First American Financial Corporation Aktie

Greetings, and welcome to the First American Financial Corporation Second Quarter Earnings Conference Call. [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 13761705.

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 Earnings Conference Call for the second quarter of 2026. Joining us today on the call will be our Chief Executive Officer, Mark Seaton; and Matt Wajner, 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 yesterday'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 yesterday's earnings release, which is available on our website at www.firstam.com.

I'll now turn the call over to Mark Seaton.

Thank you, Craig. Our earnings momentum continued in the second quarter as we generated adjusted earnings per share of $2.08, an increase of 36% from the prior year. Commercial continued to be a standout performer. Revenue increased 34%, setting a second quarter record. We closed 14 transactions, generating more than $1 million of premium, up from 11 a year ago.

Within our National Commercial Services division, demand remains broad-based, with 10 of our 11 asset classes growing year-over-year. Purchase revenue increased 2% as affordability challenges continue to weigh on existing home sales. Refinance revenue increased 18%, reflecting the brief surge in open orders we experienced at the end of the first quarter when mortgage rates reached their lowest level since 2022. While that activity provided a tailwind during the second quarter, volumes have moderated as mortgage rates have moved higher again.

One of the most important earnings drivers continues to be our bank, First American Trust, which provides a growing source of investment income. During the quarter, average deposits totaled $7.9 billion, an increase of 30% from last year. Growth was driven by deposits outside of our captive title business. During the quarter, 36% of deposits came from sources beyond our captive title operations. The largest contributor was ServiceMac, our mortgage subservicer, which accounted for $1.7 billion of deposits, up 76% from last year. ServiceMac's loan portfolio grew 54% during the quarter. And as that portfolio expands, so should its deposits.

Our second largest source of nontitle deposits came from our 1031 Exchange business. Last year, all exchange deposits were held at third-party banks. Since launching our 1031 banking solution less than 1 year ago, we have rapidly grown deposits, which averaged $827 million in the second quarter, representing roughly 1/3 of our total 1031 balances.

Finally, our agent banking strategy continues to gain traction. Today, 310 title agents bank with First American Trust, an increase of 37% from last year, we expect those balances to grow as real estate activity recovers.

Taken together, Servicing, 1031 Exchange and agent banking provide meaningful long-term growth opportunities while reinforcing the bank's role as a valuable countercyclical earnings driver.

Our primary strategic priority remains leveraging AI across the enterprise to amplify the talents of our people, better serve our customers and strengthen our operating capabilities. These benefits are already becoming tangible. Recently, we needed to update 1,300 forms across the company. Historically, this would have required a lengthy manual process. Using our new AI tools, we reduced the time required by 97%. We launched a product called Exam Assist QC, which is an AI-enabled quality control workflow. It has now processed more than 50,000 orders, delivering 92% with no additional human review, a clear example of how we can deploy AI at scale for our quality control process.

We are also starting to see meaningful evidence that AI can improve customer-facing service delivery. At ServiceMac, we rolled out a virtual agent last month for loan transfer inquiries and improved self-service success from 0% in April to 42% in June. While still early, it is a useful proof point that AI can support live customer workflows in a regulated servicing environment. We expect to expand the number of self-service use cases from 1 to 7 by the end of the year.

We are also building broader enterprise capability in agentic product development. In the past 4 months, we've had nearly 700 people participate in hands-on boot camps focused on rewriting legacy code and solving real business problems. The result is a growing enterprise capability to apply agentic AI across functions and workflows, moving technology teams from basic awareness to real adoption in product development. And, of course, at the enterprise level, we are fundamentally reimagining title and settlement through Endpoint and Sequoia. And both platforms continue to achieve important milestones.

Beginning with Endpoint, we remain on track to scale the platform across our local title branch network by the end of 2027. During the quarter, we converted our first First American title office in Spokane, Washington. While it is still early, every indication suggests the transition has been successful. Escrow professionals now operate from a platform where agentic AI automates routine tasks, which will allow our teams to spend more time serving customers and managing complex transactions.

This quarter, we will expand Endpoint across additional offices in Western Washington before completing a statewide rollout by year-end, followed by a broader national deployment throughout 2027.

We have also improved automation rates from 30% in Q1 to 34% in Q2. And so far in July, we are at 39%. We expect those rates to improve as the platform matures. This represents a fundamental shift in how title and settlement work gets done. As workflows become standardized, the role of our people increasingly shifts from executing routine tasks to validating AI-generated work and focusing on higher-value customer interactions.

We also continue to make excellent progress with Sequoia, our AI-powered title decisioning platform. Since our last earnings call, we expanded Sequoia's refinance capabilities beyond our local direct operations into our centralized lender division in Southern California. We also broadened our refinance coverage in California, increasing our footprint from 8 counties to 41. During the quarter, our automation rate improved from 35% to 40%, and we expect further gains as the platform continues to learn and mature.

Purchase transactions remain a more complex challenge. We launched purchase capability in 3 counties during the first quarter and expanded into Orange and San Diego counties during the second quarter. Currently, in these counties, Sequoia provides instant title decisioning for approximately 16% of purchase transactions at order opening. Over time, we believe we can automate title decisioning for approximately 70% of purchase transactions and 80% of refinance transactions in markets where we maintain title plants. That capability is made possible by our industry-leading title plant data, deep underwriting expertise and innovative technology. By year-end, we expect Sequoia to be deployed across California and Florida, with a broader national rollout planned for 2027.

Once Endpoint and Sequoia are fully rolled out, we believe they will create a durable competitive advantage by improving the experience for employees, delivering better service for our customers and creating meaningful long-term value for shareholders.

Turning to our outlook. We remain optimistic about our earnings trajectory for the second half of the year. Six months ago, we said our commercial business was on pace to deliver a record year, and we continue to believe that. Our commercial pipeline has never been stronger. We've already closed 3 transactions, generating more than $1 million of premium during July. And commercial open orders were up 9% over the first 3 weeks of the month.

We remain more cautious than the broader consensus on the residential purchase market. Through the first 3 weeks of July, our open purchase orders are flat relative to last year as existing home sales remain sluggish.

Finally, I'll comment on capital management. Our business continues to generate substantial and growing cash flow. During the first 6 months of the year, our free cash flow was $285 million, up 32% relative to last year. This is a result of improving operating cash flow and declining capital expenditures, which were down 18% year-over-year. We expect cash generation to strengthen during the second half, particularly since the first quarter is our seasonally weakest period.

Our first capital allocation priority remains investing in the technology, platforms and products that will extend our leadership position in the industry. Importantly, these investments are already embedded within our existing run rate. In fact, our company-wide technology spend has remained relatively flat since 2022, and we do not anticipate the need to invest materially more in our business than what we're currently investing.

Our second priority is acquisitions. The bar for acquisitions is higher today than it has been in many years. We are pleased with our geographic footprint and portfolio of businesses, and we have no interest in pursuing acquisitions simply for the sake of scale or diversification. However, we will continue to pursue opportunities that have strong strategic synergies with our current business, whether in title or near adjacencies.

Finally, we remain committed to returning capital to shareholders through a combination of dividends and opportunistic share repurchases. We expect to continue increasing our dividend over time, reflecting our confidence in the company's long-term earnings growth.

We will also repurchase shares when we see attractive opportunities, like we did in the second quarter. In summary, we remain intensely focused on reimagining title and settlement through AI. We have a strong balance sheet and disciplined strategy, unique assets like First American Trust and industry-leading title data that position us to capitalize on the transformational opportunities AI presents. Together, these strengths give us a differentiated competitive advantage and position us well for years to come.

Now I'll turn the call over to Matt, who will discuss our financial results in greater detail.

Thank you, Mark. This quarter, we generated GAAP earnings of $2.12 per diluted share. Our adjusted earnings, which exclude the impact of net investment gains and purchase-related intangible amortization, were $2.08 per diluted share. Focusing on the title segment, adjusted total revenue was $2 billion, up 14% compared with the same quarter of 2025. Commercial revenue was $314 million, a 34% increase over last year, driven by a 31% increase in average revenue per order.

Average revenue per order was $19,980 per transaction, which reflects a record level for our commercial business. Purchase revenue was up 2% during the quarter due to a 6% increase in average revenue per order, partially offset by a 3% decline in closed orders, which reflects the continued weakness in home sale activity. Refinance revenue was up 18% compared with last year due to a 12% increase in closed orders and a 5% increase in the average revenue per order. This growth was supported by a temporary decline in mortgage rates earlier this year, though activity has since softened as rates have moved higher. Refinance accounted for just 5% of our direct revenue this quarter and highlights how challenged this market continues to be compared to historic levels.

In the agency business, revenue was $820 million, up 14% from last year. Given the reporting lag in agent revenues of approximately 1 quarter, these results primarily reflect remittances related to first quarter economic activity.

Information and other revenues were $295 million during the quarter, up 12% compared with last year. The increase was driven by revenue growth at ServiceMac, higher demand for noninsured information products and services and refinance activity in the company's Canadian operations.

Investment income was $164 million in the second quarter, up 11% compared with the same quarter last year despite the Fed cutting rates 3x. The increase was primarily due to higher interest income from the company's investment portfolio, driven by growth in the size of the portfolio. The growth in the portfolio was attributable to the increase in deposit balances at First American Trust that Mark discussed.

Personnel costs were $572 million in the second quarter, up 9% compared with the same quarter of 2025. The increase was mainly due to incentive compensation expense resulting from improved financial performance and higher salary expense.

Other operating expenses were $319 million in the quarter, up 15% compared with last year, primarily attributable to higher production expense driven by higher volumes and increased software expense.

Our success ratio for the quarter was 66%. This is somewhat higher than our target of 60%, primarily due to investments in certain businesses outside of our domestic title operations such as ServiceMac. The investments being made at ServiceMac are to support the meaningful growth in its loan portfolio.

The provision for policy losses and other claims was $45 million in the second quarter or 3.0% of title premiums and escrow fees, unchanged from the prior year. The second quarter rate reflects an ultimate loss rate of 3.75% for the current policy year and a net decrease of $11 million in the loss reserve estimate for prior policy years.

Interest expense was $30 million in the current quarter, up 33% compared with last year due to higher interest expense related to the growth in deposit balances at First American Trust.

Pretax margin in the title segment was 15.7% or 14.0% on an adjusted basis.

Moving to the Home Warranty segment. Adjusted total revenue was $112 million this quarter, up 1% compared with last year. The loss ratio was 40%, down from 41% in the second quarter of 2025. The slight improvement in the loss ratio was due to lower claim frequency, partially offset by higher claim severity.

Pretax margin in the Home Warranty segment was 21.3% or 20.2% on an adjusted basis. The effective tax rate in the quarter was 22.8%, which is slightly below the company's normalized tax rate of 24%.

Our debt-to-capital ratio was 31.4%. Excluding secured financings?payable, our debt-to-capital ratio was 21.5%.

During the quarter, we repurchased 330,000 shares for a total of $20 million at an average price of $61.99.

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

[Operator Instructions] And our first question will come from Terry Ma with Barclays.

Maybe just on the deposit growth. Can you maybe just expand on some of the comments? And maybe for the ServiceMac piece, how sustainable is that above average kind of deposit inflow? And as we look to the back half of the year, what's the cadence of investment income?

Thanks for the questions, Terry. I'll start with the deposits and Matt can talk about the investment income for the back half. But we have a bank, and it's a real strategic advantage for us. And for many years, really what we've done is we've put our own First American title deposits that we manage in connection with the escrow process into our bank. And we've really maximized -- almost maximized that. And maybe about 5 years ago, we woke up and said, "Hey, instead of just providing banking services to our own First American title insurance company, let's provide banking services to others within the title industry." There's a lot of agents out there that they manage escrow deposits too, and they put their deposits at third-party banks, and these are customers of ours.

And so we started off with agent banking, and we're making progress on that, as I talked about. There's about 20,000 different settlement agents out there. And we're -- not all of them are going to want to use First American Trust, but a lot of them will. And so we're making really good traction there. And also just it ties our agents closer to us, too, which is a good thing.

And then in the meantime, the last couple of years, we found other sources of deposits. I talked about this 1031 solution and also ServiceMac, too. I mean ServiceMac is growing really well. I think the amazing thing about ServiceMac is they're not getting any help from the markets either, and yet their loan growth is up 54% from last year. And so they're growing despite the fact that the market has been flat.

