Fidelity National Financial Inc

NYSE:FNF

Earnings Call Transcript 2019-Q3

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the Fidelity National Financial 2019 Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder, today's call is being recorded.

Now I'll turn the conference over to your host, Jamie Lillis. Please go ahead.

[Jamie Lillis, Managing Director, Solebury Trout,]

Thank you, operator, and good morning, everyone. Thank you for joining us for our third quarter 2019 earnings conference call.

Joining me today are Chairman, Bill Foley; CEO, Randy Quirk; President, Mike Nolan; and CFO, Tony Park. We'll begin with a brief strategic overview from Bill, Randy will review the title business and Tony will finish with a review of the financial highlights. We'll then open the call for your questions and finish with concluding remarks from Bill.

Before we begin, I would like to remind you that 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 expectations, hopes, intentions or strategies regarding the future 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.

Because such statements are based on expectations as to future financial and operating results and are not statements of fact, 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 2:00 PM Eastern Time today through November 6. The replay number is 800-475-6701 and the access code is 472566.

Let me now turn the call over to our Chairman, Bill Foley.

[Bill Foley, Chairman]

Thank you, Jamie. The third quarter was another strong quarter for our title business, as we generated adjusted pre-tax title earnings of $407 million and an 18.6% adjusted pre-tax title margin, both of which represent record quarterly performances since the third quarter of 2003. I’ll let Randy go into more detail on the title business.

Turning to Stewart Information Services. As we announced in September, we made the decision to terminate our proposed merger agreement with Stewart given the insurmountable regulatory hurdles that we face. Looking forward, we remain committed to creating meaningful long-term value for our shareholders and are in the process of reviewing our capital allocation strategy with our Board.

Our priorities for capital continue to be focused on share repurchases, consistent dividend growth over time and strategic M&A that enhances the growth profile and diversification of the company.

As we announced yesterday afternoon, we increased our dividend 6% to $0.33 per share from our previous dividend of $0.31 per share as a result of the very strong cash flow generation of our title business.

In July, our Board declared a $0.31 per share dividend in the third quarter of 2019 which used $85 million in available cash from the holding company in September. We also repurchased 810,000 shares of our common stock during the third quarter for approximately $35 million.

Cash inflows were $294 million, primarily from the $277 million in underwriter and non-underwriter dividends that we paid up to FNF [ph] holding company in the third quarter, $16 million of principal and interest on the intercompany ServiceLink note and $1 million in interest on the Cannae line of credit. The net result was we ended the third quarter with approximately $984 million in available holding company cash.

I’ll now turn the call over to Randy to discuss the title business.

[Randy Quirk, CEO]

Thank you, Bill. We generated adjusted pre-tax title earnings of $407 million, a $108 million or 36% increase over the strong third quarter of 2018. Our adjusted pre-tax title margin was 18.6%, a 290 basis point or 18% increase over the prior year.

We had a 21% increase in direct orders closed, comprised of a 2% increase in daily purchase orders closed, a 17% increase in total commercial orders closed and a 114% increase in daily refinance orders closed.

Purchase orders opened increased by 1% versus the third quarter of 2018, a sequential improvement from the 2% decrease in the second quarter of 2019 versus the prior year. Refinance orders opened increased by 114% versus the third quarter of 2018 as a decline in mortgage rates continues to drive strong refinance volumes.

Lastly, total commercial orders opened increased by more than 15% over the third quarter of 2018. This quarter produced improving trends in purchase orders opened, a strong continued quarter of refinance orders opened as well as ongoing strength in commercial orders opened. Due to the strength of our third quarter, we are well positioned to continue producing strong title business results for the remainder of 2019.

For the third quarter, total open orders averaged 9,250 per day, with July at 8,700, August at 9,700 and September at 9,300. Purchase orders opened were up 1% and closed were down 2% on a daily basis in the third quarter. Purchase orders opened in July were down by 2.4% versus the prior year period, while August and September were up 1% and 4% respectively versus the prior period.

Refinance orders opened and closed increased by 114% and 93% respectively on a daily basis versus the third quarter of '18. The best month of the quarter was August when refinance orders opened increased by 142% over August of 2018.

For the first four weeks of October, total orders opened were approximately 8,600 per day. Daily purchase orders opened increased by 2% versus the prior year and data refinance orders opened increased by 123% over the prior year period.

Total commercial revenue of $301 million was a 9% increase over the third quarter of 2018, driven primarily by a 17% increase in closed orders, somewhat offset by a 6% decrease in the fee per file. Commercial orders opened increased 15% in the third quarter versus the prior year, positioning us well for the remainder of 2019.

