First American Financial's (FAF) CEO Dennis Gilmore on Q3 2016 Results - Earnings Call Transcript

| About: First American (FAF)

First American Financial Corporation (NYSE:FAF)

Q3 2016 Results Earnings Conference Call

October 20, 2016, 11:00 AM ET

Executives

Craig Barberio - IR

Dennis Gilmore - CEO

Mark Seaton - EVP and CFO

Analysts

Jeremy Campbell - Barclays

Jason Deleeuw - Piper Jaffray

Kevin Kaczmarek - Zelman and Associates

Eric Beardsley - Goldman Sachs

Jordan Hymowitz - Philadelphia Financial

Ryan Byrnes - Janney

Chris Gamaitoni - Autonomous Research

John Campbell - Stephens

Mark Hughes - SunTrust

Bose George - KBW

Operator

Greetings and welcome to the First American Financial Corporation Third Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] A copy of today’s press release is available on First American’s website at www.firstam.com/investor.

Please note that the call is being recorded and will be available for replay from the company’s investor website and for a short time by dialing 877-660-6853 or 201-612-7415 and entering the conference ID 13646700.

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

Craig Barberio

Good morning everyone and welcome to our third quarter 2016 earnings conference call. Joining us on today’s call will be our Chief Executive Officer, Dennis Gilmore; and Mark Seaton, Executive Vice President and Chief Financial Officer.

Some of the statements made today may contain forward looking statements that do not relate strictly to historical or current facts. These forward looking statements speak only as of the date they have made, and the company does not undertake to update forward looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements. For more information on these risks and uncertainties, please refer to the today’s earnings release and the factors discussed in our form 10-K and subsequent SEC filings.

Our presentation today contain certain non-GAAP financial measures that we believe provide additional insides in the operational efficiency and performance of the company relative to the earlier period and relative to our company’s competitors.

For more details on these non-GAAP financial measures including presentation with and reconciliation to the most directly comparable to GAAP financial measures, please refer to today’s earnings release, which is available on our website at www.firstam.com.

I will now turn the call over to Dennis Gilmore.

Dennis Gilmore

Thanks Craig. Good morning and thanks for joining our call. I'll begin with a review of our third quarter highlights and conclude with a few comments on our outlook for the fourth quarter.

The company's strong performance continued in the third quarter with revenues of $1.5 billion, up 9%. Our EPS was $0.96, up from $0.69 last year. The strong performance was driven by our title segment, which delivered a pretax margin of 13.5%.

Our ongoing focus on operating efficiencies combined with a strong refinance market contributed to our positive results. We also benefited from a lower loss provision rate and higher net realized investment gains.

In our residential business, purchase revenue grew by 3%, driven by higher average revenue per order with closed purchase orders down 3% compared to last year. Refinance revenue was up 53% this quarter compared with last year. Beginning late in the second quarter, lower interest rates drove strong refinance activity, which led to higher closings in the third quarter.

Close refinance orders were up 49% compared to last year. So far in October, refinance open orders remain strong averaging 2,300 per day. Although our commercial revenue was down 3% in the quarter, we continue to see broad based strength in our commercial business and expect this trend to continue into the fourth quarter.

Revenues in our Special Insurance segment grew by 8% during the quarter. Fidelity claim losses in the home warranty led to a segment pretax margin of 1.6%, flat compared to last year. We continue to operate -- we continue to implement operating changes necessary to improve the performance of our home warranty business.

Turning to recent acquisitions, in September, required resolution RedVision, the largest independent national provider of title information in real property research. RedVision's title production and technology platform expands and enhances our ability to produce title search and related products for agents and others in all 50 states.

Also RedVision provides us with additional data assets enabling us to expand our title plant coverage, adding to existing industry-leading position. RedVision's ability to access our title and property data will in turn enhance their offerings in terms of coverage, quality, and operating efficiency.

In October, we acquired TD Service Financial, which is focused on post-closing services, including assignments, lien release, collateral loan file management. This acquisition broadens a number of our current offerings in our mortgage solutions division. TD's customers will also benefit from access to our industry-leading public record data. We're excited to welcome both of these firms to First American and look forward to working together to provide additional products and services to our customers.

Regarding the fourth quarter outlook, we are optimistic given our strong refinance pipeline and we anticipate a normal seasonal peak in our commercial business.

In regards to the long-term outlook, we remain positive about the housing market and given our confidence in First American's future earnings and cash flow, we recently raised the dividend by 31% to an annual rate of $1.36 per share. This action demonstrates our ongoing commitment to return capital to our shareholders well-maintaining the financial flexibility to invest in our businesses.

