First American (FAF) Q4 2025 Earnings Transcript

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DATE

Thursday, February 12, 2026 at 11:00 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Mark Edward Seaton
• Executive Vice President and Chief Financial Officer — Matthew Feivish Wajner
• Director of Investor Relations — Craig J. Barberio

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TAKEAWAYS

• Adjusted Earnings Per Share -- $1.99, representing a 47% increase, with GAAP EPS at $2.05; both included $28,000,000 in one-time benefits ($0.20 per share).
• Title Segment Adjusted Revenue -- $1.9 billion, an increase of 14%.
• Commercial Revenue -- $339,000,000, up 35%, with average revenue per order rising 22% to $18,600 and closed orders increasing 10%.
• Commercial Refinances -- Accounted for approximately 40% of commercial premiums, compared to a historical norm of 30%.
• Purchase Revenue -- Decreased 4%, driven by a 7% decline in closed orders partially offset by a 4% increase in average revenue per order.
• Refinance Revenue -- Increased 47%, with 44% more closed orders and a 2% increase in revenue per order; represented only 7% of direct revenue.
• Agency Revenue -- $790,000,000, up 13%, reflecting a timing lag for agent remittances primarily tied to prior quarter activity.
• Information and Other Revenues -- $274,000,000, a 15% increase, attributed to Canadian refinance, ServiceMac growth, and greater demand for noninsured products.
• Investment Income -- $157,000,000, up 1% despite five Federal Reserve rate cuts since 2024, due to higher average balances, asset mix shifts, and increased 1031 exchange deposits.
• Net Investment Gains -- $28,000,000 versus prior year losses of $62,000,000; current gains came from the venture portfolio.
• Personnel Costs -- $581,000,000, an 11% increase mainly due to higher incentive compensation from improved financial results.
• Other Operating Expenses -- $282,000,000, up 7%, primarily from higher production and software-related costs, partially offset by a $13,000,000 reserve release in Canada.
• Success Ratio -- 47%, indicating efficiency improvements; management is targeting structural improvement beyond the previous 60% benchmark.
• Provision for Policy Losses and Claims -- $44,000,000, or 3% of title premiums and escrow fees (unchanged); policy-year loss rate at 3.75%.
• Title Segment Pretax Margin -- 14.9% reported, or 14% on an adjusted basis, representing the highest level since Q2 2022.
• Home Warranty Segment Revenue -- $110,000,000, a 7% increase, with a pretax margin of 21.1% and a loss ratio decrease from 44% to 40% due to fewer claims.
• Debt-to-Capital Ratio -- 30.7%; adjusting for secured financings payable, the ratio is 21.9%.
• Market Share Gain -- First American Financial captured 90 basis points of organic market share over the past twelve months, mainly from agency and commercial segments.
• Endpoint Platform Launch -- The industry’s first AI-powered escrow was closed; 153 orders opened and 47 closed on Endpoint, with nationwide rollout planned over two years.
• Sequoia AI Rollout -- Achieved 40% automation in search and examination for refinance in initial markets; purchase transaction rollout expected by Q2, with California and Florida expansion by year-end.
• Owner’s Portal Growth -- User base reached approximately 53,000, a 580% increase quarter over quarter, now offering property title monitoring and fraud alerts in 25 states.
• First American Trust 1031 Deposits -- Ended the year at $94,000,000, currently exceeding $300,000,000, with a target of $1,000,000,000 by year-end.
• 2026 Commercial Revenue Outlook -- Management expects a record year, surpassing the 2022 peak, with strong deal momentum and optimism cited for the first six weeks of the year.
• Purchase Outlook -- Management forecasts 7% to 8% growth in purchase revenue, less optimistic than broader industry forecasts, with January open purchase orders flat and Q4 orders down 7%.
• Refinance Order Trends -- Refinance open orders rose 72% in January; closed refinance orders per day in January up 48%.
• Data Center Transactions -- Accounted for roughly 10% of commercial premiums, highlighting expansion in this emerging asset class.
• Capital Expenditures -- Decreased from $263,000,000 in 2023, to $218,000,000 in 2024, and $188,000,000 in 2025, reflecting lower development intensity despite growth initiatives.
• Dividend and Buyback Policy -- 2025 payout ratio was 36%; an additional 20% of net income used for buybacks, totaling 56% returned to shareholders, with a 40% target payout ratio.
• Texas Title Rate Change Impact -- Management estimates a revenue reduction of about 50 basis points in the Title segment, assuming similar volume levels to 2025.
• Investment Income Guidance -- Management expects full-year 2026 investment income in the Title segment to remain roughly flat with 2025, citing portfolio allocation and higher deposit growth as mitigating factors against further Federal Reserve rate cuts.

