First American Financial Corp
NYSE:FAF
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
52.48
67.64
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
First American Financial Corp
You don't have any saved screeners yet
Greetings, and welcome to the First American Financial Corporation's Fourth Quarter and Full-Year 2021 Earnings Conference Call. At this time, all participants are in a 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 enter the conference ID 13726034.
We will now turn the call over to Craig Barberio, Vice President, Investor Relations, to make an introductory statement.
Good morning, everyone, and welcome to First American's fourth quarter and year-end 2021 earnings conference call.
Joining us today on the call will be Dennis Gilmore, Former Chief Executive Officer and recently appointed Chairman of the Company's Board of Directors; Ken DeGiorgio, First American's new Chief Executive Officer; 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 fact. These forward-looking statements speak only as of the date they are 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 this morning's earnings release and the Risk Factors discussed in our Form 10-K and subsequent SEC filings.
Our presentation today contains certain non-GAAP financial measures that we believe provide additional insight into the operational efficiency and performance of the Company relative to earlier periods and relative to the Company's competitors. For more details on these non-GAAP financial measures, including presentation with and reconciliation to the most directly comparable GAAP financials, please refer to this morning's earnings release, which is available on our website at www.firstam.com.
I will now turn the call over to Dennis Gilmore.
Thanks, Craig. Good morning and thank you for joining our call.
In addition to our record earnings, we recently announced that our company's President, Ken DeGiorgio has been promoted to Chief Executive Officer. Over his 23 years of service to First American employees, customers and shareholders, Ken has acquired an in-depth understanding of our business and demonstrates that he has the vision, strategic insight and skills to lead our company. Under Ken's leadership, First American will continue to lead the digital transformation of the title insurance and settlement industry. Ken and his team will continue to capitalize on the many opportunities the company has to grow our business.
At the request of our board of directors, I'm honored to continue to serve on the board now as its Chairman, immediate past Chairman Parker Kennedy will remain on our board as Chairman Emeritus and Lead Director.
During my 12 years as CEO, I've had the incredible privilege to work alongside First American's great people. Our company culture that puts people first has driven our success. As I've said many times, we will put our people first; they'll take care of our customer. And when they do and we run the business efficiently, we will deliver superior results to our shareholders. I know that Ken and his leadership team and all of our employees, when we attain our exceptional culture will continue to raise the bar on our performance.
I'd now like to turn the call over to Ken.
Thank you, Dennis.
On behalf of First American's 22,000 employees, I want to recognize and thank you for your inspirational leadership and dedication over your nearly three decades with our company. Your focus on fostering a world-class culture, while delivering an annualized total shareholder return of 18.2% during your 12-year tenure as CEO has set the bar high. Your vision for our company to be the premier title insurance and settlement services company, the vision that has guided us to where we are today, will continue to guide our future success. And the strategy we developed to achieve that vision, a strategy that has served us well for over a decade will not change.
We will continue to strive to profitably grow our core title and settlement business, including through innovation and the acquisition of companies that are compatible with our culture and advance our vision. We will continue to strengthen our business by leveraging data and process advantage and where we have a strategic advantage we will continue to manage and actively invest in businesses that are complementary to our title and settlement business.
Thank you again, Dennis. Your impact on First American will be lasting.
Turning to our financial results, 2021 capped off record revenue of $9.2 billion, record Title margin of 16.3% and record earnings per share of $11.14. Even excluding net investment gains, EPS was $8.17 yet another record. While we are proud of these achievements, our focus continues to be on the things that will drive future growth. At the beginning of 2021, we announced our intention to expand our title plant footprints in 500 counties to 1,500 by the end of that year. Leveraging our proprietary data extraction technology, we are currently maintaining more than 1,600 title plants, covering nearly 80% of the U.S. population. This data is critical as it fuels our operational efficiency initiatives, our title automation efforts, and our ongoing efforts to digitize the real estate closing experience. You can't automate unless you have data, and we are the industry's undisputed leader in title data.
Last month, we announced an agreement to acquire Mother Lode Holding Company, a title company with 92 offices across 11 states, including the key markets of California, Texas and Arizona. Mother Lode is an important transaction for us in many ways. First, we have the opportunity to welcome amazing talent to our organization. Second, we further expand our distribution network as Mother Lode's 10 brands are among the best within their respective real estate communities. Lastly, Mother Lode is a key step in a multi-brand strategy for our title company that will accelerate our growth efforts. The transaction is awaiting regulatory approval and is expected to close in the coming months, after which we will provide additional detail. We're excited to welcome Mother Lode to the First American family and look forward to growing together in the future.
