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YoY shift: Lean +
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.17pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-
Not scored
Net-tone change vs last year's 10-K.
MD&A
+0.17pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
No section text extracted for this filing. The 10-K may use a non-standard template that the parser doesn't recognize - the original doc is still linked in the Stats tab.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
impairments+1
terminated+1
lack+1
Positive rising
No words rose this year.
MD&A (Item 7)
11,495 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CERTAIN STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS MAY CONTAIN THE WORDS “BELIEVE,” “ANTICIPATE,” “EXPECT,” “PLAN,” “PREDICT,” “ESTIMATE,” “PROJECT,” “WILL BE,” “WILL CONTINUE,” “WILL LIKELY RESULT,” OR OTHER SIMILAR WORDS AND PHRASES.
RISKS AND UNCERTAINTIES EXIST THAT MAY CAUSE RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE THE ANTICIPATED RESULTS TO DIFFER FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS INCLUDE THE FACTORS SET FORTH ON PAGES 4-5 OF THIS ANNUAL REPORT. THE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE THEY ARE MADE. 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.
This Management’s Discussion and Analysis contains the financial measure adjusted debt to capitalization ratio that is not presented in accordance with generally accepted accounting principles (“GAAP”) as it excludes the effects of secured financings payable. The Company is presenting this non-GAAP financial measure because it provides the Company’s management and readers of this Annual Report on Form 10-K with additional insight into the financial leverage of the Company. The Company does not intend for this non-GAAP financial measure to be a substitute for any GAAP financial information. In this Annual Report on Form 10-K, this non-GAAP financial measure has been presented with, and reconciled to, the most directly comparable GAAP financial measure. Readers of this Annual Report on Form 10-K should use this non-GAAP financial measure only in conjunction with the comparable GAAP financial measure. Because not all companies use identical calculations, the presentation of adjusted debt to capitalization ratio may not be comparable to other similarly titled measures of other companies.
Principles of Consolidation
The consolidated financial statements have been prepared in accordance with GAAP and reflect the consolidated operations of the Company. The consolidated financial statements include the accounts of First American Financial Corporation, all controlled subsidiaries and any variable interest entities where the Company is deemed the primary beneficiary. All significant intercompany transactions and balances have been eliminated. Equity investments in which the Company exercises significant influence but does not control and is not the primary beneficiary, are accounted for using the equity method of accounting. Equity investments in which the Company does not exercise significant influence over the investee and without readily determinable fair values, or non-marketable equity securities, are accounted for at cost, less impairment, and are adjusted up or down for any observable price changes.
Reportable Segments
The Company consists of the following reportable segments:
The title insurance and services segment issues title insurance policies on residential and commercial property in the United States and offers similar or related products and services internationally. This segment also provides closing and/or escrow services; accommodates tax-deferred exchanges of real estate; provides products, services and solutions designed to mitigate risk or otherwise facilitate real estate transactions; maintains, manages and provides access to title plant data and records; provides appraisals and other valuation-related products and services; provides lien release, document custodial and default-related products and services; provides document generation services; provides warehouse lending services; subservices mortgage loans; and provides banking, trust and wealth management services. The Company, through its principal title insurance subsidiary and such subsidiary’s affiliates, transacts its title insurance business through a network of direct operations and agents. Through this network, the Company issues policies in the 49 states that permit the issuance of title insurance policies, the District of Columbia and certain United States territories. The Company also offers title insurance, closing services and similar or related products and services, either directly or through third parties in other countries, including Canada, the United Kingdom, various countries in Europe, South Korea, Australia and New Zealand.
The home warranty segment sells products including residential service contracts that cover residential systems, such as heating and air conditioning systems, and certain appliances againstfailures that occur as the result of normal usage during the coverage period. This business currently operates in 36 states and the District of Columbia.
The corporate segment includes investments in venture-stage companies, certain financing facilities and corporate services that support the Company’s business operations.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires the application of accounting policies that often involve a significant degree of judgment. The Company’s management considers the accounting policies described below to be the most dependent on the application of estimates and assumptions in preparing the Company’s consolidated financial statements. See Note 1 Basis of Presentation and Significant Accounting Policies to the consolidated financial statements for a more detailed description of the Company’s significant accounting policies.
Provision for policy losses
The Company provides for title insurance losses through a charge to expense when the related premium revenue is recognized. The amount charged to expense is generally determined by applying a rate (the loss provision rate) to total title insurance premiums and escrow fees. The Company’s management estimates the loss provision rate at the beginning of each year and reassesses the rate quarterly to ensure that the resulting incurred but not reported (“IBNR”) loss reserve and known claims reserve included in the Company’s consolidated balance sheets together reflect management’s best estimate of the total costs required to settle all IBNR and known claims. If the ending IBNR reserve is not considered adequate, an adjustment is recorded.
The process of assessing the loss provision rate and the resulting IBNR reserve involves an evaluation of the results of an in-house actuarial review. The Company’s in-house actuary performs a reserve analysis utilizing generally accepted actuarial methods that incorporate cumulative historical claims experience and information provided by in-house claims and operations personnel. Current economic and business trends are also contemplated as part of the reserve analysis. These include conditions in the real estate and mortgage markets, changes in residential and commercial real estate values, and changes in the levels of defaults and foreclosures that may affect claims levels and patterns of emergence, as well as any company-specific factors that may be relevant to past and future claims experience. Results from the analysis include, but are not limited to, a range of IBNR reserve estimates and a single point estimate for IBNR as of the balance sheet date.
For recent policy years at early stages of development (generally the last four to five years), IBNR is generally estimated using a combination of expected loss rate and multiplicative loss development factor calculations. For more mature policy years, IBNR generally is estimated using multiplicative loss development factor calculations. The expected loss rate method estimates IBNR by applying an expected loss rate to total title insurance premiums and escrow fees and by adjusting for policy year maturity using estimated loss development patterns. Multiplicative loss development factor calculations estimate IBNR by applying factors derived from loss development patterns to losses realized to date. The expected loss rate and loss development patterns are based on historical experience and the relationship of the history to the applicable policy years.
The Company’s management uses the IBNR point estimate from the in-house actuary’s analysis and other relevant information concerning claims, including a range of IBNR reserve estimates, to determine what it considers to be the best estimate of the total amount required for the IBNR reserve.
The volume and timing of title insurance claims are subject to cyclical influences from both the real estate and mortgage markets. Title policies issued to lenders constitute a large portion of the Company’s title insurance volume. These policies insure lenders againstlosses on mortgage loans due to title defects in the collateral property. Even if an underlying title defect exists that could result in a claim, often the lender must realize an actual loss, or at least be likely to realize an actual loss, for a title insurance liability to exist. As a result, title insurance claims exposure is sensitive to lenders’ losses on mortgage loans and is affected in turn by external factors that affect mortgage loan losses, particularly macroeconomic factors.