And those deposits -- so whenever we get customers from ServiceMac, if banks are customers of ServiceMac, typically the bank is going to want their own deposits. But there are other customers that are somewhat indifferent, and we try to push those to First American Trust whenever we can. And so we feel like it's sustainable in terms of where we are with these third-party deposits.

And with that, I'll hand it over to Matt to talk about investment income.

Yes. Thanks, Mark. Terry, so investment income, like I discussed, was up 11% year-over-year, driven by really the growth in the investment portfolio, which was related to this increase in deposits at the bank. While at the same time, since now we have more deposits at the bank, interest expense also grew year-over-year. Interest expense grew 33% year-over-year. So when I look at investment income, I like to look at it net of interest expense. So investment income net of interest expense grew 8% year-over-year. And I think that 8% is a good proxy for the growth that you'll see in the back half of the year.

Got it. That's helpful color. And then just as my follow-up, maybe just on the commercial ARPO, it's continued to see robust year-over-year increases. Certainly appreciate all the color on the larger $1 million-plus premium deals. What's the outlook for that in the second half? And I guess like ultimately, how sustainable are those ARPO increases as we look out to the back half of the year?

Yes. No -- thanks a lot, Terry. Commercial, we're very bullish on commercial. Our order counts continue to grow, as I mentioned. Our fee per file or ARPO continues to grow. We're getting a lot of bigger deals now. The big deal pipeline is really strong. We think ARPO continue to grow in the second half of the year. And I'll just say, too, I mean, one of the things we get from investors a lot is how sustainable is this commercial market? Is this going to go away? We just feel like the commercial market has legs for a lot of different reasons. But when we look at our pipeline, we have conversations with our customers. When we look at the commercial real estate dynamics, we're still in the early innings of the next commercial real estate cycle. And so we feel really good about commercial, our ARPO for the second half of the year and well into next year.

Our next question will come from Oscar Nieves with Stephens.

My first question is on margins in the title segment, which were strong at 14%. That's roughly an 80 basis point expansion year-over-year. Can you give us a sense of where you see the full year margin landing at this point and whether the back half plays out differently than the first half given the comps?

Oscar, this is Matt. Thanks for the question. Yes. So year-to-date, our margin in the title segment is 12.3%. When we look at the back half of the year, I think we can expand on that, but the level of expansion that we get from the 12.3% is really going to be tied closely to the commercial business, which, as you know, is hard to forecast and particularly the strength of it in Q4.

Okay. That helps. Kind of related to the margins, when we look at the trends in the operating expenses, your personnel and other OpEx ratio improved nicely year-over-year. But if we look at the incremental margin this quarter specifically, it kind of looks like it was a little less efficient than what you posted during the first half overall. Another way to say that, if you look at the success ratio, it's not -- the rate is a little bit mixed there. What can you share with us on that?

Yes. Thanks, Oscar. So from a success ratio, so the ways that we look at how efficient we are as we look at the success ratio, right, which is the change of net operating revenue divided by the change in personnel and operating expenses. And the way we think about it is 60% is our target for our success ratio. We still think that's a good target for our business. I think last year, we may have come in a little bit under that. It can change from quarter-to-quarter based on onetime items or certain investments we're making.

When we look at Q2, we came in at 66%, so a little bit elevated from our target. And that was due, like I said, to some investments that we're making in businesses outside of our domestic title operations such as ServiceMac. And really for ServiceMac, we're investing in order to support the significant growth that they've seen in their loan portfolio.

Looking ahead, when I think to the success ratio, I think we'll see maybe it being a little bit elevated kind of like we saw in Q2 due to some of these investments. And then also when we look further out into Q4, like I said, onetime items can impact it. And as we talked about in the Q4 2025 call, we had some onetime items that benefited the title segment, and that will show up in the success ratio when we get to the end of the year.

Super helpful. And just one last one on capital allocation, specifically on buybacks. You bought back about $20 million stock in 2Q. How are you thinking about the pace of buybacks from here on through the balance of the year? And does the recent increase in your debt-to-capital ratio change that thought process at all?

Well, just on buybacks. I mean like -- at the moment here, we're not in the market at the moment, but it's always something we look at. And we look at most of the last 5 years, most of those quarters, we've been repurchasing shares. So it's something we're always going to look at. I mean there's always like these dislocations in the market where somebody puts out something and people get worried about the future of title or people get worried about title plants going away. And those seem to be like good moments for us to pick up shares.

And so we're just looking at it on an opportunistic basis. We're very fans of the buybacks. When you look at the prices we bought back, it's been good for our shareholders, and we'll continue to look at that. The debt to cap doesn't really play into that now. Our target debt to cap is 20%, and we're a little bit higher than that now, but it's still very comfortable, especially considering we're at kind of the trough of the market. And so I don't think the debt to cap at these levels weighs in on the buyback decision at all.

[Operator Instructions] We'll go next to Bose George with KBW.

The 6% increase you noted on the purchase ARPO, it seems a lot higher than sort of HPA itself would imply. Is there more activity just on the higher end of the market? Or any just color to add on that?

Bose, yes, it's really due to geographic mix, particularly California. We had a higher mix of orders coming from California, which California has a higher ARPO.

Okay. Great. Makes sense. And then on the commercial side, can you just remind us what are the biggest buckets? Like how much of the premium is coming from data centers? And is energy, are those the 2 biggest buckets?

Yes. No, thanks for the question, Bose. We track 11 asset classes. And just a couple of things here. Our biggest asset class is industrial. It's 23% of our premium was industrial. Some data centers go into that, but there's a lot of other warehouses and different things that go into that. Multifamily was 16% of our premium. Development sites were 14% of our premium. And data centers also go in there. If -- for example, if it's just raw land, it's going to be built into a data center, we'll go into the development site. And then 14% is retail. Those are our top 4 asset classes.

Okay. Great. And then actually one just on the regulatory or political front. In late June, Bill Pulte posted that comment on X about FHFA working on expanding title and that we'd be expecting something soon from Fannie Mae. And have you guys heard anything incremental about that?

Haven't heard anything incremental about that. So we're still kind of waiting for that. We -- they've already announced that they're extending this title acceptance pilot through November '27. And so we know that's been out there. But relative to the Pulte tweet, we haven't heard anything incremental. So we're kind of in wait-and-see mode.

[Operator Instructions] We'll go next to Mark DeVries with Deutsche Bank.

Yes. I have some follow-ups on commercial. I heard you say, Mark, that you're seeing strong growth across 10 of the 11 different asset classes. Could you just talk about where you're seeing the strongest growth across those asset classes with a particular focus on data centers and office?

Yes. Give me a second here. So just following up on commercial. So when we look at -- earlier here in this call, I talked about where the premium came from. When you look at the strongest growth, our development site bucket is up 33% from last year. Multifamily has grown 23% from last year. Retail is up 59% from last year. And really, when you look at everything except for data centers, our commercial business is up 11%.

Data centers, obviously get a lot of attention. Our data center revenue is up 140% -- 147% relative to last year. But I think the point here is we're seeing broad-based growth. It's not like we're just doing a few data centers that are driving our revenue. We've got a lot of other businesses that are just -- within commercial that are just growing. And that gives us strength that this market will have legs.

And is office the one that's not growing? Are you seeing any green shoots there?

We haven't really seen much in terms of office. Like -- well, I'd just say it's growing year-over-year of our 11 asset classes. The only one that's not is health care. So it's growing. It just hasn't made our top 5.

Okay. Got it. And then turning to the data centers. Could you help us think about how premiums on that compare to the average commercial transactions? And also how the premium size differs across the kind of 3 discrete revenue opportunities you get with the average data center?

Yes. So with the data centers, I mean, typically, the transaction is the principal will buy land. That's one transaction. They'll get a construction loan to build the data center. That's the second transaction. And then there's a takeout refinancing, which is the third.

And I would just say that there's just a strong pipeline with all these deals. The data center transactions, we're talking in -- some of these are $1 billion deals, a lot of them are. And so when you look at the growth in ARPO, a lot of it is driven by these huge deals. I mean the average ARPO for a data center deal isn't our $19,000, which is our average ARPO. Some of these deals are $1 million-plus premiums. So it does have an -- there's not that many of them, but the ones that we get, there's a very high premium.

Okay. And then -- but of those 3 premiums you will receive, is it kind of -- is the land the smallest and each one kind of progressively larger? Is that how it works?

You know what, I'm not really sure about that, Mark. It's a good question. Typically, I would say the takeout refinance at the end is probably going to be the least premium. But the first 2, I'm not sure how to rank it 1 or 2 and have to do some work on that.

Okay. And do you also include in the policy they take out the actual servers, the equipment in the building? Or is it just the building itself?

We don't insure. Typically, when a principal is going to get a title policy, they'll get it for the amount that it takes to build the data center, right? And that includes the servers to get it to function. But if the data center doesn't work because of the servers or something like that, I mean, we're not on the hook for that. But yes, I mean, they will get a construction loan for the amount that it takes to build the data center, including all the equipment in it.

And there are no additional questions at this time. That concludes this morning's call. We'd 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 13761705. The company would like to thank you for your participation. This concludes today's teleconference. You may now disconnect.

Greetings, and welcome to the First American Financial Corporation First Quarter 2026 Earnings Conference Call. [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 by entering the conference ID 37-5-9993. We will now turn the call over to Craig Barberio, Vice President, Investor Relations, to make an introductory statement.

Good morning, everyone, and again, welcome to First American's earnings conference call for the first quarter of 2026.

Joining us today on the call will be our Chief Executive Officer, Mark Seaton, and Matt Weisner, 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 yesterday'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 yesterday's earnings release which is available on our website at www.firstam.com. I'll now turn the call over to Mark Seaton.

Thank you, Craig. We are pleased to report continued momentum in the first quarter, generating adjusted earnings per share of $1.33, a 58% increase from the prior year. In commercial, revenue grew 48%, achieving a record for a first quarter.

Notably, we closed 20 orders, generating more than $1 million in premium, double the amount from last year. In our National Commercial Services division, we are seeing broad-based strength with 9 of our 11 asset classes up year-over-year.

Data centers remain a meaningful tailwind with revenue tied to this sector increasing 76% relative to last year. We are also seeing strong activity in our Energy Group, which grew 250% and was a top 5 asset class during the quarter.

Residential purchase revenue continues to lag. We have been more bearish on the purchase market this year than most public forecasts, and that view is proving accurate as purchase revenue declined 4% year-over-year.

On the refinance side, we saw a modest benefit during the quarter when mortgage rates dipped into the low 6% range. While this provided some lift in the first quarter, volumes have since softened as rates moved higher again.

Another key earnings drivers are bank, First American Trust, which continues to provide a steady stream of investment income. During Q1, average deposits totaled $6.8 billion, up 19% from last year.

Growth has been driven by both commercial deposits and deposits from our -- outside of our captive title business. During the quarter, 29% of deposits came from sources beyond our captive title business, including $1.4 billion from ServiceMac and an additional $300 million from 1031 exchange deposits.

Our agent banking strategy is also gaining traction with 284 agents currently banking with First American Trust, up 26% from last year. These balances are expected to grow as the market recovers.

The bank continues to serve as a countercyclical earnings driver with meaningful long-term growth potential as we expand servicing 1031 exchange and agent banking deposits.

Our primary strategic focus is to leverage AI across our business to amplify the talents of our team, better serve our customers and strengthen our operational capabilities.

Over the past year, we launched an enterprise AI platform that helps product teams develop, govern and deploy secure compliant AI systems. This platform is an internal system that will allow us to deploy products faster and at scale. While we regularly discuss our 2 major enterprise initiatives, Endpoint and Sakura, we are also seeing incremental gains across the company.

One example is in our Agency division, where we are deploying AI-driven tools that expand our quality control capacity by more than sixfold. We have also introduced AI-assisted examination capabilities that reduced order processing time by roughly 30 minutes per file.

Importantly, these examination capabilities are not confined to our internal operations. This quarter, we are extending these same AI-driven tools into agent net, our title agent-facing platform, leveraging our proprietary data, domain expertise and proven production performance to deliver value to our customers.

AI-driven efficiency improvements like these not only enhance our operating leverage, allowing us to scale efficiently as volumes recover, but also provide revenue opportunities by enabling us to deliver new solutions to our clients. We are also redefining how we build software.