For the first nine months of 2019, total commercial revenue of $818 million was the largest nine-month revenue performance since we began tracking total commercial revenue in 2015.

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

[Tony Park, CFO]

Thank you, Randy. We generated more than $2.2 billion in total revenue in the third quarter, with the title segment generating all but the $47 million of revenue we generated in our corporate segment.

Net earnings were $250 million, which included $4 million in realized gains. Adjusted net earnings were $304 million or $1.10 per diluted share. Excluding realized gains of $3 million, the title segment generated over $2 billion in total revenue for the third quarter, a 13% increase from the third quarter of 2018.

Direct premiums increased by 15% versus the third quarter of 2018. Agency premiums also grew nearly 15% and escrow, title related and other fees increased by 15% versus the prior year.

Personnel costs increased by 9% and other operating expenses grew by only 8%. All in, the title business generated an 18.6% adjusted pre-tax title margin, a 290 basis point increase versus the third quarter of 2018.

Interest income of $57 million was a $13 million increase over the prior year as we continue to see the positive impact of higher short-term interest rates on the interest we earn, on the client exchange funds we hold in our 1031 exchange business, the reinvestment of proceeds from maturing fixed income securities and from cash and short-term investments.

FNF debt outstanding was $838 million on September 30 for a debt to total capital ratio of 13.3%. Our claims paid of $52 million were $15 million lower than our provision of $67 million for the third quarter.

The carried reserve for claim losses is currently $28 million or 2% above the actuary's central estimate. We continue to provide for claims at 4.5% of total title premiums.

Finally, our investment portfolio totaled more than $5.4 billion at September 30th. Included in the $5.4 billion are fixed maturity and preferred securities of $2.5 billion, with an average duration of 3.5 years and an average rating of A2; equity securities of $700 million; short term and other investments of $700 million; and cash of $1.5 billion. Of the $1.5 billion in cash, nearly $1 billion currently sits at the holding company level.

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

[Operator]

Thank you. [Operator Instructions] Our first question will come from the line of John Campbell from Stephens. Please go ahead.

[John Campbell, Stephens]

Hey, guys. Good morning. Congrats on a great quarter.

[Bill Foley, Chairman]

Thanks, John.

[John Campbell, Stephens]

I just want to touch on commercial for a second. Obviously, you're seeing continued good strength there. If you could maybe just kind of unpack where the strength is coming from I guess on a region by region basis or maybe asset class or are you just kind of seeing it across the board? Any kind of color there?

[Mike Nolan, President]

Sure, John. It's Mike. And it's really broad based. I mean, we're seeing most asset classes doing very well, and depending on the quarter some are stronger than the others. But energy, office, multifamily, industrial is very strong; gaming kind of comes in and out, but very strong there.

And then in terms of geography, as I look at our 21 National offices, our California and Washington [indiscernible] are doing very, very well; Texas, the DC-Virginia area, Pittsburgh, Philly, Minnesota, just a lot of markets around the country; and in New York in particularly in the third quarter, we saw some really strong deals exported out of New York and into our field operations throughout the country.

[John Campbell, Stephens]

That's good to hear. And then on the 15% opened order growth at the commercial, that's probably the strongest result I've seen in a while. It looks like that put you guys on a pretty good path maybe through 4Q and maybe even 1Q. But any sense for the size of the deals in the mix now?

And then maybe the type of orders via purchase of refi and how that - how those two might influence the commercial fee per file for 4Q?

[Mike Nolan, President]

Yes. So we had some pretty big transactions in the third quarter, John. But we also closed a tremendous amount of volume. I mean, our closings were up 17% and 60% of those closings are local deals and that fee per file was off a bit more than in other quarters, so that did pull it down for the quarter.

We have some large transactions in the pipeline. I would anticipate the commercial fee per file to come back up in the fourth quarter. It’s typically our highest for the year, and I don't think we've had a commercial fourth quarter in a while, where the National fee per file was below 13,000. So I think it's looking very good for the pipeline.

[John Campbell, Stephens]

That’s good to hear. And then lastly, Bill, I mean, obviously you guys kind of have a high-class pass [ph] now with the cash at the holding company. You mentioned at the Board level you guys were kind of discussing your options.

But just at a high level, any sense for kind of what you - where are your heads at on the M&A side and if you guys do have a pipeline, if there is anything kind of larger transformational outside of title that you might be looking at?

