Cuộc họp công bố kết quả kinh doanh quý 3/2026 của First American Financial (FAF): Doanh thu mảng thương mại tăng 21%

Tập đoàn Tài chính First American (FAF) báo cáo lợi nhuận điều chỉnh quý 3 năm 2026 tăng nhờ hoạt động thương mại đạt kỷ lục và tăng trưởng thu nhập đầu tư bù đắp cho sự suy yếu tiếp diễn ở khối lượng bảo hiểm quyền sở hữu nhà ở. Ban lãnh đạo dự báo môi trường phát hành khoản vay nhà ở sẽ tiếp tục trầm lắng cho đến năm 2027 và hiện chưa dự báo mở rộng biên lợi nhuận trong năm tới.

Điểm tin chính

• EPS pha loãng theo GAAP đạt $1.72, trong khi EPS pha loãng điều chỉnh tăng 5% so với cùng kỳ năm trước lên $1.78.
• Doanh thu mảng bảo hiểm quyền sở hữu tăng 7% lên 2,0 tỷ USD, nhờ doanh thu thương mại tăng 21% và thu nhập đầu tư tăng 11%.
• Mảng Dịch vụ Thương mại Quốc gia ghi nhận doanh thu quý 3 cao nhất từ trước đến nay. Tăng trưởng thương mại diễn ra trên diện rộng ở 8 trong số 11 loại tài sản.
• Hoạt động bảo hiểm quyền sở hữu nhà ở vẫn yếu: doanh thu mua nhà giảm 3%, trong khi doanh thu tái cấp vốn giảm 1% và chỉ chiếm 5% doanh thu trực tiếp.
• Tỷ lệ tự động hóa của Endpoint đạt 42%, tăng từ mức 34% trong quý 2 và 30% trong quý 1. Ban lãnh đạo kế hoạch đẩy nhanh việc triển khai trên toàn quốc vào năm 2027.
• Cho năm 2027, ban lãnh đạo hiện kỳ vọng tổng doanh thu xấp xỉ đi ngang, tăng trưởng thương mại khiêm tốn và doanh thu nhà ở giảm, đồng thời không có sự mở rộng biên lợi nhuận đáng kể theo kịch bản cơ sở.

Dữ liệu tài chính chính

Kết quả kinh doanh và hoạt động

Bảo hiểm quyền sở hữu thương mại tiếp tục là động lực tăng trưởng hoạt động chính. Doanh thu thương mại tăng 21%, phản ánh mức tăng 13% của doanh thu bình quân trên mỗi đơn hàng và mức tăng 7% số lượng đơn hàng đã hoàn tất. Công ty đã hoàn tất 22 giao dịch tạo ra hơn 1 triệu USD phí bảo hiểm cho mỗi giao dịch. Ban lãnh đạo cho biết hoạt động đã mở rộng vượt ra ngoài các trung tâm dữ liệu sang các giao dịch năng lượng, công nghiệp và nhà ở nhiều gia đình.

Doanh thu phí bảo hiểm tái cấp vốn thương mại tăng 49% so với cùng kỳ năm trước. Ban lãnh đạo cho biết các giao dịch thương mại ít nhạy cảm với lãi suất hơn so với hoạt động nhà ở, trong khi thời hạn khoản vay ngắn hơn có thể hỗ trợ khối lượng tái cấp vốn trong vài năm tới.

Kết quả hoạt động mảng nhà ở tiếp tục bị hạn chế bởi khả năng chi trả và lãi suất thế chấp ở mức cao. Doanh thu mua nhà giảm 3% do số lượng đơn hàng hoàn tất giảm 5%, được bù đắp một phần bởi mức tăng 2% của doanh thu bình quân trên mỗi đơn hàng. Doanh thu tái cấp vốn giảm 1%, với mức giảm 4% của doanh thu bình quân trên mỗi đơn hàng được bù đắp một phần bởi mức tăng trưởng 3% số lượng đơn hàng hoàn tất.

Doanh thu đại lý tăng 9% lên 868 triệu USD, chủ yếu phản ánh hoạt động kinh tế trong quý 2 do doanh thu đại lý được báo cáo trễ khoảng một quý. Doanh thu thông tin và doanh thu khác tăng 6%, phần lớn nhờ mức tăng 31% doanh thu phí của ServiceMac khi danh mục cho vay của công ty này mở rộng.