Today, 25% of our engineers are trained in Agentic AI development and are moving from concept to production in weeks rather than months. Productivity will continue to improve as the rest of our product engineering teams complete training this quarter.

The impact goes beyond speed. Our teams are spending more time solving customer challenges ensuring every investment drives real value. We are embracing this transformation and believe we are in the leading edge of our industry in adopting these capabilities.

Turning to Endpoint. We have outlined a plan to scale the platform across First American Title local branch network by the end of 2027, and we remain on track.

Endpoint is live in Seattle, where we have opened around 310 orders and closed 150 orders on the new system with each transaction, we continue to learn and improve. In this pilot, we have automated approximately 30% of the tasks required to close the transaction allowing our people to focus more on customer-facing activities and complex issues.

These automation rates will only increase over time. We are expanding the endpoint pilot this quarter to First American titles escrow officers across the state of Washington, an important milestone. We expect approximately 80% to 85% of our local branch network to be on endpoint by the end of next year.

This represents a significant transformation, not just a technology rollout but a standardization of workflows that shift the nature of work from executing tasks to verifying them. The real value of AI lies not only in the tools themselves, but in how workflows evolved to fully leverage them. While substantial work remains, we are confident and energized by the opportunities ahead.

With SEQUOIA, we also continue to make strong progress. As a reminder, SEQUOIA is our AI-powered title decisioning platform. We are currently live with refinanced transactions in 8 counties across California and Arizona in our direct division, where we have fully automated title decisioning 35% of the time.

The more complex challenge has been purchased transactions. And last month, we reached a key milestone by launching SEQUOIA for purchase transactions. Today, in 3 counties, we are automating title decisioning for 13% of purchase transactions instantly determining insurability at order open.

Over time, our automation rates will improve, and ultimately, we believe we can deliver instant title decisioning for 70% of purchase and 80% of refinance orders in markets that we have title plants.

This is made possible by our industry-leading title plant data, underwriting expertise and innovative technology. By the end of this year, we plan to expand SEQUOIA across California and Florida with a national rollout planned for 2027.

Looking ahead, we are optimistic about our earnings trajectory. Our commercial business remains strong. For the first 3 weeks in April, our opened commercial orders are down 4% relative to last year.

But as we experienced this quarter, the fee profile matters more in commercial than the number of orders. And given our strong pipeline of sizable commercial transactions, we still believe 2026 will be a record year in our commercial business.

On the purchase market, we remain more cautious than the consensus view. So far in April, open purchase orders are down 3% as the sluggish home sale trend continues. While the residential market remains at trough levels, we are focused on rolling out our new AI-powered title and escrow platforms, which will provide greater operating leverage when the market recovers.

From a capital management perspective, we continue to deploy earnings into opportunities with the most attractive risk-adjusted returns. We are taking a disciplined approach to acquisitions, focusing on the right partners rather than growth for its own sake.

As our stock has pulled back while our earnings and outlook have strengthened, we have taken the opportunity to repurchase shares. Matt will discuss our financial results and capital management in more detail.

And with that, I'll turn the call over to him.

Thank you, Mark. This quarter, we generated GAAP earnings of $1.21 per diluted share. Our adjusted earnings, which exclude the impact of net investment losses and purchase-related intangible amortization were $1.33 per diluted share.

Focusing on the Title segment, adjusted revenue was $1.7 billion, up 17% compared with the same quarter of 2025. Looking at the components of title revenue, we saw strong growth in commercial and refinance partially offset by weakness in purchase.

Commercial revenue was $271 million, a 48% increase over last year, reflecting both increased transaction volumes and significantly higher average revenue per order. Our closed orders increased 9% from the prior year and our average revenue per order was up 36%.

Purchase revenue was down 4% during the quarter, driven by a 6% decline in closed orders partially offset by a 3% improvement in the average revenue per order.

This reflects continued weakness in home sale activity. Refinance revenue was up 76% compared with last year, driven by a 57% increase in closed orders and a 13% increase in the average revenue per order.

This growth was supported by a temporary decline in mortgage rates during the quarter, though activity has since softened as rates have moved higher. Refinance accounted for just 8% of our direct revenue this quarter and highlights how challenged this market continues to be compared to historic levels.

In the Agency business, revenue was $759 million, up 16% from last year. Given the reporting lag in agent revenues of approximately 1 quarter, these results primarily reflect remittances related to fourth quarter economic activity.

Information and other revenues were $269 million during the quarter, up 14% compared with last year. The increase was driven by revenue growth at the company's subservicing business higher demand for noninsured information products and services and refinance activity in the company's Canadian operations.

Investment income was $154 million in the first quarter up 12% compared with the same quarter last year despite the Fed cutting rates 3x. The increase in investment income was primarily due to higher average balances driven by commercial, 1031 exchange, subservicing and warehouse lending activity.

Investment income did from our bank subsidiary shifting its asset mix to fixed income securities, which earn a higher yield and are less sensitive to changes in short-term interest rates. Personnel costs were $546 million in the first quarter, up 13% compared with the same quarter of 2025.

The increase was mainly due to incentive compensation expense resulting from improved financial performance and higher salary expense. Other operating expenses were $277 million in the quarter, up 13% compared with last year, primarily attributable to higher production expense driven by higher volumes and increased software expense.

Our success ratio for the quarter was 58%, which is in line with our target of 60%. The provision for policy losses and other claims was $40 million in the first quarter or 3.0% of title premiums and escrow fees, unchanged from the prior year.

The first quarter rate reflects an ultimate loss rate of 3.75% and for the current policy year and a net decrease of $10 million in the loss reserve estimate for prior policy years.

Interest expense was $27 million in the current quarter up 34% compared with last year due to higher interest expense in the warehouse lending business and on deposit balances at the company's bank subsidiary. Pretax margin in the title segment was 9.6% and or 10.4% on an adjusted basis.

Moving to the Home Warranty segment. Total revenue was $110 million this quarter, up 2% compared with last year. The loss ratio was 36%, down from 37% in the first quarter of 2025. The improvement in the loss ratio was due to small reductions in the number and severity of claims.

Pretax margin in the Home Warranty segment was 23.5% or 23.8% on an adjusted basis. The effective tax rate in the quarter was 22.9%, which is slightly below the company's normalized tax rate of 24%.

Our debt-to-capital ratio was 32.2%, excluding secured financings payable, our debt-to-capital ratio was 21.9%. As Mark mentioned, our stock has pulled back while our earnings and outlook have strengthened, so we took the opportunity during the quarter to repurchase 556,000 shares for a total of $33 million at an average price of $6.21.

So far in April, we repurchased 296,000 shares for a total of $18 million at an average price of $61.61. We will continue to take an opportunistic approach to buybacks based on valuation, available capital and our outlook. Now I would like to turn the call over to the operator to take your questions.

[Operator Instructions] Our first questions come from the line of Mark DeVries with Deutsche Bank. .

Thanks. As I know you're aware, there have been a lot of talk about new entrants leveraging AI to potentially disrupt the title insurance industry. Mark, could you just talk about the ways in which you're evolving, whether it's endpoint, Sequoia, other things to try to fend off the competition.

And also, any kind of just inherent advantages you have moats that really should help you, again, hold up well against this competitive threat?

Yes. Thanks, Mark. Just in terms of AI just in general, I mean these are new tools available to us that weren't available a year ago. And so we've seen what they can do. We do think they're going to change our industry for the better, not just on the operating efficiency side, but it's going to allow us to reach new customers and service routers better.

And so we're really leaning into it. And we're just all in on AI, and we feel like we need to win in our industry with -- we talked a lot about SECOIA and endpoint on this call and prior calls, and we feel really great about those capabilities.

In terms of the competition, I mean, there's a lot of talk about what AI can do, but we really have significant advantages. The first thing is -- and this is really for all type of companies, distribution is hard to get.

And we've got thousands and thousands and thousands of local relationships all over the country. We've got 800 offices and big counties and small accounts all over the country. It's hard to replicate that. It's hard to get that.

And it's hard to change how real estate is transacted in the U.S. A lot of people try something very slow to change. So distribution is very it's hard to get.

Second thing is our title plans are a big advantage. It's a big advantage. We could not automate title like we are without our title plants. And not only are we automating it, but we're putting our balance sheet behind it. We're ensuring it, right?

And so we're not -- when we automate things, we're not changing our underwriting standards. We're not creating new alternative products that shift risk on to consumers. We're putting our balance sheet behind it.

And so our balance sheet is an advantage. Our data is an advantage. And I think I couldn't say this 3 years ago, but I think I believe this now, I think our technology is an advantage.

I think when you look at our our industry, we don't really compete on the basis of technology at all. It's really -- it's a people business, it's a service business. But I think over time, data and technology become more and more important. And by those measures, I think we've got a big advantage.

Okay. Got it. I know in the recent past, you've been able to kind of significantly expand your title plant footprint through kind of leveraging technology to make that process more efficient.

Are you still generating efficiency gains there that could potentially have you with like kind of full coverage over the next several years? Or are there markets where that's just never going to make sense?

I think there are realistically the submarkets where it probably doesn't make sense. We're in 1,850 counties now. That represents 82% roughly of all real estate transactions that's national coverage.

We are always looking to build new plants, but it's more of 1 or 2 us here or there. I mean there's there are certain very, very rural markets where we're just -- there's just not enough business in those markets to scale.

So we have a national footprint now. I don't -- I think when looking back 5 years ago, there were definitely some markets, I can think of Chicago in some places in Texas where we wish we had tied-up plans.

Well, now we have them. So we've got a national footprint -- we've been -- the ability for us to post our plants has just gotten better and better and better over time. And we're clearly the industry leader here.

And we sell this data to our competitors, we sell it to the industry on kind of a one-off basis, but we use it to really power our tools, and that's a big advantage.

So I think for the most part, we're really in the markets we want to be with the title plans. I don't see another big wave of expansion geographically right now.

Got it. Makes sense. And just one quick follow-up on endpoint. I think you -- I know it's really early stage in the role. I think you alluded to being up to kind of 30% automation so far.

But my recollection is you've talked about automating a much higher percentage of the process there. Can you just remind us where you think that number ultimately goes?

Yes. So first of all, we're really pleased with the progress with endpoint, and we're really focusing on continually improving the product and also getting ready here for our first conversion where we're going to convert first market and title escrow authors onto the new endpoint platform. .

Our Washington team is very excited about this transition and it's going to happen at the end of this quarter. So we're excited about that. We're at 30% automation rates right now.

It's going to take a few years, but ultimately, we think we can be 80% to 90%, something like that. And really what this gives us is it gives our people the ability to spend more time going out and getting business, dealing with customers in an escrow transaction, there's always things that go wrong.

There's complex things that go wrong. And we can spend more time doing those things and less on the administrative part of it. I think the work-life balance of our escrow officers is going to get a lot better and it will allow us to have a lot more operating leverage when the market comes back.

And there's not a system -- there's nothing like it out there. Again, everything is done manually today. And we are gradually getting to this automation rate. But I think 80% to 90% of scale, once it's mature, I think, is a good goal, but we've got a lot of work to do before we get there.

[indiscernible] of Maxwell Richard with Truist.

I'm calling in for Mark Hughes. -- commercial ARPO has obviously been on a huge run. What are your expectations there for the balance of 2016? Do you see that being sustained? And I guess, looking looking at your current pipeline?

Thanks, Max. Well, we have a lot of momentum in commercial right now. I think the whole industry is benefiting from this. I mean our revenue was up 4%. And we're very confident that Q2 is going to be another similarly strong quarter in commercial, and 2026 is going to be a good year.

I mean, it's going to be a record year for us. And I think the commercial market has legs I think internally, we're always a little bit hesitant like how long is this going to last. But we think that there's going to be a couple more years here of at least strength in commercial market. There's a lot of tailwinds that we have right now.

Like back in 2022 when interest rates spiked the bid-ask spread between buyers and sellers really widened, which caused the market to fall. But since then, like we're in a very different environment now, we've got price stability which gives investors confidence to invest.

Sales growth has been persistent and it really helps with confidence because there's more recent and reliable comps in the market. Commercial lending has been on the rise. There's a lot of equity capital in the business -- on the sidelines. -- refinance volumes, there's a refinance ball we're going through right now.

