First American Financial Corporation (FAF) Q3 2026 earnings review
First American commercial sales jump, but housing orders drop
First American Financial, the real estate title insurer, leaned on commercial property deals and investment income while home buying fell. Revenue excluding one-offs rose 7% to $2.1 billion and profit per share excluding one-offs edged up 5% to $1.78. Chief executive Mark Seaton warned that higher mortgage rates mean a weak housing market for longer, as daily home-purchase and refinance orders both dropped from a year ago.
| Revenue, excluding one-offs | $2.09B +7% from a year ago |
|---|---|
| Profit per share, excluding one-offs | $1.78 +5% from a year ago ($1.70) |
| U.S. Commercial revenue | $297M +21% from a year ago |
| Annual dividend outlook | Raised 11% to $2.44 per share |
⚖️ Verdict: 🔴 Bearish
The story got worse because operating costs rose fast enough to squeeze profit margins even in a strong commercial quarter. Title segment margin excluding one-offs slipped to 12.7% from 12.9% a year ago as software and staff expenses ate up 87% of new operating revenue, while marketing costs cut Home Warranty profit by 30%. On the bright side, commercial sales cleared a high bar with 21% growth and the board raised the dividend by 11%.
The question now is whether commercial deals and bank income can offset shrinking residential orders without further margin pressure. Bulls see commercial fees and growing bank deposits carrying earnings until mortgage rates drop, while bears see rising software and deposit costs eating into profits as the order pipeline cools. Management's fourth-quarter update on commercial deal mix and platform rollout costs will tell.
🐂 Bull Case
Commercial Deals Still Carry the Title Business
First American's commercial title unit insures large property deals such as office buildings, apartments and data centers. Chief executive Mark Seaton said that "Continued growth in our commercial business and higher investment income drove our earnings this quarter." Critics worry this growth relies too heavily on a few giant data-center deals and tough second-half comparisons.
- U.S. commercial revenue: $297.4 million, up 21% from a year ago
- Average fee per commercial order: $18,200, up 13% from $16,100 a year ago
- Closed commercial orders: 16,300, up 6.5% from a year ago
- New commercial orders opened per day: 452, up 2.5% from 441 a year ago
The commercial division cleared last year's high bar because both deal sizes and closed order counts grew. With $882.5 million of commercial sales in the first nine months, the insurer needs only $120 million in the fourth quarter to beat last year's $1.0 billion record, by our math. However, new daily commercial orders slipped from 465 last quarter to 452, showing the pipeline is cooling.
What to watch: fourth-quarter commercial open orders per day and the breakdown between data centers and other property types on the conference call. A drop below 444 orders per day would mean the commercial pipeline is shrinking from a year ago.
Investment Income Grows Even as Deposit Costs Rise
First American holds customer escrow funds and deposits at its bank subsidiary, earning interest on its investment portfolio while paying interest to depositors. Bears argue that rising deposit costs and potential interest-rate cuts eat away most of that gain. This quarter, title investment income rose 11% to $169.3 million, driven by higher portfolio yields despite lower interest on escrow balances.
Interest expense in the title segment jumped 27% to $31.3 million because of "higher interest expense on deposit balances at the company's bank subsidiary." Even after subtracting that higher interest bill, net spread income grew 7.5% to $138.0 million by our math, matching the roughly 8% second-half pace management indicated. Meanwhile, the mortgage subservicing business grew revenue 31%, feeding more deposits into the bank.
What to watch: average deposit balances at First American Trust when management speaks on the call. A slowdown in deposit gathering would leave net investment income exposed if interest rates fall.
An 11% Dividend Raise Replaces Share Buybacks
After raising its dividend by just 2% a year in recent years, the title insurer lifted its annual payout by 11% to $2.44 per share ($0.61 per quarter). At the same time, First American bought back only 23,149 shares for $1 million during the third quarter, down from $20 million in the second quarter and $33 million in the first.
The company picked up share repurchases slightly in October, spending $9 million on 143,254 shares at an average price of $62.40. The bigger dividend commits about $250 million a year in cash to shareholders, showing management prefers a higher fixed payout while keeping cash on hand.
What to watch: fourth-quarter share repurchase spending in the next earnings release. Continued small buybacks alongside the higher dividend would show management sees better uses for cash than retiring shares at current prices.
🐻 Bear Case
Higher Mortgage Rates Push Home Orders Down
Residential real estate provides the bulk of First American's transaction volume, through home purchases and mortgage refinancings. "The recent increase in mortgage rates reinforces our expectation for a lower-for-longer residential origination market," Seaton said. After holding roughly flat last quarter, total direct open orders fell 8.2% from a year ago to 175,600.
- Home purchase open orders per day: 1,305, down 5.1% from 1,375 a year ago
- Refinance open orders per day: 645, down 16.3% from 771 a year ago
- Total direct closed orders: 134,900, down 4.9% from 141,800 a year ago
Both residential engines are now shrinking at the same time. The brief refinance pickup from earlier this year has faded, with refinance dropping to 33% of residential open orders from 36% a year ago. Because open orders turn into closed revenue over the next one to two quarters, this drop points to weaker domestic title volumes at the end of the year.
