First American Financial Q1 FY26 earnings call FAF

First American is aggressively leveraging AI across its business, having launched an enterprise AI platform to develop and deploy secure AI systems. This platform enables faster product development and scaling. The company is training 25% of its engineers in Agentic AI development, with the rest completing training this quarter, significantly improving productivity and focusing on customer challenges. AI-driven tools are expanding quality control capacity sixfold in the Agency division and reducing order processing time by 30 minutes per file through AI-assisted examination capabilities, which are now being extended to agents via AgentNet.

The Endpoint platform, designed for the local branch network, is live in Seattle with 310 orders opened and 150 closed, achieving 30% task automation. The pilot is expanding to escrow officers across Washington state this quarter, with a target of 80-85% of the local branch network on Endpoint by the end of FY27. SEQUOIA, the AI-powered title decisioning platform, is live for refinance transactions in 8 California and Arizona counties, automating 35% of title decisioning. For purchase transactions, SEQUOIA launched last month in 3 counties, instantly determining insurability for 13% of orders at open. The company aims for 70% automation for purchase and 80% for refinance orders in title plant markets over time^⏳, with expansion to California and Florida by year-end and a national rollout in 2027.

The commercial business achieved record Q1 revenue growth of 48%, driven by increased transaction volumes and significantly higher average revenue per order. The company closed 20 orders generating over $1 million in premium, double last year's amount. Broad-based strength was observed across 9 of 11 asset classes, with data centers contributing a 76% revenue increase and the Energy Group growing 250%. Management expects FY26 to be a record year for commercial, citing tailwinds such as price stability, persistent sales growth, rising commercial lending, and significant equity capital on the sidelines.

Residential purchase revenue declined 4% year-over-year due to a 6% drop in closed orders, reflecting continued weakness in home sale activity. Refinance revenue, however, surged 76% year-over-year, driven by a 57% increase in closed orders, benefiting from a temporary dip in mortgage rates. First American Trust, the company's bank subsidiary, serves as a countercyclical earnings driver, with average deposits totaling $6.8 billion, up 19% year-over-year. Deposit growth is fueled by commercial, 1031 exchange, and agent banking deposits, with 284 agents now banking with the Trust, up 26% from last year.

Investment income rose 12% year-over-year to $154 million, despite three Fed rate cuts over the past year. This increase was primarily due to higher average balances from commercial, 1031 exchange, subservicing, and warehouse lending activities. The bank subsidiary also contributed by shifting its asset mix to fixed-income securities, which offer higher yields and are less sensitive to short-term interest rate changes, demonstrating effective management of interest rate fluctuations.

The company maintains a disciplined approach to capital allocation, prioritizing reinvestment in the business, opportunistic acquisitions, and returning capital to shareholders through dividends and buybacks. During Q1 FY26, First American repurchased 556,000 shares for $33 million at an average price of $6.21. In April, an additional 296,000 shares were repurchased for $18 million at an average price of $61.61, leveraging a stock pullback while earnings and outlook strengthened. Approximately $248 million remains under the current repurchase program.