And so there's a lot of tailwinds, and we're just seeing it all across our business. And on top of that, we've got really a new asset -- new material asset class, which is data centers. We're working on data center projects in 25 states right now.

And energy projects for us are really starting to pick up too. And we -- and it takes time, like energy, like we closed the deal this quarter. We started it 10 years ago. It's a very long-tailed business, maybe not all that's probably an extreme example.

But there's just a lot of momentum, and we see it in 2016 and beyond. So we're very pleased with the team and what we're doing there.

Got it. And then you had mentioned refinance activity in Canada. Can you elaborate on the dynamics there?

Is that activity expected to be sustained as well? And also, what's sort of the difference in the market there versus in the U.S.

This is Matt. I'll take that one. So in Canada, they don't have the concept of a 30-year fixed rate mortgage. So their mortgages tend to be 3- to 5-year in duration and then they need to refinance.

So we're really just coming to a refi wave or a refi wall that's coming. We saw it last year. We believe it's going to persist through this year and into next year.

So -- we expect the refi tailwind to continue throughout the year here and into next year for Canada.

And then if I may sneak 1 last 1 in here. Are there any updates you can share on the regulatory environment?

The regulatory environment, I mean, there's different components to that. I think on the state level, it's fairly benign at the moment. There's always some things happening here or there.

But I would say it's fairly benign. I think at the national level, there's been a lot of talk about this title waiver pilot over time. It's we've talked about on these calls, it's immaterial. They've extended it until November of 2027. That's not new news.

That's been around for a little while. So there's not there's always things going on. There's nothing I would point to specifically. Thank you.

Our next questions come from the line of Terry Ma with Barclays.

So I think you called out 20 deals this quarter within Commercial with over $1 million in premium. Kind of any color on kind of what sectors those deals are kind of focused on? And then as you kind of look forward, like, is the breakup of like your deal pipeline kind of similar? And do you expect a similar number of deals with higher premium?

When we look at the big deals, the biggest asset class was energy deals. We closed a lot of big energy deals. The second biggest asset class was industrial and data centers, we kind of split data centers, some of are industrial and then some of them are development sites.

But industrial was our second biggest like megadeal asset class. And we did a couple of multifamily retail deals, but most of it is energy and industrial and data centers. And it's going to continue. Like I said, I mean we're working on data center deals.

We've been working on energy deals and we're just seeing huge transactions, some of them already closed here in the second quarter, and we feel like the pipeline this year is looking very good.

Got it. That's helpful. I think last quarter, you said a bigger driver of the commercial growth or at least the revenue growth would be from volume rather than pricing. Is that still the thought? Or do you think there's a little bit more benefit from just the ARPU growth this year?

Well, we've been surprised. I think that heading into the year, we thought it was going to be a record year in commercial than it is, but it's even better than what we thought it was going to be, and it's really driven by our own boat.

So I think we've been a little bit you can say that the order counts have been below our expectations, but the fee per file has more than exceeded that. So that's the trend that we're seeing this year so far.

Got it. Okay. And then just 1 more question. A follow-up on your comment about title plants being a competitive advantage.

Can you maybe just talk about how hard it would be for an entrant with AI or otherwise to kind of replicate that? Maybe just talk about what the barriers are to kind of reconstruct that advantage.

Yes, sure. So first of all, if you want to build a title plan, you have to go out and buy the images. I mean you have to go out and buy the deeds and all the -- you have to go to 1,850 counties and you have to purchase, acquire the source documents that you need to build the title plan, very expensive just to buy the source documents.

Once you get the source documents, you have to have the title skill, I would say, to understand what documents are relevant, what documents are not, how to post the plant every county is different. The syntax is different on what's the deed versus the warranty.

There's a lot of nuances county by county and building a plan -- now I will say that it is cheaper to build a plant today than it was 2 years ago. There's no question about that. I mean, AI is really helping with that, and we've seen the benefit.

I mean, we used to do it all manually today -- and today, about 85% of the time we posted digitally. And 15 or so percent of the time, we're not really sure there's some of these documents are hand written in some cases, and we have to have people look at it.

So we've gotten cheaper to build a plant. But the big thing is you have to buy the source documents and every county or state have different rules about how far you have to go to search, like in places like Oregon, you've got to go all the way back to patent.

You got to get the source documents all the way back to the beginning of the patent. Texas is 15-year search. So it is very, very difficult. And I know there's been like some talk of -- well, our title plan is useful or not. I'll just tell you this. People are still buying our title plants at a higher clip today than they were before.

And a lot of the participants that are saying, oh, title plants are maybe not going to be around. They're coming to us and wanting to buy title plant data from us.

So I think there's a lot of noise out there. But the reality is we think it's really valuable and time will tell. But we like -- we think it's a big strategic advantage to have our plans. There's no question about that.

[Operator Instructions] Our next questions come from the line of Bose George with KBW. .

On the home warranty business, can you remind us what the good run rate margin for that is and also just the seasonality?

Bose, thanks for the question. This is Matt. Yes. So typically, we look to have margins in the mid-teens for home warranty throughout the year. The seasonality is Q1 and Q4 typically are stronger quarters and then Q2 and Q3 typically have higher rates of claims, and it's really just driven by the weather and HVAC claims typically.

Okay. So this quarter, from a seasonal standpoint, is probably kind of roughly in line .

Yes. I mean this quarter was definitely a good quarter. And I know last year, we talked about how last year, we had maybe higher margins than typical, and we didn't expect that to persist.

I'd say Q1 was largely in line. Our expectation right now is that Q2 and Q3, we'll see more of a typical weather pattern. So you'll see claims pressures maybe in Q2 and Q3 compared to last year.

Okay. Great. And then actually, switching to investment income. In terms of the escrow deposits being able to utilize them more, is there more room to do that at the bank? .

So yes, so I'll answer what I think you asked, and then you can ask me if there's anything else there. So yes, I mean, we can put more deposits at our bank. We can grow our deposits at the bank.

We definitely have more room. We have capital available there right now to grow deposits. And if we need to, we can contribute more. As a strategy, we keep some of our escrow deposits at our bank, some escrow deposits at a third-party bank.

But as Mark mentioned, our strategic initiative has really been to grow deposits to the bank outside of our captive title business. For example, subservicing 1031 in agent banking. And that's really been kind of the driver of the growth that we've seen at the bank.

And Bose, just 1 thing I'll add to that, too. One thing I'll add just real quick, Boss we -- at times, we've talked about how -- like when the Fed cuts 25 basis points, we lose roughly $15 million of investment income as a general rule of thumb.

Well, we've been able to buck that trend. Like in the last year, the Fed's cut 3x, and yet our investment income is up 12% year-over-year. And so we're really proud of the fact that we've been able to grow our investment income despite Fed cuts for the reasons that Matt has mentioned.

Our next questions come from the line of Oscar Neves with Stephens.

So I have 1 on tech. Mark, you mentioned earlier that as you continue deploying endpoint in Sequoia, you also continue to learn and improve the product. And I was just wondering if you could share some color on those learnings.

Well, the way the technology is built now, I mean, it's just moving at rapid fire pace. And like, for example, in endpoint, every time we do something manually, right, we can go back and very quickly now change the software, so the next time it doesn't have to be manually. We call it human in a loop, right?

So the AI, we assume the AI can do the work, but there's times when it can because the machines haven't learned. And so every time human goes and makes an adjustment, then we go back and fix the software and make an upgrade, so that you don't have to make that adjustment next time. It's the same thing for SEQUOIA, right?

And so the way the technology is built now, we've got the human loop process, where every time the human intervenes, we try to make it better the next time around.

And we can iterate very, very quickly. And so that's why when we roll something out, 30% of automation rates for being this young of a product is fantastic, and it's just going to get better and better and better over time as the machines learn. -- and there's a big advantage for sort of getting their first to market, and we feel like we're doing that.

That's very helpful. And sort of related to that, you highlighted that the title segment. Well, you mentioned the title segment margins were very strong, and they were driven by commercial and also some expense management.

Can you break down the relative contributions between mix, pricing expense management? And how much more margin improvement you could -- you think is possible as those technology -- legacy technology platforms roll off?

Well, I'll -- there's a lot there. I'll just say that when we look at the margin growth this quarter relative to last year, I mean, we grew margins 250 basis points in the title segment. .

And really, the driver was the fact that question is has sort of exceeded our expectations.

And so when we look at our success ratio this quarter, it's 58%, and we try to target 60% or less. If we get 60% or less, we say that's successful. And so we thought we did a good job of managing our expenses while revenue has been rising.

I think when we look forward, we're going to see incremental gains because of technology over time. It's not going to happen in 1 quarter, we're not going to wake up and just be a 20% margin business.

But I think these incremental gains will just start to compound over time. As we roll out our platforms nationally next year, and it's not just about those 2. I mentioned in my prepared remarks, we've got incremental gains happening and our team is excited about it. We're giving our team new tools to win.

I hear stories every single day about AI is helping our employees. And these things will start to add up over time. And so I think whatever our normalized margins have been in the last 10 years, I think the next 10 years, they're going to rise, and we we'll see how far.

But we've got new tools available to us that we didn't have that will make our business more efficient than it's been.

Yes, that helps. And 1 last 1 around capital allocation. Maybe for Matt, you talked about your opportunistic approach around buybacks. So on that topic, first, if you can remind us how much is still available under the current repurchase program.

And then what's the company's current thinking around capital allocation priorities for the remainder of the year, including M&A and buybacks?

Yes. Thanks for the question. So under the current program, if you take into account what we've already purchased through today in April, we have a $248 million remaining on the program.

So that's where we are. And then when it comes to capital allocation, like nothing's really changed from what we've discussed in the past, right?

So our priority when we think about what we want to do with our capital is our priority is to reinvest in our business. We've been doing that.

Mark has talked a lot about where that reinvestment is going. And then we also look to do acquisitions, right? And that's to the extent we haven't done a material 1 for a while now but we're open to it, but it needs to make sense for us, right?

So the valuation needs to be right and the fit needs to be right. And there are things that are in the pipeline, but we'll see how that turns out. And then with our excess capital, we look to give that back to shareholders.

We do that through dividends and share buybacks. I know the last couple of quarters, we haven't been buying back shares. In Q1, we decided that the circumstances had changed, right?

Like we've talked about before, we're opportunistic when it comes to buying back our shares. And in Q1, we saw that our stock was under pressure while our earnings and our outlook has strengthened from where we thought we were going to be at the beginning of the year.

So we took that opportunity to buy back shares. And we'll continue to take an opportunistic approach to buybacks based on valuation, available capital and our outlook.

Thank you so much. There are no additional questions at this time. That does conclude this morning's call. We'd like to remind listeners that today's call will be available for replay on the company's website or by dialing 77 660-6853 or (201) 612-7415 and by entering the conference ID 137-59-993.

The company would like to thank you for your participation. This concludes today's conference call. You may now disconnect.

Greetings, and welcome to the First American Financial Corporation's Fourth Quarter and Full Year 2025 Earnings Conference Call. [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 -- to the conference 137581-80.

I will now turn the call over to Craig Barberio, Vice President, Investor Relations, to make an introductory statement.

Thank you, operator. Good morning, everyone, and welcome to First American's earnings conference call for the fourth quarter and full year of 2025. Joining us today on the call will be our Chief Executive Officer, Mark Seaton; and Matt Wagner, 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 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 yesterday's earnings release and the risk factors discussed in our Form 10-K and subsequent SEC filings. Our presentation today contain certain 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 yesterday's earnings release, which is available on our website at www.firstam.com.

I will now turn the call over to Mark Seaton.

Thank you, Craig. The fourth quarter was a strong one for First American. We generated adjusted EPS of $1.99, a 47% improvement from the prior year. In the fourth quarter, we experienced trends similar to those we saw throughout 2025. And a strong commercial market contrasted with a sluggish residential market. On the commercial side, revenue grew 35% as we saw improvement in 9 of the 11 asset classes we track. Several positive dynamics are driving this growth. We achieved price stability in 2025, which provides a solid foundation for future transaction activity. We've seen a persistent increase in sales volumes, rising commercial lending and higher levels of refinance activity.

