All right. So we'll kick it off. I'm very pleased to have up here Fidelity National Financial. Joining me is Mike Nolan, CEO, Tony Park, CFO. So welcome, gentlemen.
Thanks, Terry. Glad to be here.
Yeah, glad to have you. So we just jump right into it. Maybe just to start off, can you maybe update us on third quarter trends across purchase refinance and commercial?
Sure. It's been interesting, even with the rate movement, that on the purchase open side, we've outperformed last year every month through August. In the first half was about a 3% overall improvement. In July, which we previously reported was 4%, and in August it was 6%. So we actually had our best year-over-year month in terms of purchase opens percentage growth in August. Refi, really when you think about last year, rates were going down during the year and our refinance volumes went up. We've really had the opposite of that this year with rates starting lower and then increasing. So while we had in the first quarter, I think a 50% improvement in refinance opens, that fell to mid-teens in the second quarter. July was minus 5%, and August, we're in the mid-30s decline. So definitely seeing how that gets impacted with those rate movements.
Commercial has just been steady and strong all year. Through August, we are up about 6% in our opens, total opens. August was up 8%. Still seeing strength in that commercial segment.
Got it. That is helpful color. Mortgage origination volumes have come under renewed pressure this year from higher rates. What is your outlook for the rest of 2026 and 2027 relative industry forecasts of roughly $2 trillion in 2026 and $2.3 trillion in 2027?
Well, our outlook really is that there is still strong underlying demand for home buying and home refinancing. Over time, as rates ease, I think we can see meaningful increases in that activity. If rates stay kind of bound in the range they are at, then you are probably looking at more steady state from where we are at today.
Got it. You touched on commercial. That has really been a bright spot in 2026. Can you just talk about what sectors are showing the most strength today and also where you are seeing continued pressure?
Well, you're right. The commercial has been broad-based, and we're tracking towards a record year. In terms of sectors, we've seen it across multiple asset classes and multiple geographies. Things like industrial, multifamily, energy, affordable housing, retail, hospitality. Probably every segment you can think at except for office.
Okay. Maybe just talk about the nuances you're seeing within national versus local trend. Any notable differences?
On the order activity, they've both been up all year. Open orders on the local side have been modestly up over national. Probably the notable difference has really been around fee profile and revenue growth. It's been much stronger on the national side in terms of percentage revenue growth year-over-year, both for revenue and for fee profile.
Yeah, I think we reported, was it 29 deals in the second quarter. We reported 29 deals that were closed either through our direct channel or our agency channel that were over $1 million in premiums. Clearly the size of the deals is helping drive that fee profile.
Got it. Any particular sectors with the larger deals?
I mean-
In those 29, is that the question?
Yeah.
Yeah.
I would say it was really wide-ranging. Certainly data centers were in there, but they weren't necessarily the dominant sector. We saw energy transactions, manufactured home transactions, other portfolio types of transactions. So it really was, again, broad-based.
Got it. Okay. I wanted to drill down to data centers. That's certainly been a meaningful driver of commercial. Can you maybe just talk about what you're seeing in that market, what the data center pipeline looks like today, and then how long you expect these tailwinds to persist?
Sure. Well, we still see a lot of strength, and we have a strong pipeline, strong inventory transactions. We're still opening transactions. I know there's been a lot of headlines recently around community pushback and things like that. But from our view, it's still very active. There still is a lot of capital that's flowing into those deals. You've got a lot of players that are well-capitalized in that space. And I think it'll still be active for this year, and I've seen a number of forecasts that say it's going to be active for the next three or four years. We'll see how that plays out and what real impact some of the community pushback may or may not have.
Got it. Okay. Just to switch gears, title margin was 15.7% through the first half of the year. You suggested recruiting could pressure second half margins. Is that still the right outlook, and what are the biggest factors that could drive margins higher or lower from here?