I'll now turn the call over to Mark for more detailed review of our financial results.

Mark Seaton

Thank you, Dennis. Total revenue in the third quarter was $1.5 billion, up 9% compared with the third quarter of 2015. Net income was $107 million, or $0.96 per diluted share. The current quarter results include net realized investment gains of $9.5 million, or $0.05 per diluted share.

In the title insurance and services segment, direct premium and escrow fees were up 7% compared with last year. This increase was driven by a 20% increase in the number of orders closed, partially offset by 10% decrease in the average revenue per orders. The average revenue per order decreased to $1,859, due to a shift in the mix to lower premium refinance transactions. The average revenue per order increased 6% for purchase transactions and 3% for refinance transactions, while commercial declined by 2%.

Agent premiums were up 7% reflecting the normal reporting lag of agent revenues of approximately one quarter. The agent split was 78.1% of agent premiums.

Information and other revenues totaled $188 million, up 9% compared with last year. Excluding the impact of the recent acquisitions, the increase was primarily due to higher demand for the company's title plant and information products.

Personnel costs were $409 million, up 5% from the prior year. The increase was primarily attributable to recent acquisitions, higher salary expense, and incentive compensation expense.

Other operating expenses were $198 million, up 4% from last year. The increase was primarily due higher production related cost due to higher order volumes. The ratio of personnel and other operating expenses to net operating revenue was 70.4% compared with 72.3% last year, reflecting strong operating leverage given our increased order volumes.

The provision for title policy losses and other claims was $64 million, or 5.5% of title premiums and escrow fees, compared with a loss provision rate of 6.6% in the same quarter of the prior year. During the third quarter, our paid title claims fell 4% from the prior year.

Pretax income for the title insurance and services segment was $189 million in the third quarter compared with $137 million in the third quarter of 2015. Pretax margin was 13.5% compared with 10.6% last year.

Turning to the Specialty Insurance segment, total revenues were $110 million, up 8% compared with last year. The loss ratio in the Specialty Insurance segment this quarter was 69%, essentially flat with the prior year.

The loss ratio in the home warranty business increased during the quarter, primarily as a result of higher claim severity. However, the higher claim losses in that business were largely offset by a decline in claims in the property and casualty business, primarily due to significant losses incurred in a single wildfire event during the third quarter of 2015. As a result, the pretax margin in the current quarter was 1.6% compared with 1.7% in the third quarter of last year.

Net expenses in the corporate segment were $24 million, essentially flat versus the prior year. The effective tax rate for the quarter was 35.7%, higher than our normalize tax rate of 34% due to a shift towards non-insurance income as well as the higher tax rate from our foreign operations.

As a reminder, in May, we announced the termination of our pension plant. Given the legacy nature of the plan and the uncertainty of future industry, investment returns and other factors, the pension plan was terminated.

In the third quarter, we contributed $56 million to the pension plan and we expect to make an additional cash contribution in the first half of 2017 so that the pension plan has sufficient assets to fully meet its obligations to all participants. The amount of this contribution will depend on a variety of factors, but we expect to contribute approximately $45 million more to the plant.

As of December 31st, 2015, we reported net unrealized losses of $197 million before tax in accumulative of other comprehensive loss on our balance sheet related to pension plan. These net unrealized losses as well as other expenses estimated to be $50 million will be recognized in the company's income statement in two separate quarters.

Although, the ultimate amounts are not currently determinable, we expect to recognize a loss of approximately $81 million in the fourth quarter of 2016 as distributions are made to certain participants, and an additional $131 million by the end of the third quarter of 2017 as all remaining liability transfer.

This transaction will have a negligible effect on stockholder's equity since the net unrealized losses already reflected in the balance sheet. Once the termination process is complete, we expect an annual reduction of approximately $22 million in personnel expenses within the corporate segment based on the level of these expenses in the first nine months of 2016.

We're currently in the process of offering loan sums to participants and we'll be a better position to provide for further details during the fourth quarter earnings call.

At the end of September, we borrowed $160 million from our credit facility to fund acquisitions including RedVision and TD Service Financial, as well as a portion of the obligation relating to the previously announced pension termination. The cost of the borrowings is LIBOR plus 175 basis points and we'll add approximately $1 million per quarter in interest expense beginning in the fourth quarter.

