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Stewart Reports Second Quarter 2022 Results

Jul 27, 2022
  • Total revenues of $844.1 million ($850.7 million on an adjusted basis) compared to $818.8 million ($807.2 million on an adjusted basis) in the prior year quarter
  • Net income of $61.7 million ($70.4 million on an adjusted basis) compared to $94.8 million ($86.0 million on an adjusted basis) in the prior year quarter
  • Diluted EPS of $2.26 ($2.58 on an adjusted basis) compared to prior year quarter diluted EPS of $3.50 ($3.17 on an adjusted basis)

HOUSTON, July 27, 2022 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported net income attributable to Stewart for the second quarter 2022 of $61.7 million ($2.26 per diluted share), compared to net income attributable to Stewart of $94.8 million ($3.50 per diluted share) for the second quarter 2021. On an adjusted basis, Stewart's second quarter 2022 net income was $70.4 million ($2.58 per diluted share) compared to $86.0 million ($3.17 per diluted share) in the second quarter 2021. Second quarter 2022 pretax income before noncontrolling interests was $86.8 million ($98.2 million on adjusted basis) compared to pretax income before noncontrolling interests of $129.5 million ($117.8 million on adjusted basis) for the second quarter 2021.

Second quarter 2022 results included $11.9 million of pretax net realized and unrealized losses, primarily related to net unrealized losses on fair value changes of equity securities investments. Second quarter 2021 results included $11.7 million of pretax net realized and unrealized gains, primarily related to realized gains from sales of buildings and net unrealized gains on fair value changes of equity securities investments.

"Our second quarter results reflect the continuation of a transitioning market which began in the first quarter," commented Fred Eppinger, chief executive officer. "Notwithstanding these market conditions, our results reflect the fundamental changes we have made to our operating approach and competitive position as we maintained strong operating margins. We believe Stewart is positioned to perform throughout this changing market and the entire real estate cycle, and we continue to invest in our business to improve our operating performance and take advantage of any market opportunities."

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,


2022

2021


2022

2021







Total revenues

844.1

818.8


1,697.0

1,507.4

Pretax income before noncontrolling interests

86.8

129.5


166.4

203.5

Income tax expense

(19.9)

(30.6)


(37.6)

(47.5)

Net income attributable to noncontrolling interests

(5.2)

(4.0)


(9.2)

(6.9)

Net income attributable to Stewart

61.7

94.8


119.6

149.1

Non-GAAP adjustments, after taxes*

8.7

(8.8)


6.7

(11.3)

Adjusted net income attributable to Stewart*

70.4

86.0


126.2

137.7

Net income per diluted Stewart share

2.26

3.50


4.37

5.51

Adjusted net income per diluted Stewart share*

2.58

3.17


4.61

5.09


* 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,



2022

2021

% Change







Operating revenues

761.1

743.8

2 %


Investment income

6.7

5.1

31 %


Net realized and unrealized (losses) gains

(8.8)

4.2

(311 %)


Pretax income

93.6

125.7

(26 %)


Pretax margin

12.3 %

16.7 %



The title segment's operating revenues in the second quarter 2022 increased by $17.2 million, or 2 percent, compared to the second quarter 2021, primarily due to increased agency operations revenues of $19.6 million, or 5 percent, partially offset by $2.4 million, or 1 percent, lower revenues from direct title operations. Overall segment operating expenses in the second quarter 2022 increased $38.0 million, or 6 percent, compared to the prior year quarter, primarily driven by 6 percent higher agency retention expenses on higher agency revenues, and 9 percent higher combined title employee costs and other operating expenses, primarily due to recent acquisitions. Average independent agency remittance rate in the second quarter 2022 was 17.1 percent, compared to 17.5 percent in the second quarter 2021. As a percentage of operating revenues, combined title employee costs and other operating expenses was 38.3 percent in the second quarter 2022 compared to 35.9 percent in the second quarter 2021.

Title loss expense in the second quarter 2022 decreased 21 percent to $26.4 million from $33.6 million in the second quarter 2021, primarily due to favorable claims experience. As a percentage of title revenues, title loss expense in the second quarter 2022 was 3.5 percent compared to 4.5 percent in the prior year quarter. For the full year 2022, we anticipate our title losses will be approximately 4 percent of title revenues.

The segment's net realized and unrealized gains in the second quarter 2022 primarily included $9.9 million of net unrealized losses on fair value changes of equity securities investments, partially offset by a $1.0 million gain related to an acquisition contingent liability adjustment, while net realized and unrealized gains in the second quarter 2021 were primarily related to net unrealized gains on fair value changes of equity securities investments. Investment income in the second quarter 2022 increased compared to the second quarter 2021, primarily as a result of increased dividend income from investments in the second quarter 2022.

