Fidelity National Financial Inc (FNF) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the 2009 second quarter earnings call. At the request of Mr. Murphy, all participants are in a listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Dan Murphy. Please go ahead, sir.

Thank you, and good morning, everyone, and thanks for joining us for our second quarter 2009 earnings conference call. Joining me today are Al Stinson, Chief Executive Officer; Randy Quirk, our President; and our Tony Park, CFO. Our Chairman, Bill Foley, is out of the country and will not be able to participate in the call today, due to time zone differences. We'll begin today with a brief strategic overview and operating company review from Al. Randy will provide an update on the title business, and Tony Park will finish with a review of the financial highlights. We'll then take your questions and finish with some concluding remarks from Al Stinson.

This conference call may contain forward looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements are based on management's beliefs, as well as assumptions made by and information currently available to management. As such statements are based on expectations as to future economic performance and are not statements of facts, actual results may differ materially from those projected. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. The risks and uncertainties which forward-looking statements are subject to include but are not limited to the risks and other factors detailed in our press release dated yesterday, and in the statement regarding forward-looking information, risk factors, and other sections of the company's Form 10-K and other filings with the SEC.

This conference call will be available for replay via webcast at our website at fnf.com. It will also be available through phone replay beginning at noon Eastern today through next Tuesday, August 4th. That replay number is 800-475-6701, with an access code of 106308. Let me now turn the call over to our Chief Executive Officer, Al Stinson.

Thank you, Dan. The second quarter was successful on a number of fronts. First, we achieved a significant increase in revenue in earnings in the title business as we began to close a meaningful number of the orders that we opened in the first quarter and early second quarter, producing a 9.2% pre-tax margin for the full quarter. Additionally, we exceeded a 10% pre-tax title margin for the month of June.

Open-order counts did slow as the quarter progressed, following the increase in mortgage rates. However, order counts have been stable around 9,000 open orders per day for about the last six weeks, which allows us to more effectively manage the business. We completed the integration of Lawyers and Commonwealth during the second quarter, generating an additional $32 million in cost synergies in addition to the $231 million in cost synergies previously realized for an overall total cost reduction of $263 million. We eliminated a total of about 2,300 positions, more than 40% of the employees transferred at closing, and more than 240 offices as part of the integration.

After losing approximately $20 million in our first month of ownership in January, the Lawyers and Commonwealth operations are now producing similar margins to our other underwriters. These underwriters are now fully integrated in to the FNF family, and we look forward to their continued significant contribution to our market-leading title insurance business. We were encouraged to see the first quarter DemoTech market share statistics, which showed our market share to be 45.4%, essentially equal to our pro forma 2008 DemoTech market share of 45.8%. Meaning, we effectively lost no market share in the first quarter after the Lawyers and Commonwealth acquisition.

In April, we were successful in issuing 18.2 million shares of our common stock for about $331 million in proceeds to further strengthen our balance sheet. The proceeds were primarily used to reduce the outstanding balance on our credit facility by $135 million, and to repurchase $71 million of our existing public debt, resulting in a 22% debt to cap ratio at the end of the second quarter versus our credit facility limit of 35%. We also used $25 million as part of a $49 million capital infusion in the Lawyers title insurance to bolster that underwriter's balance sheet. With a significant weakness in the stock in May and June, we also bought back about $47 million of our own stock at an average price of about $12.78, well below our June 30 book value of $13.56. Additionally, our Board of Directors recently approved a new three-year stock repurchase program under which the company may repurchase up to 15 million shares of its common stock through July 2012.

Operationally, specialty insurance revenue was $98 million for the second quarter, an increase of about $1 million from the second quarter of 2008. Flood insurance generated $42 million in revenue. Personal lines insurance contributed $31 million in revenue, and home warranty produced $18 million in revenue. Pre-tax earnings of $14.5 million, and pre-tax margin of nearly 15% were positively impacted by increased flood claim processing revenue during the second quarter, still driven by late summer 2008 hurricane-related floods. The homeowners business produced a loss ratio of 58% for the quarter.

While we do not consolidate the results of Sedgwick, they produced revenue of $177 million and EBITDA of $29 million for an EBITDA margin of about 16% for the second quarter. Our 32% share of Sedgwick second quarter earnings was about $2.4 million. We also do not consolidate the results of Ceridian, but they produce revenue of $362 million and EBITDA of $60 million and EBITDA margin of 17%. Our 33% share of Ceridian's quarterly loss was $10.8 million. We also recognized $2.6 million for our share of Remy's net earnings in the quarter.