A general decline in real estate prices can expose lenders to greater risk of losses on mortgage loans, as loan-to-value ratios increase and defaults and foreclosures increase. Title insurance claims exposure for a given policy year is also affected by the quality of mortgage loan underwriting during the corresponding origination year. The Company believes that the sensitivity of claims to external conditions in the real estate and mortgage markets is an inherent feature of title insurance’s business economics that applies broadly to the title insurance industry.
Title insurance policies are long-duration contracts with the majority of the claims reported to the Company within the first few years following the issuance of the policy. Generally, 65% to 75% of claim amounts become known in the first six years of the policy life, and the majority of IBNR reserves relate to the six most recent policy years. Changes in expected ultimate losses and corresponding loss rates for recent policy years are considered likely and could result in a material adjustment to the IBNR reserves. Based on historical experience, management believes a 50 basis point change to the loss rates for recent policy years, positive or negative, is reasonably likely given the long duration nature of a title insurance policy. In uncertain economic times an even larger change is more likely. As examples, if the expected ultimate losses for each of the last six policy years increased or decreased by 50 basis points, the resulting impact on the Company’s IBNR reserve would be an increase or decrease, as the case may be, of $162.7 million, and if expected ultimate losses for those same years were to fluctuate by 100 basis points, the resulting impact would be $325.4 million. A material change in expected ultimate losses and corresponding loss rates for older policy years is also possible, particularly for policy years with loss ratios exceeding historical norms. The estimates made by management in determining the appropriate level of IBNR reserves could ultimately prove to be materially different from actual claims experience.
The Company provides for claimslosses relating to its home warranty business based on the average cost per claim and historical loss experience as applied to the total of current claims incurred. The average cost per home warranty claim is calculated using the average of the most recent 12 months of claims experience adjusted for estimated future increases in costs.
A summary of the Company’s loss reserves is as follows:
December 31,
(dollars in millions)
Known title claims
IBNR title claims
Total title claims
Non-title claims
Total loss reserves
Activity in the reserve for known title claims is summarized as follows:
December 31,
(in millions)
Balance at beginning of year
Provision transferred from IBNR title claims related to:
Current year
Prior years
Payments, net of recoveries, related to:
Current year
Prior years
Other
Balance at end of year
Activity in the reserve for IBNR title claims is summarized as follows:
December 31,
(in millions)
Balance at beginning of year
Provision related to:
Current year
Prior years
Provision transferred to known title claims related to:
Current year
Prior years
Other
Balance at end of year
The provisions for title insurance losses, expressed as a percentage of title insurance premiums and escrow fees, were 3.0% for the years ended December 31, 2025 and 2024 and 3.25% for the year ended December 31, 2023. The 3.0% loss provision rate in the current year reflects an ultimate loss rate of 3.75% for the current policy year and a reserve release of 0.75%, or $39.8 million, for prior policy years, all of which are based on title insurance premiums and escrow fees for the year ended December 31, 2025.
The provision in 2025 related to current year increased by $26.1 million, or 15.1%, from 2024 as a result of increases in title premiums and escrow fees in 2025 from 2024. The provision in 2024 related to current year increased by $11.4 million, or 7.1%, from 2023 as a result of increases in title premiums and escrow fees in 2024 from 2023.
For further discussion of title provision recorded in 2025, 2024 and 2023, see Results of Operations, page 38 .
Fair value of debt securities
The Company categorizes the fair values of its debt securities using a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the Company (observable inputs) and the Company’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. The hierarchy level assigned to each security was based on management’s assessment of the transparency and reliability of the inputs used to estimate the fair values at the measurement date. See Note 17 Fair Value Measurements to the consolidated financial statements for a more detailed description of the three-level hierarchy and a description for each level.
The fair values of debt securities were based on the market values obtained from independent pricing services that were evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information and price quotes from well-established, independent broker-dealers. The independent pricing services monitor market indicators, industry and economic events, and for broker-quoted only securities, obtain quotes from market makers or broker-dealers that they recognize to be market participants. The pricing services utilize the market approach in determining the fair values of the debt securities held by the Company. The Company obtains an understanding of the valuation models and assumptions utilized by the services and has controls in place to determine that the values provided represent fair values. The Company’s validation procedures include comparing prices received from the pricing services to quotes received from other third-party sources for certain securities with market prices that are readily verifiable. If the price comparison results in differences over a predefined threshold, the Company will assess the reasonableness of the changes relative to prior periods given the prevailing market conditions and assess changes in the issuers’ credit worthiness, performance of any underlying collateral and prices of the instrument relative to similar issuances. To date, the Company has not made any material adjustments to the fair value measurements provided by the pricing services.
Typical inputs and assumptions to pricing models used to value the Company’s debt securities include, but are not limited to, benchmark yields, reported trades, broker-dealer quotes, credit spreads, credit ratings, bond insurance (if applicable), benchmark securities, bids, offers, reference data and industry and economic events. For mortgage-backed securities, inputs and assumptions may also include the structure of issuance, characteristics of the issuer, collateral attributes and prepayment speeds.
Credit losses on debt securities
When the fair value of an available-for-sale debt security falls below its amortized cost, the Company must determine whether the decline in fair value is due to credit-related factors or noncredit-related factors. Declines in fair value that are credit-related are recorded on the balance sheet through an allowance for credit losses with a corresponding adjustment to earnings and declines that are noncredit-related are recognized through other comprehensive income/loss.
If the Company intends to sell a debt security in an unrealized loss position or determines that it is more likely than not that the Company will be required to sell a debt security before it recovers its amortized cost basis, the debt security is impaired and it is written down to fair value with all losses recognized in earnings. As of December 31, 2025, the Company did not intend to sell any debt securities in an unrealized loss position and it is not more likely than not that the Company will be required to sell any debt securities before recovery of their amortized cost basis.
For debt securities in an unrealized loss position for which the Company does not intend to sell the debt security and it is not more likely than not that the Company will be required to sell the debt security, the Company determines whether the loss is due to credit-related factors or noncredit-related factors. For debt securities in an unrealized loss position for which the losses are primarily due to credit-related factors, the Company’s policy is to recognize the entire loss in earnings. For debt securities in an unrealized loss position for which the losses are determined to be the result of both credit-related and noncredit-related factors, the credit loss is determined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis of the debt security. The cash flows expected to be collected are discounted using the effective interest rate (i.e., purchase yield) and for variable rate securities the interest rate is fixed at the rate in effect at the credit loss measurement date.
