퍼스트 아메리칸 파이낸셜(FAF) 2026년 3분기 실적 발표 콜: 상업 부문 매출 21% 증가

퍼스트 아메리칸 파이낸셜(First American Financial Corporation, FAF)은 주택 타이틀(소유권 보험) 물량의 지속적인 약세를 사상 최대의 상업용 거래 활동과 투자 수익 증가가 상쇄하면서 2026년 3분기 조정 이익이 증가했다고 발표했습니다. 경영진은 주택 대출 발생 환경이 2027년까지 침체된 상태를 유지할 것으로 예상하며, 현재로서는 내년 마진 확대를 기대하지 않고 있습니다.

핵심 요약

• GAAP 희석 EPS는 $1.72였으며, 조정 희석 EPS는 전년 동기 대비 5% 증가한 $1.78를 기록했습니다.
• 타이틀 부문 매출은 상업용 매출 21% 증가와 투자 수익 11% 증가에 힘입어 7% 증가한 20억 달러를 기록했습니다.
• 내셔널 커머셜 서비스(National Commercial Services)는 역대 3분기 중 가장 높은 매출을 기록했습니다. 상업용 부문의 강세는 11개 자산군 중 8개 부문에 걸쳐 광범위하게 나타났습니다.
• 주택 타이틀 활동은 여전히 약세를 보였습니다. 매매 매출은 3% 감소했고, 재융자 매출은 1% 감소하여 직접 매출의 5%에 불과했습니다.
• 엔드포인트(Endpoint)의 자동화율은 42%에 달해 2분기 34%, 1분기 30%에서 상승했습니다. 경영진은 2027년에 전국적인 도입 확대를 가속화할 계획입니다.
• 2027년에 대해 경영진은 현재 기본 전망 하에서 총매출이 대체로 변동이 없고, 상업용 부문의 완만한 성장과 주택 부문의 매출 감소를 예상하고 있으며, 의미 있는 마진 확대는 없을 것으로 보고 있습니다.

주요 재무 데이터

사업 및 영업 실적

상업용 타이틀은 주요 영업 성장 동력으로 유지되었습니다. 상업용 매출은 건당 평균 매출의 13% 상승과 체결 건수의 7% 증가에 힘입어 21% 증가했습니다. 당사는 건당 100만 달러 이상의 보험료를 창출하는 거래를 22건 완료했습니다. 경영진은 활동이 데이터 센터를 넘어 에너지, 산업용 및 다가구 주택 거래로 확대되었다고 밝혔습니다.

상업용 재융자 보험료 매출은 전년 동기 대비 49% 증가했습니다. 경영진은 상업용 거래가 주택 거래보다 금리에 덜 민감한 편이며, 더 짧은 대출 만기가 향후 수년간 재융자 물량을 뒷받침할 수 있다고 설명했습니다.

주택 부문 실적은 주택 구매 여력 악화와 높은 주택담보대출 금리로 인해 계속 제약을 받았습니다. 매매 매출은 체결 건수가 5% 감소함에 따라 3% 감소했으나, 건당 평균 매출이 2% 증가하면서 일부 상쇄되었습니다. 재융자 매출은 건당 평균 매출이 4% 감소해 1% 줄었으나, 체결 건수가 3% 증가하며 일부 상쇄되었습니다.

에이전시 매출은 에이전트 매출이 약 1분기의 시차를 두고 보고되기 때문에 주로 2분기 경제 활동을 반영하여 9% 증가한 8억 6,800만 달러를 기록했습니다. 정보 및 기타 매출은 대출 포트폴리오 확장에 따른 서비스맥(ServiceMac) 수수료 매출의 31% 증가에 힘입어 6% 증가했습니다.

퍼스트 아메리칸 트러스트(First American Trust)는 회사의 투자 수익 다변화를 지속적으로 이끌었습니다. 타이틀 부문 투자 수익은 퍼스트 아메리칸 트러스트의 39% 성장을 포함하여 11% 증가했습니다. 평균 은행 예탁금은 전년 동기 대비 약 38% 증가했으며, 성장의 대부분은 서비스맥과 1031 익스체인지(1031 Exchange) 사업에서 발생했습니다. 경영진은 약 10억 달러의 1031 익스체인지 예탁금이 퍼스트 아메리칸 트러스트로 이체되었다고 언급했습니다.