Finally in the title business we have increased all of our price increased [items]. Revised rates have been approved or instituted in 23 states, averaging between 5% to 10% increases. We are involved with some follow-up inquiries or waiting Department of Insurance approval in an additional 15 states. In promulgated states, New Mexico will institute a 10.7% rate increase on August 1, and Texas has postponed their biannual rate hearing until September. Let me now turn the call to Randy Quirk to discuss the title business in more detail.

Thank you, Al. In the title business, total open order of volumes were stronger early in the quarter and slowed with the increase in mortgage rates late in the quarter. We opened 13,600 orders per day in April, 12,100 per day in May, and 9,200 orders per day in June. The decline in open order counts was clearly driven by the slowdown in refinance orders as the refinance percentage fell from 70% of open orders in April to just over 50% in June.

Since the beginning of June, where we began to reduce headcount, we have eliminated more than 500 positions. We will continue to monitor our productivity metrics weekly, and make staffing adjustments as your accounts dictate.

We also continued to aggressively manage our agency relationships. Before the Lawyers and Commonwealth deal, we had eliminated approximately 2,800 or approximately 35% of our agents between 2006 and the third quarter of 2008. Since the December acquisition, we have eliminated another 2,900 agents, of which 2,600 were from the Lawyers and Commonwealth operations. We have reduced the Lawyers and Commonwealth agent base by more than 40% since the acquisition. These agents represented only about $25 million in net premiums in 2008. The agents terminated have been low remitters and those with high-claim levels.

The commercial title environment continues to be difficult. We opened approximately 23,200 commercial orders in our national commercial divisions and closed approximately 13,300 commercial orders, generating approximately $52 million in revenue on a continued lower fee per file figure of $3,900. On a sequential basis, the commercial business experienced better order volume and slightly higher revenue despite a 12% sequential decline in the commercial fee per file. Commercial revenue accounted for approximately 13% of total direct title premiums in the second quarter.

Let me now turn the call over to Tony Park to review the financial highlights.

Thank you, Randy. FNF generated $1.6 billion in revenue for the second quarter, with pre-tax earnings of $131 million and strong cash flow from operations of $155 million. The title segment generated $1.45 billion in total revenue for the second quarter, an increase of 40% from the second quarter of 2008. The current quarter's results include the results of Lawyers and Commonwealth, while the prior year results do not.

Direct title premiums increased by 27% and agency premiums increased by 50% versus the second quarter of 2008. Without the impact of the Lawyers and Commonwealth operations, direct premiums increased by 7% and agency premiums increased by 6% versus the second quarter of 2008. Escrow and other fees increased by 33% versus the prior-year quarter, 16% before the impact of the Lawyers and Commonwealth operations. Asset link generated $43 million in revenue, $27 million of which was pass-through revenue that also shows up as an expense in other operating expenses.

Excluding Lawyers and Commonwealth, title segment personnel costs decreased by $7 million, or 2% versus the second quarter of 2008. Excluding Lawyers and Commonwealth, other operating expenses declined by approximately $500,000 from the second quarter of 2008. Despite the significant increase in open and closed order volumes for the prior-year quarter, both personnel and other operating expenses actually declined, allowing for the significant increase in the pre-tax margin.

The provision for title claims was $73 million for the second quarter. Actual title claims paid in the quarter were $77 million. Actual claims paid were $133 million for the first six months of 2009 versus $244 million on a pro forma basis, including Lawyers and Commonwealth for the first six months of 2008. Claims experience continued to be positive for the third straight quarter, and our balance sheet reserves remain above the actuarial reserve estimate.

Debt on our balance sheet primarily consists of the $419 million in senior notes due in 2011 and 2013, the $400 million drawn under our credit facility, the $50 million subordinated note issued to LandAmerica, and debt at Fidelity National Capital, the vast majority of which is non recourse. During the quarter, we repaid $135 million under the credit facility and repurchased approximately $71 million of senior notes. As a result, our debt to total capital ratio was 25.8% at June 30, and 22% with respect to our 35% credit facility covenant.