[Bill Foley, Chairman]

Well, it'd all be - it would be complementary to what we're presently doing or countercyclical to what we're personally engaged in. As you know, the title business is transactional in nature and when the rates are low we reap the rewards them and when the rates are higher the transactions slow down. And if we can find something that would balance that trend, that would be very interesting to us.

Then there are other businesses that are really ServiceLink related in ways but in areas of business that we presently don't have coverage. Obviously, there is not going to be another large title deal.

And we are also - we increased the dividend. It doesn't seem like a lot. That was just up 6%, $0.02 a share. We want to make sure we never get in trouble in terms of our revenue go backward and our dividend increases, and this is the time of year when we normally review and increase our dividend.

And then we’re taking a good look at increasing our share buyback. But it would be on a kind of daily consistent basis just as we've been doing. So that's the process we're going through.

So it was a great quarter, generated a lot of cash. Fourth quarter is going to be a terrific quarter. We’re already seeing that from the month of October, and so there is to be - more to be revealed the next several months.

[John Campbell, Stephens]

Okay. And then I want to touch back maybe on the M&A commentary around the countercyclical - what are your thoughts on First American and their approach with - having a internal bank? Is that anything that could be of interest you guys from just the countercyclical angle with rates?

[Bill Foley, Chairman]

We are actually pursuing that. We’re pursuing a bank that would be depository for some of our escrow funds. And it’s a long and steady process and we’ve been on it for about a year and a half and we’re close to filing, but we're just not quite there yet.

[John Campbell, Stephens]

Good to hear. Thanks, guys.

[Operator]

Thank you. Our next question will come from the line of Mark DeVries from Barclays. Please go ahead.

[Mark DeVries, Barclays]

Yes. Thank you. Obviously a very strong margin on the quarter. Wanted to get your thoughts on how we should think about your need to add expense here to fulfill the pretty robust pipeline you have particularly on the refi side and kind of the implications for the margin?

[Randy Quirk, CEO]

Yes. This is Randy. You're correct. I mean, strong second quarter and third quarter with openings. I believe our third quarter openings were up 30% year-over-year, closings up 20%. We added a couple of hundred employees in the third quarter, but still we're running a little over 200 less employees than a year ago.

So as we go forward, the only real expense swing would revolve around labor costs. And we don’t anticipate adding to staff in the fourth quarter. We’re up about 50 employees so far into October.

We have a lot of closings. But we expect that that will level off as you go through the back end of the year. So, expense-wise, I don’t see anything dramatically changing outside of the labor costs.

[Mark DeVries, Barclays]

Okay. So is the implication that we should expect another pretty strong margin in 4Q, particularly as we think about even bigger contribution from commercial. Is that fair?

[Randy Quirk, CEO]

Well, as Bill had said, it's going to be another very strong quarter. 18.6% of course was a record for us, and you always have some seasonality impact as you get through into the back end of November and into December. But commercial is going to be very strong.

And we actually, on the refinance side, could end up with more refinance closings in the fourth quarter than we had in the third quarter. So it will be -- it should be a very, very good fourth quarter.

[Mark DeVries, Barclays]

Okay. Great. Thank you.

[Randy Quirk, CEO]

Thank you.

[Operator]

Thank you. Our next question then will come from the line of Mackenzie Aron from Zelman & Associates. Please go ahead.

[Mackenzie Aron, Zelman & Associates]

Thanks. Good morning. Following up on the strong margins this quarter. Is there anything from a technology or automation standpoint that is helping to drive the really strong results that you can maybe point to?

[Mike Nolan, President]

Sure, Mackenzie. It's Mike. Particularly in the third quarter, I'd point to two things. First is just the great commercial performance that tends to be higher margin business for us. But on the automation side, with all the refis that we're processing, we’re really able to take advantage of our next stage title automation and also our ability to do work in India.

We’re on - in our centralized refi environments like ServiceLink, roughly 70% of our refi orders require little or no touch, so they come in and we can process and we get the commitment out with little to no human touch. And in our distributed footprint, it's about 40%. So we're seeing a nice lift from the automation and that just matures over time and we'll get better and better.

[Mackenzie Aron, Zelman & Associates]

Excellent. And then another question on agenting, the agent revenue strength. I know we don't have the full market share picture yet. But it seems like you all have been gaining share in that channel.

And just curious what you're hearing from the field, if those gains are going to be fully sustainable now that the Stewart deal is off the table and how much of the strength was driven by agent reallocating during the merger process?

