First American Financial NYSE: FAF reported stronger second-quarter earnings as growth in commercial title activity, higher investment income tied to deposit growth and continued investment in artificial intelligence initiatives helped offset sluggish residential purchase demand.
On the company’s second-quarter 2026 earnings call, Chief Executive Officer Mark Seaton said First American generated adjusted earnings per share of $2.08, up 36% from the prior year. Chief Financial Officer Matt Wajner said GAAP earnings were $2.12 per diluted share, while adjusted earnings excluded net investment gains and purchase-related intangible amortization.
“Our earnings momentum continued in the second quarter,” Seaton said, highlighting commercial as a “standout performer.”
Commercial Title Revenue Sets Second-Quarter Record
Commercial revenue increased 34% from the year-ago period to $314 million, according to Wajner. The gain was driven by a 31% increase in average revenue per order, which reached $19,980 per transaction, a record for the company’s commercial business.
Seaton said commercial revenue set a second-quarter record, with the company closing 14 transactions that generated more than $1 million in premium, compared with 11 such transactions a year earlier. Within First American’s National Commercial Services division, Seaton said demand remained broad-based, with 10 of 11 asset classes growing year-over-year.
During the question-and-answer portion of the call, Seaton said industrial represented 23% of commercial premium, followed by multifamily at 16%, development sites at 14% and retail at 14%. He added that development site revenue was up 33% from last year, multifamily rose 23% and retail increased 59%. Data center revenue rose 147%, but Seaton emphasized that commercial growth was not limited to that category.
“We’re seeing broad-based growth,” Seaton said. “It’s not like we’re just doing a few data centers that are driving our revenue.”
Seaton said First American’s commercial pipeline “has never been stronger,” noting that the company had already closed three transactions generating more than $1 million in premium during July and that commercial open orders were up 9% over the first three weeks of the month.
Residential Purchase Market Remains Soft
Residential purchase revenue increased 2% during the quarter, with Wajner citing a 6% increase in average revenue per order that was partially offset by a 3% decline in closed orders. He said the decline in closed purchase orders reflected continued weakness in home sale activity.
Seaton said affordability challenges continued to weigh on existing home sales. Through the first three weeks of July, open purchase orders were flat compared with last year, and he said the company remained “more cautious than the broader consensus” on the residential purchase market.
Refinance revenue rose 18% year-over-year, supported by a brief decline in mortgage rates earlier in the year. Wajner said refinance closed orders increased 12%, while average revenue per order rose 5%. However, both executives noted that refinance activity has moderated as mortgage rates moved higher again. Wajner said refinance accounted for just 5% of direct revenue during the quarter, underscoring how challenged the market remains relative to historical levels.
First American Trust Drives Deposit and Investment Income Growth
Seaton identified First American Trust as one of the company’s most important earnings drivers, calling it a growing source of investment income. Average deposits at the bank totaled $7.9 billion in the quarter, up 30% from last year. Seaton said 36% of deposits came from sources outside the company’s captive title operations.
ServiceMac, First American’s mortgage sub-servicer, was the largest contributor to non-title deposits, accounting for $1.7 billion, up 76% from last year. Seaton said ServiceMac’s loan portfolio grew 54% during the quarter and that deposits should increase as the portfolio expands.
The company’s 1031 exchange banking solution also contributed to deposit growth. Seaton said average deposits from that business were $827 million in the second quarter, representing about one-third of total 1031 balances, less than a year after the solution launched. He also said 310 title agents now bank with First American Trust, up 37% from last year.
Wajner said investment income was $164 million in the second quarter, up 11% from the year-ago period, driven primarily by growth in the investment portfolio tied to higher deposits. Interest expense increased 33% to $30 million because of higher deposit balances at First American Trust. In response to an analyst question, Wajner said investment income net of interest expense grew 8% year-over-year and said that figure was a “good proxy” for growth in the second half of the year.
AI Initiatives Remain a Strategic Focus
Seaton said First American’s primary strategic priority remains using artificial intelligence across the company to improve productivity, customer service and operating capabilities. He cited several examples, including a project to update 1,300 forms that historically required a lengthy manual process. Seaton said new AI tools reduced the time required by 97%.
The company also launched Exam Assist QC, an AI-enabled quality control workflow that has processed more than 50,000 orders, with 92% requiring no additional human review. At ServiceMac, Seaton said a virtual agent for loan transfer inquiries improved self-service success from 0% in April to 42% in June, with plans to expand from one self-service use case to seven by year-end.
Seaton also updated investors on Endpoint and Sequoia, two platforms tied to First American’s efforts to reimagine title and settlement processes. Endpoint, which uses agentic AI to automate routine escrow tasks, remains on track to scale across the company’s local title branch network by the end of 2027. First American converted its first title office in Spokane, Washington, during the quarter and plans a statewide rollout in Washington by year-end before a broader national deployment in 2027.
Sequoia, the company’s AI-powered title decisioning platform, expanded refinance capabilities into a centralized lender division in Southern California and broadened California refinance coverage from eight counties to 41. Seaton said the refinance automation rate improved from 35% to 40% during the quarter. For purchase transactions, Sequoia currently provides instant title decisioning for about 16% of purchase orders at opening in certain counties, with management seeing longer-term potential to automate about 70% of purchase title decisions and 80% of refinance decisions in markets where First American maintains title plants.
Margins, Cash Flow and Capital Allocation
In the title segment, adjusted total revenue was $2 billion, up 14% from the same quarter of 2025. Wajner said agency revenue was $820 million, up 14%, while information and other revenue rose 12% to $295 million, driven by ServiceMac revenue growth, higher demand for non-insured information products and services, and refinance activity in Canadian operations.
Personnel costs rose 9% to $572 million, mainly due to incentive compensation tied to improved financial performance and higher salary expense. Other operating expenses increased 15% to $319 million, primarily reflecting higher production expenses from higher volumes and increased software expense. The title segment’s pretax margin was 15.7%, or 14.0% on an adjusted basis.
The home warranty segment reported adjusted total revenue of $112 million, up 1%. Its loss ratio improved to 40% from 41% a year earlier, as lower claim frequency was partially offset by higher claim severity. Adjusted pretax margin in the segment was 20.2%.
Seaton said free cash flow totaled $285 million in the first six months of the year, up 32% from last year, driven by improving operating cash flow and an 18% decline in capital expenditures. He said First American’s top capital allocation priority remains investing in technology, platforms and products, followed by acquisitions with strong strategic synergies and returning capital through dividends and opportunistic share repurchases.
During the quarter, First American repurchased 330,000 shares for $20 million at an average price of $61.99, Wajner said. Seaton said the company is not currently in the market repurchasing shares but continues to evaluate buybacks opportunistically. He added that the company expects to continue increasing its dividend over time.
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.
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