Finally, our investment portfolio totaled $4.9 billion at June 30. There are approximately $3.5 billion of legal, regulatory, and other restrictions on some of those investments, including secured trust deposits of approximately $500 million and statutory premium reserves for underwriters of approximately $2.4 billion. There are also some other restrictions, including less liquid investments like our ownership stakes in Sedgwick, Ceridian, and Remy, cash held as collateral in our securities lending program, and working capital needs at some underwritten title companies, all of which total approximately $600 million. So of the gross $4.9 billion, approximately $1.4 billion was theoretically available for use, with about $1.1 billion held at regulated underwriters and approximately $275 million in non-regulated entities.

Let me now turn the call back to our operator to allow for any questions.

Thank you, sir. (Operator Instructions). The first question comes from Andrew Wessel. Please state your company name, followed by your question.

Hi, guys. Andrew Wessel, JPMorgan. Just a couple of, I guess quick questions on -- your fee per file is lower than in the past on the refi versus purchase mix. As the refi boom slows, and I guess the mix gets weighted a little bit more towards purchase, can you help us think about the fact that home prices are down a lot, and that's one of the variables in pricing and policy -- again, the fact that you have gotten a lot of price increases from a number of states? I mean, comparing what you would expect a normalized fee per file would be versus -- 2007 levels are up in the $1,600 to $1,700 range -- is there some kind of guidance you can give us around that?

Randy, you want to try that?

Yes, sure can, Al. Our resale closings in the second quarter -- the refinance closes in the second quarter -- ran about 65%, and that gave us a fee per file of the high $1,100 per file. As we move more towards the 50/50 mix that we see on the opening side today, which will probably flesh out in the third quarter, the fee per file based on even last year 2008 will start to run back towards that $1,600 level. So we see that moving now. We're actually moving through $1,200 right now as we sit in July.

Great. That's very helpful, thanks. And then on operating expenses, you mentioned now that you have got a more stable ordering account and have a little bit better visibility into the next few months of operations, can you put any numbers around or percentages around what you would expect to happen to that OpEx line?

Well, it's difficult, but we're in a pretty stable environment at 9,000 orders open today. And as you know, given a steady state, we always manage the business effectively. So our target remains 10% pre-tax margin. I don't see any reason we can't achieve that, absent some real aberrations in the market. And I would say that Lawyers and Commonwealth fully integrated, and where we are, where Randy is with his staff reductions, we're well positioned to take care of any positives that might pop up, such as increased volume, increased purchase transaction, and perhaps increased commercial transactions, which would further increase that fee per file. So I think we're in pretty good shape. As you know we don't give guidance, but I think the 10% number that we have talked about many times is -- is doable.

Great, and is that on the -- is that at the title segment or on a consolidated base?

Tony, you want to take that? Because I'm not sure right now there is a lot of difference, is there?

There is not a lot of difference. There's not a lot of business outside of title, other than the specialty insurance business, which is probably running about 15% pre-tax margin, and then we have a corporate segment that has some losses. But generally the guidance we provided on the 10% relates specifically to the title segment.

Okay. Great. Thank you, and my last one is just -- do you have -- can you give the price you repurchased that $71 million of debt at?

It wasn't much below par, was it?

No, it was pretty close to par. I think it was about 99%.

99% to 99.5%, something like that.

Great. Thank you very much. I appreciate it.

The next question comes from Mark DeVries. Please state your company name followed by your question.

Thanks. Mark DeVries, Barclays Capital. Looks like there was a modest decline in agency premium as a percentage of the total. Is that a product of just further winnowing down of those agent relationships? Or was it more one time in nature?

Tony, you want to take that one?

Sure. I would say it's partly due to the reduction in agents, although as we mentioned most of those agents are low-remitting agents that don't have a huge impact on net premiums. But overall I wouldn't say we suffered much of a decline. I think if our -- if you look at the FNF legacy business, I think our -- I think year-over-year our direct business was up maybe 7%, and our agency business was up 6% or something like that. So I don't know that we believe that there was much of a change.

Okay. But it looks like you also had a little improvement in the agent splits -- is that a product of the same process that you undertaking?

Yes, it is a combination of that. I believe most of that would relate to reductions on the Commonwealth and Lawyers side. They had several agents that are based in the Western part of the country that generally have lower splits to the company. So, yes, we saw -- we did see some improvement in that area in terms of net remittance. I don't remember the exact number. It might be 79% or 80%, I think is what our net retained was.

