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Stewart Reports Second Quarter 2021 Results

Jul 21, 2021
- Operating revenues of $802.0 million, an increase of $295.3 million, or 58 percent, compared to the prior year quarter
- Net income of $94.8 million ($86.0 million on an adjusted basis) compared to $34.1 million ($32.5 million on an adjusted basis) in the prior year quarter
- Diluted EPS of $3.50 ($3.17 on an adjusted basis) compared to prior year quarter diluted EPS of $1.44 ($1.37 on an adjusted basis)

HOUSTON, July 21, 2021 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported net income attributable to Stewart for the second quarter 2021 of $94.8 million ($3.50 per diluted share), compared to net income attributable to Stewart of $34.1 million ($1.44 per diluted share) for the second quarter 2020. On an adjusted basis, Stewart's second quarter 2021 net income was $86.0 million ($3.17 per diluted share), an increase of $53.5 million, or 165 percent, from $32.5 million ($1.37 per diluted share) in the second quarter 2020. Second quarter 2021 pretax income before noncontrolling interests was $129.5 million compared to pretax income before noncontrolling interests of $49.0 million for the second quarter 2020.

Second quarter 2021 results included $11.7 million of pretax net realized and unrealized gains, which included $7.3 million of realized gains from sales of buildings in the ancillary services and corporate segment and $3.7 million of net unrealized gains on fair value changes of equity securities investments recorded in the title segment.

Second quarter 2020 results included $5.1 million of pretax net realized and unrealized gains, which included $4.4 million of net unrealized gains on fair value changes of equity securities investments recorded in the title segment, and $2.8 million of severance expenses related to cost savings initiatives recorded within employee costs in the title segment.

"Our results this quarter were driven by continued strength in residential real estate transaction activity, an improving commercial business as the overall economy rebounds, and solid performances from both our international and ancillary services operations," commented Fred Eppinger, chief executive officer. "While Stewart continues to take advantage of a historic housing market, we remain focused on our longer term goals of providing our customers with the best title and closing services and technology possible, and our shareholders with improved operational performance through the entire real estate cycle. As always, I want to thank our associates for their commitment and hard work during these extraordinarily challenging times."

Selected Financial Information
Summary results of operations are as follows (dollars in millions, except per share amounts, and amounts may not foot as presented due to rounding):


Quarter Ended
June 30,


Six Months Ended
June 30,


2021

2020


2021

2020







Total revenues

818.8

516.1


1,507.4

956.0

Pretax income before noncontrolling interests

129.5

49.0


203.5

58.3

Income tax expense

(30.6)

(11.3)


(47.5)

(13.2)

Net income attributable to noncontrolling interests

(4.0)

(3.5)


(6.9)

(5.7)

Net income attributable to Stewart

94.8

34.1


149.1

39.3

Non-GAAP adjustments, after taxes*

(8.8)

(1.7)


(11.3)

6.6

Adjusted net income attributable to Stewart*

86.0

32.5


137.7

45.9

Net income per diluted Stewart share

3.50

1.44


5.51

1.66

Adjusted net income per diluted Stewart share*

3.17

1.37


5.09

1.93


* See Appendix A for an explanation and reconciliation of non-GAAP adjustments.

Title Segment
Summary results of the title segment are as follows (dollars in millions, except pretax margin):


Quarter Ended June 30,



2021

2020

% Change







Operating revenues

743.8

495.6

50%


Investment income

5.1

4.3

20%


Net realized and unrealized gains

4.2

4.6

(9)%


Pretax income

125.7

54.8

129%


Pretax margin

16.7%

10.9%



Pretax income for the title segment increased by $70.9 million, or 129 percent, while pretax margin improved 580 basis points to 16.7 percent in the second quarter 2021 compared to the prior year quarter. Title operating revenues increased $248.2 million, or 50 percent, as direct title and gross independent agency revenues grew $135.3 million, or 62 percent, and $112.9 million, or 41 percent, respectively. In line with the increased title revenues, overall segment operating expenses in the second quarter 2021 increased $177.8 million, or 40 percent, which included 41 percent and 37 percent higher agency retention expenses and combined title employee costs and other operating expenses, respectively, compared to the second quarter 2020. Average independent agency remittance rate in the second quarter 2021 was 17.5 percent, similar to the prior year quarter, while combined title employee costs and other operating expenses, as a percentage of title revenues, improved to 35.9 percent in the second quarter 2021 compared to 39.5 percent in the second quarter 2020.