In terms of the outlook for 2022, it will be a year of transition we are well-positioned for. We expect market conditions in our purchase and commercial businesses, which account for approximately 80% of our direct revenue to remain favorable. Refinance volumes will continue to wane as mortgage rates tick up. But we believe increased investment income due to a rise in short-term rates will help offset the decline.
As short-term rates rise, we will benefit from higher investment income from our cash and escrow balances, 1031 Exchange deposits, and bank portfolio. We believe our bank is a competitive advantage and serves as a natural hedge when higher mortgage rates drive refinance volumes lower.
In January, we opened 2,000 purchase orders per day, a 7% decline from strong January 2021, and a 9% increase relative to January of 2020. Our refinance orders were 1,200 per day steady with what we experienced in December.
Now I'd like to turn the call over to Mark for a more detailed discussion of our financial results.
Thank you, Ken.
We're pleased to report excellent results this quarter. We earned $2.33 per diluted share. Included in this quarters result were $0.05 of net investment gains. Excluding these gains, we earned $2.28 per diluted share.
I'll start with our title business. Revenue in our Title segment was $2.3 billion, up 13% compared with the same quarter of 2020 due in part to a record quarter in our commercial business.
Commercial revenue was $377 million, a 66% increase over last year. We experienced strength across the board in terms of geography, asset class and deal size. We closed 117 transactions in the U.S. with premium greater than $250,000 up from 58 last year. For the year, our commercial business generated over $1 billion in revenue, eclipsing our prior record achieved in 2019 by 34%.
Purchase revenue was up 2% during the quarter driven by a 7% increase in the average revenue per order partially offset by a 3% decline in the number of orders closed. Our purchase orders declined from an unusually strong quarter in Q4 of 2020, which experienced the release of tenant demand due to the pandemic. Looking at a more normalized two-year trends our closed purchase orders this quarter were up 15% relative to the fourth quarter of 2019.
Refinance revenue declined 46% relative to last year due to the increase in mortgage rates.
In the agency business, revenue was a record $1 billion up 20% from last year. Given the reporting lag in agent revenues of approximately one quarter, we are experiencing growth in remittances related to Q3 economic activity.
Our information and other revenues were $322 million, up 15% relative to last year. Revenue growth was primarily due to the recently completed acquisition of ServiceMac and higher demand for the company's loss mitigation products.
Investment income within the Title Insurance and Services segment was $49 million down 8% primarily due to lower interest income from the company's warehouse lending business and other cash balances. If the Federal Reserve raises rate, we expect to generate additional investment income from our escrow deposits, cash balances, 1031 Exchange deposits, and our bank investment portfolio where we have over $1 billion of floating rate securities. We estimate based on current deposit balances that a 25 basis point increase in the federal funds rate will equate to a $15 million to $20 million increase to our annualized investment income in the Title segment. Pretax margin in the Title segment was 16.3%.
Turning to the Specialty Insurance segment. Revenue in our home warranty business totaled $104 million, up 1% compared with last year. Pretax income in home warranty was $17 million down from $21 million in prior-year primarily due to elevated claims activity as the loss rate rose to 52.0% from 50.5%.
Our property and casualty business had a pretax loss of $6 million this quarter. At year-end, our policies-in-force had declined by 71% since the beginning of the year, and we expect a full wind down of the property and casualty business to be completed in the third quarter of this year.
The effective tax rate for the quarter was 21.6% lower than our normalized tax rate of 24% due primarily to reduced state taxes as a result of larger than forecasted insurance income in the quarter, which is generally not subject to state income tax.
This quarter, we record $7 million of net investment gains on a consolidated basis. We generated $52 million of gains related to three PropTech investments, and $26 million of gains from our public equities portfolio. Those gains were offset by a $75 million decline in the market value of our stake in Offerpad.
Cash flow from operations was $344 million in the fourth quarter, down 15% in the prior-year, due to a change in working capital accounts.
In the fourth quarter, we repurchased 270,400 shares for a total of $20 million at an average price of $74.38. So far in Q1, we repurchased approximately 345,000 shares, for a total of $27 million.
Our debt-to-capital ratio as of December 31st was 27.4% or 22.2% excluding secured financings payable slightly higher than our target ratio of 18% to 20%.