Okay. And appreciate the updates on the progress you have had with the rate increases. Just trying to get a sense of how much of that is already flowing through to your results. And it sounds like you are about two-thirds of the way through getting the approvals done. How much of that was already done at the beginning of the quarter? And how much more improvement do we have to see flowing through the numbers over the next couple of quarters?

Randy, you want to try that one?

Sure, Al. Many of these filings were done in the early part of the year. And often when you have a filing you have to wait 30 days until you can use it. And once you're in play with the new filing, then you have to wait until the open transaction closes. So in the second quarter -- although it is difficult to quantify, in the second quarter we believe we saw some of the benefit of the rate increases. We should see the full benefit, at least with the current filings, in the third quarter, and we'll have a better look at it obviously at the back end of the third quarter.

Okay. Thanks.

Your next question comes from Doug Mewhirter. Please go ahead.

Hi, good morning. Doug Mewhirter from RBC Capital Markets. I just had two questions. First, on the margins, you said you are currently looking at 10% pre-tax margins in June. I guess was that without any -- two questions related to that. Was that without any benefit of realized gains? Because I noticed when you reported the overall second quarter, it had $10 million or so of realized gains.

You want to comment on that?

Yes, there was some impact of realized gains in -- in the month of June. I don't know that it was significant. Maybe about $5 million or so.

Okay. And the -- I guess the second question related to that is the ongoing margin improvement. Do you see -- I guess in assuming stable revenues, can you -- do you envision improving margins and stable revenues, or is it -- I guess did you realize maybe some incremental benefit of revenues on flat costs? I guess that was a poorly worded question. I hope you understand what I'm asking.

I think I do, Doug. Let me try to answer it this way. I think we have always demonstrated and always felt that you give us a steady level playing field, so to speak, and our margins will increase, because we will just continue to finetune the operations. Randy will look at every aspect of it. And I think you would get additional margin improvement. Randy, any follow-up on that?

Yes, I would agree, Al. If the open orders stay where they are, we are not going to be chasing the volume down. We did eliminate 500 positions since the beginning of June once the market, once the volume started to turn. We're not done with that. We're going to continue to make our adjustments as this swings more to a resale market. So we should be bringing the staffing down, but also increase our fee per file as we go through the third quarter.

Okay. Thanks. And my last question is just a numbers question, maybe for Tony. I noticed you had -- your consolidated tax rate was in the mid-20s. Was there any -- I guess capital loss or operating loss carry forwards that you used, and could you break that out? Could you make that distinction if you did?

There really wasn't. It was mostly related to the components of our pre-tax earnings. As you know, with a significant investment portfolio, we have a lot of tax-free municipal bonds, that contribute to that pre-tax number. So based on that, the components of that, we're at about 26%. We don't anticipate much of a change in that rate through the end of the year. Of course that could be impacted by fluctuations in our earnings, but 26% is the target that we're looking at right now.

Okay. Great. Thanks. That's all my questions.

The next question comes from Bob Napoli. Please go ahead.

Thank you. Follow-up on the tax question. What would you expect in 2010? I guess you have some benefit from losing money in the first quarter of 2009. What would be a long-term tax rate target?

Probably closer to a 30% rate in a large earnings year, and it's hard to know without having a feel for -- for -- you know, what our projected earnings would be, but in a real significant earnings year like we saw back in -- let's say 2004 to 2005 timeframe, we're close to about the 35%, the statutory rate. So somewhere between where we stand today and a 35% rate would be where I would estimate. But maybe 30% is a rough estimate for 2010.

Okay. And the 10% pre-tax margins, Al, is that -- I mean, on -- obviously the first and fourth quarters are much weaker quarters, especially the first. Are you saying 10% -- you are at that 10% run rate on a full-year basis in the current market we're at -- in today? That's kind of hard to -- . ..

Yes, Bob, I was just more just thinking on a go-forward basis at, the 9,000 orders, we should be able to generate 10%, and as I mentioned on a follow-up question, you give us a level playing field, and those margins will get -- will actually improve. So I wasn't really speaking about a full-year margin, more just a run -- on a current basis.

