第一美国金融 (FAF) 2026年第三季度业绩电话会：商业收入增长21%

第一美国金融公司（FAF）公布2026年第三季度调整后收益有所增长，创纪录的商业活动和投资收益增长抵消了住宅产权业务量的持续低迷。管理层预计住宅房贷发放环境在2027年之前将保持低迷，目前预计明年利润率不会扩大。

核心要点

• GAAP稀释每股收益为1.72美元，而调整后稀释每股收益同比增长5%至1.78美元。
• 产权业务板块营收增长7%至20亿美元，主要得益于商业业务营收增长21%以及投资收益增长11%。
• 全球商业服务创下了历史最高的第三季度营收。商业业务的强劲势头具有广泛性，涵盖11个资产类别中的8个。
• 住宅产权业务依然低迷：购房营收下降3%，而再融资营收下降1%，仅占直接营收的5%。
• Endpoint的自动化率达到42%，高于第二季度的34%和第一季度的30%。管理层计划在2027年加速全国推广。
• 展望2027年，管理层目前预计总营收将基本持平，商业业务适度增长，住宅业务营收下降，在基准预期下不会有明显的利润率扩大。

关键财务数据

业务与经营业绩

商业产权依然是主要的经营增长动力。商业业务营收增长21%，反映出每单平均营收增长13%以及完成订单量增长7%。公司完成了22笔单笔产生超过100万美元保费的交易。管理层表示，业务活动已从数据中心扩展至能源、工业和多家庭住宅交易。

商业再融资保费营收同比增长49%。管理层表示，商业交易对利率的敏感度低于住宅业务，而较短的贷款期限可能会在未来几年对再融资业务量形成支撑。

住宅业务表现继续受到购房负担能力和高企的抵押贷款利率的制约。由于完成订单量下降5%，购房业务营收下降3%，但被每单平均营收增长2%所部分抵消。再融资营收下降1%，其中每单平均营收下降4%，被完成订单量增长3%所部分抵消。

代理业务营收增长9%至8.68亿美元，主要反映了第二季度的经济活动，因为代理营收报告存在约一个季度的滞后。信息及其他业务营收增长6%，主要是由于随着贷款组合扩大，ServiceMac的服务费营收增长了31%。

第一美国信托继续推动公司投资收益多元化。产权业务板块投资收益增长11%，其中包括第一美国信托39%的增长。平均银行存款同比增长近38%，大部分增长来自ServiceMac和1031置换业务。管理层注意到，大约10亿美元的1031置换存款已转移至第一美国信托。

本季度运营成本有所增加。人员费用增长6%至5.74亿美元，而其他运营费用增长11%至3.06亿美元，主要是由于软件和生产成本上升。本季度还包括800万美元的一次性费用，与业务重组和一项间接税事项相关。

房屋质保业务营收保持不变，为1.15亿美元。税前利润下降30%至1100万美元，主要是为了支持直面向消费者渠道而增加了营销支出。

技术现代化

Endpoint的自动化率在第三季度提升至42%，高于第二季度的34%和第一季度的30%。公司将华盛顿州的试点范围扩大到西雅图都会区的新用户，并正在利用该试点完善技术和员工培训。

Sequoia完成了通过Endpoint处理的加州17%的购房交易，高于上一季度的11%。它还完成了通过该平台处理的加州34%的再融资交易。购房交易的平均人工审核时间降至56分钟，低于第二季度的74分钟和第一季度的83分钟。

管理层表示，与传统流程相比，Sequoia已经将处理时间缩短了三分之二。公司计划在第四季度将购房业务覆盖范围扩大至北加州，并在佛罗里达州的直营及代理业务中推出该平台。

第一美国公司的目标是在2027年底前，通过Endpoint处理直营部门的大部分营收，并通过Sequoia处理大部分订单。在业务成熟时，管理层的目标是在公司拥有产权档案库的市场中，实现大约80%的再融资交易和70%的购房交易的自动化。

管理层业绩指引

管理层预计强劲的商业状况和疲软的住宅活动将持续。在10月的前三周，未结案的购房订单下降了8%，再融资订单下降了35%，商业订单下降了7%。尽管早期商业订单有所下降，但基于其项目储备，公司对第四季度仍保持乐观，并且已经完成了三笔每笔产生超过100万美元保费的交易。

对于2027年，管理层目前的展望假设总营收与2026年相比基本持平。预计商业业务营收将适度增长，并有可能再创新高，而购房和再融资营收预计均将下降。

投资收益预计将继续构成利好。管理层指出，今年迄今扣除利息支出后的投资收益增长了8%，这是第四季度合理的增长参考。短期利率和美国国债利率的上升预计也将对2027年的投资回报提供支撑。

管理层目前预计2027年利润率不会扩大。产权业务税前利润率预计将保持基本稳定，但如果住宅市场状况进一步恶化或商业业务动能减弱，利润率可能会有所收缩。预计薪酬和技术成本将面临正常的通胀压力。

公司预计，随着Sequoia处理更多订单，无需等待旧系统完全淘汰即可带来渐进式的成本节省。在2027年顺利推进的前提下，更广泛推广Endpoint和Sequoia所带来的更实质性效益预计将于2028年开始显现。

风险与关注要点

• 抵押贷款利率在六个月内上升了约100个基点，升至7.5%，这进一步印证了管理层对住宅房贷发放环境将“长期保持低迷”的预期。
• 商业业务增长面临日益严峻的高基数考验，而第四季度的业绩依然取决于季度末完成的交易。
• 随着团队逐渐弃用使用了约25年的系统，Endpoint的主要执行风险已从技术开发转移到变革管理和员工培训上。
• 报告的3.0%保单赔付准备金受益于前一年准备金释放了75个基点。管理层表示，根据索赔的发展情况，准备金释放可能会放缓或停止，从而可能使准备金率更接近当前保单年度3.75%的水平。
• 人员、软件和生产成本继续上升，限制了近期利润率的扩大。

分析师问答环节亮点

管理层表示，即使在创纪录的2026年之后，商业活动仍可能支持2027年的营收适度增长，但这可能会被住宅业务营收下降所抵消。利润率的上行空间将主要取决于商业业务的表现是否超出当前预期。

在技术投资方面，管理层表示，Endpoint的推广成本在很大程度上已包含在现有的运营支出水平中。Sequoia应该会在处理每笔订单时产生成本节省，而这两个平台更大的财务影响预计将从2028年开始展现。

关于第一美国信托，管理层将外部产权代理、ServiceMac和1031置换业务视为未来存款增长的主要来源。该银行的债券投资组合存续期约为五年，每月产生约5000万至6000万美元的现金用于再投资。管理层预计近期38%的存款增长率不会持续下去。

公司将年度普通股股息提高了11%至每股2.44美元，符合其跨周期40%的目标派息率。10月份，公司还以62.40美元的平均价格回购了143,000股股票，耗资900万美元。

业绩电话会议完整文字记录

完整财报电话会议逐字稿

管理层陈述

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.

分析师问答

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.