Now I would like to turn the call back over to the operator to take your questions.
Thank you. We will now be conducting a question-and-answer session. [Operator Instructions].
Our first question comes from Mark DeVries with Barclays. Please proceed with your question.
Yes, thank you and congratulations, Dennis and Ken on your new roles. So Ken, I appreciate you've been there for a long time. And also you were kind of joining at the time when FAF is doing quite well. So I'm sure there's a sense of like if it didn't broke, don't fix it. But interested to get your thoughts on kind of your early priorities kind of whether there is anything different or any new levels of ancestor [ph] investment that you're kind of focused on?
Yes, thanks Mark for your kind initial comments. And I've been working with Dennis for 23 years at his side for the last 12 years as CEO. And, so I don't anticipate any dramatic shift in our strategy, the Dennis's vision that he initiated for our company is going to remain to be our vision and that is to be the premier title and settlement services company. And obviously, as demonstrated by the results that has worked well for us. Yes, and to execute on that vision, we're going to execute on the same strategy. We got to grow our core title and settlement business, leverage data and process advantage to the benefit of the business and to invest in our complementary business. So I don't really see the need to initiate any dramatic change.
Obviously, there's going to be things we're going to focus on going forward with as the market changes. But I don't think we're going to be doing anything dramatically different than what Dennis has done.
And the other thing I'll add is that one of Dennis's, like many lasting legacies here is the team he built, and he built an incredible team and that team, which, by the way, includes Mark Seaton, who I know, you know well, and in my opinion is probably the best CFO in any public company. We built the strategy and so it's all of our strategy, including mine.
Okay, great. And then turning to Mark. Mark, just a question on the sensitivity of the investment income the rising rates. First of all, I think you said $15 million to $20 million of incremental annual for every 25 bps. Kind of wide, what's -- what kind of gets you the difference between the $15 million outcome and the $20 million?
Yes, thanks Mark. There's a lot of moving pieces to come up with that. That's our best estimate right now. But we've got -- our bank floaters, we've got our escrow deposits, we've got our operating cash, we've got our 1031, there's a lot of moving pieces. We think that in our discussions with other banks, certainly, maybe the first one or two rate increases, we might be at the lower end of that range. But I think as -- as the Fed continues to raise, which we all expect, we'll probably be more at the high-end of that range of $20 million, as banks make more loans. And right now, they just don't really need no deposits. They don't -- most banks we have -- they don't really value the deposits. And that's why the rates are still low. So it might take a couple of increases for them to really start demanding deposits. So I think, certainly, the initial raises might be the low-end of the range, but overtime, we do think we'll be at the high-end of the range, and that of course assumes our deposit balances can stay at current levels.
Okay, got it. And it sounds like it ramps a little bit with more rates. But is that in general, the guidance fairly linear? So in other words, if the 5.5 or so increases, it's implied by the forward-curve is accurate, that by the end of the year you could have almost, somewhere between $75 million and $100 million of incremental run rate investment income?
I think so on an annualized basis. Yes, in the title business. And again, it'll be a little bit less at the beginning a little bit more at the end. But overall, yes, I think it's fairly linear.
Our next question is with Andrew Kligerman with Credit Suisse. Please proceed with your question.
Hey, good morning. Maybe just sort of staying on the incremental investment income, I know that you've undergone some efforts to build out your bank to make it available for agents to make deposits. How could that affect that $15 million to $20 million in income? How much -- how soon do you think you'll have that component of the bank up and running? And how much in deposits do you think you could garner in 2023 and beyond?
Yes, thanks for that question, Andrew. So the $15 million to $20 million that we've been talking about here, that's assuming, again, deposit level stay the same. Now, you've pointed out the fact that we're growing our bank, and we're growing it through our agency deposits. As of the end of the year, we had about $250 million of agency deposits. And we had almost $7 billion of deposits at our bank. So it's growing, we think it'll double this year. It's not going to have a huge impact. But over time, we think that's a big, big growth area for the bank is having agents deposits or funds for us, but I don't think that will be material for 2022 maybe even 2023.
Got it. And you know with personnel costs up approximately what was it 9% -- 19% versus the fourth quarter of last year. Maybe just a little more color on the outlook for personnel costs and what's driving it up so much year-over-year?