Okay. Normalized return on equity -- what are your thoughts? We have gone through pretty rough environment, and as you look forward to 2010 and 2011, what do you think is the right return on equity for this company?

You've followed us a long time, Bob, and you know in the good days we consistently generated a 20% plus ROE. I think on a normalized kind of basis -- I think that's more what you are thinking about. What would it be? And I think the right number is probably 15% on that basis. And frankly with the kind of ROE we're generating right now in this economic environment, I think it's pretty good. And we're also very proud of the fact that our integration efforts at Lawyers and Commonwealth have generated very rapid returns. So I think the 15% is probably a good number.

Okay. And just on Ceridian, are you in -- what was the loss on Ceridian last quarter?

Tony, do you recall? I think it may have been a little smaller than that, but I'm not sure I have got -- I don't have that number right at hand.

Yes, I think it was roughly -- I think it was $10 million to $12 million. It includes some realization of some losses on -- I believe it was related to foreign currency translation adjustments. But I think it was $10 million to $15 million.

And right now your thoughts on thank investment are -- just looking long term, not doing anything with it in the near term, is that -- ?

Yes, it's a long-term play, there's no question. They are impacted by decreases in employment -- they are primarily a pay processor, check processor, plus -- or payroll processor, plus their [com data] segment is impacted by the decrease in truck transportation. So they have a double whammy. Frankly, they are doing pretty good under the circumstances. Their results are improving. They are doing the right things. They are cutting people. They are well underway in creating a new and improved payroll processing platform that will fully integrate everything they are offering, and I think that's going to be a big plus. It has already resulted in them picking up a major new customer. We have no concerns. There are no debt problems, no debt covenant issues, and it's just a grind it out -- and you get that new platform in play, get an improved employment market, and they will be just fine.

Thanks. Last question. Just on your reserves, how are your -- what are your feelings on your reserve levels relative to -- and have claims continued to moderate as you saw in the first quarter? And are you starting to look over reserves?

We're certainly pleased with the results for the first two quarters. That is very gratifying to see. I'm going to let Tony, though, talk more how he is looking at it as we move through the year.

I would say that we -- as Al mentioned, we're pleased with the results we have seen, really, since December of last year. So trends have been favorable, both on the Fidelity side as well as the Commonwealth/Lawyers side. As you know, we are providing at 7.5%. That's currently a provision level that makes sense to us. If there's any movement, one direction, that could potentially go down. We are seeing a bit of a redundancy on both portfolios. It's not a significant redundancy at this point, but we are tracking that closely as favorable trends come in. Payments, as we mentioned, are well below what we saw on a pro forma basis in the prior year. So that's certainly favorable. But we'll continue to monitor it, really, throughout the rest of the year, both the current provision level on current policies issued, as well as whether the redundancy grows to a level where that potentially needs to be adjusted.

Thank you.

The next question comes from Nik Fisken, please go ahead.

Good morning, everybody. If you look at since you closed [Land], the competitive landscape from that point up until today, how would you characterize how it has changed?

Nik, I think I'm going to let Randy try that one. He is probably much closer to that than anybody is on the call.

Thanks, Al. Well, I don't -- on the street level, the competitive issue hasn't changed much at all. Still a relationship business, so in each of the particular areas of the country where we have multiple brands, and the other national underwriters, it's still very, very competitive. What this has done certainly is helped us with our market share in many of the states. And we have been very, very impressed with the Commonwealth and Lawyers people that have come on with us. They've integrated very well and been very cooperative, and they have a really good presence in each of their markets. But overall competitively, other than it gives us a larger footprint, I think it somewhat remains the same. It is still a very competitive environment, but I believe we'll do quite well with it.

How about on the commercial side?

Randy, do you want --

Sure. The commercial side obviously has softened. We had a better second quarter than the first quarter with the openings up about 10%. Closings were up 20%. The addition of the Commonwealth/Lawyers group again has been very beneficial. They have contributed about one-third of our commercial revenue here in the second quarter. They had a very strong presence there, and it looks like that is going to continue.

On the big deals are you saying FAF or Stewart get a little bit bigger share since you acquired land?

No, we're not seeing that we are participating any less in larger transactions.

And the last one I have got, another one for Randy, since I don't have it down crystal clear -- can you give us the title headcount at the end of the year? And then I know you guys added some at some point this year, and where it is today after you cut the 500 since June 1?

