First American Financial (NYSE:FAF) reported what management described as a “strong” fourth quarter, driven by continued momentum in commercial title activity and improved profitability despite a still-sluggish residential purchase market. The company posted adjusted earnings per share (EPS) of $1.99, up 47% from the prior year, and GAAP EPS of $2.05 for the quarter.
Adjusted results excluded net investment gains and purchase-related intangible amortization. Both GAAP and adjusted earnings included $28 million, or $0.20 per diluted share, of one-time benefits tied to a $13 million reserve release in Canada and a $15 million insurance recovery recorded in the corporate segment, according to Chief Financial Officer Matt Wajner.
Commercial strength offsets residential softness
Commercial title revenue increased 35% to $339 million, supported by both higher pricing and volume. Wajner said commercial closed orders rose 10% versus last year, while average revenue per order (ARPO) climbed 22% to a record $18,600 per closing. Seaton attributed commercial strength to “price stability” achieved in 2025 and improving dynamics including persistent increases in sales volumes, rising commercial lending, and higher refinance activity.
Seaton noted that commercial refinance represented roughly 40% of commercial premiums in 2025 versus a historical level around 30%, citing some lenders moving to shorter loan maturities that can drive more frequent refinancing. In response to analyst questions, he added that he expects this refinancing dynamic to remain a “tailwind” for several years and that premiums are “basically the same” for commercial purchase and refinance transactions.
Residential purchase activity remained under pressure. Wajner said purchase revenue fell 4% in the fourth quarter, driven by a 7% decline in closed orders, partially offset by a 4% increase in purchase ARPO. Seaton pointed to existing home sales running around 4 million units, below what the company considers a normalized 5.5 million level, as homeowners remained reluctant to sell due to the “rate lock-in effect” and affordability constraints.
Refinance revenue rose 47% year-over-year, with closed orders up 44% and ARPO up 2%. However, Wajner emphasized refinance still accounted for only 7% of direct revenue in the quarter, underscoring how far the market remains from historical levels.
Technology initiatives: Endpoint, Sequoia AI, and Owners Portal
Management highlighted several technology initiatives aimed at improving productivity and customer experience over time. Seaton said the company launched Endpoint in one office in December and closed what it described as the industry’s first AI-powered escrow. As of the week prior to the call, Endpoint had opened 153 orders and closed 47. While the volumes are “immaterial today,” Seaton said the learnings are “highly consequential,” with a national rollout planned over the next two years.
On the title production side, Seaton said First American launched an enhanced AI-powered “Sequoia” engine for refinance transactions. Sequoia AI is live in Phoenix and three Southern California markets, where the company has achieved 40% automation of search and examination for supported products. Seaton said purchase capabilities are expected to roll out in those markets by the second quarter, with expansion across California and Florida by year-end, followed by a broader national rollout in 2027.
Executives also pointed to the growth of the company’s Owners Portal, which provides free property title monitoring and fraud alerts to customers in 25 direct-operation states. Seaton said the platform has about 53,000 users, up 580% from the prior quarter.
In the Q&A, Seaton said margin drag from redundant technology spending is expected to “gradually” ease as the company invests less in legacy platforms and eventually decommissions them. He added that productivity gains from Endpoint and Sequoia have not yet appeared in reported results given the limited scale of current deployments.
Segment profitability, claims, and investment results
Wajner said the title segment posted a pre-tax margin of 14.9%, or 14.0% on an adjusted basis. The company’s “success ratio” for the quarter was 47%. Provision for policy losses and other claims was $44 million, representing 3.0% of title premiums and escrow fees, unchanged from the prior year. Wajner said this reflected an ultimate loss rate of 3.75% for the current policy year and an $11 million net decrease in loss reserve estimates for prior policy years.
Investment income was $157 million in the fourth quarter, up 1% year-over-year despite the Federal Reserve cutting rates five times since the start of the fourth quarter of 2024. Wajner attributed the resilience to higher average balances driven by commercial activity and a shift in the bank subsidiary’s asset mix toward fixed income securities. Net investment gains were $28 million, compared with net investment losses of $62 million in the prior-year quarter, primarily due to recognized gains in the venture portfolio versus impairments last year.
Expenses rose with performance and volumes. Personnel costs increased 11% to $581 million, driven mainly by higher incentive compensation. Other operating expenses were up 7% to $282 million, reflecting higher production and software costs, partly offset by the Canadian reserve release.
In the home warranty segment, total revenue rose 7% to $110 million. The loss ratio improved to 40% from 44% a year earlier due to fewer claims, partly offset by higher severity. Pre-tax margin was 21.1%, or 21.0% on an adjusted basis.
2026 outlook: record commercial year expected; purchase recovery later
Looking ahead, Seaton said the company expects growth across its major revenue drivers—commercial, purchase, and refinance—in 2026. He said commercial revenue is expected to reach a record level, surpassing the prior peak in 2022, citing a strong pipeline and broad-based strength across asset classes. He noted that data center transactions made up roughly 10% of commercial premiums last year and that the company continues to see a sizable pipeline in that area.
For purchase, Seaton said the company is “less optimistic” than some industry forecasts calling for 7% to 8% growth, though he expects improvement as the rate lock-in effect fades and affordability modestly improves. Open purchase orders were down 7% in the fourth quarter, suggesting continued weakness in first-quarter purchase revenue, while January open orders were “essentially flat,” with growth expected later in the year.
Refinance remains harder to predict, but management highlighted improving early indicators. Wajner said 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 flat for purchase and commercial and up 72% for refinance.
On investment income, the company did not provide formal guidance, but Wajner said management expects 2026 investment income in the title segment to be roughly flat with 2025. Seaton cited higher commercial balances, the bank’s longer-duration portfolio positioning, and growth in 1031 exchange deposits as factors helping defend investment income as rates decline.
Capital allocation and regulatory commentary
Seaton outlined capital allocation priorities as: investing in the core business (including technology and data), acquisitions, and returning capital to shareholders through dividends and buybacks. He noted capital expenditures have declined over the past three years, totaling $188 million in 2025 versus $218 million in 2024 and $263 million in 2023, while operating cash flow has increased. Seaton said the acquisition pipeline has been “pretty dry,” with $2.5 million of M&A in 2025, and described buybacks as opportunistic. He also said the company is viewing potential decisions through an “AI lens” and wants to maintain flexibility for opportunities that may emerge.
Asked about Texas title insurance rate reductions, Wajner said if the change were applied to 2025-like volumes, it would reduce total revenue and net operating revenue in the title segment by about 50 basis points. Management said it did not anticipate meaningful offsets.
On the regulatory environment, Seaton said he had not heard anything “directly or new” related to potential changes to title insurance, while noting ongoing industry discussions such as the Fannie Mae title waiver pilot and broader housing-related legislation that the industry trade association supports.
About First American Financial (NYSE:FAF)
First American Financial Corporation is a leading provider of title insurance, settlement services and diversified real estate-related data and analytics. Headquartered in Santa Ana, California, the company serves customers throughout the United States as well as in Canada, Europe, Latin America and Asia. Its business is built on the underwriting capabilities of its title insurance operations combined with comprehensive closing and escrow services for homebuyers, sellers, mortgage lenders and real estate professionals.
The company’s title insurance segment issues policies that protect property owners and mortgage lenders against defects in titles, liens or encumbrances that can arise during real property transactions.
