First American Rides Commercial Surge and AI Push

First American ((FAF)) has held its Q1 earnings call. Read on for the main highlights of the call.

First American’s latest earnings call struck an upbeat tone, with management highlighting strong commercial momentum, accelerating AI-driven transformation, and solid growth in deposits and investment income. While housing-related headwinds and rising costs remain, the company framed them as manageable against a backdrop of record commercial activity and rapidly scaling technology platforms.

Adjusted EPS Jumps on Strong Core Performance

Adjusted earnings per share rose to $1.33 in Q1 2026, a 58% increase year over year, while GAAP EPS came in at $1.21. Management credited the jump to a mix of commercial strength, expanding title revenue, and higher investment income, which together more than offset pressure from softer residential purchase activity and higher expenses.

Commercial Revenue Hits Record as Big-Ticket Deals Multiply

Commercial revenue climbed to $271 million, up 48% from a year ago and a record for a first quarter, underscoring the segment’s role as the company’s primary growth engine. First American closed 20 orders generating more than $1 million in premium, double last year’s tally, signaling robust demand for large, complex transactions even as broader real estate markets remain uneven.

Title Segment Delivers Broad-Based Revenue Expansion

The title segment posted adjusted revenue of $1.7 billion, up 17% year over year, supported by a 9% rise in closed orders and roughly 36% higher revenue per order. This mix drove a pretax title margin of 9.6%, or 10.4% on an adjusted basis, reflecting better pricing, richer deal composition, and the early benefits of operational efficiencies in core workflows.

Data Centers and Energy Emerge as High-Growth Engines

Revenue tied to data centers surged 76% year over year, highlighting First American’s success in capturing activity in digital infrastructure projects. The Energy Group was even more striking, growing 250% and ranking as a top five asset class for the quarter, suggesting the company is effectively diversifying into sectors less correlated with traditional housing cycles.

AI Platforms Endpoint and SEQUOIA Gain Traction

The Endpoint platform is live in Seattle, where it automated about 30% of closing tasks in the pilot and handled roughly 310 opened and 150 closed orders, with plans to extend to 80–85% of the branch network by the end of next year and scale broadly by 2027. SEQUOIA automated title decisioning for 35% of refinance deals in eight counties and 13% of purchase deals in three counties, with long-term goals of roughly 70% automation in purchase and 80% in refinance in title-plant markets.

Banking Franchise and Investment Income Show Solid Momentum

Average deposits at First American Trust reached $6.8 billion, up 19% year over year, with nearly a third coming from non-captive sources, including significant balances from third-party relationships. Investment income grew 12% to $154 million despite three prior Fed rate cuts, underscoring the earnings leverage from the company’s balance sheet and growing agent banking footprint.

Agency, Information and Home Warranty Businesses Grow

Agency revenue rose 16% to $759 million, reflecting a reporting lag tied to earlier quarter activity but still signaling steady demand from affiliated agents. Information and other revenues increased 14% to $269 million, while home warranty revenue edged up 2% with an improved 36% loss ratio and a robust pretax margin of about 23.5%, demonstrating resilience in ancillary service lines.

Capital Returns Supported by Opportunistic Buybacks

The company repurchased 556,000 shares for $33 million during the quarter and bought an additional 296,000 shares for $18 million in April, signaling confidence in long-term value. Roughly $248 million remains under the current repurchase authorization, and management emphasized an opportunistic approach that balances buybacks with ongoing investment in technology and growth initiatives.

Residential Purchase Revenue Remains Under Pressure

Residential purchase revenue declined 4% year over year, with closed purchase orders down about 6% and open purchase orders down around 3% in April, reflecting continued weakness in home sale activity. Management framed the purchase market as still stuck near trough levels, limiting near-term upside in this core business until housing turnover and affordability improve.

Refinance Market Up Sequentially but Still Muted

Refinance revenue jumped 76% year over year, aided by a temporary dip in mortgage rates that pushed closed refinance orders up 57% and revenue per order up 13%. Even so, refinance represented only about 8% of direct revenue and volumes softened again as rates moved higher, underscoring how sensitive this segment remains to short-term rate moves.

Rising Personnel and Operating Costs Weigh on Margins

Personnel expenses increased 13% to $546 million, driven by higher incentive compensation and salary inflation as the company invests in talent to support growth and technology initiatives. Other operating expenses also rose 13% to $277 million, reflecting higher production costs and increased software spending tied to the AI and platform build-out.

Higher Interest Expense Reflects Rate Environment and Funding Mix

Interest expense climbed roughly 34% year over year to $27 million, reflecting higher costs in the warehouse lending business and on deposit balances at the bank subsidiary. While still manageable relative to overall earnings, the increase highlights the cost side of rising rates for a company that also benefits from higher investment yields.

AI Automation Still Early with Significant Work Ahead

Management stressed that AI platforms like Endpoint and SEQUOIA remain in the early innings, with roughly 30% task automation in pilot markets and ambitious multi-year targets of 80–90% automation. For purchase transactions, SEQUOIA is currently automating only about 13% in a limited set of counties, meaning substantial implementation and training work remains before the full efficiency gains are realized.

Mortgage-Rate Sensitivity Continues to Shape Operating Results

Executives cautioned that the recent refinancing lift was temporary as mortgage rates moved higher again, reversing some volume gains. With the residential market still near trough levels, the company’s near-term performance remains sensitive to rate shifts and broader cycle dynamics, making the commercial and diversification gains all the more critical for stability.

Forward Guidance Highlights Record Commercial Outlook and AI Scaling

Looking ahead, management expects 2026 to be a record year for commercial, supported by strong first-quarter deal flow and pricing even as opened commercial orders in early April slipped about 4% year over year. They reiterated tech-driven operational targets, including broad Endpoint rollout by 2027, expanded SEQUOIA coverage into major markets by year-end, ongoing AI-driven quality-control gains, sustained deposit and investment income growth, and continued disciplined share repurchases under the existing buyback program.

First American’s earnings call portrayed a company leaning into its strengths in commercial real estate, diversified fee businesses, and a rapidly maturing AI strategy while navigating a sluggish housing market and rising cost base. For investors, the key takeaway is that near-term residential headwinds are being more than offset by record commercial performance and long-term technology investments that could structurally lift margins over time.