SUMMARY

First American Financial (NYSE:FAF) reported significant earnings growth, with adjusted EPS up 47% and title segment revenue rising 14%, driven primarily by a 35% surge in commercial revenue and higher average revenue per commercial order. Technology initiatives advanced, with the Endpoint AI-powered escrow platform processing initial transactions and the Sequoia automation engine achieving 40% automation in selected markets. Management highlighted strong organic market share gains and expects 2026 commercial revenue to reach new record highs, supported by robust momentum in major asset classes including data centers. Capital returns remained a priority, with the company returning 56% of net income to shareholders through dividends and buybacks, as capital expenditures continued to decline. The company expects moderate revenue growth in purchase transactions and maintains that investment income should remain stable in 2026, aided by higher deposit balances and asset allocation strategies.

• Management confirmed the commercial refinance mix reached 40% of segment premiums, representing a shift enabled by shorter loan maturities and increased refinancing frequency.
• AI-driven platforms such as Endpoint and Sequoia are yielding early productivity gains and are expected to deliver incremental margin improvements as legacy systems are retired and further markets go live, with a nationwide rollout anticipated by 2027.
• The Owner’s Portal saw sharp user expansion and is cited as a strategic response to rising real estate fraud threats, offering homeowners proactive title monitoring and alerts.
• Deposit growth in First American Trust’s 1031 exchange product is anticipated to offset some effects of lower short-term rates on investment income.
• Management provided no direct guidance for margin impact from technology initiatives, stating, “we just need to show the benefit on more of a scale,” and did not yet quantify future improvements.
• Despite regulatory headwinds, including a title premium rate cut in Texas expected to reduce revenue by 50 basis points, leadership sees no material new regulatory risk for the title insurance business at present.
• In commercial volumes, leadership expects more transaction growth relative to per-order revenue growth in 2026, indicating an evolving mix in revenue composition.

INDUSTRY GLOSSARY

• ARPU: Average revenue per unit/order, commonly used to measure revenue per completed transaction in the title insurance sector.
• 1031 Exchange: A tax-deferred real estate transaction enabling investors to defer paying capital gains taxes on an investment property when it is sold, provided another like-kind property is purchased.
• Success Ratio: Operational efficiency metric reflecting productivity, often the ratio of completed orders to total orders or another internal performance benchmark.
• Endpoint: First American Financial Corporation’s proprietary AI-powered escrow and transaction management platform aimed at automating and modernizing closing processes.
• Sequoia AI: First American Financial Corporation’s AI-driven title production engine designed to automate title search and examination processes.

Full Conference Call Transcript

Craig J. Barberio: Joining us today on the call will be our Chief Executive Officer, Mark Edward Seaton, and Matthew Feivish Wajner, 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 the 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. Excuse me. I will now turn the call over to Mark Edward Seaton. Thank you, Craig.

The fourth quarter was a strong one for First American Financial Corporation. We generated adjusted EPS of $1.99, a 47% improvement from the prior year.

Mark Edward Seaton: In the fourth quarter, we experienced trends similar to those we saw throughout 2025. A strong commercial market contrasted with a sluggish residential market. On the commercial side, revenue grew 35% as we saw improvement in nine 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 have 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 4,000,000 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 remained constrained. One benefit of operating in a trough market is it creates an opportunity to implement meaningful change. In December, we reached an important milestone with the launch of Endpoint. In one office, 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 two years. We believe the capabilities we are building over time will be a durable competitive advantage. On the refinance side, revenue grew 47%. While refinance 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 three markets in Southern California.

In these markets, we have achieved 40% automation rates of 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 marketing initiatives improve while reducing risk, cost, and cycle time.

Craig J. Barberio: I also want to highlight another strategic initiative we are excited about.

