Operator: Greetings, and welcome to the First American Financial Corporation Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. A copy of today's press release is available on First American 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) 660-6.85 thousand. Or (201) 612-7.42 thousand and enter the conference ID 1 millionAnd762 thousand. We will now turn the call over to Craig Barberio, Vice President, Investor Relations, to make an introductory statement.
Craig Barberio: 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 Edward Seaton; and Matthew Feivish 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-Ks 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 will now turn the call over to Mark Edward Seaton.
Mark Edward Seaton: Thank you, Craig. Our earnings momentum continued in the second quarter as we generated adjusted earnings per share of $2.8, 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 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. 1 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 loan portfolio grew 54% during the quarter, and as that portfolio expands, so should its deposits. Our second largest source of non title deposits came from our 31 Exchange business. Last year, all exchange deposits were held at third party banks. Since launching our 31 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 31 balances. Finally, our agent banking strategy continues to gain traction. Today, 10 title agents bank with First American Trust, and an increase of 37% from last year. We expect those balances to grow as real estate activity recovers. Taken together, servicing 31 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 1.3 thousand 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 ExamAssist QC, an AI enabled quality control workflow. It has now processed more than 50 thousand orders, delivering 92% with no additional human review. A clear example of how we can deploy AI at scale for a 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 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 have 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 2 thousand 27. During the quarter, we converted our 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 were 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 decisions for approximately 70% of purchase transactions and 80% of refinance transactions in markets where we maintain title plans. 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 plan for 2027. Once endpoint and Sequoia are fully rolled out, we believe they will create a durable competitive advantage 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 for the second half of the year. 6 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 have already closed 3 transactions generating more than $1 million in premium during July, and commercial opened 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 will 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, platform 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 are 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. 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 will turn the call over to Matthew, who will discuss our financial results in greater detail.
Matthew Feivish Wajner: Thank you, Mark. 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 in 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 $20 thousand 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 non insured 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 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 25. The slight improvement in the loss ratio was due to lower claim frequency partially offset by higher claim severity. Pre tax 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 finances payable, our debt to capital ratio was 21.5%. During the quarter, we repurchased 330 thousand 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: Thank you. 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. Before pressing the star keys. And our first question will come from Terry Ma with Barclays.
Terry Ma: Hey. Thank you. Good morning. 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 is the cadence of investment income?
Mark Edward Seaton: Thanks for the questions, Terry. I will start with the deposits, and Matthew can talk about investment income for the back half. But we have a bank, and it is a real strategic advantage for us. And for many years, really what we have done is we have put our own First American Title deposits that we manage in connection with the escrow process into our bank. And we have really maximized, almost maximized that. And maybe about 5 years ago, we woke up and said, hey, you know, 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 is a lot of agents out there that they manage escrow deposits too, and they put their deposits in at third party banks. And these are, you know, customers of ours. And so we started off with agent banking, and we are making progress on that, as I talked about. there is about 20 thousand different settlement agents out there, and we are not all of them are going to want to use First American Trust, but a lot of them will. And so we are making really good traction there. And we are 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 31 solution, and also ServiceMAC too. I mean, ServiceMAC is growing I think the amazing thing about ServiceMAC is they are not getting any help from the markets either. And yet their loan growth is up 54% from last year. And so they are growing despite the fact that the market has been flat. And those deposits, you know, so whenever we get customers from ServiceMAC, if banks are customers of ServiceMAC, typically, banks are gonna 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 is it is sustainable in terms of, you know, where we are with these third party deposits. And with that, I will over to Matthew to talk about investment income.
Matthew Feivish Wajner: Yeah. Thanks, Mark. Hi, Terry. So investment income, like I discussed, was up 11%. Year over year, you know, 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 to 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 will see at the back half of the year.
Terry Ma: Got it. that is that is helpful color. And then just as my follow-up, maybe just on the commercial ARPO it is continued to see robust year over year increases. Certainly appreciate all the color on the larger $1 million-plus premium deals. what is the outlook for that in the second? And I guess, like ultimately, how sustainable are those ARPU increases we look out to the back half of the year? Thank you.