What to watch: monthly direct open order counts for October and November on the company's investor website. Another drop in daily purchase orders below the fourth-quarter 2025 trough of 1,100 would point to a weaker start for 2027.
Software and Staff Costs Squeezed Title Margins
Seaton said First American will execute the "rollout of our new AI-native title and settlement platforms" to improve operating efficiency. Yet title segment pretax margin excluding one-offs slipped to 12.7% from 12.9% a year ago, even though high-margin commercial sales grew 21%. The culprit was operating overhead growing as fast as revenue.
In the title segment, other operating expenses rose 11% to $306.4 million, or 0.5 percentage points of segment revenue by our math, due to "an increase in software expense and higher production expense." Personnel costs rose 6% to $574.1 million on higher salaries and bonuses. That pushed the title success ratio — the share of new net operating revenue eaten up by new staff and operating costs — to 87%, well above the 62% a year ago.
What to watch: the title segment success ratio and software expense in the fourth quarter. A success ratio staying above 60% would show that running new technology alongside old systems is adding cost rather than saving money.
Marketing Spend Cut Home Warranty Profit by 30%
First American's home warranty business sells service contracts that cover repairs on home appliances and systems. Segment revenue stayed flat at $114.7 million this quarter, but pretax profit fell 30% from a year ago to $11.3 million. Pretax margin dropped to 9.9% from 14.1% last year, and to 9.7% from 13.5% excluding one-offs.
Claims were not the problem, as the claims loss rate held steady at 47%. Instead, other operating expenses jumped 15.6% to $28.2 million — rising 3.3 percentage points of segment revenue by our math — driven by "higher marketing expense to drive continued growth in our direct-to-consumer sales channel." So far, that extra ad spending has not lifted top-line sales.
What to watch: Home Warranty revenue growth in the next two quarters. If top-line sales stay flat after this marketing push, the higher customer-acquisition spending is only lowering the segment's profit margin.
Risks this quarter didn't answer
Four standing issues from prior quarters are not yet readable from the earnings release alone and await the conference call or quarterly filing.
- Endpoint and Sequoia rollout metrics: the release gives no update on task automation percentages or whether the California, Florida and Washington state rollouts remain on schedule for year-end.
- Non-captive bank deposits: average deposit balances at First American Trust and balances from 1031 tax-deferred exchanges live in prepared remarks and the filing's footnotes.
- Venture investment portfolio: net investment losses were small at $1.6 million this quarter after a $41.7 million write-down last quarter, but the remaining value of private equity holdings will only appear in the 10-Q filing.
- Title insurance regulation: the release includes no update on the federal housing agency's title-waiver pilot or state rate changes.
💲 Other KPIs
Cash generated by regular business operations fell 12.8% from $273 million a year ago. The drop tracks lower GAAP net income of $177.0 million and higher paid title claims, which rose 28.7% to $55.2 million this quarter even as the accounting provision for claims stayed at 3.0% of premiums.
Combined cash and investments rose 15.6% from $10.78 billion at the end of 2025, by our math. The investment portfolio grew 14.3% to $10.74 billion while cash rose 24.8% to $1.73 billion, funded by growing deposit balances at First American's bank subsidiary.
The insurer's leverage ratio edged up from 21.5% in the second quarter and 21.9% at year-end 2025. Total debt-to-capital was 30.3%, down from 31.4% last quarter because secured financings payable — borrowings backed by specific assets — fell to $808 million from about $1.0 billion.
🔮 Guidance
Raised. First American lifted its annual dividend rate by 11% from $2.20 to $2.44 per share, paying $0.61 in the third quarter. That breaks a multi-year pattern of 2% annual increases ($2.14 in 2024, $2.18 in 2025, and $2.20 set in late 2025).
Cut. Seaton said higher mortgage rates reinforce the expectation for a "lower-for-longer residential origination market." At the start of 2026, the company had anticipated moderate purchase growth and a pickup in refinancing; with refinance open orders down 16% from a year ago this quarter, management now expects overall residential activity to stay weak.
❓ Key Questions
Why did software and operating costs jump 11%?
Title segment other operating expenses rose $31 million on software and production costs while closed orders fell 5%. Investors need to know how much of this increase comes from running the new Endpoint and Sequoia platforms alongside legacy systems.
Are California, Florida and Washington AI rollouts on track?
Last quarter management committed to deploying Sequoia across California and Florida and Endpoint across Washington state by year-end 2026. The release gave no county counts or task automation rates to verify progress.
How much did data centers contribute to commercial revenue?
Commercial revenue grew 21% on a 13% jump in average fee per order. Last quarter data-center deals grew 147% while the rest of commercial grew 11%, so the split will show how broad the commercial strength is.
Did third-party deposits at First American Trust keep growing?
Title interest expense rose 27% on bank deposits while escrow interest fell. Without the average deposit figure from prepared remarks, readers cannot tell if 1031 exchange and subservicing inflows are still growing at a 30% pace.