Historically, refinance activity accounted for about 30% of our commercial premiums. In 2025, that figure increased to roughly 40%. Some lenders are choosing to write shorter maturities, which naturally leads to more refinance activity. Our commercial revenue growth was driven by both higher average revenue per order and transaction volumes. Commercial ARPU increased by 22%, while closed orders increased by 10%. On the residential side, conditions remain challenging. Existing home sales are running approximately 4 million units well below the 5.5 million units we consider to be a normalized level as the rate lock-in effect discouraged homeowners from selling and, therefore, also not buying and affordability remain constrained.

One benefit of operating in a trough market is that it creates an opportunity to implement meaningful change. In December, we reached an important milestone with the launch of endpoint in one office and we closed the industry's first AI-powered escrow. As of last week, we have opened 153 orders and closed 47 on the Endpoint platform. While the volumes are immaterial today, the learnings are highly consequential, Endpoint improves every day, and we plan to roll it out nationally over the next 2 years. We believe the capabilities we're building over time will be a durable competitive advantage.

On the refinance side, revenue grew 47%. While [indiscernible] volumes remain at relatively low levels, the recent drop in mortgage rates has given us some optimism. Continuing on the technology theme. In the fourth quarter, we launched our enhanced AI-powered excuse me, Sequoia title production engine for refinance transactions. SEQUOIA AI is now live in Phoenix, Arizona and 3 markets in Southern California. In these markets, we've achieved 40% automation rates in the search and examination functions for the products that are supported. By Q2, we expect to roll out Sequoia AI purchase capabilities in these markets. with plans to expand SEQUOIA across California and Florida by year-end, followed by a broader national rollout in 2027.

As with Endpoint, we are learning and improving every day. Over time, we expect geographic expansion, higher capture rates and improved operating leverage as market issues improve, while reducing risk, cost and cycle time. I also want to highlight another strategic initiative we're excited about, the owner's portal. In the 25 states where we have direct operations, customers who closed with First American received free property title monitoring and fraud alert service. providing an important layer of protection for homeowners amid rising real estate fraud risk. Today, we have approximately 53,000 users on the platform, which has grown 580% just over last quarter.

At our bank, First American Trust, we recently launched our 1031 exchange product. Historically, we've managed savings and checking deposits at First American Trust. Now we are also supporting 1031 exchange deposits. We ended the year with $94 million in 1031 deposits and has quickly grown to over $300 million today. We expect to be closer to $1 billion by year-end. The growth in deposits will help offset the impact to investment income related to lower short-term interest rates. Looking ahead to 2026, we expect growth across each of our major revenue drivers, commercial purchase and refinance.

On the commercial side, we expect a record revenue year, exceeding our prior peak in 2022. While uncertainty remains our pipeline is strong. On the purchase side, we are less optimistic in some industry forecasts were calling for 7% to 8% growth but we do expect improvement in 2026 as the rate lock in effect discouraging homeowners from selling and buying stays and slow house price appreciation allows affordability to modestly improve in many markets. Open purchase orders were down 7% in the fourth quarter, implying continued weakness in purchase revenue in the first quarter.

January open ores were essentially flat, with growth expected to emerge later in the year. Refinance activity is harder to predict, but refinance open orders were up 72% in January, a good sign for a seasonally weak first quarter. In closing, we remain focused on being the best title and escrow company in the industry. Based on the most recent ALTA data, we've gained 90 basis points of organic market share over the last 12 months with additional initiatives underway to expand that further.

We are reimagining our core title and escrow business by building modern AI-powered products that improve the experience for our customers, amplify the work of our employees and ultimately create long-term value for our shareholders. Our adjacent businesses also enhance our competitive advantage and contribute to our earnings growth. Our data assets become more valuable over time. And in 2025, we delivered record earnings at our bank in home warranty at ServiceMac and its first funding.

With that, I'll turn the call over to Matt for a more detailed review of our financial results.

Thank you, Mark.

This quarter, we generated GAAP earnings of $2.05 per diluted share. Our adjusted earnings, which exclude the impact of net investment gains and purchase-related intangible amortization were $1.99 per diluted share. Both our GAAP and adjusted earnings include onetime benefits of $28 million or $0.20 per diluted share. The onetime benefits are comprised of a $13 million or $0.09 per diluted share reserve release in Canada recorded in the title segment and a $15 million or $0.11 per diluted share insurance recovery recorded in the corporate segment. Adjusted revenue in our Title segment was $1.9 billion, up 14% compared with the same quarter of 2024. Looking at the components of title revenue, commercial revenue was $339 million a 35% increase over last year.

Our closed orders increased 10% from the prior year, and our average revenue per order was up 22%, setting a record at $18,600 per closing. Purchase revenue was down 4% during the quarter, driven by a 7% decline in closed orders, partially offset by a 4% improvement in the average revenue per order, reflecting the ongoing softness in the residential market. Refinance revenue was up 47% compared with last year, driven by a 44% increase in closed orders and a 2% increase in the average revenue per order. Refinance accounted for just 7% of our direct revenue this quarter and highlights how challenged this market continues to be compared to historic levels.

In the Agency business, revenue was $790 million, up 13% from last year. Given the reporting lag in agent revenues of approximately one quarter, these results primarily reflect remittances related to third quarter economic activity. Information and other revenues were $274 million during the quarter, up 15% compared with last year. The increase was driven by refinance activity in the company's Canadian operations revenue growth at ServiceMac, the company's subservicing business and higher demand for noninsured information products and services. Investment income was $157 million in the fourth quarter, up 1% compared with the same quarter last year. despite the Fed cutting rates 5x since the beginning of the fourth quarter of 2024.

The impact of declining interest rates was offset by higher average balances driven by commercial activity, and by our bank subsidiary shifting its asset mix to fixed income securities, which are less sensitive to changes in short-term interest rates. Net investment gains were $28 million in the current quarter compared with net investment losses of $62 million in the fourth quarter of 2024. The net investment gains in the current quarter were primarily due to recognized gains in the venture portfolio. while net investment losses last year were primarily due to asset impairments.

Personnel costs were $581 million in the fourth quarter, up 11% compared with the same quarter of 2024. The increase was mainly due to incentive compensation expense as a result of improved financial performance. Other operating expenses were $282 million in the quarter up 7% compared with last year, primarily attributable to higher production expense driven by higher volumes and increased software expense. These higher costs were partly offset by the previously mentioned $13 million reserve release in Canada. Our success ratio for the quarter was 47%. The provision for policy losses and other claims was $44 million in the fourth quarter or 3.0% of title premiums and escrow fees, unchanged from the prior year.

The fourth quarter rate reflects an ultimate loss rate of 3.75% for the current policy year and a net decrease of $11 million in the loss reserve estimate for prior policy years. Pretax margin in the title segment was 14.9% or 14.0% on an adjusted basis. Turning to 2026. In January, closed orders per day were down 7% for purchase up 13% for commercial and up 48% for refinance. Open orders per day were essentially flat for purchasing commercial and up 72% for refinance. Moving to the Home Warranty segment. Total revenue was $110 million this quarter, up 7% compared with last year. The loss ratio was 40%, down from 44% in the fourth quarter of 2024. The improvement in the loss ratio was mainly due to fewer claims, partly offset by higher claim severity.

Pretax margin in the Home Warranty segment was 21.1% or 21.0% on an adjusted basis. The effective tax rate in the quarter of 25.7% was higher than the company's normalized tax rate of 24%, primarily attributable to higher income from the company's noninsurance businesses which are taxed at a higher rate relative to its insurance businesses, which pay state premium tax in lieu of income tax. Our debt-to-capital ratio was 30.7%, Excluding secured financings payable, our debt-to-capital ratio was 21.9%.

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

[Operator Instructions] Our first question comes from the line of Bose George with KBW.

I just wanted to go back to your -- Mark, the comment just about commercial, hitting a record year in 2026. Can you help us think about the potential improvement over 25%. I mean if you look at the 2022 number, you've already, I guess, there's so 4% away from that in 2025, year-over-year growth is 35% in the year-end '25. So yes, just based on the pipeline, where do you think it's trending now versus over 2025.

It's -- thanks for the question, Bose. It's hard to say. One thing I'd say about commercial is it's always something we have a hard time forecasting. But I'll tell you, I mean, we're very optimistic about what '26 is shaping out. I talked about some of the trends we're seeing in my prepared remarks, but there's just a lot of momentum in commercial broad-based strength. We did a lot of refinance transactions. There's a lot of data center deals we're doing. There's a lot of big energy deals we're doing.

And I would just say the team is probably is more confident as I've ever in terms of how the year is going to shape out. Now is that 5%? Is it 10%? Is it higher than that? We just don't know. We don't know, but I think we have a lot of conviction that it's going to be. I would say, definitely growth over 2025 and an all-time record relative to 2020, but we're just going to have to see how it plays out. But I'd say you the first 6 weeks of the year are looking really, really good for commercial. And we'll just see if it sustains. So I don't have a number to give out though.

Okay. That's helpful. And then actually in terms of the contribution from data centers to commercial premiums, is there a way to kind of quantify what that is...

Yes. There's been a lot of growth in discenters, as I'm sure you can imagine, and we're involved in all or many of those just because if customers need to underwrite big transactions, I mean, there's not -- they got to us or Fidelity really. And so we're really involved in all these data center transactions. Last year, it was roughly 10% of our premiums. And so we've seen a big growth in it. And again, we've got a big pipeline heading into this year. .

So I would say data centers kind of this new asset class that we've just started to track because it's really emerged. But it's a lot more based than just data centers, though. I mean, when you look at -- again, I talked about earlier, I mean, 9 of the 11 asset classes were up last quarter, and data centers is one of them, but it's really broad-based for that. But really, right now, it's about 10% of our premiums.

Bose, this is Matt -- sorry,. Just to clarify, it's 10% of our commercial premiums.

Our next question comes from the line of Terry Ma with Barclays. .

Maybe just to touch on support endpoint, I appreciate the co-underollout and expansion time line. And any way to think about kind of the impact to the margin just from the drag that you guys had previously kind of talked about subsiding over the next 2 years? Like how should we kind of think about that? .

The drag on the margin is going to -- it's going to gradually alleviate itself, and we're already kind of starting to see it as we invest more in our modern platforms, which endpoint score like you point out. And we just invest less in the legacy platforms, and we're going to start to see that play out. You can see we had a really strong success ratio this quarter. And at least some of that is because we're reducing our investment in these legacy platforms. And so -- the margin drag will just dissipate over time. And I'd just say we're really excited about both platforms.

And we've reached a big milestone with Endpoint this quarter. It's live now. It's really hard to get that first order onto the system. -- but it's working now. It's in one market. We learn every day, and we've got significant plans for endpoint. And ultimately, what we're trying to do is we're really trying to improve the experience for employees we're trying to reduce a lot of the tasks that you just have to close the transaction. And I think the work-life balance of our team will be better. I think we'll be able to close more transactions and they'll be paid more -- and I think it's going to be a better experience for our customers that we're going to have modern technology that we can update very, very frequently -- and it's going to be a system that the industry hasn't seen before. I think it will be a real competitive advantage for us for a long time.

Same thing for Sequoia on the title side, too. I mean, SEQUOIA, we really marched with Sequoia to try to do instant title for purchase transactions -- and we think that we're going to achieve that vision next month of having instant title for purchase transactions. And it's just going to get better and better over time. When we roll something out, it's not going to be a 10 out of 10 day one. But over time, we just continue to get better and better. I think over the next 2 years, we're going to show some real progress. We've talked about the success ratio of 60% being like a target for us, but I think we can beat that over the next couple of years with these new tools we're rolling out.

Got it. That's helpful. And then -- maybe just following up on commercial. You guys mentioned kind of broad-based strengths but also kind of called out larger kind of deals on the energy side and obviously, data center is big. -- is I look at ARPU like at 18.6% this past quarter, and we rolled forward to '26, do you think more of the revenue growth comes from kind of order count increase? Or is it kind of more ARPU? Like any color on that?

Yes. I think it will be a mix. I think as a general statement, I would say when you look into 2026, we're expecting the mix to be higher transaction growth as opposed to ARPU growth. So we'll see if that plays out. But I think that when we look at the growth in commercial, more higher percentage will come from more orders as opposed to ARPU. .

Our next question comes from the line of Mark Hughes with Tru with Securities.

Yes. Thank you. Good morning, good afternoon. the 90 basis points you talked about the organic market share. Is that a mix issue, geography issue? What would you say is driving that?