Mark Edward Seaton: Yes. Thanks a lot, Terry. Terry. You know, on commercial, you know, we are very bullish on commercial. Our order counts continue to grow, as I mentioned. Our fee per file or ARPO continues to grow. We are getting a lot of bigger deals now. The big deal pipeline is really strong. We think ARPO will continue to grow in the second half of the year. And I will just say too, I mean, 1 of the things we get from investors a lot is, you know, how sustainable is this commercial market? Is this gonna go away? We just feel like commercial market has legs for a lot of different reasons. But when we look at our pipeline, we have conversations with our customers. We look at the commercial real estate dynamics. We are 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. Thank you.
Terry Ma: Thanks, Terry.
Operator: Our next question will come from Oscar Nieves with Stephens.
Oscar Nieves Santana: Hey, good morning. My first question is on margins in the title segment, which were strong at 14%. that is 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 that first half given the comps.
Matthew Feivish Wajner: Hi, Oscar. This is Matthew. Thanks for the question. Yeah. So year to date, our margin in the title segment is 12.3%. You know, 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, you know, tied closely to the commercial business, which, as you know, is hard to forecast and particularly the strength of it in Q4.
Oscar Nieves Santana: Okay. That helps. Kinda related to the margins, When we look at the trends in the operating expenses, your personal and other OpEx ratio improved nicely year over year. If we look at the incremental margin this quarter specifically, it kinda 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 is not-- you know, the rate is a little bit mixed there. But what can you share with us on that?
Matthew Feivish Wajner: Yeah. Thanks, Oscar. So from a success ratio, so the ways, you know, that we look at, you know, how efficient we are is 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 you know, the way we think about it is 60% is our target for our success ratio. We still think that is a good target for our business. I think last year, we may have come in a little bit under that. You know, that it can change from quarter to quarter based on onetime items or certain investments we are 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 are making in businesses outside of our domestic title operations, such as ServiceMAC and really, for ServiceMAC, we are investing in order to support the significant growth that they have seen in their loan portfolio. Looking ahead, when I think of the success ratio, I think, you know, we will see maybe it being a little bit elevated, kind of what 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 25 call, we had some 1 time items that benefited the title segment, and, you know, that will show up in the success ratio when we get to the end of the year.
Oscar Nieves Santana: Super helpful. And just 1 last 1 on capital allocation, specifically on buybacks. You bought about you bought back about $20 million of stock in 2Q. How are you thinking about the pace of buybacks from here on to the balance of the year? And that is the recent increase in your debt to capital ratio changed that, that thought process at all?
Mark Edward Seaton: Well, just on buybacks, I mean, like at the moment here, we are not in the market at the moment, but it is always something we look at. And when you look at most of the last 5 years, most of those quarters we have been repurchasing shares. So it is something we are always going to look at. I mean, there is always, like, these dislocations in the market where, you know, somebody puts out something and, you know, people get worried about the future of title or if people get worried about title plans going away. And those seem to be, like, good moments for us to pick up shares. And so we are just looking at it on opportunistic basis. We are very big, you know, fans of the buybacks. When you look at the prices we bought back, it is been good for our shareholders, and we will continue to look at that. The debt to cap does not really play into that now. Our target debt to cap is 20%. And we are a little bit higher than that now, but it is still very comfortable especially considering we are kind of the trough in the market. And so and so I would not I do not think the debt to cap at these levels weighs in on the buyback decision at all.
Oscar Nieves Santana: Thank you. that is all I have. Thank you so much.
Mark Edward Seaton: Thank you.
Operator: And, again, to ask a question, that is star 1. We will go next to Bose George with KBW.
Bose George: Hey, guys. Good morning. The 6% you noted on the purchase ARPO, it seems a lot higher than sort of HPA itself would imply. Or is there more activity just the higher end of the market? Or any just color to add on that?
Matthew Feivish Wajner: Hi, Bose. Yeah. it is really due to mix, particularly California. We had a higher mix orders coming from California, which California has a higher ARPA.
Bose George: Okay. Great. Makes sense. Thanks. And then on the commercial side, can you just remind us, you know, what are the biggest buckets? Like, how much of the premium is coming from data centers? And is and energy? Are those the 2 biggest buckets?