Sure. The comment around recruiting was more specific to our margin in the second quarter vis-à-vis the third. We did 17.8 in the second, and we've had a lot of success with recruiting, and you're essentially front-loading expenses when you're doing that with the revenue to follow. So I think the impact is more around the third quarter. When you think about margins more broadly- In the short term, I think about two things. One, volumes drive it either way for sure. And then secondly, how we react to volumes, and we've always demonstrated our ability to manage margins, regardless of the environment. We're exceeding the industry in a very low transaction environment, and we'll continue to do that.
Third, longer term, it is really how technology and improved productivity and enhanced efficiencies from things like AI and other technologies that we already have will improve the margin outlook in like kind markets going forward.
Got it. Maybe just to follow up on the recruiting, just more broadly, how do you think about recruiting in this environment? Maybe just talk about what factors determine when you lean into recruiting versus kind of pulling back.
We really think about recruiting in every environment. It is not like a switch that you turn off and on. We are always recruiting. We are always driving towards adding talent to the organization. We have had two really strong recruiting quarters in a row, probably for a variety of reasons, including maybe the overall environment. The investments we are making in the business, I think is attracting talent to this organization, and it is opportunistic at times. You can be developing relationships in a recruiting sense, but not necessarily looking to hire at the same time. It might be you are building a relationship over time to recruit later. We will continue to recruit regardless of the environment, and we will accelerate that when we see more opportunity.
Got it. That makes sense. Then just broadly, you previously indicated FNF can generate title margins in the 15%-20% range. In a more normalized environment, is that still the right range going forward? Are there any tech investments or AI investments that could impact that normalized range over time?
Well, we're hitting the low to midpoint of that 15%-20% in a really low transactional environment now. To think about should we change that range, I think we do need to get to a less volatile environment and more normalized. In our view, a normalized market's somewhere in the neighborhood of 5 million existing home sales, which is the 30-year long-term average, and a solid refinance market, good commercial market. In that environment, we believe we'd be in the upper bounds of that 15%- 20% range. We've had one year when we did above it, and that was 2021, and we had incredible volumes really across all the different segments.
But I think longer term, I think what's worth noting is the dual benefit we will get from improved volumes plus technology investments, plus the benefits of things like AI, and that's where you could envision higher margins than 20%.
Yeah, we used to talk about 15%- 20% more aspirationally, back when we were into 13%, 14%, maybe low 15% margins. Now most quarters we're in that, other than maybe a Q1, we're in that range of 15%- 20%. So I could see that with a better market on the residential side, that we would be mid that range and potentially higher on a consistent basis.
Got it. Any color on tech investments or AI initiatives that you guys are kind of looking at that may improve that over time, that range?
I mean, our approach from the beginning has been sort of a three-pronged ladder. Well, first was build governance, which we did. We hired a Chief AI Officer back in 2023. We built out a governance team. That was really important. We've been really working on diffusion and building literacy, and we have close to 60% of our employees regularly using AI on a monthly, weekly basis and seeing benefits from that. People are building agents. They're finding ways to improve personal productivity. So that's one. Secondly is deploying what I call bespoke solutions that fit individual parts of the business, whether it's our subservicing business at LoanCare or our centralized fulfillment business at ServiceLink, our agency business, specialized solutions that meet their needs, claims work, legal work, et cetera.
The third is embedding the tooling in our title and close software, our inHere digital transaction platform, connecting it with our email, and we're working on that and doing that. I think those three things together can provide really enhanced productivity over time.
Got it. Okay. That's helpful color. Earlier this year, there were some headlines on potential new title insurance entrants that are leveraging AI. Can you just talk about the competitive environment and also what you see from your traditional competitors as well as the new tech-enabled ones?
Well, I'd start by saying the industry is highly competitive, and it always has been. From some lenses, it might not appear that way because you've got four national underwriters that have about 80% of the underwriting in the industry. There's over 20,000 independent title agents, and they're competing across the U.S. and local communities for the next title order, and we're competing with many of them. We're also underwriting many of them. So it's a very competitive industry.