Debt on our balance sheet totaled $738 million as of September 30th. Our debt consists of $546 million of senior notes, $160 million our credit facility, $27 million of trust fee notes, and $5 million of other notes and obligations.

Our debt-to-capital ratio as of September 30th was 19.6% at the higher end of our 18% to 20% target range.

We have $540 million remaining on our $700 million revolving credit facility. In terms of cash flow, cash provided by operations was $106 million. Included in the current quarter's operating cash flow was the previously discussed $56 million payment related to pension obligations.

As Dennis mentioned, our Board of Directors recently voted to increase our annual dividend to shareholders by 31% to $1.36 per share. Based on our long-term cash flow outlook, we believe we have sufficient capital to invest in our business, both organically and through acquisitions, while being able to sustain this higher dividend level through the cycle and in a stress environment. This action demonstrates our ongoing commitment to return capital to shareholders.

I would now like to turn the call back over to the operator to take your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]

Our first question comes from the line of Mr. Jeremy Campbell from Barclays. Please proceed with your question.

Jeremy Campbell

Hey. Thanks. So, while your agent premium mix was basically flat on a year-over-year basis, the growth rate of agent premiums has still vastly outperformed direct premiums thus far this year, when you look at it on a one quarter lag basis. Just can you touch on this a little bit? Is this a concerted effort to gain share in the agent market, or is something else going on here that we are not super aware of?

Mark Seaton

I wouldn’t say it’s a concerted effort to emphasize agency away from direct. We're very focused on growing both channels. I would say that when you look at how the market share has been direct versus agency, our growth in agency market share has somewhat outperformed our growth in direct market share and so that's part of it.

And the other part of it is just the lumpiness of when the premiums come in.

Dennis Gilmore

And I would only add it's also has to do with where the strength in the country is right now. So, we’ve got a lot of strength going on in our agency states.

Jeremy Campbell

Got it. So, when we look ahead to maybe like the end of this year and in to 2017, do you expect that lag factor to kind of revert back towards more normal levels?

Mark Seaton

That's our expectation, yes.

Jeremy Campbell

Okay, great. And then with the big rate rally happening late June and really the most of early July, it seemed like you may have had a disproportionately higher number of refis open earlier in the quarter than you would typically have.

Given a typical closing cycle is maybe 45, 60 days for a refi, did you guys experience a higher open to close ratio for refis during 3Q as some of those early opens may have closed in September?

Mark Seaton

Yeah, we did. When you look at so for this year, I mean our open refis peaked in July. We were about 2,700 a day in July. August we were 2,500, September we were 2,500. So far in October, our expectation is about 2,300. So, our opens are still elevated. They have been following and as results, we had a lower closing ratio for the quarter.

So, we still feel like we have a good refi pipeline heading into Q4. Although it was probably not as quite as robust as is was this quarter.

Jeremy Campbell

Okay. And then -- so as we kind of look ahead, was there any margin impacts from a higher close ratio in the quarter at all just from the mechanically -- that happening?

Mark Seaton

I don't think so. No, Jeremy.

Jeremy Campbell

Okay, great. That's all. Thanks guys.

Operator

Your next question comes from the line of Mr. Jason Deleeuw from Piper Jaffray. Please proceed with your question.

Jason Deleeuw

Thank you and nice work on the quarter. Question on the pretax margins going forward, you've done a lot of good work on the cost front, but -- so going forward should we kind of think about margin expansion being contingent on topline revenue growth? Is that going to be the key here?

Or are there still some other levers you can pull on for the cost side to help margins even if revenues are flattish? I know you've got the pension cost benefit that's going to help. It looks like maybe nearly 50 bps at some point it will kick in next year. But can you just kind of help us think about the key drivers of margin expansion from here.

Mark Seaton

Sure. It’s a little as little -- it's actually probably a little of both. The business is running very well right now. We're running it close to the higher end of our range of 10 to 12. But when we let the range out, we size that for the market and it's about the size of market it is right now.

So, if we get some lift in the market, we think we can get margin expansion. But irrespective of the market, we're going to continue to look to gain efficiencies in the business, which we continue to do.

We're going to continue to look to gain profit in the market share and I think we'll also continue get some benefit from the lower loss provision rate. And probably the most important is we remain very optimistic on housing market. So, we continue believe we’ll get lift in the housing market going forward.

Jason Deleeuw

So even just from a mix standpoint, the purchase could help you a little bit on the mix? Is that in commercial? Is that what you are referring to?

Mark Seaton

Just the overall purchase business, so we continue to get growth in the purchase business in 2017, we'll continue to perform very well.