Title loss expense increased $12.0 million, or 56 percent, primarily as a result of higher title revenues in the second quarter 2021 compared to the prior year quarter. As a percentage of title revenues, the title loss expense in the second quarter 2021 was 4.5 percent compared to 4.3 percent from the prior year quarter.

The segment's investment income increased $0.8 million, or 20 percent, primarily due to higher dividend income on cost-basis investments, which was partially offset by reduced interest income resulting from lower interest rates applicable to our short-term and securities investments during the second quarter 2021 compared to last year's quarter. Net realized and unrealized gains for the second quarters 2021 and 2020 were primarily driven by unrealized fair value changes of equity securities investments, as mentioned above.

Direct title revenues information is presented below (dollars in millions):


Quarter Ended June 30,



2021

2020

% Change









Non-commercial:






Domestic

239.0

162.7

47%



International

51.4

20.9

146%



Commercial:






Domestic

60.5

30.7

97%



International

2.6

3.9

(33)%



Total direct title revenues

353.5

218.2

62%








Direct title revenues increased as a result of overall revenue improvements in both non-commercial and commercial operations. Non-commercial revenues in the second quarter 2021 grew $106.8 million, or 58 percent, compared to the prior year quarter, primarily driven by increased transactions from both existing and recently-acquired title offices. Total residential purchase and refinancing closed orders in the second quarter 2021 increased 57 percent and 3 percent, respectively, compared to the second quarter 2020. Commercial revenues also improved in the second quarter 2021, primarily due to increased commercial transaction size and volume compared to the second quarter 2020. Domestic commercial and residential fees per file in the second quarter 2021 were approximately $12,600 and $2,100, respectively, which were 28 percent and 15 percent, respectively, higher compared to the second quarter 2020. Total international revenues increased 118 percent to $54.0 million in the second quarter 2021, compared to $24.8 million in the prior year quarter, primarily due to improved volumes in our Canadian operations.

Ancillary Services and Corporate Segment
Summary results of the ancillary services and corporate segment are as follows (dollars in millions):


Quarter Ended June 30,



2021

2020

% Change







Operating revenues

58.2

11.2

422%


Net realized gains

7.5

0.5

1,359%


Pretax income (loss)

3.8

(5.8)

166%


The segment's operating revenues increased $47.0 million, or 422 percent, in the second quarter 2021, compared to the prior year quarter, primarily due to revenues generated by recent acquisitions, which were partially offset by lower revenues from our legacy valuation services business due to lower home equity volume. The ancillary services operations generated pretax income of $2.2 million (which included $1.6 million of purchased intangibles amortization) in the second quarter 2021, compared to a pretax loss of $0.8 million in the second quarter 2020. Net realized gains during the second quarter 2021 were primarily driven by $7.3 million of realized gains resulting from sales of buildings within corporate operations. Net expenses attributable to parent company and corporate operations for the second quarters 2021 and 2020 were approximately $5.9 million and $5.5 million, respectively.

Expenses
Consolidated employee costs in the second quarter 2021 increased $50.9 million, or 37 percent, compared to the prior year quarter, primarily resulting from higher salaries expense driven by 21 percent higher average employee count, increased incentive compensation on improved overall operating results, and additional employee costs related to higher order volumes. As a percentage of total operating revenues, consolidated employee costs for the second quarter 2021 improved to 23.5 percent compared to 27.1 percent in the second quarter 2020.

Total other operating expenses in the second quarter 2021 increased $63.2 million, or 85 percent, compared to the prior year quarter. This increase was primarily driven by increased appraisal and service expenses by recently-acquired ancillary services businesses, higher outside title search and premium tax expenses on increased title revenues, and increased rent and other occupancy expenses related to recent acquisitions. As a percentage of total operating revenues, consolidated other operating expenses for the second quarter 2021 were 17.2 percent compared to 14.7 percent in the second quarter 2020.

