Greetings and welcome to the First American Financial Corporation first quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. A copy of today's press release is available on First American's website at www.firstam.com/investor. Please note that this call is being recorded and will be available for replay from the company's investor website for a short time by dialing 877-660-6853 or 216-127-415 and enter a conference ID 13729079. We will now turn the call over to Mr. Craig Barberio, Vice President, Investor Relations, to make the introductory statement.
Good morning, everyone, and welcome to First American's Earnings Conference Call for the first quarter of 2022. Joining us on today's call will be our Chief Executive Officer, Ken DeGiorgio, and Mark Seaton, Executive Vice President and Chief Financial Officer. Some of the statements made today may contain forward-looking statements that do not relate strictly to historical or current fact. These forward-looking statements speak only as of the date they are made, and the company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements. For more information on these risks and uncertainties, please refer to this morning's earnings release and the risk factors discussed in our Form 10-K and subsequent SEC filings.
Our presentation today contains certain non-GAAP financial measures that we believe provide additional insight into the operational efficiency and performance of the company relative to earlier periods and relative to the company's competitors. For more details on these non-GAAP financial measures, including presentation with and reconciliation to the most directly comparable GAAP financials, please refer to this morning's earnings release, which is available on our website at www.firstam.com. I will now turn the call over to our CEO, Ken DeGiorgio.
Thank you, Craig. Our company delivered good financial results in the first quarter, our seasonally slowest period. Revenue was $2 billion with earnings of $0.88 per share or $1.17 per share excluding net investment losses. The market is currently transitioning from record low interest rates to a more normalized environment, and we believe First American will outperform for two primary reasons. First, the market is shifting away from refinance transactions towards purchase and commercial transactions, which is where we have a greater market share. Second, we are the only title company that has a bank, which will enable us to capitalize on higher interest rates to a greater extent than our competitors. Based on the forward curve for Fed Funds, we expect growth in investment income to add about $150 million to our annualized pre-tax income by the end of this year.
In terms of our outlook for the remainder of 2022, we expect transaction levels in the purchase market to continue to be down from last year given inventory constraints and declining affordability. However, we expect strong housing demand supported by the strong economy and labor markets to continue to drive robust home price appreciation and, together with acquisitions, modest growth in purchase revenue this year. Also, given strong fundamentals in the commercial market, we are confident our commercial business will continue to operate at an elevated level into the second half of the year. Given the current market transition to a more normalized rate environment, we're sharpening our focus on expense management.
We will, however, continue to invest in strategic initiatives that drive our company's operational efficiency and future growth, including through ongoing funding of our title automation and digital closing initiatives and the expansion and enhancement of the data assets that fuel them. We've been active with share repurchases in response to market conditions that have resulted in our stock being undervalued in recent months. This year, we have repurchased 3.25 million shares for a total of $210 million at an average price of $64.64. I'm also pleased to report that our previously announced acquisition of Mother Lode Holding Company, a title agency with 92 offices across 11 states, including the key markets of California, Texas, and Arizona, is expected to close in May.
We are excited to welcome Mother Lode, which includes 10 highly successful regional brands and over 1,000 talented employees to our company. In closing, I want to thank our employees for all their hard work and accomplishments. It is their continuous focus on supporting each other, our customers, and our communities that, for the seventh consecutive year, resulted in First American being named to the 100 Best Companies to Work For list by Great Place to Work and Fortune magazine. Now I'd like to turn the call over to Mark for a more detailed discussion of our financial results.
Thank you, Ken. This quarter, we earned $0.88 per diluted share. Included in this quarter's results were $0.29 of net investment losses. Excluding these losses, we earned $1.17 per diluted share. Revenue in our title segment was $2 billion, up 8% compared with the same quarter of 2021. Commercial revenue was $242 million, a 48% increase over last year. We experienced strength across the board in terms of geography, asset class, and deal size. We closed 77 transactions in the U.S. with premiums greater than $250,000, up from 34 transactions last year. Our escrow balances totaled $15 billion at the end of the quarter, up from $10 billion at year-end, which indicates a healthy pipeline for commercial activity.