이번 분기 동안 영업 비용이 증가했습니다. 인건비는 6% 증가한 5억 7,400만 달러를 기록했고, 기타 영업 비용은 주로 소프트웨어 및 생산 비용 증가로 인해 11% 증가한 3억 6,000만 달러를 기록했습니다. 이번 분기에는 또한 운영 구조조정 및 간접세 문제와 관련된 800만 달러의 일회성 비용이 포함되었습니다.

홈 워런티 매출은 1억 1,500만 달러로 변동이 없었습니다. 세전 이익은 D2C(소비자 직접 판매) 채널 지원을 위한 마케팅 지출 증가로 인해 30% 감소한 1,100만 달러를 기록했습니다.

기술 현대화

엔드포인트의 자동화율은 1분기 30%, 2분기 34%에서 3분기 42%로 개선되었습니다. 당사는 워싱턴 파일럿 프로그램을 시애틀 대도시권의 추가 사용자에게 확대했으며, 이 파일럿을 활용해 기술과 직원 교육을 모두 고도화하고 있습니다.

세쿼이아(Sequoia)는 엔드포인트를 통해 처리된 캘리포니아 매매 거래의 17%를 완료하여 이전 분기의 11%에서 증가했습니다. 또한 이 플랫폼을 통해 처리된 캘리포니아 재융자 거래의 34%를 완료했습니다. 매매 거래에 대한 평균 인간 검토 시간은 1분기 83분, 2분기 74분에서 56분으로 감소했습니다.

경영진은 세쿼이아가 기존 프로세스에 비해 처리 시간을 이미 3분의 2 단축했다고 말했습니다. 당사는 4분기 중 북캘리포니아 전역으로 매매 커버리지를 확대하고, 플로리다에서 직접 및 에이전시 운영 전반에 걸쳐 플랫폼을 출시할 계획입니다.

퍼스트 아메리칸은 2027년 말까지 직접 사업 부문 매출의 과반을 엔드포인트를 통해 처리하고, 주문의 과반을 세쿼이아를 통해 처리하는 것을 목표로 하고 있습니다. 서비스 성숙기에 이르면 경영진의 목표는 타이틀 플랜트(소유권 기록 보관소)를 보유한 시장에서 재융자 거래의 약 80%와 매매 거래의 70%를 자동화하는 것입니다.

경영진 전망

경영진은 견조한 상업용 환경과 약해진 주택 활동이 지속될 것으로 예상합니다. 10월 첫 3주 동안 미결제 매매 주문은 8% 감소, 재융자 주문은 35% 감소, 상업용 주문은 7% 감소했습니다. 상업용 주문의 초기 감소에도 불구하고, 당사는 수주 파이프라인을 바탕으로 4분기에 대해 여전히 긍정적인 전망을 유지하고 있으며, 이미 건당 100만 달러 이상의 보험료를 창출하는 거래 3건을 완료했습니다.

2027년에 대해 경영진의 현재 전망은 2026년 대비 전체 매출이 대체로 유지될 것으로 가정하고 있습니다. 상업용 매출은 완만하게 성장하여 또 한 번의 역대 최고치를 기록할 가능성이 있는 반면, 매매 및 재융자 매출은 모두 감소할 것으로 예상됩니다.

투자 수익은 계속 순풍으로 작용할 것으로 기대됩니다. 경영진은 이자 비용을 차감한 투자 수익의 연초 대비 8% 증가가 4분기 성장의 합리적인 기준이 된다고 밝혔습니다. 단기 금리와 미국 국채 금리 상승 역시 2027년 투자 수익률을 뒷받침할 것으로 예상됩니다.

경영진은 현재 2027년에 마진 확대를 예상하지 않고 있습니다. 타이틀 세전 마진은 대체로 안정적일 것으로 예상되지만, 주택 시장 여건이 악화되거나 상업용 모멘텀이 약화될 경우 일부 축소될 수 있습니다. 급여 및 기술 비용에는 일반적인 인플레이션 압력이 나타날 것으로 예상됩니다.