Other
Net cash provided by operations in the second quarter 2021 improved to $103.0 million, compared to net cash provided by operations of $61.5 million in the second quarter 2020, primarily driven by the higher net income in the second quarter 2021.

Second quarter Earnings Call
Stewart will hold a conference call to discuss the second quarter 2021 earnings at 8:30 a.m. Eastern Time on Thursday, July 22, 2021. To participate, dial (877) 876-9176 (USA) and (785) 424-1670 (International) - access code STCQ221. Additionally, participants can listen to the conference call through Stewart's Investor Relations website at http://investors.stewart.com/news-and-events/events/default.aspx. The conference call replay will be available from 11:00 a.m. Eastern Time on July 22, 2021 until midnight on July 29, 2021, by dialing (800) 839-5247 (USA) or (402) 220-2703 (International) - the access code is also STCQ221.

About Stewart
Stewart (NYSE:STC) is a global real estate services company, offering products and services through our direct operations, network of Stewart Trusted Providers™ and family of companies. From residential and commercial title insurance and closing and settlement services to specialized offerings for the mortgage industry, we offer the comprehensive service, deep expertise and solutions our customers need for any real estate transaction. At Stewart, we are dedicated to becoming the premier title services company and we are committed to doing so by partnering with our customers to create mutual success. Learn more at stewart.com.

Cautionary statement regarding forward-looking statements. Certain statements in this earnings release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements relate to future, not past, events and often address our expected future business and financial performance.  These statements often contain words such as "may," "expect," "anticipate," "intend," "plan," "believe," "seek," "will," "foresee" or other similar words. Forward-looking statements by their nature are subject to various risks and uncertainties that could cause our actual results to be materially different than those expressed in the forward-looking statements. These risks and uncertainties include, among other things, the volatility of economic conditions, including the duration and ultimate impact of the COVID-19 pandemic; adverse changes in the level of real estate activity; changes in mortgage interest rates, existing and new home sales, and availability of mortgage financing; our ability to respond to and implement technology changes, including the completion of the implementation of our enterprise systems; the impact of unanticipated title losses or the need to strengthen our policy loss reserves; any effect of title losses on our cash flows and financial condition; the ability to attract and retain highly productive sales associates; the impact of vetting our agency operations for quality and profitability; independent agency remittance rates; changes to the participants in the secondary mortgage market and the rate of refinancing that affects the demand for title insurance products; regulatory non-compliance, fraud or defalcations by our title insurance agencies or employees; our ability to timely and cost-effectively respond to significant industry changes and introduce new products and services; the outcome of pending litigation; the impact of changes in governmental and insurance regulations, including any future reductions in the pricing of title insurance products and services; our dependence on our operating subsidiaries as a source of cash flow; our ability to access the equity and debt financing markets when and if needed; our ability to grow our international operations; seasonality and weather; and our ability to respond to the actions of our competitors. These risks and uncertainties, as well as others, are discussed in more detail in our documents filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2020, and if applicable, as supplemented by any risk factors contained in our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K filed subsequently. All forward-looking statements included in this earnings release are expressly qualified in their entirety by such cautionary statements. We expressly disclaim any obligation to update, amend or clarify any forward-looking statements contained in this earnings release to reflect events or circumstances that may arise after the date hereof, except as may be required by applicable law.

ST-IR

STEWART INFORMATION SERVICES CORPORATION

CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(In thousands of dollars, except per share amounts and except where noted)



Quarter Ended June 30,


Six Months Ended June 30,


2021

2020


2021

2020

Revenues:






Title revenues:






Direct operations

353,502

218,214


633,007

416,496

Agency operations

390,330

277,387


736,261

519,417

Ancillary services

58,193

11,155


114,124

16,616

Total operating revenues

802,025

506,756


1,483,392

952,529

Investment income

5,130

4,285


9,074

9,503

Net realized and unrealized gains (losses)

11,654

5,064


14,929

(6,027)


818,809

516,105


1,507,395

956,005

Expenses:






Amounts retained by agencies

322,020

228,720


605,955

428,086

Employee costs

188,467

137,528


357,864

273,180

Other operating expenses

137,796

74,613


263,279

146,473

Title losses and related claims

33,569

21,541


62,342

40,172

Depreciation and amortization

6,819

4,061


13,249

8,292

Interest

682

622


1,248

1,513


689,353

467,085


1,303,937

897,716

Income before taxes and noncontrolling interests

129,456

49,020


203,458

58,289

Income tax expense

(30,616)

(11,340)


(47,496)

(13,235)

Net income

98,840

37,680


155,962

45,054

Less net income attributable to noncontrolling interests

4,021

3,534


6,907

5,731

Net income attributable to Stewart

94,819

34,146


149,055

39,323







Net earnings per diluted share attributable to Stewart

3.50

1.44


5.51

1.66

Diluted average shares outstanding (000)

27,123

23,756


27,038

23,757







Selected financial information:






Net cash provided by operations

103,010

61,470


150,452

50,110

Other comprehensive income (loss)

1,970

20,888


(5,464)

6,786

 

Monthly Domestic Order Counts:








Opened Orders 2021:

April

May

June

Total


Closed Orders 2021:

April

May

June

Total

Commercial

1,437

1,540

2,617

5,594


Commercial

1,305

1,525

2,125

4,955

Purchase

26,707

24,038

25,673

76,418


Purchase

19,237

18,487

20,875

58,599

Refinancing

20,275

19,115

20,217

59,607


Refinancing

19,812

16,466

16,261

52,539

Other

645

566

471

1,682


Other

411

339

346

1,096

Total

49,064

45,259

48,978

143,301


Total

40,765

36,817

39,607

117,189












Opened Orders 2020:

April

May

June

Total


Closed Orders 2020:

April

May

June

Total

Commercial

1,099

1,045

1,281

3,425


Commercial

1,188

855

1,079

3,122

Purchase

15,059

18,422

23,439

56,920


Purchase

11,154

11,364

14,889

37,407

Refinancing

24,768

22,353

25,185

72,306


Refinancing

15,955

16,745

18,433

51,133

Other

144

158

194

496


Other

106

104

107

317

Total

41,070

41,978

50,099

133,147


Total

28,403

29,068

34,508

91,979

 

STEWART INFORMATION SERVICES CORPORATION

CONDENSED BALANCE SHEETS

(In thousands of dollars)



June 30, 2021

December 31, 2020

Assets:



Cash and cash equivalents

400,542

432,683

Short-term investments

17,628

20,678

Investments in debt and equity securities, at fair value

711,398

684,387

Receivables – premiums from agencies

46,449

34,507

Receivables – other

75,556

58,112

Allowance for uncollectible amounts

(5,168)

(4,807)

Property and equipment, net

54,588

51,671

Operating lease assets, net

112,351

106,479

Title plants

73,113

72,863

Goodwill

549,991

431,477

Intangible assets, net of amortization

36,798

37,382

Deferred tax assets

4,330

4,330

Other assets

90,758

48,813


2,168,334

1,978,575

Liabilities:



Notes payable

127,662

101,773

Accounts payable and accrued liabilities

229,054

225,180

Operating lease liabilities

124,038

119,089

Estimated title losses

524,983

496,275

Deferred tax liabilities

26,524

23,852


1,032,261

966,169

Stockholders' equity:



Common Stock and additional paid-in capital

301,251

301,937

Retained earnings

819,834

688,819

Accumulated other comprehensive income

11,558

17,022

Treasury stock

(2,666)

(2,666)

Stockholders' equity attributable to Stewart

1,129,977

1,005,112

Noncontrolling interests

6,096

7,294

Total stockholders' equity

1,136,073

1,012,406


2,168,334

1,978,575




Number of shares outstanding (000)

26,825

26,728

Book value per share

42.12

37.60

 

STEWART INFORMATION SERVICES CORPORATION

SEGMENT INFORMATION

(In thousands of dollars)


 

Three months ended:

June 30, 2021


June 30, 2020


Title

Ancillary
Services
and
Corporate

Consolidated


Title

Ancillary
Services
and
Corporate

Consolidated

Revenues:








Operating revenues

743,832

58,193

802,025


495,601

11,155

506,756

Investment income

5,130

-

5,130


4,285

-

4,285

Net realized and unrealized gains

4,157

7,497

11,654


4,550

514

5,064


753,119

65,690

818,809


504,436

11,669

516,105

Expenses:








Amounts retained by agencies

322,020

-

322,020


228,720

-

228,720

Employee costs

177,858

10,609

188,467


131,947

5,581

137,528

Other operating expenses

89,289

48,507

137,796


63,700

10,913

74,613

Title losses and related claims

33,569

-

33,569


21,541

-

21,541

Depreciation and amortization

4,709

2,110

6,819


3,733

328

4,061

Interest

3

679

682


-

622

622


627,448

61,905

689,353


449,641

17,444

467,085

Income (loss) before taxes

125,671

3,785

129,456


54,795

(5,775)

49,020









 

Six months ended:

June 30, 2021


June 30, 2020


Title

Ancillary
Services
and
Corporate

Consolidated


Title

Ancillary
Services
and
Corporate

Consolidated

Revenues:








Operating revenues

1,369,268

114,124

1,483,392


935,913

16,616

952,529

Investment income

9,074

-

9,074


9,503

-

9,503

Net realized and unrealized gains (losses)

7,362

7,567

14,929


(6,541)

514

(6,027)


1,385,704

121,691

1,507,395


938,875

17,130

956,005

Expenses:








Amounts retained by agencies

605,955

-

605,955


428,086

-

428,086

Employee costs

337,317

20,547

357,864


262,583

10,597

273,180

Other operating expenses

168,304

94,975

263,279


130,851

15,622

146,473

Title losses and related claims

62,342

-

62,342


40,172

-

40,172

Depreciation and amortization

9,022

4,227

13,249


7,554

738

8,292

Interest

3

1,245

1,248


-

1,513

1,513


1,182,943

120,994

1,303,937


869,246

28,470

897,716

Income (loss) before taxes

202,761

697

203,458


69,629

(11,340)

58,289

Appendix A
Non-GAAP Adjustments

Management uses a variety of financial and operational measurements other than its financial statements prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) to analyze its performance. These include: (1) adjusted revenues, which are reported revenues adjusted for any net realized and unrealized gains and losses and (2) net income after earnings from noncontrolling interests and adjusted for net realized and unrealized gains and losses (adjusted net income). Adjusted diluted earnings per share (adjusted diluted EPS) is calculated using adjusted net income divided by the diluted average weighted outstanding shares. Management views these measures as important performance measures of core profitability for its operations and as key components of its internal financial reporting. Management believes investors benefit from having access to the same financial measures that management uses.

Below is a reconciliation of the non-GAAP financial measurements used by management to the most directly comparable GAAP measures for the quarter and six months ended June 31, 2021 and 2020 (dollars in millions, except share and per share amounts, and amounts may not foot as presented due to rounding).


Quarter Ended June 30,


Six Months Ended June 30,


2021

2020

%
Change


2021

2020

%
Change









Total revenues

818.8

516.1



1,507.4

956.0


Less: Net realized and unrealized gains (losses)

11.7

5.1



14.9

(6.0)


Adjusted revenues

807.2

511.0

58%


1,492.5

962.0

55%









Net income attributable to Stewart

94.8

34.1



149.1

39.3


Non-GAAP pretax adjustments:








Net realized and unrealized (gains) losses

(11.7)

(5.1)



(14.9)

6.0


Cost initiatives severance expenses

-

2.8



-

2.8


Net tax effects of non-GAAP adjustments

2.8

0.6



3.6

(2.2)


Non-GAAP adjustments, after taxes

(8.8)

(1.7)



(11.3)

6.6


Adjusted net income attributable to Stewart

86.0

32.5

165%


137.7

45.9

200%









Diluted average shares outstanding (000)

27,123

23,756



27,038

23,757


Adjusted net income per share

3.17

1.37



5.09

1.93










 

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