Expected future cash flows for debt securities are based on qualitative and quantitative factors specific to each security, including the probability of default and the estimated timing and amount of recovery. The detailed inputs used to project expected future cash flows may be different depending on the nature of the individual debt security.
Impairment assessment for goodwill
The Company is required to perform an annual goodwill impairment assessment for each reporting unit for which goodwill has been allocated. The reporting units that have been allocated goodwill include title insurance and home warranty. The Company’s trust and other services and corporate reporting units have no allocated goodwill and are, therefore, not assessed for impairment. The Company has elected to perform this annual assessment in the fourth quarter of each fiscal year or sooner if circumstances indicate possible impairment. Based on accounting guidance, the Company has the option to perform a qualitative assessment to determine if the fair value is more likely than not (i.e., a likelihood of greater than 50%) less than the carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test, or may choose to forego a qualitative assessment and perform a quantitative impairment test. The qualitative factors considered in this assessment may include macroeconomic conditions, industry and market considerations, overall financial performance as well as other relevant events and circumstances as determined by the Company. The Company evaluates the weight of each factor to determine whether it is more likely than not that impairment may exist. If the results of a qualitative assessment indicate the more likely than not threshold was not met, the Company may choose not to perform a quantitative impairment test. If, however, the more likely than not threshold is met, the Company will perform a quantitative test as required and discussed below.
Management’s quantitative impairment testing compares the fair value of each reporting unit to its carrying amount. The fair value of each reporting unit is determined by using discounted cash flow analysis and, where appropriate, market approach valuations. If the fair value of the reporting unit exceeds its carrying amount, the goodwill is not considered impaired and no additional analysis is required. However, if the carrying amount is greater than the fair value, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the loss recognized limited to the total amount of goodwill allocated to that reporting unit.
The quantitative impairment test for goodwill utilizes a variety of valuation techniques, all of which require the Company to make estimates and judgments. Fair value is determined by employing an expected present value technique, which utilizes expected cash flows and an appropriate discount rate. The use of comparative market multiples (the “market approach”) compares the reporting unit to other comparable companies (if such comparables are present in the marketplace) based on valuation multiples to arrive at a fair value. In assessing the fair value, the Company utilizes the results of the valuations (including the market approach to the extent comparables are available) and considers the range of fair values determined under all methods and the extent to which the fair value exceeds the carrying amount of the reporting unit.
The valuation of each reporting unit includes the use of assumptions and estimates of many critical factors, including revenue growth rates and operating margins, discount rates and future market conditions, determination of market multiples and the establishment of a control premium, among others. Forecasts of future operations are based, in part, on operating results and the Company’s expectations as to future market conditions. These types of analyses contain uncertainties because they require the Company to make assumptions and to apply judgments to estimate industry economic factors and the profitability of future business strategies. However, if actual results are not consistent with the Company’s estimates and assumptions, the Company may be exposed to future impairmentlosses that could be material.
The Company performed qualitative assessments for both reporting units in 2025 and 2024. In 2023, the Company chose to perform a quantitative impairment test for its title insurance reporting unit and a qualitative assessment for its home warranty reporting unit. The results of the Company’s qualitative assessments in 2025 and 2024 for both reporting units and, in 2023, for the home warranty reporting unit, supported the conclusion that the reporting unit fair values were not more likely than not less than their carrying amounts and, therefore, a quantitative impairment test was not considered necessary. Based on the results of the quantitative test in 2023, the Company determined that the fair value for the title insurance reporting unit exceeded its carrying amount and no additional analysis was required. As a result of the Company’s annual goodwill impairment assessments, the Company did not record any goodwill impairmentlosses for 2025, 2024 or 2023.
Income taxes
The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are expected to be recovered and expected levels of taxable income. A valuation allowance is established when it is considered more likely than not that some or all of the deferred tax assets will not be realized.
The Company recognizes the effect of income tax positions only if sustaining those positions is considered more likely than not. Changes in recognition or measurement of uncertain tax positions are reflected in the period in which a change in judgment occurs. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
Pending Accounting Pronouncements
See Note 1 Basis of Presentation and Significant Accounting Policies to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data of Part II of this report.
Results of Operations
Overview
(dollars in millions)
$ Change
% Change
$ Change
% Change
Revenues by Segment
Title insurance and services
Home warranty
Corporate and eliminations
A substantial portion of the revenues for the Company’s title insurance and services segment result from sales of, and refinancings of loans on, residential and commercial real estate. In the home warranty segment, revenues associated with the initial year of coverage are impacted by volatility in residential purchase transactions. Traditionally, the greatest volume of real estate activity, particularly residential purchase activity, has occurred in the spring and summer months. However, changes in interest rates, as well as other changes in general economic conditions in the United States and abroad, can cause fluctuations in the traditional pattern of real estate activity.
The Company’s total revenues for 2025 were $7.5 billion, which reflected an increase of $1.3 billion, or 21.6%, when compared with $6.1 billion for 2024. This increase was primarily attributable to increases in direct premiums and escrow fees of $316.7 million, or 12.9%, agent premiums of $397.5 million, or 15.5%, and information and other revenue of $127.4 million, or 13.3%. The Company’s total revenues for 2025 also included $20.9 million of net investment gains compared to $401.6 million of net investment losses for the prior year. The increase in direct premiums and escrow fees attributable to the title insurance and services segment for 2025 totaled $299.2 million, or 14.6%, which included increases from domestic commercial and residential refinance transactions of $241.4 million, or 31.7%, and $39.7 million, or 42.1%, respectively, in 2025 when compared to 2024. Direct premiums and escrow fees from domestic residential purchase transactions decreased $21.5 million, or 2.2%, in 2025 when compared to 2024.
According to the Mortgage Bankers Association’s January 21, 2026 Mortgage Finance Forecast (the “MBA Forecast”), based on the total dollar value of the transactions, residential mortgage originations in the United States increased 21.6%, purchase originations increased 1.3% and refinance originations increased 99.4% in 2025, when compared to 2024. This volume of domestic residential mortgage origination activity contributed to an increase in direct premiums and escrow fees for the Company’s direct title operations of 42.1% from domestic residential refinance transactions and a decrease of 2.2% from domestic residential purchase transactions in 2025, when compared to 2024.
During 2025, the level of domestic title orders opened per day by the Company’s direct title operations increased 11.0% when compared to 2024. Also, during 2025, residential refinance opened orders per day and commercial opened orders per day increased by 47.1% and 9.5%, respectively, while residential purchase opened orders per day decreased 3.1% when compared to 2024.