Mark Edward Seaton: The Owner’s Portal. In the 25 states where we have direct operations, customers who close with First American Financial Corporation receive 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 have managed savings and checking deposits at First American Trust. Now we are also supporting 1031 exchange deposits. We ended the year with $94,000,000 in 1031 deposits, and have quickly grown to over $300,000,000 today. We expect to be closer to $1,000,000,000 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 than some industry forecasts. We are calling for 7% to 8% growth. We do expect improvement in 2026 as the rate lock-in effect discouraging homeowners from selling and buying fades 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 orders were essentially flat with growth expected to emerge later in the year. Refinance activity is hard 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 have gained 90 basis points of organic market share over the last twelve 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. In 2025, we delivered record earnings at our bank, in home warranty, at ServiceMac, and at First Funding. With that, I will turn the call over to Matt for a more detailed review of our financial results.

Matthew Feivish Wajner: 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 one-time benefits of $28,000,000, or $0.20 per diluted share. The one-time benefits are comprised of a $13,000,000, or $0.09 per diluted share, reserve release in Canada recorded in the Title segment and a $15,000,000, or $0.11 per diluted share, insurance recovery recorded in the Corporate segment. Adjusted revenue in our Title segment was $1,900,000,000, up 14% compared with the same quarter of 2024.

Looking at the components of Title revenue, commercial revenue was $339,000,000, 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 $790,000,000, 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 $274,000,000 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 non-insured information products and services.

Investment income was $157,000,000 in the fourth quarter, up 1% compared with the same quarter last year despite the Fed cutting rates five times since the beginning 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 $28,000,000 in the current quarter, compared with net investment losses of $62,000,000 in 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 $581,000,000 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 $282,000,000 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 $13,000,000 reserve release in Canada. Our success ratio for the quarter was 47%. The provision for policy losses and other claims was $44,000,000 in the fourth quarter, or 3% of title premiums and escrow fees, unchanged from the prior year.

Matthew Feivish Wajner: The fourth quarter rate reflects an ultimate loss rate of 3.75% for the current policy year and a net decrease of $11,000,000 in the loss reserve estimate for prior policy years. Pretax margin in the Title segment was 14.9%, or 14% 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 purchase and commercial and up 72% for refinance. Moving to the Home Warranty segment, total revenue was $110,000,000 this quarter, up 7% compared with last year.

The loss ratio was 40%, down from 44% in 2024. The improvement in the loss ratio was mainly due to fewer claims, partly offset by higher claim severity.

Pre-tax margin in the Home Warranty segment was 21.1%, or 21% 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 non-insurance 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. Thank you.

Operator: We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes from the line of Bose Thomas George with KBW. Please proceed with your question.

Bose Thomas George: Hey, guys. Good morning. 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 2025? I mean, if you look at the 2022 number, you have already, I guess, just about 4% away from that in—you know, in 2025. Your year-over-year growth is 35% the year in 2025. So, yes, just based on your pipeline, you know, where do you think it is trending now versus over 2025?

Mark Edward Seaton: It is—you know, thanks for the question, Bose. It is hard to say. One thing I would say about commercial is it is always something we have a hard time forecasting. But I will tell you, I mean, we are very optimistic about what 2026 is shaping out. I talked about some of the trends we are seeing in my prepared remarks, but there is just a lot of momentum in commercial, broad-based strength, getting a lot of refinance transactions. There are a lot of data center deals we are doing. There are a lot of big energy deals we are doing.

And, you know, and I would just say the team is probably more confident than I have ever seen 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 do not know. We do not know. But I think we have a lot of conviction that it is going to be, you know, I would say, you know, definitely growth over 2025, an all-time record relative to 2022. We are just going to have to see how it plays out. But I will tell you the first, you know, six weeks of the year are looking really, really good for commercial.

We will just see if it is sustained. So I do not have a number to give out, though.

Operator: Okay. That is helpful. Thanks. And then

Bose Thomas George: actually, in terms of the contribution from data centers to commercial premiums, is there a way to kind of quantify what that is?

Mark Edward Seaton: There has been a lot of growth in data centers, as I am sure you could imagine, and we are involved in all or many of those just because, you know, if customers need to underwrite big transactions, I mean, there is not—you know, they have to go to us or Fidelity, really. And so we are really involved in all these data center transactions. Last year, it was roughly 10% of our premiums. And so we have seen a big growth in it. And, again, we have a big pipeline heading into this year. So I would say data center is kind of this new asset class that we have just started to track because it has really emerged.

But it is a lot more broad-based than just data centers, though. I mean, when you look at—again, I talked about earlier—I mean, nine of the 11 asset classes were up last quarter. And data centers is one of them, but it is really broad-based beyond that. But really right now it is about 10% for premiums.