Well, I'll chime in, Andrew, and then Mark can finish off with more -- some more definitive numbers. But on personnel costs, I think we expect personnel costs to remain steady. But I will note that I don't think there's any mystery that we're going to have inflation pressure. So we're going to -- there is some risk of increased personnel costs, going into the year. And then, obviously, as we've done historically, we watch our personnel cost with that to our entire cost structure very closely and adjust as necessary to the market.
So maybe just even an inflationary cost on wage, it should hold pretty steady?
Yes. I think the current headcount that we have now we think is appropriate. I mean, one dynamic that we had in 2021 is that we were hiring throughout the year. And so when you just look at it on a run rate basis, and we're going to have higher personnel costs in 2022, that we did in 2021, because of the fact that we were hiring through the year. And also, we have acquisitions too, that have -- they're going to increase our headcount even more. But we think we're, as Ken said, we're properly staffed and we're going to have our personal cost next year, just because of the run rate dynamics.
Our next question comes from Mark Hughes with Truist. Please proceed with your question.
Yes, thank you. Good morning. And just to follow-up on that, when you say steady personnel costs are you talking in absolute terms, are you talking as a ratio?
Well, really both. I mean we're going to have higher personal costs on an absolute basis. And when you look at our personnel costs as a percentage of our net operating revenue, which is a metric, we look at that depth, [indiscernible] as well next year.
Okay. And then, did you hear you properly that purchase orders in January were 2,000 per day. And what was that year-over-year change?
It was -- yes, it was 2,000 a day. And it was down roughly about 7% versus the prior year. But remember January of last year was a very strong January, because we have this pent-up demand because of the pandemic. So it's certainly down from last year, but when you got a two-year trend it's a lot more favorable.
Yes. The commercial revenue per order are quite strong. You talked about large orders. Did that kind of unusual pent-up demand or is that the new reality?
Well, I'd say we had an extraordinary fourth quarter. This is the best fourth quarter we've ever had, and as I mentioned on my -- in my remarks on the script, I mean, this was by far a record year for commercial. So on the one hand; we've never experienced anything like what we experienced in the fourth quarter. On the other hand, we have a good pipeline heading into this year. I mean, for the first six months, we know that we're going to have very strong commercial activity, as evidenced by the fact that our escrow deposits, which are a leading indicator of commercial activity, haven't really declined very much from the fourth quarter. So we know that we're going to have a good six months in commercial after that, it's hard to tell. But we're -- in our conversation with our customers there's a lot of capital out there. And we've seen this rising transactions that we think can continue.
Then one more if I could. The Mother Lode acquisition, is that just a good opportunity? Or does it represent some sort of a not shift in strategy, but growing preference for similar deal?
Yes, well, this is Ken, and thanks for the question. I think at first and foremost, it was a fantastic opportunity -- opportunities like that don't come along very often. And by that I mean a company of their size and scope, their reputation in the industry, and then on top of all that just the quality of their people and their compatible culture. So I think a) it was an opportunity. But b) as I suggested earlier it is a four rank for us into a multi-brand strategy. That's not to say we don't have other brands in our title company, we do including like Republic Title of Texas, which is a premier brand. But we see Mother Lode as an opportunity to penetrate markets that for whatever reason we haven't been able to penetrate yet or for that matter, others have been able to penetrate and to take advantage of really their unique approach to the market. I think every one of the title companies has a different approach to the market and we are going to be able to add that approach to our own.
[Operator Instructions].
Our next question is from Bose George with KBW. Please proceed with your question.
Hey everyone, good morning. Thank you. Just a follow-up on Mother Lode, have you said anything about accretion from that acquisition?
No, we haven't yet. And the transaction is subject to regulatory approval. So it's not going to close probably for a couple of months at least. And once it does close, we'll provide some additional information, hopefully at the next -- on our next call to you.
Okay, great. Thanks. And then actually just in terms of your other investments, there has been a pretty big sell-off in the PropTech public stocks at least. Has that created opportunities for you like what's going on there on the private market side?
Yes, well I think there are opportunities. I'll say, we haven't seen a decline in valuations in the types of companies we look at. But yes, I would anticipate that there will be more opportunities for us at probably more favorable pricing going forward. And I'll note on our venture portfolio, I mean you have that, as Mark has indicated performing well, financially. I mean, we've booked gain of $355 million at year-end.
But I'll remind you, we're not just doing these investments for financial returns, we're doing it for strategic reasons. We want to invest in PropTech companies that give us insights into what companies like that need, so we can adapt and adjust our products. And also, they might hopefully become customers or good customers of ours. And we've actually seen that in the past. So, when we talk about the opportunities, we look at it not just from a valuation or a financial perspective, but from a strategic perspective, and probably first and foremost from a strategic perspective. So we think those opportunities will continue to present themselves.