Jason Deleeuw

And then loan provision, you guys are at 5.5, are you anticipating that can go lower still from here?

Dennis Gilmore

Yes, we've been booking it 5.5 for the whole year. We brought it down, last year it was 6.6 and I think last quarter we said there is a greater likelihood of it going down and going up and I think we even feel stronger about that statement this quarter. So, yes, I think there is definitely room for the loss provision rate that's all over the next couple of quarters or so.

Jason Deleeuw

Great. And then on the two acquisitions, could you help us out on the revenue contributions, or at least give us a perspective on the growth profile of those businesses and the margin profiles? Is there help you can give us on that?

Mark Seaton

Yes, I would say just collectively the revenue for the acquisitions we’ve closed recently is about $90 million. And it will show up in the info in another line item because they're not -- these aren’t insurance based businesses.

And I just that the margins are somewhat higher than the title segment once our integration is complete over the next 12 to 18 months. These are going to take a little bit longer to integrate than a normal title agency. But I would say once we're done, the margins will be somewhat higher than overall title segment.

Jason Deleeuw

Great. Thank you very much.

Dennis Gilmore

Thank you.

Operator

And our next question comes from the line of Mr. Kevin Kaczmarek from Zelman and Associates. Please proceed with your question.

Kevin Kaczmarek

Hey, guys. Thanks for taking my call. Can you elaborate a bit on what you're seeing in the commercial market? It sounded like you were optimistic, but could you put some more color on that? I noticed open orders were down year-over-year, and I know they can be lumpy. But how do you see the kind of year-over-year trend in terms of revenue heading into the fourth quarter?

Dennis Gilmore

Sure, this Dennis. Again, another good quarter for us. Yes, we were down a little bit in revenue, 3%, but we’ve got a lot of momentum going into the fourth quarter. I think we'll have another strong quarter for us in the fourth quarter. It's typically our seasonal strongest quarter.

We have a very strong franchise here and we’re running at a very high level. Again, just looking forward though, as I said before, I do think we'll probably start to see some downward pressure on this market because it's been running at such a high level for the last few years.

So, specifically to your question I think fourth quarter will be very strong for us as it typically is for the seasonal fourth and we look for another strong year in 2017.

Kevin Kaczmarek

Okay. And on the information and other businesses, is there -- were there any kind of outliers in terms of revenue contributions this quarter? I know there's been some talk about extra fees being paid to appraisers and what not. Is there may be more sensitivity to refi than in the past?

Dennis Gilmore

No, not particularly. I think when you look forward, obviously, the acquisition we’ve closed this roughly $90 million that I just mentioned, that's obviously going to have an impact. So, we expect info order to grow going forward because of those deals. But there was -- I wouldn’t say there was anything extraordinary happened this quarter.

Kevin Kaczmarek

Okay. Thanks. And then lastly, on the Specialty Insurance, within the home warranty, you guys mentioned a higher contract servicing costs in previous quarters. I guess how has that been trending? Is there any indication that it's letting up, and maybe the provisions could improve going forward, excluding kind of one-time weather related events like the wildfires?

Dennis Gilmore

Sure, yes. I am optimistic and we had a good the last month of the quarter here. We had a higher contract servicing cost now for the last few calls. We’ve been putting a lot of resources on it to not only add to our network, but also add to the management of the contractor network. That's number one.

Number two, we have experienced higher equipment replacement cost going on in this business. And to counter those two issues, we’ve also been raising prices selectively over the last few months. And we'll see the benefit of that going forward over the next 12 months.

So, overall, we gone through the toughest two quarters of this business and I'm optimistic looking forward, we'll continue to see some improvement here in home warranty.

Kevin Kaczmarek

Okay. Thanks. And that $90 million you mentioned for the acquisitions, that's annualized run rate?

Dennis Gilmore

Yes, annualized.

Kevin Kaczmarek

Okay. And it will maybe have some seasonality consistent with the rest of the business, in info and other?

Dennis Gilmore

Yes, I would think so. Yes.

Kevin Kaczmarek

Okay. All right. Thanks. That's all I had.

Dennis Gilmore

Thank you.

Operator

And our next question comes from the line of Mr. Eric Beardsley from Goldman Sachs. Please proceed with your question.

Eric Beardsley

Hi. Thank you. If we were to look at the MBA forecast for next year and other industry: forecast first deep drop off in refi and some growth and purchase. I'm just wondering if you can comment on your ability to grow earnings if that type of environment actually materializes.