Matthew Feivish Wajner: And, Bose, this is Matt. Just to—Matt. Sorry, Bose. Just to clarify, it is 10% of our commercial premiums.

Bose Thomas George: Yes. Oh, okay. Perfect. So—okay. Great. Thanks.

Mark Edward Seaton: Thanks, Bose.

Operator: Our next question comes from the line of Terry Ma with Barclays. Please proceed with your question.

Terry Ma: Hey, thank you. Good morning. Maybe just to touch on Sequoia and then Endpoint. Appreciate the color on the rollout and expansion timeline. Any way to think about the impact to the margin just

Matthew Feivish Wajner: from the drag that you guys had previously kind of talked about subsiding over the next two years? Like, how should we kind of think about that?

Mark Edward Seaton: The drag on the margin is going to gradually alleviate itself, and we are already kind of starting to see it as we invest more in our modern platforms which, you know, Endpoint and Sequoia like you point out, and we just invest less in the legacy platforms, and we are 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 are reducing our investment in these legacy platforms. And so the margin drag will just dissipate over time. And I would just say we are really excited about both platforms.

And, you know, we reached a big milestone with Endpoint this quarter. It is live now. It is really hard to get that first order onto the system, but it is working now. It is in one market. We learn every day. And we have significant plans for Endpoint. And ultimately, what we are trying to do is we are really trying to improve the experience for employees. We are trying to reduce a lot of the tasks that you just have to have to close a transaction. And I think the work-life balance of our team will be better. I think they will be able to close more transactions, and they will be paid more.

I think it is going to be a better experience for our customers that we are going to have modern technology that we can update very, very frequently, and it is just going to be a system that the industry has not 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 are going to achieve that vision next month of having instant title for purchase transactions.

Mark Edward Seaton: And it is just going to get better and better over time. When we roll something out, it is 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 two years, we are going to show some real progress. We have 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 are rolling out.

Terry Ma: Got it. That is helpful. And then, maybe just following up on commercial. You guys mentioned kind of broad-based trends but also kind of called out larger deals on the energy side and obviously data center is big. As I look at ARPU, at $18,600 this past quarter and, you know, we roll forward to 2026, do you think more of the revenue growth comes from order count increase? Or is it more ARPU? Any color on that?

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

Matthew Feivish Wajner: Got it. Thank you.

Operator: Our next question comes from the line of Mark Hughes with Truist Securities. Please proceed with your question.

Mark Hughes: Yes. Thank you. Good morning and good afternoon. The 90 basis points you talked about, the organic market share—Is that a mix issue, geography issue? What

Matthew Feivish Wajner: would you say is driving that?

Mark Edward Seaton: There are two big drivers to that. They are both roughly equally weighted. One is we are gaining market share in our agency division. And the second is we are gaining market share in commercial. And so those are the two things I would point to say that is where the market share is coming from. And so we are really proud of that. Yes. And then your refi ARPU is up a little. It had been down pretty meaningfully in the last few quarters. And I guess you have probably lapped some of that downdraft.

Geoffrey Dunn: You think that stays in positive territory? Any visibility there?

Matthew Feivish Wajner: Hey, Mark. This is Matt. So, yes, ARPU for refi was up a little bit this quarter year-over-year. I will point you to in Q4, we revised some of our refi order counts, which also impacted historic ARPU. So if you look at the revised numbers, you will see that the trend is very similar.

Geoffrey Dunn: Okay. Alright. Very good. And then in the purchase, purchase ARPU has been up, you know, three, three and a half percent 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?

Matthew Feivish Wajner: Yes. So in the way we are thinking about 2026, we do think ARPU is going to moderate. We still think it will be positive in 2026, but it will be less than what we saw in 2025.

Operator: The growth.

Mark Edward Seaton: Sorry.

Operator: Yes.

Geoffrey Dunn: Yes. Okay. Alright. Thank you very much.

Mark Hughes: Thanks, Mark.

Operator: As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from the line of Oscar Nieves with Stephens. Please proceed with your question.

Matthew Feivish Wajner: Hey, good morning. I have a question on the Title segment's adjusted pre-tax margin. This quarter, it reached its highest level since, I think, Q2 2022. Can you break down the primary drivers of that expansion?

Mark Edward Seaton: Whether that was volume mix, pricing, expense control, or other. Thanks, Oscar. There are a few drivers. I mean, one of the things is we absolutely have commercial tailwinds at our backs. Right? And so the margin is higher than it has been because we are getting some revenue tailwinds.