Title Insurance and Services
(dollars in millions)
$ Change
% Change
$ Change
% Change
Revenues
Direct premiums and escrow
fees
Agent premiums
Information and other
Net investment income
Net investment gains (losses)
Expenses
Personnel costs
Premiums retained by agents
Other operating expenses
Provision for policy losses and
other claims
Depreciation and amortization
Premium taxes
Interest
Income before income taxes
Pretax margin
Not meaningful
Direct premiums and escrow fees increased $299.2 million, or 14.6%, in 2025 from 2024 and $191.9 million, or 10.3%, in 2024 from 2023. The increases in 2025 from 2024 and 2024 from 2023 were primarily due to increases in the number of domestic title orders closed and the domestic average revenues per order. The domestic average revenues per order closed were $3,961, $3,817 and $3,502 for 2025, 2024 and 2023, respectively. The 3.8% increase in average revenues per order closed in 2025 from 2024 was due to an increase in average revenues per order on commercial and purchase transactions, partially offset by a shift in the mix from higher premium commercial transactions to lower premium refinance and default transactions. The 9.0% increase in average revenues per order closed in 2024 from 2023 was primarily due to increases in average revenues per order on commercial and purchase transactions, partially offset by a shift in the mix from higher premium commercial transactions to lower premium refinance transactions. The Company’s direct title operations closed 531,900, 480,700 and 474,900 domestic title orders during 2025, 2024 and 2023, respectively. The 10.7% increase in orders closed in 2025 from 2024 and the 1.2% increase in orders closed in 2024 from 2023 were generally consistent with the changes in residential mortgage origination activity in the United States as reported in the MBA Forecast.
Agent premiums increased $397.5 million, or 15.5%, in 2025 from 2024 and $112.6 million, or 4.6%, in 2024 from 2023. Agent premiums are recorded when notice of issuance is received from the agent, which is generally when cash payment is received by the Company. As a result, there is generally a delay between the agent’s issuance of a title policy and the Company’s recognition of agent premiums. Therefore, full year agent premiums typically reflect mortgage origination activity from the fourth quarter of the prior year through the third quarter of the current year. The increase in agent premiums in 2025 from 2024 was generally consistent with the 17.0% increase in the Company’s direct premiums and escrow fees in the twelve months ended September 30, 2025 as compared with the twelve months ended September 30, 2024. The increase in agent premiums in 2024 from 2023 was generally consistent with the 2.6% decrease in the Company’s direct premiums and escrow fees in the twelve months ended September 30, 2024 as compared with the twelve months ended September 30, 2023.
Information and other revenues primarily consist of revenues generated from fees associated with title search and related reports, title and other real property records and images, other non-insured settlement services and risk mitigation products and services. These revenues generally trend with direct premiums and escrow fees but are typically less volatile since a portion of the revenues are subscription based and do not fluctuate with transaction volumes.
Information and other revenues increased $112.3 million, or 12.0%, in 2025 from 2024 and $21.1 million, or 2.3%, in 2024 from 2023. The increase in information and other revenues in 2025 from 2024 was primarily attributable to an increase in refinance activity in the Company's Canadian operations, revenue growth in the Company's mortgage loan subservicing business and an increase in demand for the Company’s non-insured information products and services. The increase in information and other revenues in 2024 from 2023 was primarily attributable to increased volume in the Company's commercial and international businesses.
Net investment income increased $60.5 million, or 11.3%, in 2025 from 2024 and decreased $5.9 million, or 1.1%, in 2024 from 2023. The increase in 2025 from 2024 was primarily attributable to increases in interest income from the Company’s investment portfolio, partially offset by lower interest income from operating cash due to lower balances and the impact of lower short-term interest rates. The decrease in 2024 from 2023 was primarily attributable to declines in the Company’s escrow and tax-deferred property exchange balances, partially offset by an increase in interest income from the Company’s warehouse lending business and investment portfolio.
Net investment gains of $25.5 million in 2025 were primarily attributable to changes in the fair values of marketable equity securities and an unrealized gain on a non-marketable equity investment within the Company’s venture investment portfolio, partially offset by impairments on capitalized internal-use software and losses recognized on sales of debt securities. Net investment gains/losses totaled losses of $345.4 million in 2024 and were primarily attributable to losses realized from the Company’s investment portfolio rebalancing project and asset impairments, partially offset by an increase in the fair values of marketable equity securities. Net investment losses of $38.2 million in 2023 were primarily attributable to losses recognized on sales of debt securities, partially offset by changes in the fair values of marketable equity securities.
Direct operations in the title insurance and services segment are labor intensive; accordingly, a major expense component is personnel costs. Labor costs are driven by two primary considerations: the need to optimize staffing levels to match the level of corresponding or anticipated new orders and the need to provide quality service. The Company continues to closely monitor order volumes and related staffing levels and adjusts staffing levels as considered necessary. The Company’s direct title operations opened 714,500, 646,400 and 648,900 domestic title orders in 2025, 2024 and 2023, respectively, representing an increase of 10.5% in 2025 from 2024 and a decrease of 0.4% in 2024 from 2023.
Personnel costs increased $178.2 million, or 9.1%, in 2025 from 2024 and $77.2 million, or 4.1%, in 2024 from 2023. The increase in personnel costs in 2025 from 2024 was primarily attributable to higher incentive compensation expense due to higher revenue and profitability and higher salaries, employee benefits, payroll taxes and share-based compensation expenses. The increase in personnel costs in 2024 from 2023 was primarily attributable to higher salaries and incentive compensation expense due to higher revenue and profitability, employee benefits and payroll tax expense. Personnel costs also included severance expenses of $11.7 million, $8.3 million, and $12.6 million for 2025, 2024, and 2023, respectively.
A summary of premiums retained by agents and agent premiums is as follows:
(dollars in millions)
Premiums retained by agents
Agent premiums
% retained by agents
The premium split between underwriter and agents is in accordance with the respective agency contracts and can vary from region to region due to divergences in real estate closing practices and state regulations. As a result, the percentage of title premiums retained by agents can vary due to the geographic mix of revenues from agency operations. The changes in the percentage of title premiums retained by agents in 2025 from 2024 and in 2024 from 2023 were primarily due to changes in the geographic mix of agency revenues.
Other operating expenses increased $89.2 million, or 9.0%, in 2025 from 2024 and $54.8 million, or 5.8%, in 2024 from 2023. The increase in 2025 from 2024 was primarily attributable to higher production expenses on higher volumes and increases in software and travel expenses. The increase was partially offset by credits related to a reserve release in our Canadian operations and the release of an acquisition-related incentive obligation in 2025. The increase in 2024 from 2023 was primarily attributable to higher production expense on higher volumes and increases in software and legal expenses, and lower bank credits.
The provisions for policy losses and other claims, expressed as a percentage of title insurance premiums and escrow fees, were 3.0% for 2025 and 2024 and 3.25% for 2023.