Dennis Gilmore

Well, difficult question, because it's going to be based on the forecast. So, when we look at the incurred MBA forecast right now, it would make rational sense to us. We do think that the purchase market will continue to show growth in 2017 and beyond.

We think there's still room in the housing market for continued growth. Obviously, a wildcard is refinance. So, right now we’ve got some nice tailwind actually going in the fourth quarter. And rates stay where they are with different benefit going into the first quarter. So, we'll kind of see on that one. But we're optimistic on the purchase market. So, again, the forecast makes some sense to us.

And then to the earnings side, we're going to continue like we say, we're going to drive efficiencies while we can in the business and continue look to gain some profitable share to help our leverage in the business.

Eric Beardsley

Got it. But I guess if we were looking at volumes being down overall -- and the mix for it is, I'm just curious what those levers are. Is there ability to shrink expenses more than revenue or grow things like information and other more to offset that?

Dennis Gilmore

Again, it will depend on the severity of either the upturn or the downturn, but we'll run the business like we always do and this is will ultimately match our expenses against our revenue. So, that's just how we'll have to run this -- how we do run this business.

Eric Beardsley

And just a quick follow-up on the acquisition. You said there is $10 million of impact from the acquisitions in this quarter. Is that $10 million out of the $90 million that you expect to have on an annual basis? Is that right way to think about it?

Mark Seaton

No, I don't think we said $10 million this quarter, I think the deal is basically one deal close the at the very end of the quarter, one close at the very beginning of Q4. So, there was really -- in your terms of these two acquisitions, there was no real impact in Q3, but I think starting in Q4, we'll start to see that $90 million run rate coming through.

Eric Beardsley

Got it. Basically, you had some nice year-over-year growth there already, and so you're just going to grow a little bit on top of that run rate, is the right way to think about it?

Mark Seaton

Yes, I think that's the right way to think about it.

Eric Beardsley

Okay. And then just lastly, the pension cost benefit, could you just help us out exactly which quarter we're going to start to see that hit? And is that purely on the corporate OpEx lines?

Mark Seaton

Yes, it's going to be incorporated. It's not getting hit the title segment at all. And right now we think the whole thing will be terminated conservatively estimated by the end of Q3. So, we'll get that full $22 million run rate I would say at the latest beginning in Q4 of next year, but I think there's a good chance it could come earlier than that.

Eric Beardsley

Got it. Okay, great. Thank you.

Mark Seaton

Thank you.

Operator

Our next question comes from the line of Jordan Hymowitz from Philadelphia Financial. Please proceed with your question.

Jordan Hymowitz

Hey, guys. Thanks for taking my question. Two things. When you dividend payout, do you have a specific target that you don't want it to go above or something like that? What's maximum payout you want to maintain at?

Mark Seaton

We don't target a dividend payout. Obviously, there is a dividend payout kind of just naturally falls out. So, that's not something that we target. I think when you look historically, we paid 20% dividend payout going back years and years. We've raised the dividend not just this year, but recently fairly significantly couple years and now we're in roughly 40% to 45% range. But that's not like we target that when we set the dividend.

What we really look at is we look at our cash flow forecast, we figure out how much of that we need to run our business and grow our business. And a big chunk of the rest, we go to pay the dividend and whatever the payout ratio is.

Jordan Hymowitz

Is there a maximum number that you won't let it get above?

Mark Seaton

No, I mean that's not something we think about. I mean obviously if earnings were to fall for some reason, it would go up, it wouldn’t scare us all to run at a higher dividend rate payout ratio than we are now for a period of time. But to answer the question, there's no maximum that we have.

Jordan Hymowitz

Got it. And the second question is I like what you're doing with the dividend, and you've also maintained a better optimal capital structure. My question is does that preclude you from making further large scale acquisitions, though, at this point especially within the title industry?

Dennis Gilmore

I wouldn’t say preclude. No, I mean we still have a lot of financial flexibility. So, I wouldn’t say preclude thus from executing our strategic objectives.

Jordan Hymowitz

Okay. Thank you.

Dennis Gilmore

Thank you.

Operator

And our next question comes from the line of Mr. Ryan Byrnes from Janney. Please proceed with your question.

Ryan Byrnes

Great. Thanks. Good morning, everybody. I just had a question. What -- so you used -- you drew down the revolver this quarter. Is the plan to keep it that drawn down or to term it out? What's the thought process there?