당사는 레거시 시스템이 완전히 폐기될 때까지 기다리지 않고 세쿼이아가 더 많은 주문을 처리함에 따라 점진적인 비용 절감이 나타날 것으로 기대하고 있습니다. 2027년 성공적인 실행을 전제로, 보다 실질적인 엔드포인트 및 세쿼이아 확장의 혜택은 2028년부터 시작될 것으로 예상됩니다.

위험 요인 및 관전 포인트

• 주택담보대출 금리가 6개월 동안 약 100bp 상승하여 7.5%에 달함에 따라 주택 대출 발생 환경이 "더 오랫동안 낮은 수준(lower for longer)"에 머물 것이라는 경영진의 예상이 강화되었습니다.
• 상업용 성장은 기저효과로 인해 점점 더 까다로운 비교 기준에 직면하고 있으며, 4분기 실적은 분기 말에 완료되는 거래에 여전히 의존하고 있습니다.
• 엔드포인트의 주요 실행 위험은 팀들이 약 25년 동안 사용해 온 시스템에서 벗어남에 따라 기술 개발에서 변화 관리 및 직원 교육으로 이동했습니다.
• 보고된 3.0%의 손실충당금 비율은 전년도 충당금 75bp 환입의 혜택을 받았습니다. 경영진은 청구 발생 동향에 따라 환입이 둔화되거나 중단될 수 있으며, 이로 인해 충당금 비율이 당해 정책 연도 비율인 3.75%에 가까워질 수 있다고 말했습니다.
• 인건비, 소프트웨어 및 생산 비용이 지속적으로 상승하여 단기적인 마진 확대를 제한하고 있습니다.

애널리스트 Q&A 하이라이트

경영진은 역대 최고치를 기록한 2026년 이후에도 상업용 활동이 2027년의 완만한 매출 성장을 뒷받침할 수 있으나, 이는 주택 매출 감소로 인해 상쇄될 가능성이 높다고 말했습니다. 마진 개선 여지는 주로 상업용 실적이 현재 기대를 상회하는지 여부에 달려 있습니다.

기술 투자와 관련해 경영진은 엔드포인트의 도입 비용이 기존 런레이트(run rate)에 대부분 반영되어 있다고 말했습니다. 세쿼이아는 처리되는 주문건마다 절감 효과를 가져올 것이며, 두 플랫폼의 더 큰 재무적 영향은 2028년부터 나타날 것으로 기대됩니다.

퍼스트 아메리칸 트러스트와 관련하여 경영진은 외부 타이틀 에이전트, 서비스맥 및 1031 익스체인지 사업을 향후 예탁금 성장의 주요 원천으로 꼽았습니다. 해당 은행의 채권 포트폴리오는 듀레이션이 약 5년이며 재투자를 위해 매달 약 5,000만~6,000만 달러의 현금을 창출합니다. 경영진은 최근의 38% 예탁금 성장률이 지속될 것으로 기대하지는 않는다고 덧붙였습니다.

당사는 사이클 전반에 걸친 목표 배당성향 40%에 맞춰 연간 보통주 배당금을 주당 $2.44로 11% 인상했습니다. 또한 10월에 평균 주가 $62.40에 14만 3,000주를 900만 달러에 매입했습니다.

실적 발표 컨퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Greetings, and welcome to the First American Financial Corporation Third Quarter Earnings Conference Call.

[Operator Instructions]

A copy of today's press release is available on First American's 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) 660-6853 or (201) 612-7415 and enter the conference id 1376-3251. We will now turn the call over to Craig Barberio, Vice President, Investor Relations, to make an introductory statement.

Craig J. Barberio

Good morning, everyone, and welcome to First American's earnings conference call for the third quarter of 2026. Joining us today on the call will be our Chief Executive Officer, Mark Seaton; and Matt Wagner, 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-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.

I will now turn the call over to Mark Seaton.

Mark Seaton

Thank you, Craig. Our adjusted earnings per share this quarter was $1.78, an increase of 5% from the prior year. Our commercial business had another outstanding quarter with National Commercial Services generating its highest third quarter revenue on record. The strength was broad-based with 8 of our 11 asset classes growing year-over-year, and our average revenue per order reaching a record for the fifth consecutive quarter. We closed 22 transactions generating more than $1 million of premium during the quarter, up from $12 million last year. Only 6 of these transactions were data centers indicating a broader strength to the market that includes energy, industrial and multifamily.