Purchase revenue was up 10% during the quarter, driven by a 16% increase in the average revenue per order, partially offset by a 5% decline in the number of orders closed. Our purchase orders declined from an unusually strong quarter in Q1 of 2021, which experienced the release of pent-up demand due to the pandemic. Refinance revenue declined 59% relative to last year due to the increase in mortgage rates. In the agency business, revenue was $948 million, up 12% from last year. Given the reporting lag in agent revenues of approximately one quarter, we experienced growth in remittances related to Q4 economic activity. Our information and other revenues were $302 million, up 9% relative to last year. Revenue growth was primarily due to the recently completed acquisition of ServiceMac.
Investment income within the title insurance and services segment was $53 million, a 23% increase relative to the prior year. The increase was primarily due to higher average invested balances. As the Federal Reserve raises rates, we expect to generate additional investment income from our escrow deposits, cash balances, 1,031 exchange deposits, and our bank investment portfolio, where we have over $1 billion of floating-rate securities. On the last earnings call, we estimated, based on current deposit balances, that a 25 basis point increase in the federal funds rate would equate to a $15 million-$20 million increase to our annualized investment income in the title segment. We believe this estimate is still appropriate and expect to see the benefit of the Fed's March rate hike beginning in the second quarter.
Based on the forward curve for the Fed Funds rate, we expect our investment income to grow by about $150 million on an annualized basis by the end of this year. Pre-tax margin in the title segment was 11%. Turning to the specialty insurance segment, operating revenue in our home warranty business totaled $104 million, up 5% compared with last year. Pre-tax income in home warranty was $16 million, up from $13 million in the prior year, primarily due to lower claims activity as the loss rate fell from 54% to 46%. Our property and casualty business had a pre-tax loss of $4 million this quarter.
To date, our policies in force have declined by 88% since the beginning of 2021, and we expect the full wind down of the property and casualty business to be completed in the third quarter of this year. The effective tax rate for the quarter was 24.6%. As a result of recent acquisitions, we expect that our normalized effective tax rate will be 24.5%, slightly higher than the 24% rate we've been using as a benchmark for the last several years, since a larger portion of our pre-tax income is now coming from our non-insurance businesses and is subject to higher state income taxes. In the first quarter, we repurchased 1.6 million shares for a total of $108 million at an average price of $69.04.
So far in the second quarter, we've repurchased an additional 1.7 million shares for a total of $102 million at an average price of $60.54. As Ken mentioned, in May, we expect to close our acquisition of Mother Lode Holding Company. The purchase price is $300 million, which represents 5.1x trailing 12-month adjusted EBITDA. Our debt-to-capital ratio as of March 31st was 29.1%, or 23.4% excluding secured financings payable. Now I would like to turn the call back over to the operator to take your questions.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. As for participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question is from Mark DeVries with Barclays. Please proceed.
Thank you. Could you discuss, you know, how you're thinking about managing expenses here, you know, as the refi volume slows and how you're thinking about that particularly relative to kind of the success ratio notion?
Yeah, a couple of things I'd say, Mark. Thanks for the question. You know, the first of all, you know, in terms of the success ratio, that's a metric we've been talking about for a long time. And one of the things that we note about the success ratio is it's really relevant when there's significant changes to revenue, either up or down. You know, this quarter, you know, our net operating revenue changed $50 million on a base of, you know, $2 billion.
It's the success ratio is not as relevant when you have small changes to revenue. I think we're going to see that for the rest of this year. As I talked about last quarter, you know, we think our revenue is going to be roughly flat. As a result, you know, the success ratio isn't going to be as meaningful. On the headcount side, though, one of the things I would say is that if we have businesses that, you know, that are experiencing declining order volumes, particularly because of the refi market, and we're reducing headcount in those areas. There's other areas where we're adding. For example, you know, NCS. You know, our commercial revenue was up 40%. We're adding in commercial. We're adding in Endpoint and in ServiceMac with some of these recent acquisitions.