Dennis Gilmore

The plan right now is just to keep it on the line. I mean obviously that's not really a permanent sort of financing for us. But the rate is good. We feel it’s the optimal cost of capital -- source of capital right now. So, for the foreseeable future, we expected to be -- to remain on the line.

Ryan Byrnes

And with I guess the uptick in mortgage service acquisitions in the last couple months for you guys, is that obviously an active part of the strategy or it's just kind of one-off, these both came available at the same time? I'm just trying to figure out if your M&A appetite has increased a little bit.

Dennis Gilmore

We are looking at a lot of deals right now, but like always, we're going to be very disciplined on it. So, the two deals really fall -- or fit into two different parts of our strategy. The first one RedVision allows us to continue to add to our title information products so that we could self-count it our self of the industry and leverage our data base. So, that one is grilling on the title side.

The TD Services to build our mortgage solutions product offerings and in that specific case, we had most of these products, but they were smaller, so give its bulk in the product offerings.

Ryan Byrnes

Got it. Thanks, guys.

Dennis Gilmore

Thank you.

Operator

Our next question comes from the line of Chris Gamaitoni from Autonomous Research. Please go ahead.

Chris Gamaitoni

Thanks, guys. All my questions have been answered.

Dennis Gilmore

Thank you.

Operator

Up next is John Campbell from Stephens Inc. please go ahead sir.

John Campbell

Hey, guys. Good morning. Back to the leverage question. You guys -- it's 20% now. Could you guys maybe just give us an idea of what your kind of comfortable max leverage point is or maybe what the rating agencies are looking for?

Dennis Gilmore

Well, what I'd say is our target is 18% to 20%. We're obviously at the higher end of that target now. We're obviously very comfortable with that. We'd be very comfortable at 25%, but I think if we went that high for whatever reason, we would be in that pay down. We want to -- in a normalized market, we want to be 18% to 20%.

And the rating agencies are very comfortable that and especially since we raised the dividend so dramatically, it helped them just a little bit of a more target leverage. So, we could go to 25% easy, but if we did would be in debt pay down.

John Campbell

Okay. That's helpful. And then Mark, I just want to make sure I get pension plan contributions right. Are you saying that you're expecting an incremental $45 million contribution from what was already announced with the 8-K? Are you saying that you are expecting $45 million of what was announced to be front end loaded?

Mark Seaton

Well, in the 8-K, we announced that we thought that we would be about $100 cash contribution. Obviously, that dependent on a lot of factors, but our best estimate was $100 million.

This quarter we funded $56 million of that $100 million. And we expect to rest roughly $45 million to be early next year.

John Campbell

Okay. That's helpful. And then just for my notes, could you guys run back through the quarter-to-date purchase and refi open-order trends?

Mark Seaton

Q4 quarter end?

John Campbell

Yes.

Mark Seaton

So, on the purchase side, our open orders were down, 2% relative to the prior year. On the refinance side, our refinancer was up 32% versus prior and they down 9% September. I don't know we're roughly -- and this is on the open, we will think about 2,300 refinance orders.

John Campbell

Okay, great. Thanks, guys.

Mark Seaton

Thank you.

Operator

Our next question comes from the line of Mr. Mark Hughes from SunTrust. Please go ahead sir.

Mark Hughes

Thank you. Good morning. Sorry if you mentioned this, but what tax rate, given some of the mix changes we've talked about, what tax rate do you think we should use going forward?

Mark Seaton

We still fill like 34% is a good rate going forward.

Mark Hughes

Thank you.

Mark Seaton

You're welcome.

Operator

And our next question comes from one of Bose George from KBW.

Bose George

Good morning. Just going back to the comments on the specialty insurance business, when do you think the margins there are going to normalize?

Dennis Gilmore

We'll I'm looking for material improvement going into 2017. So, will you again we got our toughest two quarters, the second and third. I we're going to spring back in fourth and first.

And then again the key for the businesses is how it performs in the second and third of 2017. But again, we're putting a lot of resources and it fixed some of these issues number one.

Number two, we continue to actively raise prices were appropriate and in the reality it will take about a full year for them to flow into the benefit of the revenue line for us.

Bose George

Okay, great. That's helpful. Thank you.

Dennis Gilmore

Thank you.

Operator

There are no additional questions at this time. That does conclude today's morning call.

We like to remind listeners that today's call will be available for replay on the company's website or by dialing 877-660-6853 or 201-612-7415 and enter the conference ID 13646700.

The company would like to thank you for your participation. And this does concludes today's teleconference. You may now disconnect.

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