Welcome to the First American Financial Corporation second quarter earnings conference call. At this time all participants are in 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 website at www.firstam.com/investor. Please note that the call is being recorded. We will now turn the call over to Craig Barberio, Vice President of Investor Relations, to make an introductory statement.
Good morning, everyone, and welcome to First American's earnings conference call for the second quarter of 2021. Joining us today will be our Chief Executive Officer, Dennis Gilmore, 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 information 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 Dennis Gilmore.
Thanks, Craig. Good morning, and thank you for joining our second quarter earnings call. All our core businesses are producing strong financial results. We are optimistic that 2021 will be an outstanding year for First American. Today, I will focus my comments on the progress we are making on a number of key strategic initiatives. Mark will then provide details on our second quarter results. The process of buying a home is complex and involves multiple parties. First American sits at the center of the transaction, coordinating among realtors, lenders, and consumers to protect the integrity of the process. As the transactions become increasingly digital, First American is focused on leveraging our unique property data and technology to enhance the customer experience and to make the process more efficient and secure for all parties. First American's data assets and process expertise provide a unique competitive advantage.
Last quarter, we announced our initiative to expand our title plants from 500 to 1,500. By building an additional thousand plants, our databases will cover approximately 80% of all real estate transactions. We've made significant progress since our launch. We are currently at 850 plants and are on track to achieve our goal of 1,500 by the year-end. These additional plants are currently being built on a go-forward basis and will accrue significant benefits to us in the years to come as our historical content becomes deeper and richer. Due to our patented extraction process, First American is in a unique position to build these plants at a fraction of our historical cost. Plus, we are now capturing virtually every data point on 7.5 million documents per month, up from five million last quarter.
Data that can be leveraged to automate title underwriting decisions in geographic areas that were previously done manually. In addition to our data leadership, we are focused on developing digital solutions to improve the customer experience. Across the enterprise, we are developing next-generation cloud-based technology to make it even easier for our customers to do business with us. For example, our direct division recently launched IgniteRE, a platform that provides real estate professionals with enhanced productivity tools and enables them to manage transactions from open to close with buyers, sellers, and settlement agents in a secure environment. IgniteRE and ClarityFirst, which we discussed last quarter, are two examples of technology investments we've made to strengthen our competitive edge, and more will follow. Both platforms make it easier to work with us and expand our customer relationships.
To support our technology initiatives, we've hired 130 product managers, designers, and engineers so far this year. These critical hires reflect our commitment to expand our position as the industry-leading innovator. Turning to our venture strategy, since 2019, we've invested $260 million in venture-backed companies in the PropTech ecosystem. These investments give us insight into high-growth technology companies, most of which have become strategic partners. In addition to providing strategic benefit, they are contributing to profits as well.
Venture investments will continue to be a component of our capital allocation strategy. In closing, I'm confident that 2021 will be another strong year for First American. All of our core divisions are performing well, and we have a healthy pipeline of business heading into the second half of the year. Our balance sheet is strong, and our strategy of focusing on data and technology to enhance the customer experience will continue to succeed. I'd now like to turn the call over to Mark, who will comment on our second quarter earnings.
Thank you, Dennis. We're pleased to report excellent results this quarter. We earned $2.72 per diluted share. Included in this quarter's results were $0.59 of net realized investment gains. Excluding these gains, we earned $2.13 per diluted share. I'll start with our title business. Revenue in our title segment was $2.1 billion, up 44% compared with the same quarter of 2020, due to the strength of the purchase and commercial markets. Purchase revenue was up 66%, driven by a 43% increase in the number of closed orders, coupled with a 16% increase in the average revenue per order. Commercial revenue was $223 million, a 104% increase over last year. Large transactions have resumed as we closed 54 transactions in the U.S. with premium greater than $250,000, up from just 12 last year. This year, we expect a record year in our commercial business.
Refinance revenue declined 23% relative to last year as the rise in mortgage rates that occurred during the first quarter put pressure on second quarter closings. On the agency side, revenue was a record $905 million, up 51% from last year. Given the reporting lag in agent revenues of approximately one quarter, we are experiencing a surge in remittances related to Q1 economic activity. Our information and other revenues were $298 million, up 31% relative to last year. Revenue growth was primarily due to higher demand for the company's title information products in our data and analytics, commercial, and loss mitigation business lines.
