Fidelity National Financial, Inc. (FNF) Earnings Call Transcript

Good morning. Welcome to FNF Third Quarter 2026 Earnings Conference Call. During today's presentation, all callers will be placed in a listen-only mode. Following management's prepared remarks, the conference will be open for questions with instructions to follow at that time. I would now like to turn the call over to Lisa FageParker, Senior Vice President, Investor and External Relations. Please go ahead.

Thanks, operator, and welcome, everyone. I'm joined today by Mike Nolan, CEO; and Tony Park, CFO. We look forward to addressing your questions following our prepared remarks. F&G's management team, including Conor Murphy, CEO and President; and Mike Bailey, CFO, will also be available for Q&A. Today's earnings call may include forward-looking statements and projections under the Private Securities Litigation Reform Act, which do not guarantee future events or performance. We do not undertake any duty to revise or update such statements to reflect new information, subsequent events or changes in strategy. Please refer to our most recent quarterly and annual reports and other SEC filings for details on important factors that could cause actual results to differ materially from those expressed or implied. This morning's discussion also includes non-GAAP measures, which management believes are relevant in assessing the financial performance of the business. Non-GAAP measures have been reconciled to GAAP as required and in accordance with SEC rules within our earnings materials available on the company's investor website. Please note that today's call is being recorded and will be available for webcast replay. And with that, I'll hand the call over to Mike Nolan.

