Latest Earnings Release

Stewart Reports Second Quarter 2020 Results

Stewart Reports Second Quarter 2020 Results

- Operating revenues of $506.8 million, an increase of $40.3 million, or 9 percent, compared to the prior year quarter

- Net income of $34.1 million ($32.5 million on an adjusted basis) versus net income of $19.3 million ($21.7 million on an adjusted basis) in the prior year quarter

- Diluted EPS of $1.44 ($1.37 on an adjusted basis) compared to prior year quarter diluted EPS of $0.81 ($0.91 on an adjusted basis)


HOUSTON, July 22, 2020 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported second quarter 2020 net income attributable to Stewart of $34.1 million ($1.44 per diluted share), compared to net income attributable to Stewart of $19.3 million ($0.81 per diluted share) for the second quarter 2019. Second quarter 2020 pretax income before noncontrolling interests was $49.0 million compared to pretax income before noncontrolling interests of $29.4 million for the second quarter 2019.

Second quarter 2020 results included:

  • $4.6 million of net realized and unrealized gains recorded in the title segment primarily relating to changes in the fair value of equity securities investments,
  • $2.8 million of severance expenses related to cost savings initiatives recorded within employee costs in the title segment, and
  • $0.5 million of net realized and unrealized gains recorded in the ancillary services and corporate segment primarily relating to settlements of cost-basis investments.

Second quarter 2019 results included:

  • $3.7 million of third-party advisory expenses related to the terminated Fidelity National Financial (FNF) merger transaction included in other operating expenses within the ancillary services and corporate segment, and
  • $0.4 million of net realized and unrealized gains: ($0.2) million in the title segment and $0.6 million in the ancillary services and corporate segment.

COVID-19 Update
Stewart continues to take appropriate measures to protect the safety of its customers and employees while monitoring the evolving effects of the COVID-19 pandemic on the national and international fronts. Although uncertainty remains with respect to the ongoing impact of the virus, its duration, and further governmental responses, Stewart, as a company providing an essential service, is committed to helping people safely navigate the real estate closing process. We believe our strong liquidity position will allow us to facilitate our customers' purchase and refinance of real estate should macro-economic conditions become more challenging.

"Our strong quarterly performance was made possible by the loyalty of our customers and the tremendous work of our employees in the face of the pandemic," commented Fred Eppinger, chief executive officer. "Stewart employees tirelessly and creatively provided quality service to our customers despite a challenging environment in so many of our communities. I express gratitude to them for their efforts and perseverance. From a business standpoint, the second quarter was one of the strongest in recent history as refinance transactions remained strong and purchase transactions began to recover in the back half of the quarter. In addition, our agency and international operations posted solid results while our ancillary services businesses benefited from the acquisition of U.S. Appraisals at the end of May."   

Selected Financial Information
Summary results of operations are as follows (dollars in millions, except per share amounts):

 

Quarter Ended June 30,

 

Six Months Ended June 30,

 

2020

2019

 

2020

2019

           

Total revenues

516.1

472.1

 

956.0

870.6

Pretax income before noncontrolling interests

49.0

29.4

 

58.3

22.1

Income tax expense

(11.3)

(7.0)

 

(13.2)

(4.6)

Net income attributable to noncontrolling interests

(3.5)

(3.0)

 

(5.7)

(5.0)

Net income attributable to Stewart

34.1

19.3

 

39.3

12.5

Non-GAAP adjustments, after taxes*

(1.7)

2.4

 

6.6

2.5

Adjusted net income attributable to Stewart*

32.5

21.7

 

45.9

15.0

Net income per diluted Stewart share

1.44

0.81

 

1.66

0.53

Adjusted net income per diluted Stewart share*

1.37

0.91

 

1.93

0.63

 

* See Appendix A

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

 

Quarter Ended June 30,

 

2020

2019

% Change

       

Operating revenues

495.6

458.7

8%

Investment income

4.3

5.2

(17)%

Net realized and unrealized gains (losses)

4.6

(0.2)

2,178%

Pretax income

54.8

39.0

40%

Pretax margin

10.9%

8.4%

 

Title operating revenues in the second quarter 2020 increased $36.9 million, or 8 percent, compared to the prior year quarter. Second quarter 2020 gross independent agency revenues increased $46.6 million, or 20 percent, partially offset by lower direct title revenues of $9.7 million, or 4 percent. Investment income declined in the second quarter 2020 compared to the prior year quarter, primarily due to lower interest rates on short term investments and lower dividend income, primarily relating to the timing of an annual dividend on a cost-basis investment. The segment's net realized and unrealized gains and losses during the second quarters 2020 and 2019 were primarily due to $4.4 million of net unrealized gains and $0.3 million of net unrealized losses, respectively, relating to changes to the fair value of equity securities investments.