Investment income within the title insurance and services segment was $47 million, up 10%, primarily due to higher interest income from the company's warehouse lending business and higher average balances in the company's investment portfolio, partially offset by the impact of the decline in short-term interest rates on the company's tax-deferred property exchange and escrow balances. In our title segment, pre-tax margin was a record 19.1%. Excluding the impact of net realized investment gains, pre-tax margin was 16.3%. Turning to the specialty insurance segment, pre-tax earnings totaled $20 million, up from $7 million in 2020. Revenue in our home warranty business totaled $108 million, up 10% compared with last year. Pre-tax income in the home warranty business was $14 million, a decline of 13%, in part due to elevated claims expense. Our property and casualty business generated pre-tax income of $6 million this quarter.
Included in this quarter's results was a $12 million gain on the sale of our agency operations. At the end of the second quarter, our policies in force have declined by 22% at the beginning of the year, and we expect a 70% decline by year-end. The full wind-down of the property and casualty business is on track to be completed in the third quarter of 2022. The effective tax rate for the quarter was 24.0%, in line with our normalized tax rate. Cash flow from operations was $253 million in the second quarter, down from $344 million in the prior year, due primarily to the deferral of estimated tax payments allowed by taxing authorities during the height of the pandemic in 2020. With respect to the information security incident, as we previously disclosed, we reached a settlement with the SEC for $487,616.
The New York Department of Financial Services matter remains ongoing. We continue to believe that it, along with all other matters relating to the incident, will be immaterial. As Dennis mentioned in his remarks, we've invested a total of $260 million in venture-backed companies. This quarter, we recorded a $44 million gain related to our investment in Side, a real estate tech company that serves real estate agents, teams, and brokers. Our largest investment has been in Offerpad, an iBuyer that is now party to a merger with a SPAC, which recently announced that the value of the aggregate equity consideration to be paid to Offerpad stockholders and option holders will be equal to $2.25 billion. At that valuation, we would expect to book a gain of approximately $237 million on our $85 million equity investment. We expect this merger to close later this year.
Due to the growth of our venture portfolio, we have expanded disclosures in our Form 10-Q, which we expect to file later today. These disclosures will include the cost, unrealized gains, and carrying amount of our non-marketable equity securities, as well as information on concentration of these securities. We remain optimistic about our 2021 outlook. Although refinance orders have declined corresponding to an increase in mortgage rates, the purchase and commercial markets remains strong, our claims experience is favorable, and the general improvement in the economy is a tailwind to our business. Now, I would like to turn the call back over to the operator to take your questions.
Thank you. We will now be conducting a question- and- answer session. 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 star if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for your questions. Our first questions come from the line of Bose George with KBW. Please proceed with your questions.
Hey, everyone. Good morning. Actually, first just on the commercial, Mark, can you repeat what you said just on the large transactions? You said 54 transactions with premium greater than, I missed the dollar amount, and you compared it to last year. Just curious how that compared to 2020. Then just in commercial, can you just talk about where you're seeing the strength? Presumably this is happening without sectors like office really coming back.
Yeah. Bose, why don't I start? This is Dennis.
The numbers Mark references are commercial transactions, large transactions over 250, were 54 in the quarter, up over 4x from a year ago. You have to compare, last year in 2020, that was the first quarter of the pandemic, so probably a tough comparison there. To the second part of your question, though, is we're up across all geographic areas, almost all product types. Commercial is really strong right now, as we mentioned in the scripts. It likely will be very strong the rest of the year, probably trending towards a record performance in commercial.
Okay, great. Thanks. Can you just remind us what goes through that default and other line for order counts? This was up the last couple of quarters, and I assume that's not being driven by default. Just curious what's the breakout in there?
Yeah. It's a lot of our default orders go through that line item, including loss mitigation. We're doing a lot of loss mitigation work for lenders right now. It's really default and loss mitigation that went out.
Okay. That is picking up.
Specific foreclosures.
Like the foreclosure moratorium.
Our specific liabilities, it's not foreclosure work right now, it's loss mitigation work.
Okay. Great. Thanks a lot.
Okay.
Thank you. Our next questions come from the line of John Campbell with Stephens. Please proceed with your questions.
Hey, guys. Good morning. Congrats on a solid quarter.
Thank you.