There's kind of two things going on. We're reducing areas that are kind of order dependent. We're adding in areas that are growing. We have to kind of balance that as we go forward.
Got it. Second question. Was happy to see the share repurchase activity. Could you just talk more about kind of your appetite to do more of that should the shares continue to kind of trade near these levels?
Yeah, Mark, this is Ken. Thanks for the question. Yeah, I mean, it's, you know, as we noted, I mean, we've repurchased 3.25 million shares already. We've gotten more aggressive recently. You know, as we've said in the past, we're gonna evaluate, you know, share repurchases going forward, you know, compared to other capital deployment opportunities, be it M&A, investing, you know, back in the business and innovation and technology, you know, dividends in our venture capital portfolio. I will say if the current environment persists, we expect to be active in the repurchase market.
Okay, great. I'll just squeeze in one related follow-up on that. You know, I think private market valuations have obviously come off a fair amount in the Fintech space. Are you seeing more opportunity to put capital to work in kind of the mortgage tech space? Or are companies reluctant to kind of sell at these valuations right now?
Yeah, you know what? I mean, interestingly, we're not seeing the private values come off as much as you might be seeing in the publicly traded market. You know, we don't see a ton of, you know, attractive opportunities. You know, we've always been disciplined about investing in the venture space, and I think our hurdles are probably getting a little higher. I think, you know, as we've mentioned in the past, we've got two hurdles, one strategic and one financial. Both of those hurdles are probably getting a little higher in the current environment.
Okay, great. Thank you.
Our next question is from Bose George with KBW. Please proceed.
Thanks. Actually, first, just, you know, the comment about premiums or revenues being flat, I assume that includes the accretion from Mother Lode.
That's right, Bose. That's right. We're gonna expect to close Mother Lode here in May. When I say, you know, revenue's flat, that assumes acquisitions, and the biggest one is Mother Lode. That does include that.
Okay, great. Thanks. Just one more on the expenses. You know, was there anything sort of one time? I mean, you referred to the incentive comp in the release. Like, is there anything that sort of elevated it or should we just think of this as fairly normalized?
Yeah. I wouldn't say there was anything that was, you know, unusual. I mean, the one thing I would point out is that we had $12 million higher RSU expense in the title segment than we did a year ago. We're not allowed to sort of accrue our, you know, restricted stock units. Last year was a good year for bonuses 'cause it was a record year, and so we booked a lot of that in the first quarter. Our first quarter RSU expense was $12 million higher than last year. But, you know, that's an entry we do every first quarter. It's just higher this year. There was nothing unusual, other than that, other than I would say that.
Okay, great. Can you just give us an update on purchase order trends in April?
Through the first 19 business days in April, our purchase orders are 2,100 a day. It's down about 10% from a year ago. Refis are about 700 a day. That's down about 60% from a year ago. Our commercial transactions are all opens I'm talking about. Commercial's about 600 a day, and that's kind of where we were last year.
Okay, great. Thanks.
Thanks, Bose.
As a reminder, star one on your telephone keypad if you would like to ask a question. Our next question is from Brian Gilbert with BTIG. Please proceed.
Hi. Thanks. Good morning, guys. Wanted to ask about pre-tax margin in the title business. I know that typically we see a sequential improvement from Q1 to Q2 as volume picks up, and I'm wondering if we should expect to see that again in 2022 or if there's, you know, the headwinds on orders are going to affect that at all.
No. I think we're, you know, Q1, you know, based on what we see today, is definitely gonna be the seasonally slowest period. We, you know, margins are just gonna increase from here on out. One thing, you know, that we mentioned on the remarks that I'll just point out again is that, you know, as the Fed raises rates, I mean, we're going to get $15million-$20 million of annualized investment income. We saw that in March. You know, as soon as the Fed raised in March, you know, all of our banks, almost all of our banks increased their rates. We're gonna start to see a big benefit of investment income here, particularly as we get to the second half of the year.