First American Trust tiếp tục đa dạng hóa thu nhập đầu tư của công ty. Thu nhập đầu tư mảng bảo hiểm quyền sở hữu tăng 11%, bao gồm mức tăng trưởng 39% tại First American Trust. Tiền gửi ngân hàng trung bình tăng gần 38% so với cùng kỳ năm trước, với phần lớn sự tăng trưởng đến từ ServiceMac và mảng kinh doanh Trao đổi 1031. Ban lãnh đạo lưu ý rằng khoảng 1 tỷ USD tiền gửi Trao đổi 1031 đã chuyển sang First American Trust.

Chi phí hoạt động tăng trong quý. Chi phí nhân sự tăng 6% lên 574 triệu USD, trong khi chi phí hoạt động khác tăng 11% lên 306 triệu USD, chủ yếu do chi phí phần mềm và sản xuất cao hơn. Quý này cũng bao gồm 8 triệu USD chi phí một lần liên quan đến tái cấu trúc hoạt động và một vấn đề thuế gián thu.

Doanh thu mảng bảo hành nhà ở không đổi ở mức 115 triệu USD. Lợi nhuận trước thuế giảm 30% xuống 11 triệu USD, chủ yếu do chi phí tiếp thị tăng để hỗ trợ kênh bán hàng trực tiếp tới người tiêu dùng.

Hiện đại hóa công nghệ

Tỷ lệ tự động hóa của Endpoint đã cải thiện lên 42% trong quý 3 từ mức 34% trong quý 2 và 30% trong quý 1. Công ty đã mở rộng chương trình thử nghiệm tại Washington cho thêm người dùng ở vùng đô thị Seattle và đang sử dụng chương trình thử nghiệm này để hoàn thiện cả công nghệ lẫn đào tạo nhân viên.

Sequoia đã hoàn tất 17% các giao dịch mua nhà tại California được xử lý qua Endpoint, tăng từ mức 11% trong quý trước. Nền tảng này cũng hoàn tất 34% các giao dịch tái cấp vốn tại California được xử lý qua hệ thống. Thời gian xem xét thủ công trung bình cho các giao dịch mua đã giảm xuống 56 phút, từ 74 phút trong quý 2 và 83 phút trong quý 1.

Ban lãnh đạo cho biết Sequoia đã giảm hai phần ba thời gian xử lý so với quy trình truyền thống. Công ty có kế hoạch mở rộng phạm vi bao phủ giao dịch mua trên khắp Bắc California và ra mắt nền tảng tại Florida ở cả hoạt động trực tiếp lẫn đại lý trong quý 4.

First American hướng tới xử lý phần lớn doanh thu của bộ phận trực tiếp qua Endpoint và phần lớn đơn hàng qua Sequoia vào cuối năm 2027. Khi đạt giai đoạn ổn định, mục tiêu của ban lãnh đạo là tự động hóa khoảng 80% giao dịch tái cấp vốn và 70% giao dịch mua tại các thị trường mà công ty duy trì các cơ sở dữ liệu quyền sở hữu.

Dự báo của ban lãnh đạo

Ban lãnh đạo dự báo điều kiện kinh doanh thương mại khả quan và hoạt động nhà ở yếu kém sẽ tiếp diễn. Trong ba tuần đầu tiên của tháng 10, số lượng đơn hàng mua đang mở giảm 8%, đơn hàng tái cấp vốn giảm 35% và đơn hàng thương mại giảm 7%. Mặc dù đơn hàng thương mại giảm vào đầu kỳ, công ty vẫn lạc quan về quý 4 dựa trên danh mục dự án tiềm năng và đã hoàn tất ba giao dịch mang lại hơn 1 triệu USD phí bảo hiểm cho mỗi giao dịch.

Đối với năm 2027, triển vọng hiện tại của ban lãnh đạo giả định tổng doanh thu xấp xỉ đi ngang so với năm 2026. Doanh thu thương mại dự kiến tăng trưởng khiêm tốn và có khả năng đạt kỷ lục mới, trong khi cả doanh thu mua nhà và tái cấp vốn dự kiến sẽ giảm.

Thu nhập đầu tư dự kiến tiếp tục là động lực hỗ trợ. Ban lãnh đạo chỉ ra rằng mức tăng 8% từ đầu năm đến nay của thu nhập đầu tư trừ chi phí lãi vay là mức tham chiếu tăng trưởng hợp lý cho quý 4. Lãi suất ngắn hạn và lãi suất Trái phiếu Kho bạc Mỹ cao hơn cũng được kỳ vọng sẽ hỗ trợ lợi nhuận đầu tư trong năm 2027.

