First American rides the data center wave and its own AI transformation
Commercial title boom and a deposit engine turn the title insurer into a growth story
FAF · Earnings Call · 2026-07-23
Commercial on fire, led by data centers
First American Financial (FAF) reported a blowout second quarter: adjusted EPS of $2.80, up 36% year-over-year. The engine: commercial title insurance, where revenue jumped 34% to a record $314 million. "Commercial continued to be a standout performer," said CEO Mark Seaton. The average revenue per order hit a record $20,000, and it closed 14 deals generating over $1 million in premium each. Notably, data centers are a huge driver: data center revenue is up 140% year-over-year. Seaton noted: "Our data center revenue is up 140%. And 47% relative to last year." This isn't just a few megadeals — commercial growth is broad-based, with 10 of 11 asset classes up, including industrial, multifamily, and development sites. The pipeline remains strong: "Our commercial pipeline has never been stronger," with open orders up 9% in the first three weeks of July. This is a company riding the global AI infrastructure buildout, a theme that shows up across the market in 360-day tape advancers like "HPC data centers" and "data center AI." FAF is providing title insurance for these massive construction projects, and the fee per file is expanding accordingly.AI isn't just a promise; it's showing up in the numbers
Beyond the headline numbers, FAF is quietly transforming itself into a more efficient operator through AI. The company has been pushing Agentic AI across the enterprise: it reduced the time to update 1,300 forms by 97%, and its ExamAssist QC tool has processed 50,000 orders with 92% requiring no human review. At ServiceMac, a virtual agent improved self-service success from 0% to 42% in two months. The flagship platforms, Endpoint and Sequoia, are showing rapid improvement in automation rate — Endpoint's automation rate rose from 30% in Q1 to 34% in Q2 and 39% in July, while Sequoia's is at 40%. As Seaton said, "We are also starting to see meaningful evidence that AI can improve customer facing service delivery." This is not just cost-cutting; it's a strategic moat. The company's title plant data remains a unique advantage, and AI is making it more valuable. In the prior quarter, Seaton noted, "We've seen what they can do. We do think they're going to change our industry for the better," and that conviction is now translating into tangible metrics.The bank becomes a growth engine
The other big story is the bank. First American Trust is becoming a genuine growth engine, with average deposits up 30% to $7.9 billion. What's notable is that 36% of deposits now come from non-captive sources: ServiceMac contributed $1.7 billion (up 76%), the 1031 exchange business added $827 million, and agent banking is scaling. "During the quarter, 36% of deposits came from sources beyond our captive title operations," Seaton said. This diversification reduces the cyclicality of the business and boosts investment income even as the Fed cuts rates. The company expects investment income net of interest expense to keep growing at an 8% clip, a strong offset to rate headwinds.Outlook and capital returns
Financially, FAF is generating substantial cash: free cash flow for the first half was $285 million, up 32% year-over-year, and CapEx is down 18%. Operating income is up 67% year-over-year, though it remains below the 2021 peak. Operating income rose to $162 million in the latest quarter, a strong bounce from the cyclical trough, with margins expanding 270 basis points year-over-year. The company used some of that cash to buy back $20 million of stock and increased its dividend, signaling confidence. The outlook is cautiously optimistic. Management sees the commercial cycle having "legs," with a strong pipeline into 2027. On the residential side, they remain cautious, as purchase orders are flat year-over-year. But the mix shift toward commercial and the bank is proving to be a powerful combination. As Seaton summed up:We have a strong balance sheet and disciplined strategy, unique assets like First American Trust, and industry leading title data that position us to capitalize on the transformational opportunities AI presents.