On the expansion of the title plants, that's exciting for you guys. I guess the question here is how should we be thinking about just the net effect of those, I think you said 1.5 or 1,500 plants over the next several years. Thinking about that over the next couple of years, is there a good way to kind of frame up the incremental revenue opportunity versus maybe just the potential production cost savings? Anything you can provide there?
John, let me take a cut at that. It's really we're highlighting the strategic benefits we have with our data and our process components across the company. You start with we've got the largest public record databases now. We've really accelerated the growth there. We've mentioned it before, but we've got some very unique patented extraction technology, which allows us to basically capture every field off of the document, I mentioned that in my script. Last quarter, we were extracting five million components from the document. This quarter, it's 7.5 million. Basically, anything on a doc we can take now, and we're building the plan sets when we get to the plants. We mentioned earlier, early last quarter that we're going to run it up to 1,500 plants. We're now at 850. We'll be on track to hit 1,500 by the end of the year.
Now we're building these, John, on a go-forward basis. They're going to accrue benefit for us in the years to come as they become richer and deeper. But we have the technology to point it backwards if we need it. Bottom line, it's a little hard to quantify for our analysts right now. What it will allow us to do is to accelerate our title automation, leverage our data, couple it with our title assets.
Okay. That's helpful. Dennis, I've got a bigger picture industry question for you. It just seems like every day we're seeing a non-bank originator, just somebody in the value chain just looking to launch a title offering. Of course, you got the iBuyers. It's almost like they have to make that attachment work over time. To me, it just seems like the end result, if that's all effective, is maybe just a mix shift from direct to agency, and not really disintermediation. I'm just curious about, I guess first, how difficult do you think the attach rates are for those newer players? Secondly, whether you think that trend is a positive, negative, or maybe just a neutral over the long haul.
I'll start, John, with it ebbs and flows over the years, right? This is not a new phenomenon for us, and it has ebbed and flowed over the years. Right now, you do have a lot of people entering, we'll move from direct to agency. We don't try to fight that at all. We actually try to support it and embrace it. You see that in our venture strategy, by the way. Many of these companies are partners for us, we can deploy title assets or title information to them or data. Either way, it goes there. I think it will continue to ebb and flow probably as the market gets a little more normalized or difficult, maybe it's not as attractive as we go forward. It's something, again, at the end of the day, we don't fight.
We actually encourage and support no matter how somebody wants to distribute the product.
Okay. That's helpful. If I could squeeze in maybe just one more for Mark here. On the specialty insurance segment, once you kind of clear out the P&C contributions, you're left with obviously just the warranty business. How should we be thinking about that kind of underlying margin going forward?
Once you clear out the P&C business, and it's going to take a little bit of time because the wind-down will be complete in the third quarter of next year. When it's left, effectively, we're going to just have a home warranty segment. As we've talked about over the years, we're really high on the home warranty business.
When you look at the second quarter, we had an operating margin of 9%. That excludes investment income. Once you layer on investment income, it's more like 11%, 12%. Q2 is typically a tough quarter for us, because we're getting a lot of claims. A lot of air conditioners go out in the second quarter. Through the cycle and through the seasonality of the year, the margin typically are somewhere between the range of 13%-15% on a normalized basis. You'll see that again once the summer begins coming.
John, this is Dennis. I'd only add, you'll see in our disclosures that we broke out the performance of both home warranty and P&C, so our investors can get a better sense of what home warranty will look like when we're done wrapping up the P&C business.
Okay, that's perfect. Thank you, guys.
Sure.
Thank you. Our next question has come from the line of Mark DeVries with Barclays. Please proceed with your questions.
Yeah, thanks. A follow-up question on the commercial volumes. Those larger transactions tend to be pretty lumpy and episodic. As you look at your pipeline, though, does it look like this is consistent with that lumpiness, or do you actually see sustained strength as you look out through the end of the year on those larger transactions?
Yeah, we do see sustained strength. The deals you're really referencing, too, I'd reference them to those kind of mega deals. When we talk about the large deals, those are just, if you will, normal large deals. That strength, we think, will continue through the rest of the year.
Okay, great. On the purchase side, I think Mark highlighted that the fee profile was up about 16% year-over-year, which is actually kind of consistent with home price appreciation. You normally get about half of that. Are you seeing a positive mix benefit here, where more of the purchase is also coming from just higher-priced markets that's driving your fee up in line with home price appreciation?