Ban lãnh đạo hiện chưa kỳ vọng biên lợi nhuận mở rộng trong năm 2027. Biên lợi nhuận trước thuế mảng bảo hiểm quyền sở hữu dự kiến nhìn chung sẽ ổn định, mặc dù có thể thu hẹp đôi chút nếu điều kiện nhà ở xấu đi hoặc động lực thương mại yếu đi. Áp lực lạm phát thông thường được dự báo sẽ xuất hiện ở chi phí lương và công nghệ.

Công ty kỳ vọng sẽ đạt được các khoản tiết kiệm gia tăng khi Sequoia xử lý nhiều đơn hàng hơn mà không cần chờ các hệ thống cũ bị ngừng hoạt động hoàn toàn. Lợi ích đáng kể hơn từ việc triển khai rộng rãi hơn Endpoint và Sequoia dự kiến sẽ bắt đầu từ năm 2028, tùy thuộc vào việc thực thi thành công trong năm 2027.

Rủi ro và các điểm cần theo dõi

• Lãi suất thế chấp đã tăng khoảng 100 điểm cơ bản trong 6 tháng lên 7,5%, củng cố kỳ vọng của ban lãnh đạo về một môi trường phát hành khoản vay nhà ở "thấp trong thời gian dài hơn".
• Tăng trưởng thương mại phải đối mặt với mức nền so sánh ngày càng khó khăn, trong khi kết quả quý 4 vẫn phụ thuộc vào các giao dịch hoàn tất vào cuối quý.
• Rủi ro thực thi chính của Endpoint đã chuyển từ phát triển công nghệ sang quản trị sự thay đổi và đào tạo nhân viên khi các đội ngũ chuyển đổi khỏi các hệ thống đã sử dụng khoảng 25 năm qua.
• Dự phòng tổn thất hợp đồng bảo hiểm được báo cáo ở mức 3,0% đã hưởng lợi từ việc hoàn nhập 75 điểm cơ bản dự phòng của các năm trước. Ban lãnh đạo cho biết việc hoàn nhập có thể chậm lại hoặc dừng lại tùy thuộc vào diễn biến bồi thường, có khả năng khiến mức dự phòng tiến gần hơn đến tỷ lệ 3,75% của năm nghiệp vụ hiện tại.
• Chi phí nhân sự, phần mềm và sản xuất tiếp tục tăng, hạn chế sự mở rộng biên lợi nhuận trong ngắn hạn.

Điểm nhấn phần Hỏi & Đáp với chuyên gia phân tích

Ban lãnh đạo cho biết hoạt động thương mại có thể hỗ trợ mức tăng trưởng doanh thu khiêm tốn trong năm 2027 ngay cả sau một năm 2026 kỷ lục, nhưng điều này nhiều khả năng sẽ bị bù trừ bởi doanh thu nhà ở thấp hơn. Tiềm năng tăng biên lợi nhuận sẽ phụ thuộc chủ yếu vào kết quả hoạt động thương mại vượt kỳ vọng hiện tại.

Về đầu tư công nghệ, ban lãnh đạo cho biết chi phí triển khai Endpoint phần lớn đã được tính vào chi phí hoạt động hiện tại (run rate). Sequoia sẽ mang lại khoản tiết kiệm cho mỗi đơn hàng được xử lý, trong khi tác động tài chính lớn hơn của cả hai nền tảng dự kiến sẽ bắt đầu từ năm 2028.

Liên quan đến First American Trust, ban lãnh đạo xác định các đại lý bảo hiểm quyền sở hữu bên ngoài, ServiceMac và mảng kinh doanh Trao đổi 1031 là các nguồn chính thúc đẩy tăng trưởng tiền gửi trong tương lai. Danh mục trái phiếu của ngân hàng có kỳ hạn khoảng 5 năm và tạo ra khoảng 50 triệu đến 60 triệu USD tiền mặt mỗi tháng để tái đầu tư. Ban lãnh đạo không kỳ vọng tốc độ tăng trưởng tiền gửi 38% gần đây sẽ duy trì liên tục.

Công ty đã tăng cổ tức cổ phiếu phổ thông hằng năm thêm 11% lên $2.44 per share, phù hợp với tỷ lệ chi trả cổ tức mục tiêu là 40% trong suốt chu kỳ. Công ty cũng đã mua lại 143.000 cổ phiếu với giá 9 triệu USD trong tháng 10 ở mức giá trung bình $62.40.

Toàn văn Biên bản Cuộc họp Báo cáo Kết quả Kinh doanh

Toàn văn cuộc gọi công bố kết quả kinh doanh

Phần trình bày của ban lãnh đạo

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.

Phần hỏi đáp

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.