Commercial refinance was another significant contributor with premium revenue increasing 49% from the prior year. The residential side of the business remains more challenged Purchase revenue decreased 3% as affordability constraints continue to weigh on existing home sales refinance revenue decreased 1%. Over the last 6 months, the 30-year fixed mortgage rate has increased approximately 100 basis points to 7.5%, the highest since the second quarter of 2024. And Higher mortgage rates reinforce our expectation for a lower for longer residential origination environment.

Our business is cyclical, and while higher rates extend the challenging environment we are operating in, they also provide us an opportunity to make transformational changes to our business. We are using this period to deepen our customer relationships and accelerate the rollout of our new AI native title and settlement platforms. I'll start with Endpoint.

During the third quarter, we launched Wave 2 of our Washington pilot, expanding the platform to additional users in the Seattle metro area. Every day provides valuable learnings about both the product and how we train our team to work effectively on the new platform. We continue to make meaningful progress on automating the tasks required to close the transaction.

Our automation rate increased from 30% in the first quarter to 34% in the second quarter and reached 42% in the third quarter. This represents a fundamental shift in how title and settlement work gets done. As workflows become more standardized and automated, the role of our people increasingly shifts from executing routine tasks to managing exceptions and focusing on higher-value customer interactions. The result should be less time processing and file and more time spent with customers, while also creating a more consistent and efficient experience.

We are applying the lessons learned from our Washington pilot to prepare for an accelerated national rollout next year. where we intend to have the majority of our direct division revenue running through endpoint by the end of 2027. We are also making significant progress with Sequoia, our instant title decisioning platform. During the third quarter, we launched SEQUOIA for purchase transactions in 3 additional counties in Southern California. We are now successfully completing 17% of California purchase transactions processed through endpoint, up from 11% last quarter. We also expanded Sequoia for refinance transactions into 33 additional counties across Northern California and are now completing 34% of California refinance transactions processed through the platform.

Another important metric we track is human review time. As we scale Sequoia, we continue to review every order it generates while the time required for each review continues to decline. The average review time for a purchase transaction fell from 83 minutes in the first quarter to 74 minutes in the second quarter and 56 minutes in the third quarter. We expect further improvement, particularly as we introduce new tools in the fourth quarter to streamline the review process.

SEQUOIA already reduces processing time by 2/3 compared with our traditional process, and we expect it to become even more efficient over time. One of First American's most important competitive advantages is our title plant data. We acquired source documents directly from counties, extract and structure the relevant data and apply our underwriting expertise and advanced technology to produce fully insurable title commitments.

As matures, we believe we can produce these commitments faster and at a lower cost than anyone else in the industry by leveraging this unique end-to-end capability. Importantly, these commitments are backed by First American's balance sheet, combining speed and efficiency with the financial strength and underwriting certainty our customers expect.

Looking ahead in the fourth quarter, we plan to launch Sequoia for purchase transactions throughout Northern California and expanded to Florida across both our direct and agency operations. Similar to endpoint, we expect to be processing a majority of our orders on the Sequoia platform by the end of 2027. Once fully mature, we believe SEQUOIA will give us the most modern title production platform in the industry with a goal of automating approximately 80% of refinance transactions and 70% in purchase transactions in markets where we maintain title plants.

Another important driver of our earnings is our bank, First American Trust, which provides a growing and increasingly diversified source of investment income. In Q3, Title segment investment income grew 11%, driven by a 39% increase at First American Trust, which is benefiting from growth outside our captive title business, including ServiceMac and our 1031 Exchange business.

Turning to our outlook. We expect the recent trend of a strong commercial market and a sluggish residential market to continue. For the first 3 weeks of October, our open purchase orders are down 8%. And refinance is down 35% and commercial is down 7%. Based on our order pipeline, we still believe commercial will have a strong finish to the year. However, given the elevated mortgage rates will be in a lower for longer residential origination environment. We expect these trends to continue into 2027.

And in that backdrop, we will keep a laser focus on modernizing our capabilities in our core title business and growing our adjacent businesses that are more cyclically resistant including First American Trust, ServiceMac, home warranty and our data business.

Now I'll turn the call over to Matt, who will discuss our financial results in greater detail.