I'm not really aware of any particular new entrants that are effectively leveraging AI in a way that is changing the competitive dynamic. I know there are times when announcements are out there that say that, but I've not seen anything new. Everyone's got an opportunity to deploy AI. Everyone can get tooling. Everyone can think about how to deploy it. The advantage we have is we have scale that no one else has. When we deploy that tooling at our scale, it has a force multiplier effect. I think that's one of the bigger advantages we have into the future. What was the second part of the question, Mike?
Maybe just remind us what the barriers to entry are.
Oh, thank you.
For the title industry.
I don't know if it's about barriers to entry, but maybe barriers to success. What I would say there is that particularly for AI, you need data and scale. We have the data, and we have the scale. New entrants don't have the data. I'm talking about proprietary data. They don't have any of that, and they don't have any scale. By scale, that also means we have trusted distribution relationships. Those things together are really powerful moats. You could add things like the regulatory environment and capital requirements that less scaled players might find more challenging. So maybe not barriers to entry, but barriers to success.
Got it.
We have 1,300 offices throughout the country that are earning the next title order from our customer base. It's just such a huge advantage relative to what you might have as a new entrant, where even if you're going to enter the business, you're going to enter in one market and start from there. We have a huge advantage over that.
Got it. Maybe just to follow up on that proprietary data point. The use of technology or AI maybe makes it easier to replicate that at some level. Maybe not today, but just given the rapid pace of how the technology's evolving.
AI is best when you can give it your data and your own internal process work and trained it on that. Then you can get really great outcomes. Right now, when you think about AI, it is trained on the internet. It knows a lot about the internet, and we can all go to it and ask it questions, and it gives us answers. It does not know really anything about title insurance. It does not really know anything about our own workflows and our own processes. It does not have our prior title work where we have actually researched and cultivated and curated the property records that are available. So it lacks a lot of things that new entrants cannot duplicate because they do not have it, and we do.
Got it. Okay. That makes a lot of sense. Maybe just switching gears again. You spent several years building out the inHere platform, recently launched property monitoring. How should investors think about the strategic value of the platform beyond improving customer service? Does the opportunities for operational efficiency and share gain over time?
Well, inHere is the only fully deployed digital transaction platform in the industry, and no one is even really close. We had 2.8 million unique users on it last year, and not only are we getting efficiency benefits out of that way of connecting with customers, meaning not phone calls and not emails, but the participants to the transaction all get benefits. So we do believe we are building efficiencies, and we also believe it adds stickiness to us, what could lead to share gains or share retention, if not gains. We think we really have a first-mover advantage with it, and that is another platform now we can deploy AI tooling into. We are not stopping there. We have rolled out what we call LivInHere, which is an initiative to engage home buyers post-close.
We have added property monitoring, which again, we think brings more value to our customers after the transaction in a way that will just deepen our relationship and deepen our really retention of customer relationships.
Got it. Investors often think of FNF primarily as a title insurance company and really a beneficiary of housing activity. How do you think about FNF's role in the real estate ecosystem today? What aspects of the business do you think are underappreciated by investors?
Well, the way we think about our role in the real estate ecosystem is that we are the rails that everything runs on. That's what title companies do. That's what the title industry does. It manages all the disparate parts of a transaction and all the different participants in a way that's organized, efficient, and leads to good outcomes for lenders and buyers and sellers and agents, et cetera. Maybe what's underappreciated is the importance of that, but I think what's also underappreciated is the dual benefit we will get as the industry leader, as I said before, as volumes recover and we get more benefits out of leveraging technology like AI.
Got it. That makes sense. Turning to F&G, share performance has struggled due to lower expected returns on all the investments and also potentially concerns around private credit. How does FNF's board currently view the strategic value of the business alongside the core title franchise?