Okay, great. Thank you. Just one more just swinging back to expenses. Can you just talk about your success ratio was that versus your expectations this quarter?
Yes. Well so we've always talked about a target success ratio of 60%. But we've been talking about that for probably about 15 years now, we've hit it most of those years. And it's just not -- it's not sustainable. I mean, you get a 60% success ratio every year, your margins keep going up and up and up. So this quarter, well first of all point out that for the years 2021, we had a 59% success ratio, so we hit it for the year, for the fourth quarter, it was higher, we were at 87.5%. There's a few things. I mean, I wouldn't say we had any like significant one-time expenses but our 401(k) expenses for the quarter were $8 million higher than last year, because we -- our 401(k) plans is we pay our employees more depending on the profitability of the company. So we matched $1.50 versus $0.75 last year. We also had $9 million for like a healthcare true-up at the end of the year.
And then we also have some entities like Endpoint, like ServiceMac that have losses, and that puts pressure on that -- on the success ratio. So overall, I think we're happy with how we manage expenses for the year for the quarter, but the success ratio will decide for those factors that I just mentioned.
Our next question is from Geoffrey Dunn with Dowling & Partners. Please proceed with your question.
Thanks. Mark, I guess I'm actually really surprised by your outlook for personnel expense. When you consider how much of that line is commissions, bonuses, temp and other variables. So as you think about an absolute increase year-over-year, can you frame that relative to revenue, I mean, it would seem to me very unusual type of outlook, unless you're expecting revenue to only be down maybe 5% or something like that otherwise it seems like more compression than I would have expected in a falling environment. Can you just --?
Well, sorry, Geoff, I could go after. Last call, we talked about how we thought we could have flat revenue in 2022 versus 2021. And now, in this call, I think we still stand by that. So we don't know. I mean, as we've talked about, there's a lot of things that were happening in 2022. We never really know. But based on where we're sitting right now, we don't see a decline in revenue but that could happen. But we think we'll be closer to flat.
Okay, that makes more sense. And then, if you are in a flat, your success ratio is designed for year-over-year increase in revenue. So if we're in a flat or down revenue scenario, how do we think about judging your expense management against that framework?
Yes, so.
Or how do you think about it?
Yes, so the success ratio itself it's really a metric that we came up with a long time ago to determine. Are we doing a good job of managing expenses when the market is up or down? It's less relevant if you have flat revenue, right, because you can get some pretty wild numbers for the success ratio. I think, at the end of day, we won't have strong margins; we look at each one of our businesses that have different margin dynamics. And we want to make sure that we have good returns on capital good margins, and in a flat revenue environment, again, to your point, the success ratio isn't as meaningful.
Our next call comes from Ryan Gilbert with BTIG. Please proceed with your question.
Hi, thanks. Good morning, guys. First question for me is on just competitive dynamics in the core title business? Any details or color you can add on what you saw on the market in the fourth quarter? And how you think about competition developing over the course of 2022?
Yes, I don't think we anticipate seeing dramatic change in the competitive environment. Obviously, interest rates are going to have a headwind. And I think a lot of the upstart title companies that are refinance driven are going to have a critical inflection point for them. But I think in terms of the larger competitors in particular, I don't see that dynamic changing too dramatically.
Okay, got it. Second question, could you just update us on endpoint and the -- your progress expanding into new markets maybe your customer pipeline, as you see it now?
Yes, I think -- I think, on the whole that endpoint is doing well. They're maintaining their market share and their test market in which is in Seattle. They've been expanding into new markets. They're currently in 20 markets across seven states. And I think one of the telling indicators for me is our net promoter score within endpoint. I mean, it's above our target, which tells me that we're gaining traction with the customer base. I think we're the -- its being received well with customers.
Okay, great. Last question for me, just on share repurchases. Looks like you picked up the volume pretty significantly in January. Just how are you balancing share repurchases with other investment opportunities and how maybe -- how we should be forecasting repurchases in 2022 and 2023?