Matthew Wajner

Thank you, Mark. This quarter, we generated GAAP earnings of $1.72 per diluted share. Our adjusted earnings, which exclude the impact of net investment losses and purchase-related intangible amortization were $1.78 per diluted share. In the Title segment, total revenue was $2 billion, up 7% compared with the same quarter of 2025. Commercial revenue was $297 million, a 21% increase over last year, driven by a 13% increase in average revenue per order and a 7% increase in closed orders. Purchase revenue was down 3% during the quarter due to a 5% decline in closed orders, partially offset by a 2% increase in average revenue per order.

Refinance revenue was down 1% compared with last year due to a 4% decline in average revenue per order, partially offset by a 3% increase in closed orders. Refinance accounted for just 5% of our direct revenue this quarter, illustrating how depressed refinance activity remains relative to historical levels. In the Agency business, revenue was $868 million, up 9% from last year. Given the reporting lag in agent revenues of approximately 1 quarter -- these results primarily reflect remittances related to second quarter economic activity. Information and other revenues were $292 million during the quarter up 6% compared with last year, primarily driven by a 31% increase in fee revenue at ServiceMac related to growth in its loan portfolio.

Investment income was $169 million in the third quarter up 11% from last year, primarily driven by growth in our investment portfolio associated with higher deposit balances at First American Trust. Personnel costs were $574 million in the third quarter, up 6% compared with the same quarter of 2025. The increase was mainly due to higher salary and incentive compensation expense. Other operating expenses were $306 million in the quarter, up 11% compared with last year, primarily attributable to increased software expense and higher production expense. Our success ratio for the quarter was 87%, above our 60% target.

We recorded $8 million of onetime expenses during the quarter related to an operational restructuring and an indirect tax matter. We also continued to invest in certain businesses outside of our domestic title operations such as Service Mac. The investments at ServiceMac are supporting the meaningful growth in its loan portfolio. The provision for policy losses and other claims was $45 million in the third quarter or 3.0% of title premiums and escrow fees, unchanged from the prior year.

The third quarter rate reflects an ultimate loss ratio 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 $31 million in the current quarter, up 27% compared with last year due to higher interest expense related to the growth in deposit balances at First American Trust. Pretax margin in the title segment was 12.4% or 12.7% on an adjusted basis.

Moving to the Home Warranty segment. Total revenue was $115 million this quarter, flat compared with last year. Pretax income was $11 million for the quarter, down 30% compared with last year, primarily attributable to higher marketing expense to drive continued growth in our direct-to-consumer sales channel. The loss provision was 47%, essentially unchanged compared with the third quarter of 2025. Pretax margin in the Home Warranty segment was 9.9% or 9.7% on an adjusted basis.

The effective tax rate in the quarter was 22.4% and which is slightly below the company's normalized tax rate of 24%. Our debt-to-capital ratio was 30.3%. Excluding secured financings payable, our debt-to-capital ratio was 22.2%. Regarding dividends, we target a payout ratio of 40% over the cycle. Given our current year results and our future outlook, we raised our common stock dividend during the quarter by 11% to an annual rate of $2.44 per share to bring the dividend payout ratio more in line with our target. During the quarter, we repurchased 23,000 shares for a total of $1 million at an average price of $64.24 so far, in October, we repurchased 143,000 shares for a total of $9 million at an average price of $62.40.

Now I would like to turn the call over to the operator to take your questions.

Operator

[Operator Instructions]

Our first question is from Bose George with KBW.

질의응답

Bose George

Actually, just first on expenses. So you guys noted that, I guess, it was the onetime $8 million. But can you just talk a little more broadly about margin expectations in 2027, if volumes -- if resi volumes remain around this $2 trillion or even, I guess, NDAs looking for even less than that. And then commercial, potentially flat just given the comps are going to get pretty challenging.

Kenneth DeGiorgio

Bose, thanks for the question. Yes, so I'll kind of take it by each of the major markets that we have. So -- where we sit today based on the factors that you just said there and what Mark talked about in his script, our outlook today is essentially flat for revenue year-over-year when we look at '27 compared to full year '26. We expect commercial like you noted to be strong next year. We -- as we said, we expect to have a record year this year. We do think we can have modest growth next year because we do think it's going to continue to be strong and could strengthen.

