Stewart Reports Fourth Quarter 2023 Results

• Total revenues of $582.2 million ($577.4 million on an adjusted basis) compared to $655.9 million ($643.2 million on an adjusted basis) in the prior year quarter
• Net income of $8.8 million ($16.6 million on an adjusted basis) compared to $13.3 million ($22.9 million on an adjusted basis) in the prior year quarter
• Diluted EPS of $0.32 ($0.60 on an adjusted basis) compared to prior year quarter diluted EPS of $0.49 ($0.84 on an adjusted basis)

HOUSTON, Feb. 7, 2024 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported net income attributable to Stewart of $8.8 million ($0.32 per diluted share) for the fourth quarter 2023, compared to $13.3 million ($0.49 per diluted share) for the fourth quarter 2022. On an adjusted basis, Stewart's fourth quarter 2023 net income was $16.6 million ($0.60 per diluted share) compared to $22.9 million ($0.84 per diluted share) in the fourth quarter 2022. Fourth quarter 2023 pretax income before noncontrolling interests was $18.8 million ($29.1 million on an adjusted basis) compared to pretax income before noncontrolling interests of $20.8 million ($33.3 million on an adjusted basis) for the fourth quarter 2022.

Fourth quarter 2023 results included $4.8 million of pretax net realized and unrealized gains primarily driven by net unrealized gains on fair value changes of equity securities investments and net gains from acquisition liability adjustments, offset by $6.4 million of combined office closures and severance expenses. Fourth quarter 2022 results included $12.7 million of pretax net realized and unrealized gains, primarily composed of net unrealized gains on fair value changes of equity securities investments and gains related to settlements of company-owned insurance policies, offset by $16.7 million of combined office closure, severance and regulatory settlement and litigation expenses.

"Our fourth quarter results reflect continuing uncertainty in the real estate market due to the higher interest rate environment coupled with the normal seasonality. Although we are encouraged by the moderation of interest rates into the mid – 6 percent range during the fourth quarter and into early 2024, we maintain our outlook that higher interest rates will negatively impact real estate transaction volume in the first half of 2024," commented Fred Eppinger, chief executive officer. "We have made excellent progress on our strategic investments during 2023 and will continue to focus on balancing thoughtful cost discipline with investment in these long-term enterprise initiatives to create a stronger and more resilient company."

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

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

Fourth quarter title segment operating revenues decreased $78.6 million, or 14 percent, compared to the prior year quarter, as a result of transaction volume declines in our direct and agency title operations. Total segment operating expenses in the fourth quarter 2023 decreased $78.1 million, or 14 percent, consistent with lower operating revenues. Agency retention expenses decreased $39.7 million, or 15 percent, in the fourth quarter 2023 primarily due to $49.2 million, or 16 percent, lower gross agency revenues. The average independent agency remittance rate in the fourth quarter 2023 was 17.3 percent, compared to 17.6 percent during the fourth quarter 2022.

Total employee costs and other operating expenses in the fourth quarter 2023 were lower by $37.6 million, or 13 percent, compared to the prior year quarter, while as a percentage of operating revenues, these expenses were 49.1 percent in the fourth quarter 2023 compared to 48.9 percent in the prior year quarter. Fourth quarter title loss expense decreased $1.1 million, or 5 percent, primarily as a result of lower title revenues compared to the prior year quarter. As a percentage of title revenues, title loss expense was 4.1 percent in the fourth quarter 2023 compared to 3.7 percent in the fourth quarter 2022, which benefited from last year's favorable claims experience.

Investment income in the fourth quarter 2023 increased $6.1 million, compared to the prior year quarter, primarily due to higher interest income resulting from earned interest from eligible escrow balances in the fourth quarter 2023. Non-GAAP adjustments to the title segment's pretax income included $9.1 million and $18.6 million of acquisition intangible asset amortization and other expenses, partially offset by $5.1 million and $10.3 million of net realized and unrealized gains in the fourth quarters 2023 and 2022, respectively.