With the net increase in title revenues, the segment's overall operating expenses in the second quarter 2020 increased $25.0 million, or 6 percent, primarily driven by a 20 percent increase in agency retention expenses, which was partially offset by a 7 percent reduction in combined title employee costs and other operating expenses. Our average independent agency remittance rate slightly improved to 17.5 percent in the second quarter 2020, compared to 17.2 percent in the second quarter 2019; while combined title employee costs and other operating expenses, as a percentage of title revenues, improved to 39.5 percent in the second quarter, compared to 45.7 percent in the prior year quarter. Title loss expense increased 15 percent in the second quarter 2020, primarily as a result of increased title revenues. As a percentage of title revenues, the title loss expense in the second quarter 2020 was 4.3 percent, compared to 4.1 percent from the prior year quarter.

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

 

Quarter Ended June 30,

 

2020

2019

% Change

         
 

Non-commercial:

     
 

Domestic

162.7

148.9

9%

 

International

20.9

22.4

(7)%

 

Commercial:

     
 

Domestic

30.7

50.3

(39)%

 

International

3.9

6.3

(38)%

 

Total direct title revenues

218.2

227.9

(4)%

         

Direct title revenues decreased primarily as a result of lower commercial transactions, partially offset by elevated refinancing orders which mainly contributed to the increased non-commercial domestic revenues in the second quarter 2020 compared to the prior year quarter. Domestic commercial fee per file in the second quarter 2020 was approximately $9,800, which was 15 percent lower than the second quarter 2019; while domestic residential fee per file was approximately $1,800, a 20 percent decrease from last year's quarter, primarily resulting from a higher mix of refinancing to purchase transactions. Total international title revenues decreased $3.9 million, or 14 percent, primarily due to lower volumes in our Canada and United Kingdom 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,

 

2020

2019

% Change

       

Operating revenues

11.2

7.8

43%

Net realized gains

0.5

0.6

(20)%

Pretax loss

(5.8)

(9.7)

40%

Segment operating revenues improved in the second quarter 2020 versus the prior year's quarter, primarily driven by revenues generated by U.S. Appraisals which was acquired during the second quarter 2020. Revenues from search and valuation services declined $3.6 million, or 48 percent, primarily due to significantly lower orders from several customers. The segment's results for the second quarter 2020 and 2019 included approximately $5.5 million and $9.4 million, respectively, of net expenses attributable to parent company and corporate operations, with the higher expenses in the second quarter 2019 being primarily driven by the FNF merger expenses mentioned above.  

Expenses
Consolidated employee costs decreased 2 percent to $137.5 million in the second quarter 2020 from $139.9 million in the second quarter 2019, due to the lower overall average employee counts which primarily lowered salaries and other benefits expenses, partially offset by the severance expenses noted above. As a percentage of total operating revenues, employee costs for the second quarter 2020 improved 290 basis points to 27.1 percent from 30.0 percent in the second quarter 2019.  

Other operating expenses decreased 13 percent to $74.6 million in the second quarter 2020 from $86.1 million in the second quarter 2019. This decline primarily resulted from lower outside consulting expenses, lower marketing and travel expenses, and reduced rent and other occupancy expenses. As a percentage of total operating revenues, other operating expenses for the second quarter 2020 improved 370 basis points to 14.7 percent compared to 18.4 percent in the second quarter 2019. Excluding the FNF merger expenses mentioned above, the other operating expenses ratio for the second quarter 2019 would have been 17.7 percent.

Other
Net cash provided by operations improved in the second quarter 2020 to $61.5 million, compared to net cash provided by operations of $31.5 million in the prior year quarter, primarily due to the higher net income generated and lower claim payments in the second quarter 2020.

Other comprehensive income in the second quarter 2020 increased to $20.9 million, compared to other comprehensive income of $7.9 million in the second quarter 2019, primarily due to the fair value recovery of investment securities and improved foreign currency exchange rates during the second quarter 2020.

Second Quarter Earnings Call
Stewart will hold a conference call to discuss the second quarter 2020 earnings at 10:00 a.m. Eastern Time on Thursday, July 23, 2020. To participate, dial (877) 876-9173 (USA) and (785) 424-1667 (International) - access code STCQ220. Additionally, participants can listen to the conference call through Stewart's Investor Relations website at http://www.stewart.com/investor-relations/earnings-call.html. The conference call replay will be available from 12:00 p.m. Eastern Time on July 23, 2020 until midnight on July 30, 2020, by dialing (800) 839-2435 (USA) or (402) 220-7212 (International) - the access code is also STCQ220.

