank you for that.

Our next question comes from the line of Andrew Kligerman with Credit Suisse. Please proceed with your question.

Hey, good morning. Mike on that last question, did I hear you correctly in your opening remarks when you said that opened orders for purchase went from 8,600 in April daily to 7,400 as we kind of start May. Is that right?

No, that's not correct Andrew that was total opened orders not purchase and the decline is primarily on the refi side.

Got it. Okay. Good. So things are somewhat stable then...

Yeah, but purchase is more a bit more stable although down, as I mentioned 1% for the first quarter and 6% for April year-over-year.

Got it. Good to hear. Okay. And then with respect to the adjusted pre-tax margin 17.1% in the quarter down from 19.9% year-over-year. And then sequentially down from 22.4%. And all the while revenue – or at least year-over-year the revenue as you cited is flat. So could you possibly Mike or Tony help me to dissect, what's driving that margin down and where we might expect that to be going forward?

Sure. It's Mike and I'll start with the first part. In terms of the year-over-year, which is really the more valid way to make a comparison, you really in our industry you can't really compare fourth quarter margins to first quarter margins. It's just that the trajectory of the business just doesn't really drive that. But if you look at the year-over-year, it's really just three things. We had personnel costs up about 3% in the Title segment on flattish revenue. So that takes your margin down a little bit. We had a higher mix of agency revenue to the total. And as you know our agency gross margins are industry-leading, but still in the 9% to 10% range up against a direct pre-tax margin that might be in the mid-20s or 30s. So that has a bit of an impact. And then there's a few non-Title businesses -- in the Title segment that also had a little bit of margin compression quarter-over-quarter. And then to your second question about going forward, I would expect margins to be very good. As you know we don't give guidance. But as we look at the second quarter, we still expect to see a very healthy commercial environment. Purchase maybe not as good as the original forecast thought, but still actually a very good purchase market in a historical context standpoint and just it should be a good quarter.

Got it. That's good to hear. And then as I kind of think about the expenses and you just said Mike that personnel was up 3%. And then I looked at other operating expenses year-over-year that was actually down 2%. With these pressures how are you looking at both the personnel and the other operating expenses going forward?

Sure. And we started with some modest resizing of the business and staff reductions. We had a little bit in the fourth quarter some more in the first quarter. And the first quarter number also includes adding approximately 250 employees through acquisitions as well as industry-focused hiring. So we continue to kind of work on both ends of it adding talented people to the company that can drive additional revenues but also rightsizing the overall size to the environment. And as we go through the second quarter, I would anticipate maybe another 3% to 4% decline in total employee counts.

And Andrew, it's Tony. Just maybe to add on to that. If you look at our personnel costs we're probably about two-thirds fixed and one-third variable in that line item. So clearly as revenue and profits move our variable costs on the personnel side move with them. And then the fixed are more salaries, payroll taxes that sort of thing. And of course that salaries get adjusted when you take headcount out. On the other operating expense side of things we're probably a little more variable there. We have cost of sales in there and some of our businesses like valuations and maybe loan care. We have Title plant costs that can be more variable, certain professional fees. And so that's why you see maybe a little bit more of a decline or you see a little bit of a decline on the other operating versus a little bit of an increase on the personnel.

Very helpful. Thank you.

Our next question comes from the line of John Campbell with Stephens. Please proceed with your question.

Hi, guys. Congrats on the quarter. Good morning.

Hi, John.

Hi, John. Thanks.

Hey, Chris maybe starting off with you on the -- over the last year it looks like the F&G adjusted net earnings on a quarterly basis, it looks like you guys have averaged roughly $90 million. I think maybe that's a little bit -- a little overstated. It sounds like maybe normalized more like $80 million. But, obviously, you guys have built up the AUM quite a bit. I imagine you're probably getting a degree of added tailwinds with rates. But it's somewhere in that kind of $80 million to $90 million range per quarter. Is that a good range to consider going forward?

Yeah. No I think it is. And again if we just go back to that simple 1% return on asset metric and you project out average assets under management that's going to put you in the right ZIP code. But, yeah, I think that's a good starting point. Some positives this quarter continue to have some CLO refinancings. So that's pulling forward some earnings that will clearly decline now given where rates are but then we also had the tax adjustment. But yeah if you strip out some of the one-timers and some of the noise I'd still point back to that 1% ROA figure. We've been doing a bit better than that given the environment but I think that's a good estimate.

Okay. That's helpful.

Yeah. And John it's Tony. Just maybe to put a finer point on it. When you do strip out those items that Chris was talking about we're actually closer to $100 million in the quarter. I think we were at $98 million excluding those notable items versus $66 million just to a year ago in Q1. So to Chris' point $98 million is almost $400 million run rate and that's pretty close to 100 basis points on assets.

Yeah, makes sense. And I mean you guys have really put up some good results out of F&G. So hopefully with the 15% spend you guys will eventually get credit for that for sure. On the commercial side that has been way ahead of at least our expectations the last couple of quarters. It looks like on the national side, it looks like open order is up 16% year-over-year, so continued momentum there. But maybe if you guys could talk about the mix what asset classes you would point out as the drivers of momentum and how you feel about the commercial business the rest of the year?

Yeah John, it's Mike. And you're absolutely right. The national orders will actually have closer to 18% quarter-over-quarter. But we're very optimistic on commercial. We've now got as I mentioned in the opener four months in a row over thousand orders a day. We're 14 out of our last 15 months have been over thousand a day, which from a historical standpoint is probably 20% better than the best trends we've ever had. And from an asset class standpoint, we continue to see industrial multifamily are very strong. You see gaming and energy transactions come in and out. And in some cases hospitality improving, retail improving, some office transactions. So it's a pretty broad-based asset class activity and the geographic activity continues. So I would just say we're bullish on commercial for the year. And certainly with the pickup in national orders in particular, we should see that average fee per file continue to be pretty strong.