There's 2 big drivers to that, and they're both roughly equally weighted. One is we're gaining market share in our Agency division. And the second is we're gaining market share in commercial. And so those are the 2 things I'd point to, to say that that's where the market share is coming from. And so we're really proud of that.

Yes. And then your refi ARPO is up a little, it has been down pretty meaningfully in the last few quarters. And I guess you've probably lapped some of that downdraft. Do you think that stays in positive territory? Any visibility there? .

Mark, this is Matt. So yes, ARPU for refi went up a little bit this quarter year-over-year. I'll point you to in Q4, we revised some of our refi order accounts and which also impacted historic ARPU. So -- if you look at the revised numbers, you'll see that the trend is very similar.

Okay. All right. Very good. And then in the purchase ARPO has been up 3%, 3.5% the last couple of quarters. You talked about maybe pressure on housing prices benefiting affordability that could impact volume -- do you think that ARPU maybe comes under a little pressure through the year? .

Yes. So in our -- the way we're thinking about '26, we do think ARPU is going to moderate. We think it will still be positive in '26, but it will be less than what we saw in '25. The growth, sorry.

Our next question comes from the line of Oscar Neves with Stephens.

I have a question on the title segment's adjusted pretax margin. This quarter, it reached its highest level since, I think, in 2Q '22, and you break down the primary drivers of that expansion, whether that was volume mix, pricing, expense control or other?

Thanks, Oscar. There's a few drivers. I mean 1 of the things is we absolutely have commercial tailwinds in our backs, right? And so the margin is higher than it's been because we're getting some revenue tailwinds and we're managing our expenses well. And also the fact that the commercial market is doing very, very well right now. And commercial just has a higher margin relative to some other lines of business. So there's a little bit of a mix issue there too. And so there's a lot of factors, but I think that's the key driver. .

That's helpful. And as a follow-up to that, you've talked about [indiscernible] endpoint already. But since you have repriced in the past, under basis like drag from you've done the technology costs from those initiatives. Has that headwind now allows to rolled off? Or is some of that on better in the margin profile.

When you look at just the reason I'm asking is we're looking at 14-plus margins. So I wonder if there is still some upside from those investments rolling on? .

I think there's significant upside with those investments for a couple of reasons. Number 1 is we've achieved big milestones with both endpoint and CEQUA in the sense that they're both live in markets working. But they're really beta versions I'll call it. They don't have many orders running through me, and we're testing it. We're learning, we're improving every day. but we're still running our business on other platforms, right? And so you've got 2 benefits that are going to be realized over the next couple of years. One is the fact that once we transition all of our work to the new platforms, we can decommission the old technology, and there'll be a benefit to that.

And that is already starting because we're not investing as much in the old technology, but there'll be more benefit over time. The second thing is -- once we do get national scale on those 2 platforms, we do think that we'll have productivity improvements. And -- and that definitely hasn't shown up in the numbers yet. So I think over time, it's not going to just happen in 1 quarter, all of a sudden, but we'll have incremental gains over time as we roll these platforms nationally. And again, once we roll it out nationally, they'll just continue to improve from them too. So we feel like this is going to be a long-term benefit for margin improvement.

Great. And if I can ask just 1 last 1 on Capital allocation. What are the priorities heading into 2026 across dividends, buybacks, set investments and potentially M&A?

It's something we think a lot about. So really, our first priority is we want to make sure that we're investing in our core business. And we want to make sure that we have when we equip our employees, our team members with the best tools, the best products in the industry. And so that's the first priority, building our technology, building out our databases, investing in the future -- that's our priority #1. But I'll say, we're -- we don't need to kind of ramp that up.

Everything we're building is sort of already in a run rate. And if you look at -- if you look at our capital expenditures the last 3 years, they've been falling every single year. So when you look at our CapEx this year in 2025, they were $188 million. Last year was -- in 2024, it was $218 million. The year before that was $263 million. So we've been lowering our CapEx every year despite the fact that our operating cash flow has been increasing every single year. And so I would say the first priority is investing in our core business. But we're already -- we don't need to ramp it up. We're already doing as much as we need to do. We feel like to be competitive.

The second priority is acquisitions. And the acquisition pipeline, at least the last couple of years has been pretty dry. I think we did $2.5 million of M&A in 2025. So we talked about gaining 90 basis points of market share when we did that with only investing $2.5 million in M&A. So it's something that is -- it's -- we look at buying title companies and we look at buying businesses that are outside of title but adjacent to our core title business. And I would say that's the second priority. We don't have anything that's material in the pipeline. Things can always change, but that's the second priority.

And the third priority is returning capital back to the shareholders. At the end of the day, we're trying to generate good returns to our shareholders organically or 3 million. If we can't do that, we'll give it back to shareholders. We do that through dividends or buybacks. So in 2025, our payout ratio -- our dividend payout ratio was 36%. And so that's a priority for us. We haven't -- we've typically raised it like $0.01 in the last couple of years just because we've been in a strong market. But our target is 40%, and so we're running a little bit below that, but dives the priority.

And then with buybacks, we've talked a lot about this over the last several quarters and really several years. But -- we're opportunistic with buybacks. When you look at 2025, we bought back the equivalent of like 20% of our net income went to buybacks. And so look at the 20% for buybacks and 36% for dividends, we returned 56% of our net income to shareholders last year. And so that's something that we're focused on doing.

And I'd say this -- the last thing I'd say just on capital management is we think that AI is going to have a big impact. And it's hard exactly to see exactly what the impact is going to be, but our cash flow has been really improving. And we want to just build a little bit of dry powder. And I'm not saying we need to do that to strengthen our balance sheet because our balance sheet is already strong enough. But there's a lot of things moving around with AI.

And everything we do, whether it's the buyback or whether it's M&A, we look through an AI lens now that we didn't have before. And so -- we're also going to just try to keep a little bit more dry powder here just to pounce on opportunities that may arise in the future. But that's kind of how we're thinking about heading into '26.

Our next question comes from the line of Geoffrey Dunn with Dowling & Partners. .

Thanks, Sam. is the size of some of the commercial deals tempering the appetite to upstream capital from the operating company? And how do you think about striking a balance between the necessary balance sheet strength and returning excess capital.

The big deals that we're doing there's no thought of making sure that we like, for example, don't pay dividends at our First American tell insurance company that we need more capital in the underwriter to support these big. There's no thought of that. We have adequate ratings underwriting these big deals is not going to prevent us from maximizing our dividends. So there's no thought about that. And I'll just say, we've got a very robust reinsurance program. And so we feel very comfortable with the risk that we're running.

Okay. And then as we think about potential margin improvement as the tech investment comes down and sipendpoint run out, -- is it truly gradual? Or is it more of a cliff improvement given the rollout costs that you might occur?

It's going to be gradual. And remember, like we have other -- as you know, Jeff, I mean, we're really talking about our direct division, I think these will benefit our Agency division, particularly Sequoia, some other ones. It's not every single piece of the company that endpoint in Sequoia is going to benefit. But it's going to be gradual. And we're already starting to see it. I talked about this where we're not just -- we're not investing as much in our legacy platforms. Otherwise, if we didn't have endpoints go, we'd have to do that.

So Eventually, we'll decommission legacy platforms. Eventually, our productivity will continue to improve. And it really will be gradual every single quarter for a while. And it will not be a cliff benefit. But the important thing to note is -- I'll just say like we just continue to hit our milestones. And we laid out a plan a year ago for our new AI-powered version -- and I'm just really pleased with how we're really sticking to that plan. And we talked about a national rollout by the end of '27, and we're still on track for that. Sorry, go ahead. Go ahead, John.

Last question just on the loss provision. -- expectation for it to remain steady at $375 million?

Jeff, this is Matt. So it's too early to say because it's obviously based on the way claims come in. And we reevaluated every quarter. But as you know, for the policy rate for this year was 3.75, we had 75 basis points of reserve release for prior periods which put the calendar rate at 3.0, and that's consistent with the prior year. I would say that, as you know, the normalized loss rate is closer to 4% or 5%. So I do think it's likely that sometime here in the call in the future, we'll stop releasing prior year or slow down the release of a prior year. But a 3.75% policy year loss rate feels kind of right and near kind of the normalized rate.

And we're not seeing any claims pressures or any adverse claims activity that makes me think we'll see significant changes here soon.

Our next question is from Mark DeVries with Deutsche Bank.

Got another question for you on the tech investments. so far in the markets where you started to roll out support endpoint, are the productivity benefits that you're seeing kind of comparable to what you saw in kind of the pilot stage? And then also, Mark, are you able to go on kind of record on kind of the margin lift you think we could get over the next couple of years as you fully roll these out?

Yes. So Mark, I'd say like with end points, let me just start there. It's in the AI-powered versions in 1 office in Washington. And so again, when we roll it out, it's just beta version, things aren't going to work perfectly. I'd say it's probably better than our expectations, though than what we thought when we rolled it out. And so we -- it's -- I wouldn't say it's ready to be rolled out nationally right now. We still got a lot of work to do, but that's what we're doing right now. So really, the plan with endpoint is -- let's just continue to work on the products, we continue to make it better. The plan is in the second quarter, we're going to launch it to 15 escrow teams in the state of Washington. And so before we do that, we got to make the product a little bit better -- and we also just need to kind of fine-tune or change management.

By the end of this year, we'll have it in a few other states launched. And again, we want to have most of the company on at the end of next year. And so I would just say the technology is -- I would say it's a little bit better than what we thought it was going to be. but we still need -- we still have work to do. And then on the Sequoia side, I would say that when we're getting 40% automation rates for refinance transactions for the products that we support in those 4 markets, we are seeing savings. I mean we've completely automated the search.

We've completely automated the examination. And we're still doing some QC just because we're checking to make sure that the product is working. But we are seeing benefits. But again, it's very small numbers at this point. But I would say with both Sequoia and endpoint, both of those are sort of in line, maybe a little bit better than our expectations. In terms of like guiding to like what does this mean? I know we've talked a lot about this with investors, really what we need is we just need to show the benefit on more of a scale. We need to show it more of a scale, and we just haven't had that yet. But once we kind of roll these out, to, I would say, a statistically significant sample size, we can share those numbers.

But right now, in 1 office, in the case of endpoint and for markets in the case it's just too small to kind of share those right now.

Okay. Got it. And I think, Mark, earlier you alluded to having some of the investments roll off and some of the efficiency gains could keep the efficiency ratio at a pretty attractive level, I guess, it was 47% this quarter. You said at least for the next couple of years, is there any reason to think it's not just going to be kind of structurally better than it has in the 60% cut target is out the window.

I think that it can be better than 60%, as I mentioned. I mean we haven't really thought hard about what's the new guidance. But I do think that the 60% was -- and I would say, like a very labor-intensive model and now we're transitioning parts of our business to -- we're always going to be a people business. We're always going to be labor intensive, but it's going to be more data-driven and you're just going to have better operating leverage in that model. So we just need to prove it out. We got to prove it out.

And again, we're hitting milestones. We've got products in the market. We've got to prove it out over the next couple of years. But I do think that based on what we believe we know we can do better than that 60% for a period of time.

Okay. Great. And then just 1 last one. On the commercial volumes, I think you indicated that the refi activity has been kind of higher than normal recently. I think you alluded to lenders doing shorter duration loans. Is that just a product of kind of where rates are? -- borrowers less excited about locking in at high rates? And if so, are we looking at like a multiyear tailwind here on kind of the refi side.

I believe so. I believe that's the case. I mean, typically, I have talked to life insurance companies, lenders that typically went 5 to 7 years maturities and they've moved to 2 to 3 years. And so when you think about that, there's just a lot more frequency of refinance activity, and they're putting 2- to 3-year loans on right now. .

And so it's sort of the opposite of what's happening on the residential side. And so I do think there'll be a refi tailwind here on the commercial business for a few years.

And as you know, for our commercial business, we -- our premiums are basically the same for purchase and refinance, so that's a big benefit to us.

Our next question is a follow-up from Oscar Neves with Stephens.

So Texas recently implemented total insurance rate reduction -- can you quantify the expected revenue and margin impact for 2026 under your current volume and other operating assumptions? .

Yes. Osar, this is Matt. So if we assume similar volumes to 2025, like if we just basically assume that the rate change went in at the beginning of 2025. It would lower the total revenue and net operating revenue in the Title segment by about 50 basis points. .