Yeah, thanks for the question. I would say, I'm not privy to everything that's discussed by the board, either in a board meeting or outside of a board meeting. I will say that the board has been overall very pleased with the performance of F&G in the six years that we've owned them. We've grown the asset base from $26 billion to 3x that. We've grown the sales fivefold, branched into a number of distribution channels that F&G wasn't in before we bought them. That's been positive. To your point, the alternative investment noise, if you will, has not been what we've expected when we made those investments, but those sometimes or oftentimes take time to mature and later in the cycle of ownership of those alts, you generally see the value come through.
We're not concerned with that, but it has put a little bit of a damper on F&G's reported earnings. In terms of valuation, I think our board and we share the same frustration that our shareholders share, which is we're not realizing the true value that we know we have in that asset. F&G is a $6 billion GAAP book value asset, and we're not seeing anything near there in F&G share price or in FNF share price. That's been a frustration. We tried to maybe unlock some of that with the first spin-off a few years ago where we spun 15% of our ownership to our shareholders, and I think that helped. It certainly put a public mark on the valuation. We heard more recently that shareholders that wanted to own F&G meaningfully couldn't because there weren't enough shares out there.
There wasn't enough float. We added to that float in December of last year, and distributed another, call it 18%, to where 30% was in the public domain. Frankly, there's been some macro noise, really unrelated to F&G, but some macro noise that has impacted not just the life and annuity space, but really a lot of investments out there. We really haven't seen maybe the true benefit that we might get from distributing those additional shares. At the same time, it's a frustration that we can't seem to realize that benefit that we see in our F&G ownership.
Got it. Do you think it could benefit from additional distributions? I guess, how are you thinking about the [F&G? Because entering this year or last year, most people were potentially expecting a tax-free spin as an option. Obviously, you moved below the 80% threshold, and that's obviously off the table. How should investors kind of think about that?
Yeah, it's a good question. I'm not sure I have a good answer. It's going to be the board's decision on where we go from here. I think ideally in their mind, we would unlock the value and see both shares rise and maybe then stay where we are. I don't know that we plan to continue to distribute F&G shares, but our board has a 40+ years track record of creating shareholder value. They're patient to a point, but then they oftentimes, at least with past investments, realize there's a better way to create shareholder value. I'm not suggesting where they might go with this particular investment, but I will say the feel is that it's a frustration, and we haven't solved it yet.
Got it. F&G's management announced it is exploring strategic alternatives for Peak Altitude. That includes bringing a majority partner in. Can you maybe just describe the business, the rationale for adding a partner, and also when should investors expect an update on this process?
Yeah. In terms of an update, I guess we will have to wait and see how that plays out. In terms of Peak is an investment. We have majority and minority-owned distribution IMOs, if you will. I think we have four of them. We have invested about $700 million, and it generates about $80 million-$85 million in EBITDA. So it is a good, healthy business, not capital intensive. I think the idea there again is maybe we have an underappreciated, undervalued asset that maybe we can take some money off the table, find a strategic partner. Maybe it is a 50/50, 51/49 partnership where we can grow that asset and still return money to F&G and maybe then return that to FNF or whatever F&G might do with that. I am not sure we know at this point.
But we know we have an asset there that has value, and with a strategic partner, we believe we can really grow that asset.
Got it. Clearly, it seems like the market is undervaluing F&G within FNF. But if we think about kind of the earnings power, I believe a few years ago you guys mentioned that you viewed F&G as a good hedge against the title business in a higher rate environment. Do you still view that as the case?
Yeah, I certainly do view it as the case. I think F&G, certainly if you normalize the returns on all, F&G is a steady performer. The revenue and earnings are steady, and they grow in a higher rate environment. FNF typically has more challenges in a higher rate environment, certainly on the volume side. Now, we have had some real strong tailwinds on the commercial side. But on the residential side, as Mike spoke to, it has been a more difficult environment. So I do think there is a balance. I do not know if it is a pure hedge per se, but I think there is a nice balance or complement in terms of the overall return to our shareholders with having that steady earning stream. But again, we do not seem to be rewarded for that at this point.