About Stewart
Stewart Information Services Corporation (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 believe in building strong relationships – and these partnerships are the cornerstone of every closing, every transaction and every deal. Stewart. Real partners. Real possibilities.™ More information is available at the Company's website at stewart.com, or you can subscribe to the Stewart blog at blog.stewart.com, or follow Stewart on Twitter® @stewarttitleco.

Forward-looking statements. Certain statements in this news release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. 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 "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 timing and effects 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, 2019, as supplemented by any risk factors contained in our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K. All forward-looking statements included in this news 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 news release to reflect events or circumstances that may arise after the date hereof, except as may be required by applicable law.

STEWART INFORMATION SERVICES CORPORATION

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

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

 
 

Quarter Ended June 30,

 

Six Months Ended June 30,

 

2020

2019

 

2020

2019

Revenues:

         

Title revenues:

         

Direct operations

218,214

227,883

 

416,496

389,130

Agency operations

277,387

230,817

 

519,417

445,680

Ancillary services

11,155

7,798

 

16,616

22,080

Total operating revenues

506,756

466,498

 

952,529

856,890

Investment income

4,285

5,155

 

9,503

9,879

Net realized and unrealized gains (losses)

5,064

422

 

(6,027)

3,826

 

516,105

472,075

 

956,005

870,595

Expenses:

         

Amounts retained by agencies

228,720

191,091

 

428,086

367,586

Employee costs

137,528

139,896

 

273,180

269,151

Other operating expenses

74,613

86,051

 

146,473

163,207

Title losses and related claims

21,541

18,786

 

40,172

34,473

Depreciation and amortization

4,061

5,775

 

8,292

11,764

Interest

622

1,124

 

1,513

2,288

 

467,085

442,723

 

897,716

848,469

Income before taxes and noncontrolling interests

49,020

29,352

 

58,289

22,126

Income tax expense

(11,340)

(7,027)

 

(13,235)

(4,585)

Net income

37,680

22,325

 

45,054

17,541

Less net income attributable to noncontrolling interests

3,534

3,019

 

5,731

5,001

Net income attributable to Stewart

34,146

19,306

 

39,323

12,540

           

Net earnings per diluted share attributable to Stewart

1.44

0.81

 

1.66

0.53

Diluted average shares outstanding (000)

23,756

23,758

 

23,757

23,750

           

Selected financial information:

         

Net cash provided (used) by operations

61,470

31,454

 

50,110

(8,429)

Other comprehensive income

20,888

7,896

 

6,786

21,657

 

Monthly Domestic Order Counts:

           

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

                     

Opened Orders 2019:

April

May

June

Total

 

Closed Orders 2019:

April

May

June

Total

Commercial

1,425

1,677

1,558

4,660

 

Commercial

1,250

1,625

1,474

4,349

Purchase

22,982

22,455

19,735

65,172

 

Purchase

14,221

16,404

14,971

45,596

Refinancing

10,425

10,406

12,511

33,342

 

Refinancing

5,785

6,606

6,363

18,754

Other

425

419

264

1,108

 

Other

361

363

231

955

Total

35,257

34,957

34,068

104,282

 

Total

21,617

24,998

23,039

69,654

 

STEWART INFORMATION SERVICES CORPORATION

CONDENSED BALANCE SHEETS

(In thousands of dollars)

 
 

June 30, 2020
(Unaudited)

December 31,
2019

Assets:

   

Cash and cash equivalents

310,806

330,609

Short-term investments

20,560

23,527

Investments in debt and equity securities, at fair value

645,347

645,039

Receivables – premiums from agencies

29,342

26,405

Receivables – other

41,957

50,067

Allowance for uncollectible amounts

(4,442)

(4,469)

Property and equipment, net

49,846

50,461

Operating lease assets, net

100,353

99,028

Title plants

72,650

72,627

Goodwill

279,857

248,890

Intangible assets, net of amortization

3,843

4,623

Deferred tax assets

4,407

4,407

Other assets

45,708

41,571

 

1,600,234

1,592,785

Liabilities:

   

Notes payable

101,702

110,632

Accounts payable and accrued liabilities

108,394

126,779

Operating lease liabilities

113,292

113,843

Estimated title losses

456,025

459,053

Deferred tax liabilities

33,489

28,719

 

812,902

839,026

Stockholders' equity:

   

Common Stock and additional paid-in capital

190,260

188,279

Retained earnings

589,424

564,392

Accumulated other comprehensive income (loss)