Okay. That's helpful. And as a follow-up to that, -- as we think about your Texas exposure, how much is residential versus commercial? And are there any offsets? Just obviously the very good options bring down your premium, but they should also bring out how much you paid to your hedging, right?

In terms of -- in terms of the offsets, I wouldn't count on too many offsets. I mean, the premium is where most of the economics are as opposed to like the escrow fees or other fees. And so I wouldn't assume that we're going to get anything materially on the offsets. We don't have this broad-based plan to just raise rates on other products 6.2%. So I wouldn't really assume anything on that. And I'd just say with Texas, some states, we do better, some states will do worse.

Texas were underweight market share, particularly on the residential side, but we do very well in commercial. So I don't have the numbers in front of you, but I would just say we do really well in commercial in Texas. In residential, it's something that we're really focused on, but we're underweight market share on the residential side.

Our next question is also a follow-up from Mark Hughes with Truist.

I'm sorry if I missed this, but did you give guidance for investment income for Q1 or for the full year? Mark, we did not give guidance, but so where we sit today, the way we're thinking about investment income for full year '26 is that it's going to come in roughly flat with what we saw in '25 for the title segment.

I'll just add to that, Mark. I mean we -- I think this is a big win for us because we've talked about how every time the Fed lowers rates, I mean we're going to lose investment income, and we've talked about that for a long time, and we really haven't -- and we haven't because a couple of reasons. One is commercial balances have been -- have been higher. The second is we've gone longer in the bank's portfolio, which kind of insulates us from that risk. And I think the third thing, which I talked about in my comments is that now we're capturing 1031 exchange deposits at the bank. And so all those factors we've really been able to defend our investment income, and we think we can continue to be defended if the Fed lowers rates a couple of times this year.

So I think that's a big win relative to where we were a couple of years ago.

Our next question is a follow-up from Bose George with KBW.

Actually, a follow-up on the regulatory side. There's obviously been a lot of noise about affordability from the White House and the FHFA. Have you heard anything specific from D.C. about potential changes to title insurance?.

I haven't heard anything directly or new about any changes to title insurance, no. I mean we have talked about wells in the past. We've talked about the title waiver pilot with Fannie Mae that is still continuing, and it's going to be up in May. And -- but there's nothing new. And we look at a couple of these bills are going through Congress, the House past the housing for 21st Century Bill, the Senate passed the Road to Housing Act and our industry trade association, the ALC both supports those bills. And so there is a lot going on with -- but to answer your question, there's nothing new or noteworthy that we're aware of around Palancian directly.

Okay. Great. And then actually 1 more follow-up on the commercial. You noted the -- I guess, the shorter expected duration because of these loan sizes. But I assume that doesn't impact the premium, so the premiums are similar even if these are going to roll off more quickly?

That's right. Correct. .

There are no additional questions at this time. And that concludes this morning's call. We'd like to remind listeners that today's call will be available for replay on the company's website or by dialing (877) 660-6853 and or (201) 612-7415 and enter the conference ID 137-58180. The company would like to thank you for your participation.

This concludes today's teleconference. You may now disconnect.

Greetings, and welcome to the First American Financial Corporation's Third Quarter Earnings Conference Call. [Operator Instructions] A copy of today's press release is available on First American's website at www.firstam.com/investor. Please note 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 13756641.

We will now turn the call over to Craig Barberio, Vice President of Investor Relations, to make an introductory statement. Craig, please go ahead.

Thank you. Good morning, everyone, and welcome to First American's earnings conference call for the third quarter of 2025.

Joining us today on the call will be our Chief Executive Officer, Mark Seaton; and Matt Wagner, 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 yesterday's earnings release and the risk factors discussed on our Form 10-K and subsequent SEC filings.

Our presentation today also 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 yesterday's earnings release, which is available on our website at www.firstam.com.

I will now turn the call over to Mark Seaton.

Thank you, Craig, and thank you to everyone joining our call. Today, I will provide a brief review of our earnings and share our outlook on the market.

Today, we announced adjusted earnings per share of $1.70 for the third quarter, another strong result that highlights the resilience of our business. We continue to see 2 distinct market dynamics. Our commercial business delivered outstanding performance, while the residential market remains in a period of transition. Even so, our adjusted consolidated revenue grew 14% and adjusted EPS increased 27%.

Commercial revenue increased 29%, and we set a record for average revenue per order at just over $16,000 per closing. The rebound in the commercial market began in the third quarter of 2024, which means the year-over-year comparisons are becoming more challenging. Nonetheless, even against tougher comps, we delivered another strong quarter with a 29% growth rate. We continue to see broad-based strength in commercial, led by the industrial sector which includes data center transactions, a consistently high-performing sub-asset class. Even excluding data centers, the industrial market remains robust, driven by sustained e-commerce demand for logistics and warehouse space.

Multifamily was our second strongest asset class with solid performance across a wide range of geographies. Investment income grew 12% this quarter. Our investment portfolio, and particularly our bank continues to serve as a countercyclical earnings driver. The residential side of our business continues to navigate challenging market conditions.

Purchase revenue declined 2%, primarily due to reduced demand for new homes. The purchase market has remained soft over the last 3 years, largely driven by affordability challenges and elevated mortgage rates. However, when purchase volumes begin to normalize and return to long-term trends, we are well positioned to capture growth, thanks to our operating leverage and strong relationships with local real estate professionals who play a critical role in driving purchase activity.

Refinance revenue was up 28% this quarter. Although we've seen an uptick in volumes, the refinance market remains at historically low levels. Our home warranty business continues to post very strong earnings. Our pretax income was up 80%, driven by a lower loss rate, and we continue to grow our direct-to-consumer channel, which is offsetting the ongoing weakness in real estate.

I'm optimistic about our long-term outlook. We're at the early stages of the next real estate cycle and our industry-leading investments in data, technology and AI position us to outperform as the market strengthens. By modernizing our platforms and integrating AI across our operations, we expect to drive significant productivity gains, reduce risk and unlock new revenue opportunities. further extending First American's leadership in the industry.

Now I would like to turn the call over to Matt for a more detailed review of our financial results.

Thank you, Mark. This quarter, we generated GAAP earnings of $1.84 per diluted share. Our adjusted earnings, which exclude the impact of net investment gains and purchase-related intangible amortization was $1.70 per diluted share. Adjusted revenue in our Title segment was $1.8 billion, up 14% compared with the same quarter of 2024.

Commercial revenue was $246 million, a 29% increase over last year. Our closed orders increased 6% from the prior year, and our average revenue per order was up 22%.

Purchase revenue was down 2% during the quarter, driven by a 5% decline in closed orders, partially offset by a 3% improvement in the average revenue per order. While refinance revenue was up 28% compared with last year, it accounted for just 6% of our direct revenue this quarter and highlights how challenged this market continues to be.

In the Agency business, revenue was $799 million, up 17% from last year. Given the reporting lag in agent revenues of approximately 1 quarter, these results primarily reflect remittances related to second quarter economic activity. Information and other revenues were $276 million during the quarter, up 14% compared with last year, primarily due to refinance activity in the company's Canadian operations, revenue growth in the company's subservicing business and higher demand for noninsured information products and services.

Investment income was $153 million in the third quarter, up 12% compared with the same quarter of last year, primarily due to higher interest income from the company's investment portfolio partly offset by a decline in interest income from operating cash due to lower balances and lower short-term interest rates.

Net investment gains were $6 million in the current quarter, compared with net investment losses of $308 million in the third quarter of 2024, which were primarily due to losses realized from the company's investment portfolio rebalancing project. Personnel costs were $543 million in the third quarter, up 10% compared with the same quarter of 2024. The increase was primarily due to incentive compensation expense resulting from higher revenue and profitability and higher salary expense and employee benefit costs.

Other operating expenses were $276 million in the quarter, up 9% compared with last year, primarily due to higher production expense driven by higher volumes and increased software expense. Our success ratio for the quarter was 62%, which is in line with our historic target of 60%.

The provision for policy losses and other claims was $42 million in the third quarter or 3.0% of title premiums and escrow fees, unchanged from the prior year. The third quarter rate reflects an ultimate loss rate of 3.75% for the current policy year and a net decrease of $11 million in the loss reserve estimate for prior policy years.

Pretax margin in the title segment was 12.9% on both a GAAP and adjusted basis. Looking at October, we are seeing a similar pattern in opened orders to what we have experienced so far this year with a strong commercial market and sluggish residential market continuing. For the first 3 weeks of October, commercial orders are up 14%, while purchase orders are down 6%. The strength in commercial order activity is positioning us well for the remainder of the year and into 2026.

Turning to the Home Warranty segment. Total revenue was $115 million this quarter, up 3% compared with last year. The loss ratio was 47%, down from 54% in the third quarter of 2024. The improvement in the loss ratio was primarily due to lower claim frequency, largely driven by favorable weather conditions.

Pretax margin in the Home Warranty segment was 14.1% or 13.5% on an adjusted basis. The effective tax rate in the quarter was 23.1% and which is slightly below the company's normalized tax rate of 24%.

Our debt-to-capital ratio was 33.0%. Excluding secured financings payable, our debt-to-capital ratio was 22.5%.

This quarter, we raised our common stock dividend by 2% to an annual rate of $2.20 per share. We also repurchased 598,000 shares in the third quarter for a total of $34 million at an average price of $56.24.

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

[Operator Instructions] And our first question comes from the line of Mark Hughes with Truist Securities.

On the commercial ARPO revenue per order, obviously, 3Q is very strong. Could you talk about that, the sustainability, perhaps what you're seeing so far in 4Q?

Thanks for the question, Mark. Yes, I would say it's sustainable. I mean typically, in commercial, there is some seasonality to ARPO, right? It usually builds throughout the year. And we think it will continue to build in Q4. We're just seeing a lot of momentum in commercial. There's a lot of big transactions.

We track 11 asset classes. 10 of our asset classes were up in the third quarter year-over-year. The only one that wasn't up was energy, which has historically been a really good asset class for us, but Q4 is typically a big energy quarter. We've got some big deals in the pipeline. So just in terms of Q3, it exceeded our expectations. And we're really optimistic about what we see in Q4. So it's been a really good story for us.

Yes. How about the outlook currently for investment income? I know you've talked about some historically some sensitivities, but kind of what should we anticipate in Q4?

This is Matt. Thanks for the question, Mark. So for Q4, we continue to see -- we think it will be down slightly sequentially just due to kind of some of the headwinds from rate cuts. But it should be modestly down sequentially. It's the expectation right now.

Okay. And then when we think about the refi orders, what's the kind of recent trend in refi per day?

The -- so for the first 3 weeks of October, we're opening about 875 open orders per day in refi.

The next question comes from the line of Terry Ma with Barclays.

I was hoping you could give an update on maybe just Sequoia and Endpoint in terms of the time line for the pilots. I think last quarter, you said Endpoint pilot was going to roll out December. Is that still on track? And then for Sequoia in the markets that you're piloting currently, any kind of early results?

Yes. Thanks, Terry. Well, first of all, in terms of Endpoint, yes, we're still on track with everything we talked about in the third quarter. We -- the product is ready for testing. In fact, we got people here on campus last week and this week testing the product and testing is going well, and we are still on track to roll it out in our first office in December. And we're -- right now, we're planning on sort of a broader rollout in the springtime to kind of start rolling it out throughout the country.

It's going to take us roughly 2 years or so to get it national, but it's something we're really excited about. Our current system, which we call FAST, we rolled it out in 2002, and so we've been on the system for 23 years. It's been a good system for us for a long time. But obviously, technology has changed and AI is here and we're really excited about Endpoint. It's going to give us productivity improvements we haven't seen before. It's going to be a great user interface for our escrow officers and it's really going to amplify their talent. It's going to reduce the mundane task or part of the escrow transaction and free up more time for our escrow officers to spend more time with the client. We're really excited about it. And we're really on track with everything since last quarter, since we talked about last quarter. So that's we keep hitting our milestones.

In terms of Sequoia, we're also very optimistic about Sequoia. We really started Sequoia with the vision of having instant title for purchase transactions. It's never been done in the industry. There's instant title for refinance transactions. We've got a solution for that. Our competitors have solutions for that. Nobody has it for purchase transaction. And we're continuing to make milestones with Sequoia too. We have rolled out our AI engine for Sequoia and we're running live refinance orders through Sequoia today, and that's a big milestone. The product is out there. It's in production. It's in 3 counties.