Yeah, we are. Just overall, the market's very strong right now, and on this topic, we're very optimistic. Rates are low. Demographics are positive for us. We had a very strong spring selling season. I'll say in July right now, we're starting to trend a little more towards, I call it a seasonal market. We're probably down about 6% on the order counts right now in July. Also, we think that the purchase market also is starting to stabilize a little more, normalize, if you will. Inventories are ticking up a little bit. We're seeing less crazy bidding wars. We'll probably see less property appreciation in the year for the next year or so. All of those trends to us is a positive sign, not a negative. It makes the market more sustainable, more normal.
We think it's going to be a really good second half of the year, and we think 2022 is going to be a good year for purchase, too.
Okay, great. Can you just talk about how much of the strength in revenues in Info and Other might be more cyclical as opposed to you taking share?
Well, it's hard to say because info and other, as we know, is a collection of businesses. When we look at the biggest drivers of the growth this quarter, the biggest driver was commercial business. We actually grew info and other $15 million just because of commercial business that we did that didn't risk attach. It was property reports and exchange fees and commercial due diligence and things like that. Obviously we've got tailwinds in commercial. The second biggest driver was loss mitigation in our servicing business. As we talked about, foreclosure moratoriums are here at least until the end of this month. Lenders are doing a lot of loss mitigation work and we're the beneficiary of that. I would say that's somewhat cyclical. The third biggest driver was our data and analytics business.
We've just got a lot of momentum on the data and analytics business, both because of volumes, but also because we're doing a really good job of licensing our data to different parties and growing that. It's kind of a mix of things.
Okay, great. Thank you.
Thank you .
Thank you. Our next question's come from the line of Geoffrey Dunn with Dowling & Partners. Please proceed with your question.
Thanks. Good morning.
Good morning.
Dennis, I wanted to follow up on your comments initially about working on developing next-gen cloud platforms and hiring a bunch of people to develop cloud and digital efforts. Can you maybe give some more specific examples of areas you're focused on? There's been talk, obviously, the last couple of quarters, front end, back end experiences, all that kind of stuff. The other question I have is, as you develop these modules, do they sit naturally on the FAST System? Or is the FAST System something you're also investing in? It's been your kind of core system for years. I'm just curious if that's transitioning along with these other cloud initiatives.
Yeah. Thanks, Geoff. We're going to talk a little bit more about these issues, just so people know what we're up to, and that's why we mentioned all the developers and engineers we're hiring. Think of the FAST System as a system of record. ClarityFirst, IgniteRE, others. We've got these type of systems that are going to be the customer interface. They're being built out in every division. We've highlighted just two of them for the investors right now. We're building out new front ends across the enterprise right now to have a more enhanced digital experience, kind of to the next gen from how we think the digital experience will occur. We're going to continue to do that, Geoff. That's what we're talking about right now. We've built out Clarity. We've built out IgniteRE.
We've done them, again, going across all of our divisions. That's going to be an ongoing effort. We see the business moving into a digital future, and we believe we're leading that, and we're going to continue to lead that effort.
That's how we're thinking about that technology. I think we've talked a lot about the data and how that effort is driving greater innovation for us and greater title automation also.
Okay. I guess I'll leave it at that.
Thank you. Our next questions come from the line of John Campbell with Stephens. Please proceed with your questions.
Hey, guys. Thanks for the follow-up here. I think I might have missed this, but could you run through the July to date purchase and refi trends on the resi side?
Yeah, John. Sure. So far in July, on the purchase side, we're opening about 2,300 purchase orders a day with opens. On the refinance side, we're almost at, a little bit below 1,700 a day. Interesting, the first week or so with refis, we were about 1,400, 1,500. We have seen a pickup just in the last two days with the rates moving. To answer your question, for the month to date in July, we're almost 1,700.
Okay. I don't know if you have the clarity in the system or if you guys have insights onto the price side, but it looks like that all systems are still a go on price growth. Any kind of sense for what that's looking like in July so far?
That's not something we track intra-month, so we don't have a month to date. There's no question we've got tailwinds in terms of fee profile on the purchase side.
For sure. Okay, great. That's very helpful. Thank you, guys.
Thanks, John.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. There are no additional questions at this time. With that, this does conclude this morning's call. We'd 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 by entering the conference ID 137-213-69. The company would like to thank you for your participation. This concludes today's conference call. You may now disconnect.