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


Quarter Ended June 30,


2022

2021

% Change







Non-commercial:





Domestic

234.4

245.7

(5 %)


International

41.2

45.9

(10 %)



275.6

291.6

(5 %)


Commercial:





Domestic

67.1

53.8

25 %


International

8.4

8.1

4 %



75.5

61.9

22 %


Total direct title revenues

351.1

353.5

(1 %)






Total non-commercial revenues declined $16.0 million, or 5 percent, as a result of lower residential purchase and refinancing transactions during the second quarter 2022 compared to the prior year quarter. Domestic commercial revenues increased $13.3 million, or 25 percent, in the second quarter 2022, primarily due to increased commercial transaction size and volume compared to the prior year quarter. Domestic commercial and residential fees per file in the second quarter 2022 were approximately $13,100 and $2,900, respectively, compared to $11,200 and $2,200, respectively, in the second quarter 2021. Total international revenues in the second quarter 2022 decreased by $4.4 million, or 8 percent, primarily as a result of lower transaction volumes in our Canadian operations and weaker foreign currency exchange rates against the U.S. dollar compared to the prior year quarter.

Real Estate Solutions Segment

Summary results of the real estate solutions segment are as follows (dollars in millions):


Quarter Ended June 30,



2022

2021

% Change







Operating revenues

82.9

58.2

42 %


Pretax income

6.1

2.2

176 %


Pretax margin

7.4 %

3.8 %



Pretax income for the segment improved in the second quarter 2022, compared to the prior year quarter, as a result of $24.7 million, or 42 percent, higher operating revenues resulting from acquisitions. Total operating expenses increased $20.8 million, or 37 percent, consistent with increased revenues and higher purchased intangible asset amortization expenses in the second quarter 2022 compared to the prior year quarter. Total intangible asset amortization expenses in the second quarters 2022 and 2021 were $6.1 million and $1.6 million, respectively. Excluding these amortization expenses, pretax margin for the segment was 14.7 percent in the second quarter 2022, compared to 6.6 percent in the prior year quarter.

Corporate and Other Segment

Summary results of the corporate and other segment are as follows (dollars in millions):


Quarter Ended June 30,



2022

2021

% Change







Operating revenues

5.3

-

100 %


Realized (losses) gains

(3.2)

7.5

(142 %)


Pretax (loss) income

(12.9)

1.6

(921 %)


Net expenses attributable to corporate operations in the second quarter 2022 were $10.2 million, compared to $5.9 million in the second quarter 2021, with the increase primarily driven by higher interest expense resulting from debt issued in the fourth quarter 2021. Realized gains and losses for the second quarters 2022 and 2021 were primarily related to disposition of assets.

Expenses

Consolidated employee costs in the second quarter 2022 increased $21.8 million, or 12 percent, compared to the second quarter 2021, primarily due to increased salaries and employee benefits on 17 percent higher average employee count resulting from acquisitions, partially offset by lower incentive compensation. As a percentage of total operating revenues, consolidated employee costs for the second quarter 2022 were 24.8 percent compared to 23.5 percent in the second quarter 2021.

Total other operating expenses in the second quarter 2022 increased $24.2 million, or 18 percent, compared to the prior year quarter, primarily driven by increased service expenses related to higher real estate solutions revenues and higher technology costs. As a percentage of total operating revenues, consolidated other operating expenses for the second quarter 2022 were 19.1 percent compared to 17.2 percent in the second quarter 2021, primarily influenced by the increased size of our real estate solutions operations which typically have higher other operating expenses.  

Other

Net cash provided by operations in the second quarter 2022 decreased to $83.3 million, compared to net cash provided by operations of $103.0 million in the second quarter 2021, primarily due to lower net income in the second quarter 2022.  

Second Quarter Earnings Call

Stewart will hold a conference call to discuss the second quarter 2022 earnings at 8:30 a.m. Eastern Time on Thursday, July 28, 2022. To participate, dial (800) 343-4136 (USA) or (203) 518-9848 (International) - access code STCQ222. 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 28, 2022 until midnight on August 4, 2022, by dialing (800) 925-9941 or (402) 220-5395 (International) - the access code is also STCQ222.

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. More information can be found at http://www.stewart.com, subscribe to the Stewart blog at http://blog.stewart.com or follow Stewart on Twitter® @stewarttitleco.