Even if you excluded that, you know, we would still have higher margins, you know, in the latter quarters than we did in Q1. There's no question about that.
Okay, got it. Second question for me is on actually the agency margin. It looked like it came down around 60 basis points in Q1 2022 from Q1 2021. Is there anything to call out there? Then as we think about adding Mother Lode to the business, does that impact your overall agency percentage of the business?
In terms of the split, I think is what you're talking about, the agency margin, you know, it's really just a function more of geographies. You know, typically, it, as you know, I mean, we have better splits on the East Coast than the West Coast. It's really just a function of geography more than anything else. I think in terms of the Mother Lode acquisition, if it's an agent today, once we acquire it will be a direct operation. It really won't have an effect on our agency revenues. It'll basically flip to direct revenue once we close it.
Great. Thanks.
Thank you.
Our next question is from John Campbell with Stephens . Please proceed.
Hey, guys. Good morning.
Morning.
Morning, John.
Hey, back to your comments around the purchase rev being up this year. I mean, obviously, Mother Lode, the acquired orders are gonna help there. I guess first is, are you assuming organically purchase rev down on the year?
Yes. Organically, you know, excluding acquisitions, when we look at our purchase revenue, it'll be down slightly, you know, 2%-3%, something like that, based on what we're seeing today. We obviously have this situation where orders are falling, but we're getting a big benefit in the average fee per file. On an organic basis, I think we're a little bit less than flat. I think once you layer in the acquisitions, you know, we'll be high single digits% on purchase revenue.
Okay. I don't wanna put too fine of a point on it. I know there's a lot of moving parts here, but anyway, what's your rough sense for how much units are down on the year relative to price on an organic standpoint?
I don't think I understood your question, John. Can you explain that again?
Well, if you think about purchase revenue, it's you know, just a matter of the number of orders times price, HPA. Just curious about how you're thinking about the decline in orders, purchase orders versus
Oh
Upside the price.
Well, okay, I got you. So far, what I would say, you know, on the year. When you look at the first four months of the year, we're down, you know, high single digits in terms of orders. We think it might get a little bit better than that, but I think high single digit decline is probably reasonable assumption in terms of orders, again, on an organic basis. On an HPA, I think we should be, you know, 7%-8% up, something like that. One of the things that's happened is in the first quarter, our fee per file was up 16%.
Half of that is really because of the fact that we bought some independent escrow companies in Southern California, and there's revenue but not any orders attached to them. Organically, we're seeing about an 8% increase in HPA. They're roughly gonna wash out. Does that make sense?
Yeah, that makes sense.
In terms of orders and HPA.
That makes sense. I guess a decade ago, it was the rule of thumb was always. I feel like purchase was 2x the revenue per order of a refi. It seems like that's gone way the other way. Is it 3.5x now? What's a good way to think of that?
I'd say, generally speaking, it's about 2.5 x. You're right. It used to be 2 x, but because housing prices have increased and, you know, several years ago, we were taking rate. Now the rule of thumb is 2.5 x.
Okay, last one for me. The expected funding mix for the Mother Lode acquisition, just how much dry powder you have cash-wise, holding company, and what you expect debt-wise?
As of March, we had $813 million cash at the holding company. The Mother Lode acquisition is $300 million. We can obviously fund that without taking on additional debt. We've repurchased you know about $100 million of stock in April. Really kind of on a pro forma basis, we're about $400 million. It's a very comfortable place to be. I mean, one thing that we feel good about is we did the debt deal last year, where we raised $650 million at a 2.9% rate. You know, that's turning out to be a pretty good deal in hindsight. Effectively, what we did is we you know pre-borrowed for the Mother Lode deal.
We're just gonna fund it with cash on hand.
Okay, perfect. Thank you, guys.
There are no additional questions at this time. That will conclude this morning's call. We would like to remind listeners that today's call will be available for replay on the company's website or by dialing 877-660-6853 or 201-612-7415 and enter the conference ID number 13729079. The company would like to thank you for your participation. This concludes today's conference call. You may now disconnect.