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

Total non-commercial domestic revenues in the fourth quarter 2023 declined $17.5 million, or 10 percent, primarily due to a 5 percent decline in total residential purchase and refinancing transactions and a lower average fee per file compared to the fourth quarter 2022. Fourth quarter domestic commercial revenues decreased $10.8 million, or 16 percent, primarily driven by 14 percent lower commercial transactions compared to the prior year quarter. Average domestic commercial fee per file in the fourth quarter 2023 was $14,800, compared to $15,100 in the fourth quarter 2022, while average residential fee per file in the fourth quarter 2023 was $3,200, compared to $3,500 in the prior year quarter primarily due to transaction mix in the fourth quarter 2023. Total international revenues in the fourth quarter 2023 decreased by $1.2 million, or 4 percent, primarily due to lower transaction volumes compared to the prior year quarter.

Real Estate Solutions Segment
Summary results of the real estate solutions segment are as follows (dollars in millions, except pretax margin and adjusted pretax margin):

The segment's fourth quarter operating revenues improved $6.7 million, or 12 percent, compared to the prior year quarter, primarily due to increased credit information services revenues, partially offset by lower valuation services revenues from lower transaction volumes. Combined segment employee costs and other operating expenses in the fourth quarter 2023 increased $5.4 million, or 11 percent, consistent with the higher operating revenues. Non-GAAP adjustments to pretax income of $6.0 million and $6.6 million in the fourth quarters 2023 and 2022, respectively, were primarily related to acquisition intangible asset amortization expenses.

Corporate and Other Segment
The segment's results for the fourth quarter 2023 and 2022 were primarily driven by net expenses attributable to corporate operations which were $9.7 million and $9.0 million, respectively. During the prior year quarter, the segment recorded $2.5 million of net realized gains primarily related to a settlement of a company-owned life insurance policy.

Expenses
Fourth quarter consolidated employee costs were lower by $13.6 million, or 7 percent, compared to the prior year quarter, primarily due to lower salaries and benefits expenses and incentive compensation resulting from lower average employee count and reduced transaction volumes in the fourth quarter 2023. As a percentage of total operating revenues, consolidated employee costs were slightly higher at 31.6 percent in the fourth quarter 2023 compared to 30.1 percent in the prior year quarter, primarily due to lower fourth quarter 2023 revenues.

Total other operating expenses in the fourth quarter 2023 decreased $17.9 million, or 12 percent, primarily as a result of reduced costs tied to lower title revenues, and lower litigation settlement, third-party outsourcing, and office closures expenses compared to the fourth quarter 2022. As a percentage of total operating revenues, consolidated other operating expenses for the fourth quarter 2023 were 22.5 percent, which was slightly better compared to 22.8 percent in the prior year quarter.

Other
Net cash provided by operations improved to $40.6 million in the fourth quarter 2023 compared to $24.8 million in the fourth quarter 2022, primarily as a result of lower payments on claims and accounts payable, partially offset by the lower net income during the fourth quarter 2023. Our income tax rate for the fourth quarter 2023 was higher than our normal tax rate primarily due to the effect of non-deductible expenses on lower domestic pretax income.

Fourth Quarter Earnings Call
Stewart will hold a conference call to discuss the fourth quarter 2023 earnings at 8:30 a.m. Eastern Time on Thursday, February 8, 2024. To participate, dial (800) 267-6316 (USA) or (203) 518-9783 (International) - access code STCQ423. 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 February 8, 2024 until midnight on February 15, 2024 by dialing (800) 934-8233 (USA) or (402) 220-6991 (International).

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 and real estate industries, 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; 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; our ability to manage risks associated with potential cybersecurity or other privacy or data security breaches; 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, 2022, 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

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 (revenues of 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, acquired intangible asset amortization, office closure costs, executive severance expenses, regulatory settlement and litigation expenses, state sales tax assessment expense (which was related to an acquisition), and other adjustments (pretax results of sold real estate brokerage company). Adjusted diluted earnings per share (adjusted diluted EPS) is calculated using adjusted net income divided by the diluted average weighted outstanding shares. Adjusted pretax margin is calculated using adjusted pretax income divided by adjusted total revenues. 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 are reconciliations of the non-GAAP financial measures used by management to the most directly comparable GAAP measures for the quarter and year ended December 31, 2023 and 2022 (dollars in millions, except shares, per share amounts and pretax margins, and amounts may not add as presented due to rounding).

SOURCE Stewart Information Services Corporation

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