The 3.0% loss provision rate in the current year reflects an ultimate loss rate of 3.75% for the current policy year and a reserve release of 0.75%, or $39.8 million, for prior policy years, all of which are based on title insurance premiums and escrow fees for 2025.
As of December 31, 2025, the IBNR claims reserve for the title insurance and services segment was $1.1 billion, which reflected management’s best estimate. The Company’s internal actuary determined a range of reasonable estimates of $948.0 million to $1.3 billion. The range limits are $147.9 million below and $185.5 million above management’s best estimate, respectively, and represent an estimate of the range of variation among reasonable estimates of the IBNR reserve. Actuarial estimates are sensitive to assumptions used in models, as well as the structures of the models themselves, and to changes in claims payment and incurral patterns, which can vary materially due to economic conditions, among other factors.
The 2024 loss provision rate of 3.0% reflected an ultimate loss rate of 3.75% for the 2024 policy year and a reserve release of 0.75%, or $34.6 million, for prior policy years, all of which are based on title insurance premiums and escrow fees for 2024. The 2023 loss provision rate of 3.25% reflected an ultimate loss rate of 3.75% for the 2023 policy year and a reserve release of 0.5%, or $21.6 million, for prior policy years, all of which are based on title insurance premiums and escrow fees for 2023.
Depreciation and amortization expense increased $8.6 million, or 4.3%, in 2025 from 2024 and $18.6 million, or 10.1%, in 2024 from 2023. The increases in depreciation and amortization expense in 2025 from 2024 and in 2024 from 2023 were primarily attributable to higher amortization of capitalized internal-use software from recently deployed digital settlement products, partially offset by lower amortization of purchase-related intangible assets.
Insurers generally are not subject to state income or franchise taxes. However, in lieu thereof, a premium tax is imposed on certain operating revenues, as defined by statute. Tax rates and bases vary from state to state; accordingly, the total premium tax burden is dependent upon the geographical mix of operating revenues. The Company’s noninsurance subsidiaries are subject to state income tax and do not pay premium tax. Accordingly, the Company’s total tax burden at the state level for the title insurance and services segment is composed of a combination of premium taxes and state income taxes. Premium taxes as a percentage of title insurance premiums and escrow fees were 1.5% for 2025 and 1.4% for 2024 and 2023.
Interest expense decreased $0.4 million, or 0.4%, in 2025 from 2024 and increased $14.3 million, or 17.4%, in 2024 from 2023. The decrease in 2025 from 2024 was primarily attributable to lower interest expense in the Company’s warehouse lending business due to a decline in interest rates. The increase in 2024 from 2023 was primarily attributable to higher interest expense in the Company’s warehouse lending business.
Pretax margins for the title insurance business reflect the high cost of performing the essential services required before insuring title, whereas the corresponding revenues are subject to regulatory and competitive pricing restraints. Due to the relatively high proportion of fixed costs in the title insurance business, pretax margins generally improve as closed order volumes increase. Pretax margins for the segment are also impacted by (1) net investment income and net investment gains or losses, which may not move in the same direction as closed order volumes, (2) the composition (residential or commercial) and type (resale, refinancing or new construction) of real estate activity and (3) the percentage of title insurance premiums generated by agency operations as margins from direct operations are generally higher than from agency operations due primarily to the large portion of the premium that is retained by the agent. The title insurance and services segment recorded pretax margins of 12.1%, 4.3% and 8.6% for 2025, 2024 and 2023, respectively.
Home Warranty
(dollars in millions)
$ Change
% Change
$ Change
% Change
Revenues
Direct premiums
Information and other
Net investment income
Net investment (losses) gains
Expenses
Personnel costs
Other operating expenses
Provision for policy losses and other
claims
Depreciation and amortization
Premium taxes
Income before income taxes
Pretax margin
Direct premiums increased $17.4 million, or 4.4%, in 2025 from 2024 and $2.2 million, or 0.6% in 2024 from 2023. The increases in direct premiums in 2025 from 2024 and 2024 from 2023 were primarily attributable to increases in the average price per policy.
Personnel costs and other operating expenses increased $7.3 million, or 4.4%, in 2025 from 2024 and $6.6 million, or 4.1%, in 2024 from 2023. The increase in 2025 from 2024 was primarily attributable to higher marketing, salaries and incentive compensation expenses, partially offset by lower deferred policy acquisition expense. The increase in 2024 from 2023 was primarily attributable to higher advertising, postage, salary and employee benefits expense, partially offset by lower sales tax, technology and deferred policy acquisition expense.
The provision for home warranty claims, expressed as a percentage of home warranty premiums, was 41.4% in 2025, 46.4% in 2024 and 48.8% in 2023. The decrease in the claims rate in 2025 from 2024 was primarily attributable to lower claims frequency. The decrease in the claims rate in 2024 from 2023 was primarily attributable to lower severity, partially offset by higher frequency.
A large portion of the revenues for the home warranty segment are generated by renewals and are not dependent on the level of real estate activity in the year of renewal. With the exception of the provision for losses, the majority of the expenses for this segment are variable in nature and, therefore, generally fluctuate with revenue. Accordingly, pretax margins (before provision for losses) are relatively constant, although, as a result of some fixed expenses, profit margins (before provision for losses) should nominally improve as premium revenues increase. Pretax margins are also impacted by net investment income and net investment gains or losses, which may not move in the same direction as premium revenues. The home warranty segment recorded pretax margins of 19.5%, 15.1% and 13.0% for 2025, 2024 and 2023, respectively.
Corporate
(dollars in millions)
$ Change
% Change
$ Change
% Change
Revenues
Information and other
Net investment income
Net investment losses
Expenses
Personnel costs
Other operating expenses
Provision for policy losses and other
claims
Depreciation and amortization
Interest
Loss before income taxes
Information and other revenues of $14.8 million in 2025 were attributable to an insurance recovery.
Net investment losses totaling $4.3 million, $57.5 million and $162.3 million for 2025, 2024, and 2023, respectively, primarily resulted from unrealized losses and impairment charges on non-marketable equity investments within the Company’s venture investment portfolio and included unrealized losses and gains resulting from fluctuations in the fair value of the Company’s investment in Offerpad Solutions Inc.
Personnel costs and other operating expenses totaled $82.9 million, $60.1 million and $81.8 million in 2025, 2024 and 2023, respectively. The increase in 2025 when compared to 2024 was primarily attributable to higher severance and share-based compensation expenses, fluctuations in returns on participant investments within the Company’s deferred compensation plan and the lack of a reinsurance credit received in 2024. The decrease in 2024 when compared to 2023 was primarily attributable to fluctuations in returns on participant investments within the Company’s deferred compensation plan, receipt of a reinsurance credit in 2024 and lower legal and incentive compensation expenses, which were recorded in 2023 related to the cybersecurity event.