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, 2021, 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

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



Quarter Ended June 30,


Six Months Ended June 30,


2022

2021


2022

2021

Revenues:






Title revenues:






Direct operations

351,122

353,502


668,956

633,007

Agency operations

409,931

390,330


814,076

736,261

Real estate solutions and other

88,186

58,193


211,415

114,124

Total operating revenues

849,239

802,025


1,694,447

1,483,392

Investment income

6,739

5,130


10,361

9,074

Net realized and unrealized (losses) gains

(11,905)

11,654


(7,820)

14,929


844,073

818,809


1,696,988

1,507,395

Expenses:






Amounts retained by agencies

339,847

322,020


671,039

605,955

Employee costs

210,246

188,467


415,228

357,864

Other operating expenses

162,008

137,796


351,756

263,279

Title losses and related claims

26,398

33,569


55,619

62,342

Depreciation and amortization

14,288

6,819


28,037

13,249

Interest

4,507

682


8,918

1,248


757,294

689,353


1,530,597

1,303,937

Income before taxes and noncontrolling interests

86,779

129,456


166,391

203,458

Income tax expense

(19,894)

(30,616)


(37,594)

(47,496)

Net income

66,885

98,840


128,797

155,962

Less net income attributable to noncontrolling interests

5,225

4,021


9,240

6,907

Net income attributable to Stewart

61,660

94,819


119,557

149,055







Net earnings per diluted share attributable to Stewart

2.26

3.50


4.37

5.51

Diluted average shares outstanding (000)

27,293

27,123


27,377

27,038







Selected financial information:






Net cash provided by operations

83,312

103,010


118,187

150,452

Other comprehensive (loss) income

(20,992)

1,970


(40,455)

(5,464)

 

Second Quarter Domestic Order Counts:








Opened Orders
2022:

April

May

June

Total


Closed Orders
2022:

April

May

June

Total

Commercial

2,134

1,594

1,802

5,530


Commercial

1,647

1,652

1,833

5,132

Purchase

25,065

24,115

22,904

72,084


Purchase

18,716

18,275

18,363

55,354

Refinancing

9,629

7,853

7,471

24,953


Refinancing

9,112

7,434

6,131

22,677

Other

340

335

404

1,079


Other

790

380

549

1,719

Total

37,168

33,897

32,581

103,646


Total

30,265

27,741

26,876

84,882












Opened Orders
2021:

April

May

June

Total


Closed Orders
2021:

April

May

June

Total

Commercial

1,437

1,545

2,623

5,605


Commercial

1,305

1,526

2,126

4,957

Purchase

26,707

24,108

25,817

76,632


Purchase

19,237

18,529

20,944

58,710

Refinancing

20,275

19,155

20,280

59,710


Refinancing

19,812

16,502

16,314

52,628

Other

645

566

471

1,682


Other

411

392

375

1,178

Total

49,064

45,374

49,191

143,629


Total

40,765

36,949

39,759

117,473

 

STEWART INFORMATION SERVICES CORPORATION

CONDENSED BALANCE SHEETS

(In thousands of dollars)


 

 

June 30, 2022

 

December 31, 2021

Assets:



Cash and cash equivalents

405,310

485,919

Short-term investments

17,282

17,650

Investments in debt and equity securities, at fair value

687,255

679,214

Receivables – premiums from agencies

50,565

45,428

Receivables – other

79,543

81,623

Allowance for uncollectible amounts

(7,028)

(7,711)

Property and equipment, net

73,500

72,456

Operating lease assets, net

137,275

134,578

Title plants

73,503

76,859

Goodwill

964,212

924,837

Intangible assets, net of amortization

187,494

229,804

Deferred tax assets

3,766

3,846

Other assets

82,665

68,859


2,755,342

2,813,362

Liabilities:



Notes payable

444,908

483,491

Accounts payable and accrued liabilities

200,294

287,326

Operating lease liabilities

150,472

149,417

Estimated title losses

562,681

549,614

Deferred tax liabilities

37,166

48,779


1,395,521

1,518,627

Stockholders' equity:



Common Stock and additional paid-in capital

316,224

309,622

Retained earnings

1,073,788

974,800

Accumulated other comprehensive (loss) income

(40,202)

253

Treasury stock

(2,666)

(2,666)

Stockholders' equity attributable to Stewart

1,347,144

1,282,009

Noncontrolling interests

12,677

12,726

Total stockholders' equity

1,359,821

1,294,735


2,755,342

2,813,362




Number of shares outstanding (000)

27,038

26,893

Book value per share

49.82

47.67

 

STEWART INFORMATION SERVICES CORPORATION

SEGMENT INFORMATION

(In thousands of dollars)

 


Quarter Ended:

June 30, 2022


June 30, 2021


Title

Real
Estate
Solutions

Corporate
and Other

Total


Title

Real
Estate
Solutions

Corporate
and Other

Total

Revenues:










Operating revenues

761,053

82,862

5,324

849,239


743,832

58,193

-

802,025

Investment income

6,737

2

-

6,739


5,130

-

-

5,130

Net realized and unrealized

(losses) gains

(8,755)

-

(3,150)

(11,905)


4,157

-

7,497

11,654


759,035

82,864

2,174

844,073


753,119

58,193

7,497

818,809

Expenses:










Amounts retained by agencies

339,847

-

-

339,847


322,020

-

-

322,020

Employee costs

193,438

12,839

3,969

210,246


177,858

7,593

3,016

188,467

Other operating expenses

98,267

57,549

6,192

162,008


89,289

46,509

1,998

137,796

Title losses and related claims

26,398

-

-

26,398


33,569

-

-

33,569

Depreciation and amortization

7,489

6,381

418

14,288


4,709

1,884

226

6,819

Interest

1

-

4,506

4,507


3

(5)

684

682


665,440

76,769

15,085

757,294


627,448

55,981

5,924

689,353

Income (loss) before taxes

93,595

6,095

(12,911)

86,779


125,671

2,212

1,573

129,456

 

Six Months Ended:

June 30, 2022


June 30, 2021


Title

Real
Estate
Solutions

Corporate
and Other

Total


Title

Real
Estate
Solutions

Corporate
and Other

Total

Revenues:










Operating revenues

1,483,032

172,238

39,177

1,694,447


1,369,268

114,124

-

1,483,392

Investment income

10,344

17

-

10,361


9,074

-

-

9,074

Net realized and unrealized

(losses) gains

(4,983)

-

(2,837)

(7,820)


7,362

-

7,567

14,929


1,488,393

172,255

36,340

1,696,988


1,385,704

114,124

7,567

1,507,395

Expenses:










Amounts retained by agencies

671,039

-

-

671,039


605,955

-

-

605,955

Employee costs

378,465

26,245

10,518

415,228


337,317

14,497

6,050

357,864

Other operating expenses

193,262

119,947

38,547

351,756


168,305

90,984

3,990

263,279

Title losses and related claims

55,619

-

-

55,619


62,342

-

-

62,342

Depreciation and amortization

13,631

13,177

1,229

28,037


9,023

3,778

448

13,249

Interest

2

-

8,916

8,918


2

(4)

1,250

1,248


1,312,018

159,369

59,210

1,530,597


1,182,944

109,255

11,738

1,303,937

Income (loss) before taxes

176,375

12,886

(22,870)

166,391


202,760

4,869

(4,171)

203,458

 

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 net realized and unrealized gains and losses, and other adjustments (sold real estate brokerage company), and (2) adjusted pretax income and adjusted net income, which are reported pretax income and reported net income after earnings from noncontrolling interests, respectively, adjusted for net realized and unrealized gains and losses, and other adjustments. 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 30, 2022 and 2021 (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,


2022

2021

% Change


2022

2021

% Change









Total revenues

844.1

818.8

3 %


1,697.0

1,507.4

13 %

Non-GAAP revenue adjustments:








Net realized and unrealized losses (gains)

11.9

(11.7)



7.8

(14.9)


Other adjustments

(5.3)

-



(39.2)

-


Adjusted total revenues

850.7

807.2

5 %


1,665.6

1,492.5

12 %









Pretax income

86.8

129.5

(33 %)


166.4

203.5

(18 %)

Non-GAAP pretax adjustments:








Net realized and unrealized losses (gains)

11.9

(11.7)



7.8

(14.9)


Other adjustments

(0.4)

-



0.9

-


Adjusted pretax income

98.2

117.8

(17 %)


175.1

188.5

(7 %)

Adjusted pretax margin

11.5 %

14.6 %



10.5 %

12.6 %










Net income attributable to Stewart

61.7

94.8

(35 %)


119.6

149.1

(20 %)

Non-GAAP pretax adjustments:








Net realized and unrealized losses (gains)

11.9

(11.7)



7.8

(14.9)


Other adjustments

(0.4)

-



0.9

-


Net tax effects of non-GAAP adjustments

(2.7)

2.8



(2.1)

3.6


Non-GAAP adjustments, after taxes

8.7

(8.8)



6.7

(11.3)


Adjusted net income attributable to Stewart

70.4

86.0

(18 %)


126.2

137.7

(8 %)









Diluted average shares outstanding (000)

27,293

27,123



27,377

27,038


Adjusted net income per share

2.58

3.17



4.61

5.09










 

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