Thank you, Lisa, and good morning. We delivered strong third quarter results across both our Title business and F&G segment, demonstrating the power of our dual earnings engines and our ability to execute in dynamic market conditions. I'd like to start by thanking our employees for their hard work and dedication. There is no doubt we are navigating a challenging real estate cycle and our team continues to generate industry-leading performance that is well ahead of the competition. Together, we are managing through this period with a disciplined operating strategy, which generates a steady level of free cash flow. This allows us to continue to invest in recruiting talent, attractive acquisitions, technology and innovation as we manage the business for the long term while performing in the immediate term. Turning to our title segment. We delivered adjusted pretax title earnings of $422 million for the third quarter, up 3% over the third quarter of 2025. This generated an industry-leading adjusted pretax title margin of 17.1% for the third quarter as compared to 17.8% in both the sequential and prior year quarters. As we discussed on our second quarter call, we expected some modest sequential compression due to recent strategic investments in recruiting and attractive tuck-in acquisitions in recent months where expenses tend to come ahead of the associated revenue contribution. The compression compared to the third quarter of 2025 was also expected due to favorable onetime items in the prior year period and continued investment in technology. Overall, our third quarter results reflect strong performance across the business and disciplined expense management. Looking at our tighter results more closely. Starting with purchase, U.S. existing home sales continue to reflect the low transactional environment due to mortgage rates and housing market dynamics. Mortgage rates remain high, but have fallen from the recent peak following the Federal Reserve rate hike in September. This is the opposite of the trend we saw in 2025 and has amplified the normal seasonal decline. Over the course of the year, purchase orders opened have held up well through August with each month comparing favorably to the prior year before falling behind by 2% for the month of September. Importantly, we continue to steadily outperform relative to our peers. For the quarter, our daily purchase orders opened were up 3% over the third quarter of 2025 and down 9% for the second quarter of 2026 and down 6% for the month of October versus the prior year. Our residential resins volumes continue to be responsive to 30-year mortgage rates, although accounting for only 6% of our direct revenue in the third quarter. Notably, we have demonstrated our ability to generate strong adjusted pretax title margins a without substantial refinance market over the past five years refinance orders opened were 1,400 per day in the third quarter as compared to 1,600 in both the prior year and sequential quarters. Given mortgage rates in October, we saw refinance orders opened decrease to 1,200 per day, reflecting how refinance volumes can quickly change with moves in rates. Our refinance orders opened per day were down 11% from the third quarter of 2025, down 7% from the second quarter of 2026 and down 35% for the month of October versus the prior year. Our commercial business is on pace for a record year. Direct commercial revenue was $1.2 billion in the first 9 months, up 22% over $1 billion in the first 9 months of 2025. National and local market daily orders opened trended down 1% and up 6%, respectively, in the third quarter as compared to the prior year quarter. Total commercial orders opened were 876 per day, up 2% over the third quarter of 2025, down 5% from the second quarter of 2026 and down 6% for the month of October versus the prior year. We closed 24 transactions generating over $1 million each in premiums in the third quarter across multiple asset classes in both our direct and agency businesses. This is reflected in our higher trending commercial fee per file. We view the current momentum in commercial as sustainable over the near term. Our commercial strength continues to be broad-based across both geographies and asset classes. The composition of our commercial pipeline remains healthy and includes a mix of industrial, data centers, multifamily, affordable housing, retail and energy transactions. At this time, we expect office to gradually recover with top-tier properties leading the rebound. One question that I often receive is around data centers. We have seen data center transactions in our pipeline over the past 4 years and in some cases, have already seen refinances of transactions that closed between 2022 and 2024, which is an underappreciated demand driver. Similar to energy, data centers tend to be higher premium transactions, although comprising a small portion of the overall order count. This shows up in our national fee per file, which benefits from the larger energy and data center deals. To bring it all together, total orders opened averaged 5,800 per day in the third quarter, with July at 5,900, August at 5,800 and September at 5,600. For the month of October, total orders opened were 4,700 per day, down 17% from the prior year. Looking to the fourth quarter, we remain optimistic about our commercial momentum, although we recognize the impact on residential purchase and refinance volumes of elevated mortgage rates and the typical fourth quarter seasonality. All else equal, we would expect our adjusted pretax title margin to move towards the lower end of our 15% to 20% normal range in the fourth quarter. Over time, as mortgage rates eventually improve, we believe residential purchase and refinance activity will accelerate and trend towards historical levels. This recovery represents additional earnings power given the operational leverage that we have built into our model. This operational leverage is all supported by the investments we continue to make in technology and AI. FNF provides essential services that extend well beyond the title insurance policy. We also manage the settlement process from start to finish. We are the rails on which real estate transactions run. For years, we have invested with the vision of building a differentiated technology platform with one overarching objective to make every real estate transaction faster safer and simpler. That objective is showing up in what we are delivering today. Since we rolled out our partnership with Clear last year, we have run nearly 100,000 enhanced identity verifications across our operations to counter impersonation and wire fraud and property sales. Since we launched property monitoring earlier this year, we have provided visibility and alerts as a complementary service to over 250,000 homeowners after closing. We continue to receive positive feedback from our customers on this value-add service. We are accelerating our property monitoring rollout, and we expect it to become the largest footprint in the industry. We are also driving deeper digital engagement with nearly 88% adoption of in here across eligible residential sale transactions. That is the foundation AI is the next layer. We're already deploying AI-driven agents into production workflows to improve speed and execution across the title and settlement process. This isn't a pilot, it's operational. AI is still early, but the direction is clear, a better experience for our customers and higher productivity for us. Combined with our broader technology investments, these capabilities strengthen our competitive position and our ability to consistently deliver industry-leading adjusted pretax title margins over time. Turning now to our F&G segment. F&G's assets under management before reinsurance has surpassed the $75 billion milestone at September 30. Gross AUM of $76.2 billion was up 7% over the prior year quarter. F&G continues to expand its retail and institutional franchises and delivered its best core retail sales quarter in history. Opportunistic sales were intentionally lower due to returns below threshold as F&G continues to allocate capital to the highest return opportunities. On a stand-alone basis, F&G reported GAAP equity, excluding AOCI, of $6.7 billion at quarter end. And has grown its book value per share, excluding AOCI, to $51.37 up 87% since the 2020 acquisition. We believe that the components of F&G's business, the new business platform, profitable in-force block and capital-light fee-based strategies each represent a distinct and measurable source of long-term value that are not yet fully reflected in F&G's current market valuation. At recent levels, the FG stock has an especially attractive dividend yield around 5%, which is above average for the publicly traded life and annuity sector. We remain pleased with F&G's operating performance and foresee plenty of opportunities to grow AUM and increase the value of the business over time. With that, let me now turn the call over to Tony to review FNF's third quarter financial performance and provide additional insights.