[Mike Nolan, President]

Yes. We feel like we're taking some share at agency. We've seen good growth in a number of markets, particularly Florida, which is a great agency market and other markets in the Southeast and the East. As you know, we don't do a lot in the West relative to agency, but we've seen nice growth there.

And I wouldn’t say it's market share we’ve necessarily taken away from Stewart. I don't know that it came from any dislocation there. I think we're just more broadly taking share from the overall marketplace.

[Mackenzie Aron, Zelman & Associates]

All right. Great. Thanks so much.

[Operator]

Thank you. Our next question then is going to come from the line of Jack Micenko from SIG. Please go ahead.

[Jack Micenko, SIG]

Hi, good morning. I wanted to ask about the fee per file on the resi side. It sounds like with the pipeline on refi where it’s at, we should see another - maybe another year-to-year decline in resi fee per file. I think you said earlier, just to confirm, maybe a rebound in commercial in the fourth quarter. Am I thinking about that in the correct way?

[Mike Nolan, President]

Yes, I think that's right. I mean, we - in the third quarter, 50% - or 45% of our closings were refinance versus 30% in the third quarter last year, and I would anticipate in the fourth quarter that that could be 50% - move to 50% or maybe low 50s. So that's certainly a headwind on the fee per file. And it's just how much it gets offset by a lift on commercial.

[Jack Micenko, SIG]

Okay. Makes sense. And then on the buyback - going back to an earlier question. I guess maybe to ask it a different way, what are you waiting to see to announce or to think about something more substantial on the buyback side?

Obviously, something like you've got some things in the hopper on M&A, but is it sustainability of volumes? Is it 4Q? Help us sort of think about what some of the deciding factors would be.

[Bill Foley, Chairman]

I mean, really our first allocation of capital has been to keep on maintain and increase our dividends. So we're very proud of what we've done with our dividend over the last seven or eight years.

The buyback - we have a steady buyback program that we -- when we're not blacked out, we buy a certain number of shares per day, and that's really the number that we would look to increase, that share purchase per day.

We wouldn't do a Dutch auction, we wouldn't do a special buyback. We'd really just be really kind of steady and consistent. And so we don't announce the number of shares we buy per day.

We just say that we're in the market, and we're going to be looking to increase the number of shares we purchase per day when we're not blacked out. That's kind of -- that's as specific as I can get. Is that fair enough?

[Mike Nolan, President]

Yes. Makes sense. We did buy 810,000 shares in the quarter, spent $35 million.

[Jack Micenko, SIG]

And that automatic approach. I guess that would suggest that you're pretty comfortable with the intrinsic value and current valuation.

[Mike Nolan, President]

We are, yes.

[Bill Foley, Chairman]

Absolutely.

[Jack Micenko, SIG]

Thanks.

[Operator]

Thank you. Our next question then will come from the line of Jason Deleeuw from Piper Jaffray. Please go ahead.

[Jason Deleeuw, Piper Jaffray]

Thanks for taking the question. What's a good go-forward tax rate?

[Tony Park, CFO]

Jason, I think you can model 24%. We did have an unusual tax rate in the third quarter at 18.8%. That was up against actually 17.8% in the prior year third quarter, which also had some - I'll call them discrete items. We did have a $5 million Florida State tax refund that showed up in Q3 that lowered our rate, and we also had some increased stock option exercise activity following the - really the prolonged blackout we had for Stewart, where we were blacked out for a long period of time.

And when that lifted, we did have some expirations that were quickly approaching. And so that exercise activity does generate a tax benefit to us. And so that's why we're kind of sub-20% at this point. But I think you can model 24% going forward.

[Jason Deleeuw, Piper Jaffray]

All right, thanks. And then, market share going forward. I mean, traditionally in title insurance, it's been M&A that drives big changes in the needle in terms of market share. And so that - looks like that's all off the table.

But is there anything - I know you said you're taking share in the [Technical difficulty] channel, but is there anything in terms of ramping up agent acquisitions that is interesting at this point? Or is there anything on the direct side that you could also do from a market share standpoint?

[Randy Quirk, CEO]

Yes. This is Randy. Yes, now that Stewart is behind us, we're going to get back to where we were a couple of years ago, looking at agents, small, mid-sized agents and infilling our footprint. We have a very distributed and pretty solid footprint. But there are areas where we can complement our existing brands through acquisition. So we will be back on that track.

And then there is recruiting. We're always in the game to hire good new revenue producing people. So it's a bit of an organic approach at this point. But we will be looking at, and are currently looking at acquisitions.