4,087

(2,699)

Treasury stock

(2,666)

(2,666)

Stockholders' equity attributable to Stewart

781,105

747,306

Noncontrolling interests

6,227

6,453

Total stockholders' equity

787,332

753,759

 

1,600,234

1,592,785

Number of shares outstanding (000)

23,699

23,709

Book value per share

32.96

31.52

 

STEWART INFORMATION SERVICES CORPORATION

SEGMENT INFORMATION

(In thousands of dollars)

 

Three months ended:

June 30, 2020

 

June 30, 2019

 

Title

Ancillary
Services
and
Corporate

Consolidated

 

Title

Ancillary
Services
and
Corporate

Consolidated

Revenues:

             

Operating revenues

495,601

11,155

506,756

 

458,700

7,798

466,498

Investment income

4,285

-

4,285

 

5,155

-

5,155

Net realized and unrealized gains (losses)

4,550

514

5,064

 

(219)

641

422

 

504,436

11,669

516,105

 

463,636

8,439

472,075

Expenses:

             

Amounts retained by agencies

228,720

-

228,720

 

191,091

-

191,091

Employee costs

131,947

5,581

137,528

 

134,677

5,219

139,896

Other operating expenses

63,700

10,913

74,613

 

74,995

11,058

86,053

Title losses and related claims

21,541

-

21,541

 

18,786

-

18,786

Depreciation and amortization

3,733

328

4,061

 

5,048

727

5,775

Interest

-

622

622

   

1,124

1,124

 

449,641

17,444

467,085

 

424,597

18,128

442,725

Income (loss) before taxes

54,795

(5,775)

49,020

 

39,039

(9,689)

29,350

             
               

Six months ended:

June 30, 2020

 

June 30, 2019

 

Title

Ancillary
Services
and
Corporate

Consolidated

 

Title

Ancillary
Services
and
Corporate

Consolidated

Revenues:

             

Operating revenues

935,913

16,616

952,529

 

834,810

22,080

856,890

Investment income

9,503

-

9,503

 

9,879

-

9,879

Net realized and unrealized (losses) gains

(6,541)

514

(6,027)

 

3,385

441

3,826

 

938,875

17,130

956,005

 

848,074

22,521

870,595

Expenses:

             

Amounts retained by agencies

428,086

-

428,086

 

367,586

-

367,586

Employee costs

262,583

10,597

273,180

 

257,733

11,418

269,151

Other operating expenses

130,851

15,622

146,473

 

139,421

23,786

163,207

Title losses and related claims

40,172

-

40,172

 

34,473

-

34,473

Depreciation and amortization

7,554

738

8,292

 

10,200

1,564

11,764

Interest

-

1,513

1,513

   

2,288

2,288

 

869,246

28,470

897,716

 

809,413

39,056

848,469

Income (loss) before taxes

69,629

(11,340)

58,289

 

38,661

(16,535)

22,126

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 and other non-operating costs such as merger expenses, cost initiative severance expenses, office closure costs and litigation expenses (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.

The following tables reconcile the non-GAAP financial measurements used by management to the most directly comparable GAAP measures for the quarter and six months ended June 30, 2020 and 2019 (dollars in millions, except share and per share amounts).

 

Quarter Ended June 30,

 

Six Months Ended June 30,

 

2020

2019

%
Change

 

2020

2019

%
Change

               

Total revenues

516.1

472.1

   

956.0

870.6

 

Less: Net realized and unrealized gains (losses)

5.1

0.4

   

(6.0)

3.8

 

Adjusted revenues

511.0

471.7

8%

 

962.0

866.8

11%

               

Net income attributable to Stewart

34.1

19.3

   

39.3

12.5

 

Non-GAAP pretax adjustments:

             

Net realized and unrealized (gains) losses

(5.1)

(0.4)

   

6.0

(3.8)

 

Cost initiatives severance expenses

2.8

-

   

2.8

-

 

FNF merger-related expenses

-

3.7

   

-

5.7

 

Other non-operating charges

-

-

   

-

1.5

 

Net tax effects of non-GAAP adjustments

0.6

(0.9)

   

(2.2)

(0.9)

 

Non-GAAP adjustments, after taxes

(1.7)

2.4

   

6.6

2.5

 

Adjusted net income attributable to Stewart

32.5

21.7

50%

 

45.9

15.0

206%

               

Diluted average shares outstanding (000)

23,756

23,758

   

23,757

23,750

 

Adjusted net income per share

1.37

0.91

   

1.93

0.63

 
               

 

 


CONTACT: Nat Otis, SVP - Finance/Investor Relations, (713) 625-8360

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