So we expect to have some modest growth in commercial next year, which would make $27 a record year for us. Obviously, the residential market, we're more pessimistic about both for purchase and refi. So we would expect revenue to be down next year compared to this year. One tailwind that we expect to see next year is investment income. It's been growing, especially investment income, net of interest expense year-to-date has grown about 8% when compared to last year. We expect that to continue to be strong next year, given the expectation that rates will be higher both short-term rates and U.S. treasury rates. -- think should benefit our investment portfolio, both the investment portfolio and the returns we get on our deposits.

So we think we'll see some growth in investment income. And then when we turn to expenses, we'll have -- we expect to have the normal inflationary pressures around personnel and other operating expenses, primarily in salaries and technology costs. And the other thing that it's too early to say, but when we think about the loss ratio, right, we've been at 3% for this year, and we were at 3% last year. And that's comprised of 3.75% for the current policy year with a release of prior years of 75 basis points.

And when we think about our business, it's typically a 4% to 5% loss rate over the cycle, and we've been below that for several years now, and that's largely due to the fact that during the pandemic, when things were uncertain, we had a little bit of a higher loss rate, and it turned out that those claims didn't manifest. So we've been releasing some of that excess I think it's likely that at some point here in the near future, will either slow the release or cease the release, but any changes will obviously be related to how claims come in.

Bose George

Okay. Great. That's very helpful. And just sort of to sum that all up, do you feel like the margin ends up being kind of flattish? Or could there be room for upside?

Kenneth DeGiorgio

I would say the margin right now, I don't see a lot of room for expansion. I think it's all going to depend on how the commercial market does next year. If commercial exceeds are expectations, we may be able to expand. But right now, I don't see margin expansion next year.

Bose George

Okay. Great. Then just actually 1 and endpoint from the expense side. As that rollout continues, does the benefit in terms of the initial benefits on expenses really happened when you shut down fully the other platforms? And is that something that happens potentially in 2028? Or is that a little while just as kind of some stuff remains on the older platforms.

Mark Seaton

It really depends on the platform we're talking about, whether it's endpoint or SEO. I mean in the case of SEQUOIA, we'll get benefit as we roll out SECO. I mean next year is going to be a big year for us strategically as we roll out both these platforms. And we'll start to get incremental benefit, for example, SECI as we roll out as our fulfillment rates improved as we run more orders through SECO, we save on every order that goes through SAO. And so we don't necessarily need to wait for the old platform to be decommissioned before we start saving. And I would say it's kind of a similar -- it's different but similar with endpoints.

So next year is a big year strategically. And we'll start to really kind of start to see the benefits in 2028 if we can successfully execute next year.

Operator

Our next question is from Mark Hughes with Truist Securities.

Mark Hughes

Yes. On the Total pretax margin, I think you suggested you don't see margin expansion next year. If you take a little more investment income, a little higher expense, does that mean stable pretax.

Unknown Executive

Yes, I would say I think we could be to -- I think about stable is what I would expect right now. There may be a little bit of pressure. So it could contract a little bit. But I don't -- right now, where we sit today, I don't see considerable deviation.

Mark Hughes

How about the investment income for the third quarter? How is that -- I'm sorry, not third quarter, but for the fourth quarter, how is that shaping up?

Unknown Executive

I would expect investment income to follow the same growth rate that we saw in the first 3 quarters. So when we think about investment income, I think I spoke about it last quarter. But we really look at investment income, net of interest expense since a lot of the growth in investment income has been due to these -- the growth in deposits at the bank, right? So there's an offsetting interest expense. So -- when we look year-to-date, investment income is up 11% year-over-year. Interest expense is up 31% and the net increased by 8%. I think that net increase of 8% is a good number for Q4.

Mark Hughes

I appreciate that. And then on the commercial side, it sounds like you've got good confidence next year. In your experience, how sensitive is that to interest rates, if it's higher for longer on rates, what does that mean for refi and then purchase? And just maybe as part of that, it sounds like refi was quite strong in commercial this quarter. People trying to get under the wire -- or is that just good underlying activity?

Mark Seaton

Fortunately for us, Mark, it's just not as sensitive to interest rates. And I'm sure there's a little sensitivity. But I think especially for these big deals like data centers and big energy deals that we're doing, just aren't sensitive to rates. I mean we're seeing those deals close. And the other thing, too, on the commercial side is that you don't have 30-year mortgages, right, like you do on the residential side. I mean a lot of these commercial loans are -- they're shorter in duration now, too.