Got it. Maybe we just touch on the regulatory front. The Federal Housing Finance Agency extended its title pilot to May 2027. Are you hearing anything else on the regulatory development side that could either benefit or be a risk to title insurance? Maybe just expand on the pilot.
I think first it is worth noting that the pilot is intentionally small, and it applies to a small subset of a small environment of residential refinance transactions. It did get extended, and we do not really know how many loans have flowed through it. I do not think that has been reported. But our sense is it is a fairly small number. As we go through the pilot program, it got extended. I think the view is that it is a difficult thing to scale if you are Federal Housing Finance Agency, because you have got to think about, are we going to pay for anything at scale? Because it is basically being paid for by Federal Housing Finance Agency. But in terms of other regulatory challenges, there is really not a lot out there that we are seeing.
Right.
Other than on the state level, there is always a variety of bills being proposed that are not necessarily directed at the title industry, but could have elements in the bill that impact us one way or another. Things like redaction statutes, which are basically proposed statutes that would redact from public records certain people's information, and it is done under the guise of concern about security and things like that. And we are very active in tracking all the bills across the country, and we work very effectively with state regulatory agencies, state legislators, to really get the industry's voice and our voice into how to make the bill work in a way that does not negatively impact our record system and the broader real estate system.
Got it. Maybe just to follow up on the pilot. You did mention it is a very small subset of low-risk refinance transactions. I guess, is it your view that it would be hard to implement on a wider scale for all refinance, and also purchase, obviously?
Well, someone has got to pay for it, and so the question is, who is going to do that? It is my understanding right now that Fannie, I guess, is paying for whatever goes through that program. It is not free, really. Someone is getting paid. That is difficult to see the reason for scaling that beyond a limited pilot.
Got it. Maybe, can you remind us what your priorities are in terms of capital deployment and how you approach share buybacks?
Yeah. First and foremost, we pay a dividend, a very strong yielding dividend at this point. Our board looks at that dividend annually. We raise it, not every year, but almost every year, we raise the dividend. So it is a nice payout there. That is a commitment of about $550 million annually. After that, we have some modest interest expense of about $75 million annually. Then we look to more opportunistic capital allocation options, which would include M&A and share buybacks. We do both, and we are active in both, depending on the market backdrop. M&A has been a little slower over the last few years, mostly because valuations have been hard to nail down as we have transitioned from a really strong market in 2020 and 2021 and the first part of 2022 to more of a trough market in the past few years.
I would say there's a lot of activity on the M&A front in terms of discussions and even negotiations. But we haven't done as many deals in the last two years as we historically have. I would expect that we make more acquisitions on the title agent side is really mostly what I'm speaking to over the next few years. On the buyback front, again, opportunistic. We are typically active on buybacks, especially at these share price levels. But we're also blacked out a lot during the year. We have standard blackouts for earnings and things like that, but we also have unexpected blackouts. We have to find our pockets for when we can buy back, but we're always looking to be in the market when we can be.
Got it. Open it up to the audience for any questions. Okay, looks like we have no questions. Maybe just to close, what do you want the main message to investors to be today? Obviously, share price valuation is depressed a little bit. What do you think the market's underappreciating about the business, and what are you most excited about going forward?
I think about our long-term sustainable competitive advantages, and that we have trusted distribution relationships at scale, we've got technology at scale that others don't have, and we have the best opportunity to deploy AI at scale than any other player in the business. As we look forward, I think the opportunities are really great for us, again, particularly as you marry volumes back to that. I mean, we still are at very low transactional volumes with existing home sales and refinancing commercial strong, that we will get an outsized benefit from both volume and technology vis-a-vis the industry.
Maybe I'll just throw in, I believe, and I just said it earlier, but I believe we have a very undervalued asset in F&G, and at some point, I believe we'll realize that value.
Okay. On that note, we'll just end it there. Thank you so much.
Thank you.