Thank you, Mike. Starting with our consolidated results, we generated $3.6 billion in total revenue in the third quarter. Excluding net recognized gains and losses, our total revenue was $3.5 billion, as compared with $3.9 billion in the third quarter of 2025. We reported third quarter net earnings of $633 million, including net recognized gains of $29 million versus net earnings of $358 million, including $176 million of net recognized gains in the third quarter of 2025. Adjusted net earnings were $352 million or $1.32 per diluted share compared with $439 million or $1.63 per share in the third quarter of 2025. The Title segment contributed $315 million. The F&G segment contributed $72 million. And the Corporate segment had an adjusted net loss of $7 million before eliminating $28 million of dividend income from F&G in the consolidated financial statements. Turning to third quarter financial highlights specific to the title segment. Our title segment generated $2.5 billion in total revenue in the third quarter, excluding net recognized loss of $19 million compared with $2.3 billion in the third quarter of 2025. Direct premiums increased 11% over the prior year. Agency premiums increased 3% and escrow title related and other fees increased 10%. The Personnel costs increased 10% and other operating expenses increased 13%. All in, the title business generated adjusted pretax title earnings of $422 million up 3% over $410 million in the third quarter of 2025 and a 17.1% adjusted pretax title margin in the quarter versus 17.8% in the prior year quarter. Our title and corporate investment portfolio totaled $5 billion at September 30. Interest and investment income in the title and corporate segments was $98 million, down 10% from the prior year quarter and excluding income from F&G dividends to the holding company. The prior year period included a benefit from a legal settlement of $7 million. Looking ahead, we expect quarterly interest and investment income to trend up from $98 million in the third quarter to around $105 million in the fourth quarter and then increase around $5 million in each subsequent quarter through 2027, assuming an additional 75 basis points of Fed rate hikes over the next nine months. In addition, we expect approximately $28 million per quarter of common and preferred dividend income from F&G to the corporate segment in the next two quarters. F&G's dividend income will decrease to approximately $25 million per quarter thereafter, following conversion of the mandatory convertible preferred stock during the first quarter. Our title claims paid of $72 million were $3 million lower than our provision of $75 million for the third quarter. The carried reserve for title claim losses is approximately $10 million or 1% above the actuary central estimate. We continue to provide for title claims at 4.5% of total title premiums. Next, turning to financial highlights specific to the F&G segment. Since F&G hosted its earnings call earlier this morning and provided a thorough update, I will provide a few key highlights. F&G's top line AUM before reinsurance increased to $76.2 billion at September 30, up 7% over the prior year. This includes retained assets under management of $56.2 billion. F&G reported gross sales of $3 billion for the third quarter. Gross sales were comprised of $2.3 billion of core sales, including record core retail sales of $2.1 billion and nearly $700 million of opportunistic sales. This mix reflects pricing discipline and capital allocation to highest-return opportunities. F&G's net sales were $1.4 billion in the third quarter. This reflects low reinsurance in line with capital targets for multi-year guaranteed annuities and fixed indexed annuities. F&G's retained investment portfolio performed very well once again this quarter. The portfolio is high quality with 97% of fixed maturities being investment grade. It is well matched to the liability profile and diversified across asset types. Credit-related impairments have remained low and stable. Importantly, F&G has a clean governance model with Blackstone with no inherent conflict of interest. Adjusted net earnings for the F&G segment were $72 million for the third quarter, reflecting our approximate 72% ownership stake compared with $139 million in the third quarter of 2025 and which reflected our approximate 82% ownership stake and included the F&G Life subsidiary, which was sold on March 1, 2026. F&G's core spread remains consistent as the business maintained disciplined pricing and rate setting. F&G continues to provide an important complement to our title business. In the first nine months, the F&G segment contributed 22% of FNF's adjusted net earnings, down from 32% for the first nine months of 2025. Turning to capital and liquidity. FNF continues to maintain a strong balance sheet and balanced capital allocation strategy. As Mike mentioned, we have consistently generated a steady level of free cash flow, allowing us to continue to invest in our business and build for the long term. We also continue to return excess cash to shareholders. During the third quarter, FNF returned approximately $143 million of capital to shareholders. This brought capital returned to shareholders during the first nine months of the year to approximately $561 million. Of note, we only completed $5 million of share repurchases during the third quarter, given that we were in a closed trading window for much of the quarter, due to the timing of material nonpublic information and our standard corporate governance policies. From a capital allocation perspective, we ended 2025 with $659 million in cash and short-term liquid investments at the holding company. During the first nine months, our cash position and cash generation funded $417 million of common dividends paid, $61 million of holding company interest expense $144 million in opportunistic share repurchases and approximately $60 million of investments in a handful of tuck-in and other title-related acquisitions. The majority of which were in the third quarter, all while keeping pace with wage inflation and funding the continued higher spend in risk and technology required in today's landscape. We ended the third quarter with $545 million in cash and short-term liquid investments at the holding company, which is about 83% of the amount held at year-end 2025. This concludes our prepared remarks, and let me now turn the call back to our operator for questions.