I mean they're typically 5 years, and I've talked to several clients that are coming in even less than that. just because they think that, hey, rates are high and why should we take out a 10-year loan, we can do a 3-year loan. And so that just creates more transaction activity, more refinance activity in our pipeline over the next couple of years. And so -- it's just -- commercial is just more -- it's more of a stable business when it comes to refinance volume in the residential side, which is obviously good for us.

Operator

[Operator Instructions]

Our next question is from Terry Ma with Barclays.

Terry Ma

Maybe just a follow-up on the margin outlook for 2027. How should we think about the ability to sustain title margins around this level if residential gets worse and some of the momentum and commercial kind of soften? Like what additional levers do you have on the expense side? -- if that happens.

Mark Seaton

Well, I'll just talk about -- I'll start with that, Terry. I just think when we look at it next year, we're already at just a tough, tough market. I mean the refinance market has been like a 1 out of 10 here for the last couple of years. And now, as I mentioned, our open refinance orders are down 30-plus percent in October. But I mean it's from a very, very low level here. And I could say something very similar about the purchase side.

I mean, the purchase side has been kind of a rock bottom for 4 years now. Our orders -- or open orders in October are down 8%. And so we have levers to pull. But I'll just say that our focus really is on next year in this tough market, and it's going to get a little bit tougher. We just want to get really close to our customers we want to gain market share in a down market. We want to invest in our business and roll out these new platforms next year. That's going to be the focus to really prepare us for the next cycle. And it's really -- that process is working. I mean, in the last 12 months, we've gained 60 basis points of market share and we've done 0 acquisitions. And so we want to just keep that momentum going.

So we always have leverage. There's always things we can do, but we're thinking like 3 to 5 years out and not next quarter. So that's our thought process right now.

Terry Ma

Got it. It makes sense. And then just on commercial, any color on what the pipeline kind of looks like as you look out in the fourth quarter? And then for the ARPU growth this quarter, did decelerate notably, -- like anything to kind of call out? Was it kind of mix driven? Or did you have some deals kind of slip into the next quarter? Any color around that would be helpful.

Mark Seaton

Well, the first part of that, we're very bullish on commercial here in Q4, very bullish. We've already closed 3 deals over $1 million in premium. -- we've got a really good pipeline heading into Q4. You never really know, right? I mean the last 2 weeks of December is when you kind of find out like how your quarter went for Q4. But the pipeline is just really strong. We've been saying that all year. And we just have a lot of momentum, a lot of momentum. And it's really broad-based. It's broad geographies -- and we think we'll -- like Matt said, we think it's going to carry into next year too. So we're very bullish on commercial for Q4. And in terms of the ARPU, maybe Matt can touch on that.

Matthew Wajner

Yes, thanks. So you said the ARPU decelerated from Q2. So just to be clear, ARPO expanded year-over-year. It did decelerate from Q2. That's largely when we -- we've talked about this before, but when we think about commercial, around 70% of our commercial revenue comes from our national commercial business, which Mark talked about in his prepared remarks. And 30% of it kind of comes from our local business. And actually in our NCS, which is our national commercial business, ARPU was actually up year-over-year and up sequentially.

So what that means is there were some large deals that happened last year -- or sorry, last quarter in Q2 outside of centralized commercial, which really strengthened that ARPU, that ARPU was a record ARPU. So it's still a really healthy ARPU. It's just didn't have the support of maybe some of large deals coming through the noncentralized channel.

Operator

Our next question is from Oscar Nieves with Stephens, Inc.

Oscar Nieves Santana

You made some comments earlier about the rollout of Endpoint and Sequoia -- my question is following up on that. As endpoint goes national next year, what are the biggest execution risks? And do you expect the transition to weigh on cost before benefits show up potentially in 2026?

Unknown Executive

Thanks so much for the question, Oscar. I think the biggest risk with endpoint, when we initially started endpoint, the biggest risk was just, I'd say, technology execution. There were we're trying to do something that had never been done before. And there were real technological hurdles for us to execute. Now that risk is kind of gone now. We feel really good about our ability to build products, and we've got a great product design, engineering team and endpoint, the flywheel is really turning with technology.