Yeah. It’s good to hear. Thanks for the color guys.

Thanks John.

Our next question comes from the line of Bose George with KBW. Please proceed with your question.

Hey, guys. Good morning. First, just in terms of the trend in premiums, just given home price appreciation remains strong and the benefit to fee per file, could we end up with premiums being fairly flat year-over-year on the purchase side despite the declines in volumes that you've highlighted?

Yeah. Bose, it's Tony. Yeah I think that's a real possibility. We obviously don't know exactly where we're headed in terms of volumes. And I think everyone believes that there's going to be pressure on that given what's going on with mortgage rates. But having said that I also think that we'll continue to see home price appreciation albeit probably moderating as we work through the year, which might be a good thing, because affordability will become more challenging if you have home prices continue to increase and mortgage rates continue to increase. So, yeah, I mean if you had a 10% decline in volumes and a 10% increase in price appreciation, you might see some sort of a wash.

Yeah. Okay. So that makes sense. And then, Tony could you just repeat what you said about the expectations from interest income as rates increase?

Yeah, absolutely. And this is a rough estimate. But based on our portfolio, especially given how short it is, we would anticipate roughly $5 million in run rate income for each 25 basis point increase in Fed funds. And so we're already seeing some of that. Maybe to put it in perspective, I think we had about $110 million or so in investment income in Title and Corporate last year, and I could see that trending closer to maybe 180 if the Fed moves the way everyone has anticipated they will, which is maybe 10, 25 basis point increases or 250 basis points by first quarter of next year. So, we definitely would expect to see some nice growth in investment income. And most of that's going to be from our cash balance as well as our 1031 Exchange business. Now, I also did say that, on the 1031 Exchange side, once we get to about 200 basis points of increases I think there's going to be a little bit more pressure on the customer side on -- at 1031. So, you don't necessarily get it dollar for dollar after that.

Okay, great. That's helpful. And then, actually just one for Chris. The volatility in the equity markets, how does that impact just the hedging of the spread that you guys are offering?

Yeah. Those results have actually been quite consistent. Keep in mind, a big portion of the indices now are multi-asset indices. So, we've seen our hedging costs, if you will be pretty stable throughout this. So it's really anticipated volatility matters more. So, it really hasn't been a big swing factor so far.

Okay. Great. Thanks.

Our next question comes from the line of Ryan Gilbert with BTIG. Please proceed with your question.

Hi, thanks. Good morning. Thanks for taking the questions. Just going back to what you said earlier about the sequential trends in -- heading into 2Q. It sounds like maybe we're heading towards in the purchase market anyway is maybe a mid-teens year-over-year decline in closed order counts in 2Q and maybe 3Q as well. Is that a fair characterization?

A mid-teens decline in closed door accounts and purchase.

Yes.

Is that what you said?

Yes. Just based on flattish month-over-month trends.

Yes. I don't know Ryan. I'd have to probably do a little math on that, but that sounds a little strong to me. But I'd have to look at it.

Okay. Got it.

I mean we were -- our purchase trends were down 1% in the first quarter. And a lot of that's going to tee up your second quarter closings and you're saying mid-teens decline, it just seems a little bit of a -- I don't know that I'd get there from a 1% decline in the first quarter.

Okay. Got it. And then we typically see a sequential increase in Title pretax margin from 1Q to 2Q. It sounds like that's still on the table. Is that correct?

Yes. Again, we don't give guidance but I would say that certainly in the realm, it's going to just depend on how commercial comes through. And maybe purchase as well. But certainly, something that we think for the realm.

Okay. Great. Last one for me on F&G. Chris can you just remind us the return profile by each distribution channel?

Yes. So, I would say generally in our business, the independent agent channel has tended to have the highest return slightly less in bank and broker-dealer. Our PRT business is comparable returns to the business that we write in the retail channel. So, we blend it all together, it's really not all that dramatic. I mean you could be talking a point in one direction or the other. So, pretty consistent across the channels. Obviously that can vary within a year in different competitive environments, but pretty consistent. .

Okay. Great. Thanks. I appreciate it.

We have a follow-up question from the line of Mark Hughes with Truist. Please proceed with your question.

Yes. I was just going to kind of get at that earlier issue about the closings of the trajectory in 2Q by asking, what's the normal step-up -- kind of seasonal step-up in May and June? If it's not going to happen this year kind of what's the absence that we're going to see?

Yes. Well, on the open side, Mark, usually you're seeing -- and it can depend on the year, but as you kind of go from March, May to June and maybe you're seeing sequential increases in the 3%, 4%, 5% per month and then it starts to kind of go back down the other way. And so, we're not -- absent a surprise, we're not seeing that. So it might be more flattish as I said earlier. And that's on the open side which of course feeds into the closing.

Yes. Yes, helpful to get some sort of magnitude on that. That was my only question. Thank you.

There are no further questions in the queue. I'd like to hand the call back over to Mr. Nolan for closing remarks.

We are pleased with the great start to the year despite the uncertainty and volatility in the current macro environment. FNF is well positioned to execute through this rising rate environment due to our disciplined operating strategy and long history of navigating market cycle fluctuations. Likewise, F&G is poised to benefit from the rising rate environment and is on track to list as a publicly traded company later this year. Thanks for your time this morning. We appreciate your interest in FNF and look forward to updating you on our second quarter earnings call.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.