We've sort of exceeded our expectations in terms of the hit rates that we can get. And as of right now, the plan is to have our first purchase transaction go live in the first quarter. And so we -- that's been our plan, and it continues to be our plan, and we see really good progress with Sequoia as well.

So we're going to start testing the purchase product in the first quarter. And that's similarly, it's going to take us roughly 2 years or so to do a national rollout. But when we do, we'll be able to produce a commitment faster arguably with more accuracy and cheaper than anything that's out here in the market. So we're really excited about really both Endpoint and Sequoia.

The next question comes from the line of Bose George with KBW.

Just sticking to Sequoia and Endpoint, can you remind us just what the margin impact of those programs are of just running the 2 platforms and just the way to think about the time line for that kind of rolling off?

Yes. Thanks a lot, Bose. One thing I would say is we initially broke out our -- we call it our margin drag from Endpoint and Sequoia early on because we really wanted investors to be able to evaluate the performance of our core title business without these investments that we were making with Endpoint and Sequoia. And at the time, we didn't know if they were going to work or not.

There were big technological hurdles. We weren't sure it was going to work. Well, now we're -- we know it's going to work. I think there's still -- there's always questions on the timing of things, but we know that they're both going to work. And so we are integrating them into our core operations now. It's just part of our title segment. So we're not going to disclose the drag with endpoint Sequoia anymore. A, because we don't feel like it's fair to back that out. We want investors to judge us on our core operating performance, including those. And b, is because they're being integrated in their core operations before they were really stand-alone entities. But now it's just being -- it's harder and harder for us to track it just because they're being more integrated into what we're doing. So we're not going to give that anymore.

That makes sense. But I guess I'm just trying to think about -- but there will be a benefit as once they rolled out and your old platforms are shut down, right? So I guess because it's hard to quantify at the moment, but there is going to be that sort of benefit at the end of this process.

There's no question about that, Bose. The last time that we have talked about the drag, it's been roughly 100 basis points. And so you don't spend 100 basis points just to get nothing. I mean, you spend 100 basis points to get more than 100 basis points, right? And so there's a few different ways to get value. The first is we're really supporting 2 different systems.

I think for both Endpoints and Sequoia, we've got our old system where our business is running on the old systems. And then we have the new systems which are showing a lot of promise, but they have very little volumes, right? So we're really double paying with technology right now. And eventually, we'll get everything on the new systems, and there'll be some savings by shutting down the old systems. That's the first thing.

The second thing is -- the thing we're excited about is it's not just a copy and paste in terms of productivity. I mean the new system is going to create a lot more productivity, and we'll see that. And the third is I really believe that we can gain market share for both of those products. And that remains to be seen. It's tough to gain market share in our business, but I think there's a lot of reasons to believe that more customers are going to want to do business with First American because of this modern platform that we have. And so I think there's 3 different levels of value creation and that will happen over -- gradually over time, you'll see incremental improvements.

Okay. That's helpful. And then actually just on the order count, the default and the other -- that line item has gone up quite a bit again. Is that -- I mean, are those like you sort of clients allocating product? Or just curious what's going on there.

Just so you're looking at the default and other, Bose?

Yes. Just -- yes, the order count, just the increase in the order count in that other line item.

I would just say, first of all, it's -- of all of our order counts, we look at purchase commercial refi and then of course, what you're referring to is the other. We have seen an increase in default activity. It's there, but it's -- I wouldn't say it's material and it's really not a material part of our business right now, but we have seen it. And there's like -- it's not necessarily like foreclosures. There could be some foreclosures. A lot of it is like loss mitigation work that we do in some alternative products.

The next question comes from the line of Geoffrey Dunn with Dowling & Partners.

Mark, back on Sequoia, it doesn't seem like there's a demand for instantaneous title. So it really sounds like it's more about efficiency gains. But then obviously, you have political pressure picking up every so often according to the cost of title. So as you think about the longer-term profile of the business, is this just naturally where the business is evolving to and maybe you struggle to keep those gains? Or do you think that there's something more sustainable in those efficiency gains over time?

Well, I think it's -- well, there's a few things there, Jeff. And I want to make sure I answer your questions, if I don't call me back, call me out on it. But first of all, I think for Sequoia, I don't know, I would take issue that the demand isn't there for instant title. I mean I've heard that, but I'll tell you, I've talked to customers and our sales team that think that instant title for purchase transactions is a big deal.

And so maybe it is, maybe it isn't, but we're going to test it. We're going to be the ones that test it. And even if it's not, even in the worst case that it's not helpful to have an instant purchase transaction, right? And you can have an instant purchase transaction when the transaction won't close in 55 days. Even if it's not, we're really turning a labor product into a data product. And it gives us a lot more flexibility and innovation to create new products out there.

So I think that it will be at advantages. And I think particularly on the agency side, if you can have a lower cost to produce your products, you're going to have an advantage out there. In terms of like the title waivers and where the market is going and are these sustainable? I mean we're in the title insurance business. We're not in the title waiver business. I think we've got a responsibility to consumers to not only a, protect consumers and lenders, but also to do it at a reasonable price point, too.

And so there's been a lot of talk about the title waiver pilot. I just think the title insurance is going to be here, it's necessary. And the title waivers, we all, as an industry, have an obligation to do what's best for the consumer, both in terms of protection, protecting their property rights, but also we've got an obligation to make it affordable, too. And so we'll see what happens -- we'll see what happens and how the market develops. But I think particularly with Sequoia it just gives us a lot of strategic optionality going forward once it's naturally rolled out.

Okay. And then I thought it was interesting, you brought up AI directly in your press release, you mentioned again on the call. Can you give some examples of how you're using AI? And I guess, in particular, how much is AI coming into play with your kind of living title initiatives?

It's a huge deal for -- well, okay, for both Endpoint and Sequoia, which we were reading a lot of questions on this call. And for good reasons, we're spending a lot of time talking about it internally and focusing on it. We started both of those initiatives and without AI. We started to reimagine the title production process through Sequoia and the settlement process through Endpoint, and it wasn't AI-driven at first. We wanted to build modern platforms.

And really about 6 to 12 months ago, these AI models came out. These new LLM models came out, Agentic AI has come out, and it's really changed our thinking on how to do things. And so we pivoted -- and both of those are AI-native platforms. Now both Endpoint and Sequoia, they leverage AI at the core to build a better product than we were on pace to build just because these technologies have become available to us in the last year.

So those are AI-driven and AI-native products that we're very excited about. And they're going to be -- they're just going to be better than the track that we were on. So we have this top-down approach with leveraging AI, but we also have a bottoms-up approach with leveraging AI. And we've got ChatGPT enterprise for all 19,000 of our employees. We just rolled it out in October -- October 1. And I'm very excited to see what that produces to.

And I have anecdotes of us keeping customers because of AI, us reducing risk, us thinking about new ways to do our process. And so we have a top-down and bottoms-up approach. And I think the gains are going to happen over time. We're not going to wake up 1 quarter and see 300 basis points up margins because of AI. But I think over time, gradually, we will start to become more and more efficient as we as a company, learn how to use these technologies.

Okay. And then just specifically to the living title efforts, is AI a big part of that?

It is, yes...

Or is that still...

No, it's -- so the living title it is AI. And so I could go into more details on this. I'll just say that when I think of Sequoia now, it's an AI-driven product that is producing an automated title commitment for refis today and purchase tomorrow using AI.

The next question comes from the line of Mark DeVries with Deutsche Bank.

Looks like you only purchased about 20,000 shares after you reported 2Q results. Is there any color you can provide on why you pulled back and what you need to see to get more active?

Mark, thanks for the question. This is Matt. So yes, I mean we're continuing to focus on returning excess capital to shareholders. During the quarter, we raised our dividend. And like you mentioned, we repurchased some shares during the quarter. We purchased $122 million worth of shares this year.

But at the time -- at this time, we paused our buyback program to just evaluate how things develop and consider whether there may be better uses for the capital. But we continually evaluate it, and we will be buying back shares opportunistically.

Okay. It looks like you ended up delevering a little bit in the quarter. Could you just kind of discuss the range of debt-to-capital ratios you'll look to operate in and kind of where you'd expect to get more aggressive on using excess capital?

Yes. So over the long term of the cycle, we targeted debt-to-capital of 20%. Right now, we're a little bit over that at 22.5%. And which we feel very comfortable and because we're at the lower part of the market right now, lower part of the cycle. So it's okay for us to have a little bit of a higher debt-to-cap.

And when you say we did levered, we didn't pay down any debt. We just -- as we generate earnings, we obviously generate additional capital. So it went from, I think, 23% to 22.5%. So we're comfortable where we're at. As the market continues to increase in the cycle turns, we look to get back towards the 20% over time.

Okay. And are you guys seeing more of potential interest on the M&A front that could be a use of some of that excess?

Yes, we are. We are seeing it. When the market initially fell in the first half of 2022, I think we were really hopeful that there would be acquisitions and deals to do. And we just really didn't see much. And over the last couple of years, we've really kind of leaned into the buyback, and we were -- felt really good about that.

But now there are more things that are coming across our desk. And so we'll see if those deals close or what happens, but they're both on the title side and the non-title side. And there's just more opportunities today than there have been in the last couple of years.

Yes, it makes sense. I mean is it fair to say that some of the weakness in the residential side is creating more and more pressure from potential sellers at this point?

Yes, we're seeing that. We're definitely seeing that. So we're disciplined. I mean I would just say just on the M&A side, too, Mark, is we don't feel like we have to do anything. We're not just trying to grow for the sake of growing. The deal has to make sense and it has to be strategic, and we have to make sure we have a good expected outcome in terms of the financials. So if we don't do any deals, we're fine with that. But we do think what we know, there's just more and more opportunities that are rising because the sluggish market has lasted a long time. And I think more and more people are calling us now.

The next question will come again from the line of Mark Hughes with Truist Securities.

Yes. Mark, you'd mentioned the title waiver, you're proposing a title solution. Anything new on the regulatory front, either on the demonstration project or maybe even on the rate front at the various states, anything new?

I would say there's nothing new since last quarter. I mean, the title waiver pilot is still going on, and we're just on the sidelines waiting to kind of -- and we're sort of monitoring results and seeing where that goes. There's been nothing new on that front. On the state front, I would say there's nothing new. I mean the most material thing that is the Texas rate issue.

And again, that's not new from the last call, but there's -- the industry now is expecting a 6.2% rate cut in Texas in March. It's not final yet. There's still another hearing that needs to happen, but I think that's the -- that's what we're sort of expecting internally. That's probably the biggest news on the rate side. But again, that's not new since the last call we had.

Yes. And then when we think about net investment income for 2026, any early thoughts there?

Yes, Mark, from an early thought perspective, when I look out into '26, right, the obvious headwinds for interest -- for an investment income are the expected rate cuts and then we've already gotten a rate cut this year. So as a reminder, each 25 basis rate cut -- basis point rate cut impacts us by $15 million on an annual basis.

So each rate cut will reduce investment income by approximately $15 million based on kind of current balances. I would say the offsets that we have potentially for next year that could help that are, one is we are expecting growth in kind of all of our markets that matter to us, specifically commercial and moderately in purchase. And if we get growth in transaction levels and transaction volumes, we can -- we'll get growth in deposit balances. So we'll have a higher balance rate or a higher level of balances, which will be helpful.

The other thing that we did recently towards the end of Q3 is we made some operational enhancements at our bank, which now allows us to put 1031 exchange deposits at our bank. So historically, we had to put those positive third-party banks, and now our bank can handle those deposits, which will just increase the economic value of those deposits. And that will be a tailwind going into next year. That will hopefully offset any impacts of rate cuts.

And just a follow-up on that. So the -- is the kind of takeaway message, the balances, the operational enhancements, maybe offsetting the rate cuts and so therefore, kind of a more stable outlook for '26?

I'd say it's too early to say, right? And it's dependent on the level of activity and the level of rate cuts. But right now, where we sit, we would probably see investment income being down year-over-year.

Thank you. There are no additional questions at this time, and this will conclude this morning's call. We'd like to remind listeners today 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 13756641. The company would like to thank you for your participation. This concludes today's conference call. You may now disconnect.