Mark Edward Seaton: Yeah. No. Thanks for the question, Bose. You know, we track 11 asset classes And just a couple of things here. Our biggest asset class is industrial. it is 23% of our premium was industrial. Some data centers go into that, but there is a lot of other warehouses and different things that go into that. Multi family was 16% of our premium. Development sites were 14% of our premium, and data centers also go in there. If, you know, for example, if it is just raw land that is gonna be built into a data center, it will go into development And then 14% is retail. Those are our top 4 top 4 asset classes.
Bose George: Okay. Great. And then, actually, 1 just on the, uh, political front. You know, in late June, you know, Bill Pulte posted that comment on X about FHFA working on expanding title and that we would be expecting something soon from Fannie Mae. And have you guys heard anything incremental about that?
Mark Edward Seaton: Have not heard anything, you know, incremental about that. So, you know, we are still kind of waiting for that. You know, we have they have already announced that they are extending this title acceptance pilot through November 27, and so we know that is been out there. But relative to the Pulte, we have not heard anything incremental So we are, you know, kind of been wait and see mode.
Bose George: Okay. Great. Thanks a lot.
Mark Edward Seaton: Thanks, Bose.
Operator: And as a final reminder, it is star 1 to ask a question. We will go next to Mark DeVries with Deutsche Bank.
Mark DeVries: Yeah. Thanks. I have some follow ups on commercial. I heard you say, Mark, that you are seeing strong growth across 10 of the 11 different asset classes. Can you just talk about where you are seeing the strongest growth across those asset classes with a particular focus on data centers and office?
Mark Edward Seaton: Yeah. Give me a second here. So, you know, I just following up on commercial. So when we look at you know, 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 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%. And 47% relative to last year. But I think the point here is we are seeing broad based growth. it is not like we are just doing a few data centers that are driving our revenue. We have got a lot of you know, other businesses that are just you know, within commercial that are just growing, and that gives us strength that this market will have legs.
Mark DeVries: It is Office the 1 that is not growing? Are you seeing any green shoots there?
Mark Edward Seaton: We have not really seen, you know, much in terms of Office. Like, Well, I would just say it is growing year over year of our 11 asset classes. The only 1 that is not is health care, so it is growing. It just has not made our top 5.
Mark DeVries: 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.
Mark Edward Seaton: Yeah. So with the, you know, with the data centers, I mean, typically, the transaction is the principal will buy land. that is 1 transaction. They will get a construction loan. To build the data center. that is the second transaction. And there is a takeout refinance. Which is the third. And I would just say that there is just a strong pipeline with all these deals. The data center transactions, we are talking in the, you know, some of these are billion dollar deals. A lot of them are. So when you look at the growth in ARPO, a lot of it is it is driven by these huge deals. I mean, the average ARPO for a data center deal is not our $19 thousand which is our average ARPO. A lot of these deals are, you know, million-dollar-plus premiums.
Mark DeVries: So it does have an out there is not that many of them. But the ones that we get, there is 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 1 kind of progressively larger? Is that how it works?
Mark Edward Seaton: You know what? I am not really I am not really sure about that, Mark. it is a good question. Typically, I would say the takeout refi at the end is probably going to be the least premium. But the Mhmm. The first 2, I am not sure how to rank them 1 or 2 and would have to do some work on that.
Mark DeVries: Okay. And do you also in the policy to take out the actual servers that equipment in the building, or is it just the building itself?
Mark Edward Seaton: We do not insure you know, typically, when a principal is going to you know, get a title policy, they will get it for the, you know, the amount that it takes to build the data center. Right? And that includes the servers to get it to function. But if, you know, the data does not work because of the servers or something like that, I mean, we are not on the hook for that. But, yes, I mean, they will get a construction loan for the for the amount that it takes to you know, to build the data center, including all the equipment in it.
Mark DeVries: Okay. Got it. Thank you. Yep. Thanks a lot, Mark.
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) 660-6.85 thousand or (201) 612-7.42 thousand and enter the conference ID 1.38 million. The company would like to thank you for your participation. This concludes today's teleconference. You may now disconnect.