[Jason Deleeuw, Piper Jaffray]

Great. Thank you.

[Operator]

Thank you. Our next question then will come from the line of Geoffrey Dunn from Dowling & Partners. Please go ahead.

[Geoffrey Dunn, Dowling & Partners]

Thanks. I have a few. In the past Fidelity had $1 billion at the Holdco at mid-teens with debt leverage. It would just be a matter of time before big deals coming at us. Can you talk about how you think about I guess the possibility of a large, somewhat transformational transaction coming in the door versus more of a tack-on strategy?

[Bill Foley, Chairman]

Well, it's very intuitive, Geoff.

[Geoffrey Dunn, Dowling & Partners]

I know you don't like sitting on money, so.

[Bill Foley, Chairman]

Yes. The things that we are looking at are somehow related. They're in the insurance space or related to the insurance space, and we're trying to stay away from ideas that are presented to us that are transactional in nature. We'd rather have moved to the recurring revenue model.

And if we can move toward acquisitions or investments in a company that we can grow that company that are countercyclical to the title insurance, transactional, low interest rate driven business, that's really what we're most interested in, and that's what we're working on.

We're running a lot of screens right now and we're really trying to focus on what would make the most sense for the Company. But you're not going to see anything that's out of the line. There is not going to be any restaurants, there's not going to be any extraneous type investments.

These will be investments or an acquisition or acquisitions that will really protect or fortress balance sheet. That's my -- kind of like my last goal here and my stand at this company.

[Geoffrey Dunn, Dowling & Partners]

So you wouldn't rule out a sizable deal.

[Bill Foley, Chairman]

No, I would not rule out a sizable deal.

[Geoffrey Dunn, Dowling & Partners]

Okay. And then as you planned for the Stewart deal, I think the buyback anticipation was to repurchase at least the amount of shares issued in the Stewart transaction, both because the valuation deemed -- it was deemed attractive and to get rid of the dilution. What changes that appetite? It seems to me like now you just have even more cash to go after buyback.

[Bill Foley, Chairman]

Yes. We are going to increase the buyback. We are going to -- but we have 280-somewhat million shares outstanding.

[Tony Park, CFO]

Yes, 278 [ph] million.

[Bill Foley, Chairman]

And so if we buy back 10 million shares, it doesn't really move the needle. It's a big chunk of money. So we'd like to be consistent. If we could buy back in the 5 million to 10 million share range per annum, I'd be pretty happy with that.

I think we're being consistent - we're being steady. We're not getting ahead of the market. We're not investing all of our funds at a higher stock price. It's going to be dollar cost average.

So that's really - that's what we're sitting around talking about. And as Tony mentioned, we bought about 800,000 shares in the third quarter. You can expect to see that move up as we move forward during the year -- during this year and into next year.

[Randy Quirk, CEO]

We still have 22 million shares available under our authorization, so plenty of room.

[Geoffrey Dunn, Dowling & Partners]

All right. And then just a couple of title specific. I think it was Randy indicated we could see higher closings in fourth quarter for refi. Is the October closed order per day pace exceeding September?

[Randy Quirk, CEO]

It's pretty steady on the purchase side, a little softening in the last two weeks on the refinance side. But what we're seeing -- we're seeing steady on a week-by-week basis in October versus September on the purchase side.

[Mike Nolan, President]

And just one thing to add there, Geoff, on the closed side. You know the last week of the month is always our heaviest closing month. So it really influences those numbers, and we're just going through that this week.

[Geoffrey Dunn, Dowling & Partners]

Sure. And then last question. I did see recently you announced the launching of a digital closing hub. Could you talk a little bit about that and how that incrementally benefits your business, both I guess from a -- I think it's more focus on the agency side but also expenses?

[Tony Park, CFO]

It's really early stage with all these digital closing initiatives. The technologies there, as we've talked about before, we've announced our initiative with Black Knight called Expedite. We're fully digital closing capable. We've got partnerships and things we can do with remote online notarization. But what you really need for this to become more of a reality is clients and customers that want to use it.

And so we have a number of pilots underway in various states with customers, but it's all very early stage. And I think the digital hub is really just to kind of reach out to the agent community, to let them know they can take advantage of some of these technologies that we have in play.

[Geoffrey Dunn, Dowling & Partners]

Okay. Thanks.

[Operator]

Thank you. Our next question comes from the line of Bose George from KBW. Please go ahead.