Well, it's always something we look at. I mean, we're -- we've been very active in the M&A market, the last -- certainly last year and more. We're very active in terms of investing in our core business, just to develop software and tools to make it easier for us to deeply connect with our customers. So we're making a lot of investments. And we're fortunate in the fact that we can make those investments and still repurchase our shares. We think that our stock is undervalued, and that's why we're buying our shares. And when you look at our multiple on the Bloomberg this morning, we're trading the 11x earnings. But we can ask ourselves, where are we in the cycle. At a 11x earnings that would kind of imply where we're at the peak of the cycle, but we're certainly not peak when it comes to re-fis or at the trough when it comes to re-fis. We're certainly not peak when it comes to investment income or at the trough when it comes to investment income. So you balance all those and I think on a standalone basis our multiples, maybe should be a little bit higher.
But then when you layer in some assets that we have at First American that maybe are completely reflected in our public market value, including Ken mentioned our PropTech portfolio, the carrying value of the portfolio was $673 million at the end of the year and when you trade on a fee basis at least that would argue that's not being fully reflected in the value of our shares. And then certainly we have some assets that we have losses, in First American. We're very excited about endpoint and point has losses, same thing for ServiceMac, same thing for our property and casualty business. But we feel like all those have value to them and are being reflected. So for those reasons, we've been in the market, these last couple of months, and we'll kind of see what happens for the rest of year. I don't have like a forecast for you. But as we mentioned earlier calls we're going to be more likely to buyback in the future than we have in the past. And I think we've started showing that.
Our next question is from John Campbell of Stephens. Please proceed with your question.
Hey, guys, good morning and Dennis, congrats on a outstanding run. Happy you're still going to be around at the Chairman seat. And then, Ken congrats to you as well we're looking forward to working with you.
Thanks John.
Thank you, John.
Sure. You know you guys are going to get this question. So on title pretax margin I mean you guys obviously in the past have talked to I think 11% to 13% range. Obviously, past few years really good mortgage backdrop, you guys, 15% to 15% margins. You got to rebuy headwind this year. You got what seems like a pretty sturdy business on purchasing commercial. You guys talk to maybe flattish revs. I think we certainly see that as well. You've got the investment income pick up. With all that said, I'm just kind of curious about how to think about pretax margins. I know, it's going to probably be hard to keep it at 2021 levels with the wage pressure, but seems like you've got enough things cooking to maybe kind of keep it close so just curious about commentary there.
Let me chime in real quick on the outlook and Mark can chime in as necessary. And obviously this morning, the inflation number wasn't great, which I think sealed the deal on the Fed raising rates. But I think there is some cause for optimism at least going into the first half of this year. On the purchase side, rates are staying there, they're still relatively mortgage rates are still relatively low they're raising, but they're still low.
And we've got some demographic benefits millennials, for example, coming into the market. Of course, there's been, low inventory, but I think we remain hopeful and expect to see some inventory coming onto the market, which I think bodes well for our purchase business.
And then, as you noted on the commercial business, they were coming off a record setting year. So we'll have some momentum coming into this year. And as Mark mentioned, the pipeline looks really good. So we're optimistic on the commercial market again, because rates are still relatively low. And as Mark also mentioned, there's a lot of capital chasing deals.
The refinances I think we've all been talking about here to Andrew's call, the strong correlation with rates. So we expect it to wane as rates go up, but we're in a great position to offset that with investment income, particularly given our views. The one really unique asset we have in the industry, and that is our bank. So I feel, I guess from my perspective, I feel good about our margin going into, as we go into 2022, but we're ever conscious of the headwinds of increasing rates. And as I suggested earlier, we will watch the cost structure very, very carefully.
Okay, that's helpful. I appreciate that. And then in your prepared remarks around Mother Lode, you guys talked to the multi-franchisee. It seems like that's a fairly big pivot for you guys. I mean, it seems like a single brand strategy that's probably more cost efficient, but maybe there's that growth benefit to kind of comes back. So maybe if you could talk to that and then why you're exploring that now, what triggered the change?
Well, I think, there'll be -- well, I think part of it would be opportunity that presented itself. And Mother Lode has really 10 Top Notch brands, and I think it would be imprudent as us to roll that into a single brand just because they've made such great inroads with those brands. So I guess I don't really see it as a pivot as more of a shift, because as I've indicated, we do have some other brands we have Republic Title, we have title best there are some other brands in our portfolio. So I think we more view it as a shift and an opportunity to approach the market in a new way.
Mr. Gilmore, there are no additional questions at this time. That concludes this morning call. We would 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 13726034.
The company would like to thank you for your participation. This concludes today's conference call. You may now disconnect.