Interest expense increased $6.5 million, or 12.0%, in 2025 from 2024 and $2.9 million, or 5.6%, in 2024 from 2023. The increases in 2025 from 2024 and 2024 from 2023 were primarily due to the issuance of $450 million 5.45% senior unsecured notes in September 2024, partially offset by the repayment of the Company's $300 million 4.60% senior unsecured notes, upon maturity, in November 2024.
Eliminations
The Company’s inter-segment eliminations were not material for 2025, 2024 and 2023.
Income Taxes
The Company's actual income tax expense differs from the expense computed by applying the federal income tax rate of 21% for 2025, 2024 and 2023. A reconciliation of these differences is summarized as follows:
Year ended December 31,
(dollars in millions)
Taxes calculated at federal rate
State taxes, net of federal benefit
Foreign tax effects
Effect of changes in tax laws or rates enacted
in the current period
Effect of cross-border tax laws
Tax credits
Valuation allowance
Changes in unrecognized tax benefits
Other items, net
The Company’s effective income tax rates (income tax expense as a percentage of income before income taxes) were 24.3% for 2025, 19.8% for 2024 and 21.5% for 2023. The differences in the year over year effective tax rates are typically due to changes in state and foreign income taxes resulting from fluctuations in the Company’s noninsurance and foreign subsidiaries’ contributions to pretax income and permanent differences between amounts reported for financial statement purposes and amounts reported for income tax purposes. In addition, the effective tax rates reflect tax credits claimed in current and prior years. The effective income tax rates for 2024 and 2023 also reflect the impact on pretax earnings from impairmentlosses on the Company’s venture investment portfolio and adjustments to the valuation allowance resulting from losses on certain equity investments and, for 2024, realized losses from sales of debt securities in an unrealized loss position in connection with the Company’s portfolio rebalancing project. See Note 14 Incomes Taxes to the consolidated financial statements for a detailed reconciliation.
Net Income and Net Income Attributable to the Company
Net income and per share information are summarized as follows:
Year ended December 31,
(in millions, except per share amounts)
Net income attributable to the Company
Net income per share attributable to the Company’s
stockholders:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
See Note 15 Earnings Per Share to the consolidated financial statements for further discussion of earnings per share.
Liquidity and Capital Resources
Cash requirements. The Company generates cash primarily from sales of its products and services and from investment income. The Company’s current cash requirements include operating expenses, taxes, payments of principal and interest on its debt, capital expenditures, dividends on its common stock, and may include business acquisitions, investments in and loans to private companies and repurchases of its common stock. Management forecasts the cash needs of the holding company and its primary subsidiaries and regularly reviews their short-term and long-term projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying such forecasts. Based on the Company’s ability to generate cash flows from operations, its liquid-asset position and amounts available on its revolving credit facility, management believes that its resources are sufficient to satisfy its anticipated operational cash requirements and obligations for at least the next twelve months.
The substantial majority of the Company’s business is dependent upon activity in the real estate and mortgage markets, which are cyclical and seasonal. Periods of increasing interest rates and reduced affordability, supply and mortgage financing availability generally have an adverse effect on residential real estate activity and, therefore, typically decrease the Company’s revenues. In contrast, periods of declining interest rates and increased affordability, supply and mortgage financing availability generally have a positive effect on residential real estate activity, which typically increases the Company’s revenues. Residential purchase activity is typically slower in the winter months with increased volumes in the spring and summer months. Residential refinance activity is typically more volatile than purchase activity and is highly impacted by changes in interest rates. Commercial real estate volumes are less sensitive to changes in interest rates but fluctuate based on local supply and demand conditions for space and financing availability.
Cash provided by operating activities totaled $950.8 million, $897.5 million and $354.3 million for 2025, 2024 and 2023, respectively, after claim payments, net of recoveries, of $358.4 million, $397.8 million and $381.8 million, respectively. The principal nonoperating uses of cash and cash equivalents for 2025, 2024 and 2023 were advances and repayments under secured financing agreements, purchases of debt and equity securities, dividends to common stockholders, capital expenditures and repurchases of company common shares. Principal nonoperating uses of cash and cash equivalents also included decreases in deposits at the Company’s banking operations for 2024 and repayments of senior unsecured notes for 2024 and 2023. The most significant nonoperating sources of cash and cash equivalents for 2025, 2024 and 2023 were borrowings and collections under secured financing agreements, and proceeds from the sales and maturities of debt and equity securities. Principal nonoperating sources of cash and cash equivalents also included increases in deposits at the Company’s banking operations for 2025 and 2023 and proceeds from issuance of unsecured senior notes in 2024. The net effect of all activities on total cash and cash equivalents were decreases of $330.8 million and $1.9 billion for 2025 and 2024, respectively, and an increase of $2.4 billion for 2023.
The Company continually assesses its capital allocation strategy, including decisions relating to dividends, stock repurchases, capital expenditures, acquisitions and investments. In September 2025, the quarterly cash dividend was increased to 55 cents per common share, representing a 2% increase. The dividend increase was effective beginning with the September 2025 dividend. In January 2026, the Company's board of directors approved a first quarter cash dividend of 55 cents per common share. Management expects that the Company will continue to pay quarterly cash dividends at or above the current level. The timing, declaration and payment of future dividends, however, falls within the discretion of the Company’s board of directors and will depend upon many factors, including the Company’s financial condition and earnings, the capital requirements of the Company’s businesses, restrictions imposed by applicable law and any other factors the board of directors deems relevant from time to time.
In July 2025, the Company’s board of directors approved a new share repurchase plan which authorizes the repurchase of up to $300 million of the Company’s common stock and terminated its prior share repurchase plan. Purchases may be made from time to time by the Company in the open market at prevailing market prices or in privately negotiated transactions. During 2025, the Company repurchased and retired 2.1 million shares of its common stock for a total purchase price of $122.3 million and, as of December 31, 2025, the Company has repurchased and retired 6.8 million shares of its common stock under the previous authorization for a total purchase price of $377.0 million.
Holding company. First American Financial Corporation is a holding company that conducts all of its operations through its subsidiaries. The holding company’s current cash requirements include payments of principal and interest on its debt, taxes, payments in connection with employee benefit plans, dividends on its common stock and other expenses. The holding company is dependent upon dividends and other payments from its operating subsidiaries to meet its cash requirements. The Company’s target is to maintain a cash balance at the holding company equal to at least twelve months of estimated cash requirements. At certain points in time, the actual cash balance at the holding company may vary from this target due to, among other factors, the timing and amount of cash payments made and dividend payments received. Pursuant to insurance and other regulations under which the Company’s insurance subsidiaries operate, the amount of dividends, loans and advances available to the holding company is limited, principally for the protection of policyholders. As of December 31, 2025, under such regulations, the maximum amount available to the holding company from its insurance subsidiaries for 2026, without prior approval from applicable regulators, was dividends of $382.0 million and loans and advances of $113.6 million. However, the timing and amount of dividends paid by the Company’s insurance subsidiaries to the holding company falls within the discretion of each insurance subsidiary’s board of directors and will depend upon many factors, including the level of total statutory capital and surplus required to support minimum financial strength ratings by certain rating agencies. Such restrictions have not had, nor are they expected to have, an impact on the holding company’s ability to meet its cash obligations.