And we are 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. There is a little bit of a mix issue there, too. And so there are a lot of factors, but I think that is the key driver. That is helpful. And as a follow-up to that, you have talked about Sequoia and Endpoint already. But since you referenced in the past, a 100 basis point drag from the technology cost from those initiatives. Has that headwind now largely rolled off? Or is some of that assumed better in the margin profile? The reason I am asking is we are looking at 14-plus margins, so I wonder if there is still some upside from those investments rolling off.

Mark Edward Seaton: I think there is significant upside with those investments for a couple of reasons. Number one is we have achieved big milestones with both Endpoint and Sequoia in the sense that they are both live in markets working. But they are really beta versions, I will call it. They do not have many orders running through them now. We are testing it. We are learning. We are improving every day. But we are still running our business on other platforms. Right? And so we have two 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 will be a benefit to that. And that is already starting because we are not investing as much in the old technology, but there will be more benefit over time. The second thing is once we do get national scale on those two platforms, we do think that we will have productivity improvements, and that definitely has not shown up in the numbers yet.

So I think over time, it is not going to just happen in one quarter all of a sudden, but we will have incremental gains over time as we roll these platforms out nationally. And, again, once we roll it out nationally, the builds continue to improve from then, too. So we feel like this is going to be a long-term benefit for margin improvement. Great.

And if I can ask just one last one on capital allocation. What are the priorities heading into 2026?

Our first priorities are dividends, buybacks, bank investments, and potentially M&A. It is something we think a lot about. So really our first priority is we want to make sure that we are investing in our core business. And we want to make sure that we have and we equip our employees, our team members, with the best tools and the best products in the industry. And so that is the first priority: building our technology, building out our databases, investing in the future. That is our priority number one. But I will say we do not need to ramp that up. Everything we are building is already in a run rate.

And if you look at our capital expenditures the last three years, they have been falling every single year. So when you look at our CapEx this year in 2025, they were $188,000,000. Last year, in 2024, it was $218,000,000. The year before that was $263,000,000. So we have been lowering our CapEx every year despite the fact that our operating cash has been increasing every single year. So I would say the first priority is investing in our core business, but we do not need to ramp it up. We are 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 $2,500,000 of M&A in 2025. So we talked about gaining 90 basis points of market share. Well, we did that with only investing $2.5 million in M&A. So it is something that is—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 is a second priority. We do not have anything that is material in the pipeline. You know, things can always change, but that is the second priority. And the third priority is returning capital back to the shareholders.

At the end of the day, we are trying to generate good returns to our shareholders organically or through M&A. If we cannot do that, we will give it back to shareholders. We do that through dividends or buybacks. So, you know, in 2025, our payout ratio—our dividend payout ratio—was 36%. And so that is a priority for us. We have typically raised it, like, a penny the last couple of years just because we have been in the trough market. But our target is 40%, and so we are running a little bit below that. But dividend is a priority.

And then with buybacks, we have talked a lot about this over the last several quarters, and really several years, but we are 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 when you look at the 20% for buybacks and 36% for dividends, we returned 56% of our net income to shareholders last year. And so that is something that we are focused on doing. And I would say this last thing on capital management is we think that AI is going to have a big impact.

And it is hard exactly to see 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 am not saying we need to do that to strengthen our balance sheet or to—our balance sheet is already strong enough. But there are a lot of things moving around with AI. And everything we do, whether it is the buyback or whether it is M&A, we look through an AI lens now that we did not have before.

And so we are also going to just try to keep a little bit more dry powder here to pounce on opportunities that may arise in the future. But that is kind of how we are thinking about heading into 2026. Super helpful. Thank you.

Operator: Our next question comes from the line of Geoffrey Dunn with Dowling & Partners. Please proceed with your question.

Geoffrey Dunn: Thanks. Good morning. Mark, 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?

Mark Edward Seaton: The big deals that we are doing—there is no thought of making sure that we, for example, do not pay dividends at our First American Title insurance company. That we need more capital in the underwriter to support these big deals—there is no thought of that. We have adequate ratings. Underwriting these big deals is not going to prevent us from maximizing our dividends. So there is no thought about that. I will just say we have a very robust reinsurance program. And so we feel very comfortable with the risk that we are running.

Geoffrey Dunn:Okay. And then as we think about potential margin improvement as the tech investment comes down and Endpoint is rolled out, is it truly gradual or more of a cliff improvement given the rollout costs that you might incur?