[Operator Instructions] Our first question is from Bose George with KBW.

In terms of margins, I know you guys don't like to sort of forecast margins. But just trying to think through the puts and takes looking out into next year, like if the Mortgage Bankers Association is right, and we have a smaller mortgage market and the comps obviously are getting tougher on commercial. Do you think like the margins prospectively could be flat? Or could there be pressure with the smaller mortgage market or just curious how you're thinking about it.

Yes. Pol, good question. We delivered 17.1% margin in a pretty tough environment in the third quarter. And we're optimistic really, as we look to next year, that we could have a better rate environment. The 10 years come down 50 basis points this month and the daily rates following and. While we don't manage the business to outlooks, we're optimistic about next year. What we control at the end of the day is our operating discipline, our focus on our customers and employees and the technology investments that allow us to continue to outperform regardless of the volume environment.

Okay. Great. And then actually, just on the executive order that came out, it's obviously kind of broad in terms of what it says on the pile -- expanding the pilot and LLP potential reductions, et cetera. But have you had any conversations with FHA in terms of what that looks like in practice because yes, it seems like it could be a lot of different things.

Yes. I think it's too early to say Bose because really, all the executive order did was direct the director to think about things. So what comes out of that, we just don't know yet.

Our next question is from Terry Ma with Barclays.

Can you maybe just update us on the recruiting outlook and how we should think about personnel costs for TITAN going forward? And then on the step down for the fourth quarter margin, like any color on how much of that is seasonality in market versus just incremental costs for recruiting and tech in the run rate?

The way to think about recruiting is that it's really a margin enhancer. In the short term, you can have margin compression from it, but both recruiting and acquisitions ultimately drive higher margins as the people ramp up to full productivity. As to the fourth quarter, it's both seasonality as we've seen orders come down, particularly refi with higher rates and the strong recruiting and acquisitions we've had, really this year, but particularly in the third quarter, we did add a 200-plus person agency and add more 70 revenue recruits. So that was 300 adds in the third quarter. And we're recruiting at a level that's probably 25% stronger than we had last year, but we fully expect those to be really margin enhancers as we go into '27.

Got it. Okay. And then you called out data center refi. Any way to kind of size what you've seen thus far? And what the outlook is over the next year or two?

Well, there's a lot of conversations in the media about data centers. We can't predict what happens with data centers. I fully expect data centers to continue whether there's more or less, I don't know. The call it really had to do with that these aren't one-and-done things. Like any commercial property or really any piece of property, they transact again over time. So we see that as an underappreciated demand driver going forward, but really expect overall for commercial, that '27 will be another strong year. Our pipeline is good. and the strength continues to be broad-based across geographies and asset classes.

[Operator Instructions] Our next question is from Mark Hughes with Truist Securities.

Yes. Thank you. Just, Mike, I know you haven't been able to get any clarity on the title waiver program. But could you refresh us on as the when it was a waiver program, what classification, what proportion of the refis were subject to the waiver, just kind of your latest understanding on how to dimension?

Sure. There's not a lot of transparency on it. But I think both Fannie Mae and Freddie Mac commented in a national, I think it was a national housing news article or something like that, that they have handled 22,000 waiver transactions to date. So I assume that means over the past two years, 22,000, there were over 3 million residential refinances over those two-year periods. So that's about the best information we've seen publicly on it. I would also just say anecdotally, I still do not have anyone in our world here at the FNF family of companies really telling me they're losing orders to the waiver programs.

Yes, yes. Very good. And then October, down 6% in terms of purchase orders, what was your commentary, the interest rates have been so volatile. I'm just sort of curious if you have any sense of kind of recent weeks? Any kind of granularity on that. I know it's probably not worth pursuing, but?

The sequential drop-off of 9% is just a little beyond our normal seasonal number. We've seen that running about 7.5% for the last five years. And so nine is not way outside of that number, but my instinct is that we are seeing a little bit more than the CECL effect because of the rate movement that we saw, particularly in September, but it can change quickly. And as I said, the tenures come down 50 basis points in the last 30 days, let's say, the daily rate is down to, I think, seven under 7.2% it was at 7.6% on September 30. So these things can change quickly, and we still believe there's a lot of underlying demand for housing -- and as rates, transactions, sales and refinances will follow. So we'll just have to manage as we always do, based on the environment that we're at the moment.