As of December 31, 2025, the holding company’s sources of liquidity included $338.9 million of cash and cash equivalents and $900.0 million available on the Company’s revolving credit facility. Management believes that liquidity at the holding company is sufficient to satisfy anticipated cash requirements and obligations for at least the next twelve months.
Financing. The Company maintains a senior unsecured credit agreement with JPMorgan Chase Bank, N.A., in its capacity as administrative agent, and the lenders party thereto that provides for a $900.0 million revolving credit facility. The credit agreement includes an expansion option that permits the Company, subject to satisfaction of certain conditions, to increase the revolving commitments and/or add term loan tranches in an aggregate amount not to exceed $450.0 million. The obligations of the Company under the credit agreement are neither secured nor guaranteed. Proceeds from borrowings made from time to time under the credit agreement may be used for general corporate purposes. Unless terminated earlier, the credit agreement will terminate on May 17, 2028. At December 31, 2025, the Company had no outstanding borrowings under the facility.
At the Company’s election, borrowings of revolving loans under the credit agreement bear interest at (a) the Alternate Base Rate plus the applicable spread, (b) the Adjusted Term SOFR Rate plus the applicable spread, or (c) the Adjusted Daily Simple SOFR plus the applicable spread (in each case as defined in the credit agreement). The Company may select interest periods of one, three or six months for Adjusted Term SOFR Rate borrowings of loans. The applicable spread varies depending upon the Debt Rating assigned by Moody’s Investor Service, Inc., Standard & Poor's Rating Services and/or Fitch Ratings Inc. The minimum applicable spread for Alternate Base Rate borrowings is 0.125% and the maximum is 0.75%. The minimum applicable spread for Adjusted Term SOFR Rate and Adjusted Daily Simple SOFR borrowings is 1.125% and the maximum is 1.75%. The Alternate Base Rate is subject to a floor of 1.00% and the Adjusted Term SOFR Rate and the Adjusted Daily Simple SOFR are each subject to a floor of 0.00%. The rate of interest on any term loans incurred in connection with the expansion option will be established at or about the time such loans are made and may differ from the rate of interest on revolving loans.
The credit agreement includes representations and warranties, reporting covenants, affirmative covenants, negative covenants, financial covenants and events of default customary for financings of this type. Upon the occurrence of an event of default the lenders may accelerate the loans. Upon the occurrence of certain insolvency and bankruptcy events of default the loans will automatically accelerate. As of December 31, 2025, the Company was in compliance with the financial covenants under the credit agreement.
In addition to amounts available under its credit facility, certain subsidiaries of the Company maintain separate financing arrangements. The primary financing arrangements maintained by subsidiaries of the Company are as follows:
FirstFunding, Inc., a specialized warehouse lender to correspondent mortgage lenders, maintains secured warehouse lending facilities with several banking institutions. At December 31, 2025, outstanding borrowings under these facilities totaled $906.5 million.
First American Trust, FSB (“FA Trust”), a federal savings bank, maintains a secured line of credit with the Federal Home Loan Bank and maintains access to the Federal Reserve's Discount Window. At December 31, 2025, no amounts were outstanding under any of these facilities.
First Canadian Title Company Limited, a Canadian title insurance and services company, maintains credit facilities with certain Canadian banking institutions. At December 31, 2025, no amounts were outstanding under these facilities.
The Company’s debt to capitalization ratios were 30.7% and 30.8% at December 31, 2025 and 2024, respectively. The Company’s adjusted debt to capitalization ratios, excluding secured financings payable of $906.5 million and $643.8 million at December 31, 2025 and 2024, were 21.9% and 23.9%, respectively.
Investment portfolio. The Company maintains a high quality, liquid portfolio of debt and marketable equity securities that is primarily held at its insurance and banking subsidiaries. As of December 31, 2025, 95% of the Company’s investment portfolio consisted of debt securities, of which 72% were either United States government-backed or rated AAA/Aaa and 99% were either rated or classified as investment grade or better. Percentages are based on the estimated fair values of the securities. Credit ratings reflect published ratings obtained from globally recognized securities rating agencies. If a security was rated differently among the rating agencies, the lowest rating was selected. For further information on the credit quality of the Company’s debt securities portfolio at December 31, 2025, see Note 3 Debt Securities to the consolidated financial statements.
In addition to its debt and marketable equity securities portfolio, the Company maintains investments in non-marketable equity securities and securities accounted for under the equity method. For further information on the Company’s equity securities, see Note 4 Equity Securities to the consolidated financial statements.
Capital expenditures. Capital expenditures, which are primarily related to software development costs and purchases of property and equipment and software licenses, totaled $192.4 million, $235.2 million and $278.7 million for 2025, 2024 and 2023, respectively.
Off-balance sheet arrangements. The Company administers escrow deposits as a service to customers in its direct title operations. Escrow deposits totaled $9.3 billion and $8.9 billion at December 31, 2025 and 2024, respectively, of which $3.7 billion and $4.0 billion, respectively, were held at FA Trust. The remaining deposits were held at third-party financial institutions. Escrow deposits held at third-party financial institutions are not considered assets of the Company and, therefore, are not included in the accompanying consolidated balance sheets. All such amounts are placed in deposit accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation. The Company could be held contingently liable for the disposition of these assets.
Trust assets administered by FA Trust totaled $5.6 billion and $4.8 billion at December 31, 2025 and 2024, respectively, of which $173.9 million and $169.4 million, respectively, were held at FA Trust. The remaining trust assets were held at third-party financial institutions. Trust assets administered by FA Trust and held at third-party institutions are fiduciary client assets. As such, these trust assets are not considered assets of the Company and, therefore, are not included in the accompanying consolidated balance sheets. The Company could be held contingently liable if FA Trust were to breach any of its fiduciary duties.
In conducting its operations, the Company often holds customers’ assets in escrow, pending completion of real estate transactions and, as a result, the Company has ongoing programs for realizing economic benefits with various financial institutions. The results from these programs are included as either income or as a reduction in expense, as appropriate, in the consolidated statements of income based on the nature of the arrangement and benefit received.