So we feel really good about where our product is, which was the risk. I think the risk now is more on the change management side. I mean you our team has been using fast, which is our system for 25 years. And it's an inefficient system today by today's standards, but they're used to it, right? They're used to going on and they're efficient on an inefficient system, and now we're rolling out a new system and there's a lot of change management that has to go into that. And so you're teaching someone who's been on the system again for 25 years to use an AI-native platform. And that is the big risk right now. It was just change management.

And so -- it's 1 of the things that we're testing in these Washington pilots is not just improving the product, but also, okay, how do we train our people? Are we giving them enough training? Are we doing the right things? And so that, I think, is going to be the biggest risk going into next year.

In terms of just the costs, I don't think there's going to be materially more cost. It's kind of already baked into our into our run rate. Maybe there will be some, but it's worth investing to get it right next year. But I don't think it will be a material increase in cost next year relative to that initiative.

Oscar Nieves Santana

That's very helpful. My next one is on the bank. On the growth of the bank. You've mentioned for a few quarters now how First American Trust continues to grow. Can you comment on how big you think that part of the business can become relative to the company? And how you think about its sensitivity to rates and the deposit mix?

Mark Seaton

Well, I'll start with that and then Matt can talk about the sensitivity of the rates and the deposit mix. But I'll just say that our bank is a big strategic advantage for us for 2 reasons. One is it makes our operations a lot more efficient. And so one of the things as a settlement company as we deal with escrow funds all day long and the fact that we have a bank that's tightly integrated to our operations, we can open accounts, close accounts move money faster than anybody.

So there's an operational benefit. But then, of course, the second piece is there's a big financial benefit, too, in the sense that we can push certain deposits to our own bank and earn a spread on those -- and it has been growing pretty much every single year. I think -- we've pretty much maxed out, not quite, I would say, 95% of our own internal deposits that we can push the first BerkenTrust, we do. And so the really -- the growth prospects from here on out are what I'll call these non-titled deposits. And so we are going to -- there's 20,000 different title agents out there that use their own banks. And we're going to them and saying, "Hey, why don't you bank with First American Trust. And we're having some success with that.

When we acquired ServiceMac, they have deposits, too, that we can push to First American Trust. And we talked about this last quarter, but we never had our 1031 exchange balances at First American Trust, but we built a product, and now we've got about $1 billion in deposits at First Mercer. So we are growing these non-title deposits, I think, very successfully. How big can it get? I don't really have an answer to that. But what I do know is every single month, we're signing up new agents and we're growing our deposit base. So I'll hand it over to Matt to talk about the sensitivity.

Oscar Nieves Santana

Yes. And then regarding the sensitivity of the bank. So most of the bank's assets are in its bond invested in the bond portfolio. So the portfolio you can think about it as having a 5-year duration and roughly $50 million to $60 million is thrown off in cash every month that we reinvest. So that's the way to think about it, if you look at the forward curve and then think about that amount getting reinvested at those rates. And then just one thing on the growth. Year-over-year, when we look at average deposits in Q3 '26 versus Q3 deposits grew almost 38%, and almost all of that came, like Mark said, from our subservicing business ServiceMac in our 1031 exchange business.

So I wouldn't expect that pace of growth to continue -- but there's opportunities to continue to expand. I just don't think it would continue to expand at that rate.

Unknown Executive

Okay. That helps. And my last one is turning now to the resource. You mentioned that total losses typically run in the 4% to 5% range over the cycle. And that you've been below that for several years following Covid. Is those releases because you have released some of the reserves, if those releases slow or stop. How soon we think about the provision going forward? And how much of today's rate is the release and where does the current year rate settle? So when we're -- so currently we're reserving at 3%. So the way we think about that is $3.75 million is the -- for the current -- what we call the current policy year. So for new policies that we're issuing, we reserve at 3.75. And then as we release reserves that are unneeded from prior years, that's the 75 basis points reduction that gets us to 3%. So we would think of it in the current environment as for new policies at $3.75 million is kind of the right loss reserve right now.

Operator

That is all the time we have for questions today. That concludes this morning's call. We'd 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 enter the conference ID 1376-3251. The company would like to thank you for your participation. This concludes today's conference call. You may now disconnect.