Mark Edward Seaton: It is going to be gradual. And remember, we have other—you know, as you know, Geoff, we are really talking about our direct division. I think these will benefit our agency division, particularly Sequoia. Some other ones. It is not every single piece of the company that Endpoint and Sequoia are going to benefit. But it is going to be gradual. And we are already starting to see it. I have talked about this where we are not investing as much in our legacy platforms. Otherwise, if we did not have Endpoint and Sequoia support, we would have to do that. So eventually, we will decommission legacy platforms. Eventually, our productivity will continue to improve.

And it really will be gradual, every single quarter for a while. It will not be a cliff benefit. But the important thing to note is I would have to say we just continue to hit our milestones. We laid out a plan a year ago for our new AI-powered version. I am just really pleased with how we are really sticking to that plan. We talked about a national rollout by 2027, and we are still on track for that. Sorry. Go ahead. Go ahead, John.

Geoffrey Dunn: Last question just on the loss provision. Expectation for it to remain steady at 3.75%?

Matthew Feivish Wajner: Hey, Geoff. This is Matt. So it is too early to say because it is obviously based on the way claims come in, and we reevaluate it every quarter. But, you know, as you know, 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 is consistent with the prior year. I would say that, as you know, the normalized loss rate is closer to 5%. So I do think it is likely that sometime here in the future we will stop releasing prior year or slow down the release of prior year. But a 3.75% policy-year loss rate feels kind of right and near the normalized rate.

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

Operator: Alright. Appreciate it. Thank you.

Mark Edward Seaton: Thanks, Geoff.

Operator: Our next question is from Mark Christian DeVries with Deutsche Bank. Please proceed with your question.

Geoffrey Dunn: Another question for you on the tech investments. So far in the markets where you started to roll out Sequoia and Endpoint, are the productivity benefits that you are seeing kind of comparable to what you saw in the pilot stage?

John Campbell: And then also, Mark, are you able to go on record as to the margin lift you think we could get over the next couple of years as you fully roll these out?

Mark Edward Seaton: Yes. So, Mark, I would say with Endpoint—let me just start there—it is in the AI-powered version in one office in Washington. And so when we roll it out, it is a beta version. It is not going to work perfectly. I would say it is probably better than our expectations, though, than what we thought when we rolled it out. And so I would not say it is ready to be rolled out nationally right now. We still have a lot of work to do. But that is what we are doing right now. So, really, the plan with Endpoint is let us just continue to work on the product. Let us continue to make it better.

The plan is in the second quarter, we are going to launch it to 15 escrow teams in the state of Washington. And so before we do that, we have to make the product a little bit better. And we also just need to fine-tune our change management. By the end of this year, we will have it in a few other states launched. And, again, we want to have most of the company on it at the end of next year. And so I would just say the technology is, I would say, a little bit better than what we thought it was going to be. But we still have work to do.

And then on the Sequoia side, I would say that when we are getting 40% automation rates for refinance transactions for the products that we support in those four markets, we are seeing savings. I mean, we have completely automated the search. We have completely automated the examination. And we are still doing some QC just because we are checking to make sure that the product is working. But we are seeing benefits. But, again, it is 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 guiding to what this means, I know we have 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 at scale, and we just have not had that yet. But once we roll these out to, I would say, a statistically significant sample size, we can share those numbers. But right now, in one office in the case of Endpoint and four markets in the case of Sequoia, it is just too small to share those right now.

John Campbell: 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 is not just going to be kind of structurally better than it has been and, you know, the 60% target is out the window?

Mark Edward Seaton: I think that it can be better than 60%, as I mentioned. I mean, I have not really thought hard about what is the new guidance. But I do think that the 60% was in, I would say, a very labor-intensive model. And now we are transitioning parts of our business. We are always going to be a people business. We are always going to be labor-intensive, but it is going to be more data-driven and you are just going to have better operating leverage in that model. So we just need to prove it out. We have to prove it out. And, again, we are hitting milestones. We have products in the market.

We have to prove it out the next couple of years. But I do think that, based on what we believe and what we know, we can do better than that 60% for a period of time.

Maxwell Fritscher: Okay. Great. And then just one 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 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 the refi side?

Mark Edward Seaton: I believe so. I believe that is the case. I mean, I have talked to life insurance companies, lenders that typically went five- to seven-year maturities. And they have moved to two to three years. And so when you think about that, there is just more frequency of refinance activity. They are putting two- to three-year loans on right now. And so it is sort of the opposite of what is happening on the residential side. And so I do think there will be a refi tailwind here on the commercial business for a few years.