Well, I can't give you the actual headcount at the end of the year, but I can tell you through January through the end of June, we added about 850 employees. And since June 1st, through this last week, we reduced about 500. So we're up -- I believe it's about 350 employees, and again, there's a lot of closings that have spilled over into July, and should be into August on the refinance orders. So as that closing volume starts to come down, we will continue with our staff adjustments through the third quarter.

And of course, that doesn't factor in the 2,300 staff reductions we had on the Commonwealth and Lawyers side.

So it sounds like the July closing should be similar to June at the [180] number?

The refis have been taking a bit longer to close as we expected, so they are rolling over into July.

Great. Thanks so much.

Thanks, Nik.

The next question comes from Rajiv Patel, please go ahead.

Hey, just one clarification and a follow-up. The clarification is, Al, you were saying that the 10% margin is doable. Is that something which you are shooting for over a longer term? Or is that something which you think you could hit in the next -- in the third and the fourth quarter if the environment stays stable?

More near term.

Okay.

We look at that as what we expect to do, and as you saw, we were there in June, pretty close to the second quarter. So that's certainly our expectation. Now that's -- you have to -- again, we don't give guidance, and we don't know exactly what the market is going to bring to us, but it's certainly a reasonable expectation.

Okay. And then the fee per file, so you were running $1,100 and change in the second quarter, and you said end of July, that's now north of $1,200. The $1,600 number, was that one where if you fully hit 50/50 purchase/refi, then your fee per file could be $1,600? Or is that -- or was I thinking about that incorrectly?

I'm going to let Randy -- I think that is what Randy was saying, but I'll let him be more specific.

Again, it's really when you get to a 50/50 ratio between the refinance and the resale closings that it moves up to that $1,600 level.

So if we --

If you are in -- your rate increases, that becomes probably more doable than one might think.

So if we stayed in this current 9,000 order per day, and a 50/50 mix through year end, could we potentially see that fee per filing increase to $1,600 by year end, or how fast would it take to flow through?

Yes, I believe it will. The faster we get to the 50/50, in terms of closings on the resales, the quicker obviously it will move to that $1,600 range, and we are now opening at a 50/50 level right now, refis to resale. So it should move through quickly.

Okay. Thanks very much.

The next question comes from Nat Otis. Please go ahead.

Good morning, gentlemen. All of my questions were answered. Thanks.

Thanks, Nat.

And we have a question from Lavon Von Redden.

Sorry if I'm coming back to the same issue. This 10% margin issue, if we look at this as a situation where the world is stabilized, and you do get closer to the 50/50 level, what does that mean then for what your operating margin should look like? And maybe you can give us a better feel for what you think it should look like over time?

I hate to move too much off of the 10%. I will say if you got to a more stable purchase environment, like Randy is talking about, 50/50, we get the benefit of the rate increases, we stabilize our headcount -- which we have done -- and we're in a steady state, we would be able to improve our margins. How much over 10%, I don't know. Again, we just can't give you guidance on that. But all of the levers, operating levers are in place to generate very nice margins in this business in a steady state environment.

Right. And I was looking for guidance, more just wanting to dream the dream as to what potential margins could look like?

Well, let's go back -- Tony, let's go back -- let's try it this way. Let's go back to the margins when we had a very good market. What did we do, for example, in some those years?

Well, 2003 was the best year that we had in terms of absolute margins, and part of that was -- it was combination of a huge volume of business, I think mortgage originations were $3.8 trillion or something like that, and we didn't have the infrastructure in place to accommodate. We were scrambling enough to hire enough people just to process those transactions. So with that, we came in with something approaching a 20% pre-tax margin in the title segment. Of course, we had -- there were some various differences that you would view in our business today than you had then. Right now, the commercial is pretty soft. We had some commercial business then. Refinance business might have been 75% or 80% of the total in 2003. We also had a loss provision that was lower than what we have today by maybe 200 basis points. So you have to factor in some of those things. But I would say the potential reach is somewhere approaching 20%. And of course, right now, our target is somewhere approaching 10%, given that we only have one of the three facets in the business going, and that would be the refinance business with not a lot of purchase volume, and not a lot of commercial business.