[Bose George, KBW]

Hey, guys, good afternoon. Just going back to capital and I don't mean to beat the dead horse here. But just given the cadence of the buybacks that you've suggested, does that really suggest that you'll be basically holding a fair amount of dry powder for M&A as opposed to returning more capital in the near term?

[Bill Foley, Chairman]

Yes, I'd say that's an accurate statement. We really want to kind of look at a couple of transactions that have come before us that we're thinking about and if they don't come to fruition, we are going to be very cost conscious and value-oriented. Then we would probably relook at our capital allocation strategy.

I mean, I like our fortressed balance sheet, I like our low debt position and I love the cash on the balance sheet. It just gives us a lot of flexibility to do a lot of different things.

[Bose George, KBW]

Okay. That helps. Thank you. And then just actually switching to the margin. Can I get the margin on your -- from the centralized refi channel? And then just the premiums in that channel, how do they vary versus just the regular refi premiums?

[Mike Nolan, President]

Well, first on the margin. So in our centralized refi, in the third quarter we had a 33% margin, which is a phenomenal margin, and that was probably up against about an 18% margin the year before. I mean, 33% is kind of running what you've seen some of our national commercial operations, for example. So it just shows you what you can do with volume and taking advantage of automation, as I talked about before. On the premium side, it's probably pretty consistent with the average fee per file and our distributed model. I think it's around $1,000 an order, Tony?

[Tony Park, CFO]

Yep.

[Mike Nolan, President]

So I think it's pretty consistent, Bose.

[Bose George, KBW]

Okay. Thanks. And then actually with the changes in the Texas premiums, I guess that went into effect this quarter, do you see that as being material at all to fee per file going forward?

[Mike Nolan, President]

I think it's pretty immaterial. Overall, it was about a 4.9% or 5% decrease. It's not -- I do not see it as impacting fee per file a whole lot.

[Randy Quirk, CEO]

And the annual revenue impact was something like $17 million, it was pretty negligible.

[Mike Nolan, President]

We could -- you get a couple of commercial deals to take care of that.

[Bose George, KBW]

Okay. Makes sense. Great. Thanks, guys.

[Mike Nolan, President]

Thank you.

[Operator]

Thank you. [Operator Instructions] We have a question from the line of Chris Gamaitoni from Compass Point. Please go ahead.

[Chris Gamaitoni, Compass Point]

Thanks for taking my call. I wanted to follow up one thing on the margin. It's clearly amazing right now. In an environment where refinance go back down, how fast will you be able to reduce employees in that type of environment?

[Randy Quirk, CEO]

How fast will we reduce employees? Yes, this is Randy. Well, we'll move very quickly as we have in the past. It will probably push into the first quarter versus what traditionally takes place in the fourth quarter. But as we move up volume, we will stay with our metrics and make the appropriate investments in the field. We never allow ourselves to get too far behind the open order count. So it will happen in a real-time fashion. And maybe we'll touch on it a bit at the back of the fourth quarter, but I think it will probably be more of a first quarter event.

[Chris Gamaitoni, Compass Point]

Okay. And going to your bank commentary, assuming the approvals go well, do you have any idea of the size of the deposit balances on average that can move into that bank?

[Mike Nolan, President]

There are some studies on it. I mean, we have to be kind of slow and steady.

[Tony Park, CFO]

Yes. Chris, we're still looking at that -- a little bit of moving target. But it could be potentially $2 billion, and potentially more over time, but it's probably little too early to fix a number there.

[Chris Gamaitoni, Compass Point]

Okay. And just assuming that [indiscernible] as we knew we were capitalized, will the Holdco cash be the source of capital to capitalize when your bank with $1 billion plus of deposits?

[Tony Park, CFO]

Yes, I think it would. It would have to come from somewhere. I mean, you probably need something like an 8% capital or something -- 8%, 9%, 10% capital to start it out, so that will probably come from Holdco.

[Chris Gamaitoni, Compass Point]

All right. Thank you so much.

[Operator]

Thank you. And at this time, I'd like to turn the conference back over to management for any sort of closing remarks. Please go ahead.

[Bill Foley, Chairman]

Thank you. We're very pleased with our third quarter results, the best performance on a quarterly basis for our title business in 16 years. We are well positioned for the remainder of the year to capitalize on the strong third quarter with significant refinance orders opened, a continued upward trend in purchase orders opened and the strength in commercial orders opened.

Additionally, we remain focused on deploying our growing capital base to maximize value for our shareholders. Thanks for joining us today, and we look forward to updating everyone on our fourth quarter call.

[Operator]

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation for using AT&T executive teleconference. You may now disconnect.