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

Operator: Yes. Got it. Thank you.

Mark Hughes: Thanks, Mark.

Operator: Our next question is a follow-up from Oscar Nieves with Stephens. Please proceed with your question.

Geoffrey Dunn: Thanks for taking my questions. Texas recently implemented a title insurance rate reduction. Can you quantify the expected revenue and current volume and other operating assumptions?

Matthew Feivish Wajner: Yes. Hey, Oscar. This is Matt. If we assume similar volumes to 2025—if we just basically assume that the rate change went in at 2025—it would lower the total revenue and net operating revenue in the Title segment by about 50 basis points.

Operator: Okay.

Geoffrey Dunn: That is 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? Because, obviously, the rate reductions bring down your premiums, but they should also bring down how much you pay to your agents. Right?

Mark Edward Seaton: In terms of the offsets, I would not count on too many offsets. I mean, the premium is where most of the economics are as opposed to the escrow fees or other fees. And so I would not assume that we are going to get anything material on the offsets. We do not have this broad-based plan to just raise rates on other products 6.2%. So I would not really assume anything on that. And I would just say, with Texas, some states we do better, some states we do worse. Texas, we are underweight market share, particularly on the residential side, but we do very well in commercial.

I do not have the numbers in front of me, but I would just say we do really well in commercial in Texas. In residential, it is something that we are really focused on, but we are underweight market share on the residential side. That is useful. Thank you so much.

Mark Edward Seaton: Okay. Thanks a lot, Oscar.

Operator: Our next question is also a follow-up from Mark Hughes with Truist. Please proceed with your question.

Geoffrey Dunn: Thank you. I am sorry if I missed this, but did you give guidance for investment income for Q1 or for the full year?

Mark Christian DeVries: Hi, Mark.

Matthew Feivish Wajner: We did not give guidance, but where we sit today, the way we are thinking about investment income for full year 2026 is that it is going to come in roughly flat with what we saw in 2025 for the Title segment.

Mark Edward Seaton: I will just add to that, Mark. I mean, I think this is a big win for us because we have talked about how every time the Fed lowers rates, we are going to lose investment income. And we have talked about that for a long time, and we really have not. And we have not because of a couple reasons. One is commercial balances have been higher. And second is we have gone longer in the bank's portfolio, which kind of insulates us from that risk. And I think a third thing, which I talked about in my comments, is that now we are capturing 1031 exchange deposits at the bank.

And so all those factors mean we have really been able to defend our investment income. We think we can continue to defend it if the Fed lowers rates a couple of times this year. So I think that is a big win relative to where we were a couple of years ago.

Matthew Feivish Wajner: Appreciate it.

Geoffrey Dunn: Thank you.

Operator: Our next question is a follow-up from Bose Thomas George with KBW. Please proceed with your question.

Matthew Feivish Wajner: Hey, guys. Actually, a follow-up on the regulatory side.

Craig J. Barberio: There has always 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?

Mark Edward Seaton: You know, we have not heard anything directly or new about any changes to title insurance, no. I mean, we have talked about AOLs in the past. We have talked about the title waiver pilot with Fannie Mae that is still continuing and it is going to be up in May. But there is nothing new. And when we look at a couple of these bills that are going through Congress—the House passed the Housing for the 21st Century bill, the Senate passed the Road to Housing Act—and our industry trade association, the ALTA, supports both those bills.

And so there is a lot going on with housing policy, but to answer your question, there is nothing new or noteworthy that we are aware of around title insurance directly.

Craig J. Barberio: Okay. Great. And then actually one more on the commercial.

Geoffrey Dunn: You noted the shorter expected duration because of these loan sizes,

Craig J. Barberio: but I assume that does not impact the premium, so the premiums are similar even if

Mark Edward Seaton: these are going to roll off more quickly?

Operator: That is right.

Geoffrey Dunn: Correct. Okay. So—okay. Great. Thanks.

Mark Edward Seaton: Thanks a lot, Bose.

Operator: There are no additional questions at this time. That concludes this morning's call. We would like to remind listeners that today's call will be available for replay on the company's website or by dialing (877) 660-6853 or (201) 612-7415 and entering the conference ID 13758180. The company would like to thank you for your participation. This concludes today's teleconference. You may now disconnect.

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