One follow-up to that -- it seems to be if the premise is we're pretty close to the bottom today, over a realistic real estate cycle, I think you could say it will range from 10% to 20%. Like Tony says, if this housing market comes back, interest rates cooperate, we're at a cost structure to take huge advantage of that, as we have in the future. So over a reasonable cycle, probably 10% to 20% is a pretty good range to talk about.

Excellent. And the second question was related to the -- I guess the normal thinking is that when you do a large acquisition like a Commonwealth, that there is a desire for companies to use or broaden their use of various title insurers, and yet you are still showing no real change in your market share. Maybe you could help us understand why this acquisition is different, or what you think is happening different in the market so that you are not going to lose market share in the future?

I'm not saying we won't. I think a lot of us have felt we would probably lose a little bit. It's hard not to. We were very gratified that we didn't in the first quarter. But basically, what you are doing is you have acquired two additional brands, so now we're operating -- Tony, how many brands total do we have?

We have seven.

So we have seven brands. Each one of those brands has their own group of customers. So the expectation would be that you would keep that -- those customer bases that were attached to the brands.

However, what is extremely gratifying is our ability to earn Lawyers and Commonwealth quickly from losing $20 million a month to margins very close to what we at Fidelity are doing. And that says a lot about the people we have at Lawyers and Commonwealth, and frankly the acquisition is behind us. So probably the real story on that is for what we invested, the tremendous return that we're getting within six months from that acquisition.

So if we lost a couple of points in market share, the story line -- that's not the story line. The story line is how much money we're making after the integration of those operations. So that's some thoughts on how we would look at it, as more a pre-tax profit story than revenue story. But we'll fight -- I think Randy and his group will fight to keep every point of market share that we can.

Excellent. Thank you.

We have a question from Tom Shandell. Please go ahead.

Hi, good morning. Couple of questions on capital structure. Following the equity offering, you have obviously taken care of some of your debt. I was curious as to how much availability there is under your revolver presently, and if you have given some thought now that the credit markets have thawed to what your strategy is to deal with the rest of the 2011 maturities?

Tony, you want to comment on the availability, then I might follow up on some of our thought process on capital management?

Sure, we have a $1.1 billion credit facility. That matures at the end of 2011. We have $400 million drawn on that. So we $700 million available under that facility.

Great.

In terms of capital management, we have always been buyers of our stock when we get close to where the price is below book value or close to it, and obviously we have been buying stock and will continue to look at those opportunities. We'll also look at further paydowns of some of those maturities on our bonds, as we have the opportunity, and we'll continue to manage our debt levels consistent with what Moody's and S&P like us to be at, because that's an important from a title insurance point of view. And that's just some of the thoughts we have on use of capital.

I imagine your investment bankers are calling you with strategies all the time.

All the time. That's a fair statement.

All righty. Thank.

We have a question from Bob Napoli. Please go ahead.

Just to follow up on your calculation of fee per file. If we calculate the direct operations revenue per order closed, we come up with about $781, versus your reported $1,173. Does your number include the escrow? Can you give me the exact calculation?

Well, I don't know that you can pull it, Bob, directly off of the income statement, because it excludes some of the fees that are included in revenue. But it certainly does include direct title premiums, and a significant portion of the escrow and other title-related fees, so it would include, refinance business, purchase business, and commercial business, all blended together. But it would exclude businesses like our asset-link business, which is our ROE management business and evaluation business that we have, and a few other businesses it would exclude. So it's hard to give you the exact numbers there.

So if we're thinking of the escrow fees as for a purchase versus a refi, what is the -- I mean, I understand the 2 to 1 ratio purchase versus refi total revenue. How does that work out on the escrow portion?

I would say that there's so many variables across the footprint of the organization in terms of what you are going to see. A lot of times you see a flat fee for escrow in certain parts of the country. In other parts you don't. It more varies with the size of the transaction. I think commercial business, you generally don't have as large an escrow fee relative to the size of the premium, so it really moves all over the place. Generally, we have said that it trends with the title premium, so that if a refi is half the purchase on the premium level, than it's half on the escrow fee, but it's not exactly that.

Great. That's it. Thank you.

There appears to be no further questions. Mr. Stinson, please go ahead with any further parts you wish to raise.

Thank for joining us this morning, everyone, and we look forward to talking to you next quarter.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation, and for using AT&T Executive Teleconference. You may now disconnect.