The Company facilitates tax-deferred property exchanges for customers pursuant to Section 1031 of the Internal Revenue Code and tax-deferred reverse exchanges pursuant to Revenue Procedure 2000-37. As a facilitator and intermediary, the Company holds the proceeds from sales transactions and takes temporary title to property identified by the customer to be acquired with such proceeds. Upon the completion of each such exchange, the identified property is transferred to the customer or, if the exchange does not take place, an amount equal to the sales proceeds or, in the case of a reverse exchange, title to the property held by the Company is transferred to the customer. Like-kind exchange funds administered by the Company totaled $2.7 billion and $2.3 billion at December 31, 2025 and 2024, respectively. In 2025, FA Trust began administering like-kind exchange funds and, at December 31, 2025, held $93.6 million of such deposits. The like-kind exchange deposits held at third-party financial institutions are not included in the accompanying consolidated balance sheets as the proceeds and property are not considered assets of the Company due to the structure utilized to facilitate these transactions. All such amounts are placed in deposit accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation. The Company could be held contingently liable to the customer for the transfers of property, disbursements of proceeds and the returns on such proceeds.
In conducting its residential mortgage loan subservicing operations, the Company administers cash deposits on behalf of its clients. Cash deposits totaled $1.6 billion and $901.0 million at December 31, 2025 and 2024, respectively, of which
$1.0 billion and $606.5 million, respectively, were held at FA Trust. The remaining deposits were held at third-party financial institutions. Cash deposits held at third-party financial institutions are not considered assets of the Company and, therefore, are not included in the accompanying consolidated balance sheets. All such amounts are placed in deposit accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation. The Company could be held contingently liable for the disposition of these assets. In connection with certain accounts, the Company has ongoing programs for realizing economic benefits with various financial institutions whereby it earns economic benefits either as income or as a reduction in expense. In 2025, the Company agreed to provide a secured interest in certain debt securities with a fair value of $54.9 million as collateral to be maintained on deposit in connection with a new mortgage loan subservicing agreement.
Deposit balances held at FA Trust are temporarily invested in cash and cash equivalents and debt securities, with offsetting liabilities included in deposits in the accompanying consolidated balance sheets.
Item 7A. Quantitative and Qualitat ive Disclosures About Market Risk
The Company’s assets and liabilities include financial instruments subject to the risk of loss from adverse changes in market rates and prices. The Company’s primary market risk exposures relate to interest rate risk, equity price risk, foreign currency risk and credit risk.
The Company manages its primary market risk exposures through an investment committee made up of certain senior executives which is advised by an experienced investment management staff.
While the hypothetical scenarios below are considered to be near-term reasonably possible changes demonstrating potential risk, they are for illustrative purposes only and do not reflect the Company’s expectations about future market changes.
Interest Rate Risk
The Company monitors its risk associated with fluctuations in interest rates and makes investment decisions to manage accordingly. The Company does not currently use derivative financial instruments in any material amount to hedge these risks.
The Company’s exposure to interest rate changes primarily results from the Company’s significant portfolio of debt securities, which includes a high proportion of fixed-income securities, and from its financing activities. In general, the fair value of a fixed-income security increases or decreases inversely with a change in market interest rates. The Company also considers its investments in preferred stock to be exposed to interest rate risk. The fair values of the Company’s debt securities portfolio at December 31, 2025 and 2024 were $8.5 billion and $7.3 billion, respectively. One means of assessing the exposure of the Company’s debt securities portfolio to interest rate changes is a duration-based analysis that measures the potential changes in fair value resulting from a hypothetical parallel and instantaneous shift in interest rates across all maturities. Under this model, with all other factors held constant, the Company estimates that increases in interest rates of 100 and 200 basis points could cause the fair value of its debt securities portfolio (including investments in preferred stock) at December 31, 2025 to decrease by approximately $418.3 million, or 4.9%, and $834.1 million, or 9.8%, respectively, and at December 31, 2024 to decrease by approximately $387.2 million, or 5.3%, and $752.9 million, or 10.3%, respectively.
With respect to adjustable-rate debt, the Company is primarily exposed to the effects of changes in prevailing interest rates through its variable-rate credit facility and its interest bearing escrow deposit liabilities. As of December 31, 2025 and 2024, the Company had no outstanding borrowings under its credit facility. Assuming the full utilization of available funds under the facility of $900.0 million at December 31, 2025 and 2024, respectively, and assuming that the borrowings were outstanding for the entire year, increases of 50 and 100 basis points in the prevailing interest rate on the Company’s credit facility would result in increases in interest expense of $4.5 million and $9.0 million, respectively, for 2025 and 2024.
The Company’s interest bearing deposit liabilities totaled $3.0 billion and $2.6 billion at December 31, 2025 and 2024, respectively. These variable-rate customer savings accounts are subject to market rate fluctuations. The weighted-average interest rates were 1.84% and 1.89% for 2025 and 2024, respectively. Assuming increases in interest rates of 25 and 50 basis points and that the deposit amounts at December 31, 2025 and 2024 were held constant for the entire year, interest expense for 2025 would be higher by $7.5 million and $15.0 million, respectively, and 2024 would be higher by $6.5 million and $13.0 million, respectively.
Equity Price Risk
The Company is also subject to equity price risk related to its marketable equity securities portfolio. The fair value of the Company’s marketable equity securities portfolio (excluding preferred stock of $9.9 million and $12.1 million) was $467.7 million and $374.7 million as of December 31, 2025 and 2024, respectively. Assuming broad-based declines in equity market prices of 10% and 20%, with all other factors held constant, the fair value of the Company’s marketable equity securities portfolio at December 31, 2025 could decrease by $46.8 million and $93.5 million, respectively, and at December 31, 2024 could decrease by $37.5 million and $74.9 million, respectively.
Foreign Currency Risk
Although the Company has exchange rate risk for its operations in certain foreign countries, this risk is not material to the Company’s financial condition or results of operations. The Company does not currently use derivative financial instruments in any material amount to hedge its foreign exchange risk.
Credit Risk
The Company’s debt securities portfolio is subject to credit risk. The Company manages its credit risk through actively monitoring issuer financial reports, credit spreads, security pricing and credit rating migration. Further, diversification and concentration limits by asset type and credit rating are established and monitored by the Company’s investment committee.
The Company holds a large concentration in U.S. government agency securities, including agency mortgage-backed securities. In the event of discontinued U.S. government support of its federal agencies, material credit risk could be observed in the portfolio. The Company views that scenario as unlikely but possible.
The Company’s debt securities portfolio maintains an average credit quality rating of AA. For further information on the credit quality of the Company’s debt securities portfolio at December 31, 2025, see Note 3 Debt Securities to the consolidated financial statements.
