Stewart Reports Third Quarter 2022 Results

• Total revenues of $716.4 million ($722.8 million on an adjusted basis) compared to $836.7 million ($833.8 million on an adjusted basis) in the prior year quarter
• Net income of $29.4 million ($37.5 million on an adjusted basis) compared to $88.7 million ($86.4 million on an adjusted basis) in the prior year quarter
• Diluted EPS of $1.08 ($1.37 on an adjusted basis) compared to prior year quarter diluted EPS of $3.26 ($3.17 on an adjusted basis)

HOUSTON, Oct. 26, 2022 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported net income attributable to Stewart for the third quarter 2022 of $29.4 million ($1.08 per diluted share), compared to net income attributable to Stewart of $88.7 million ($3.26 per diluted share) for the third quarter 2021. On an adjusted basis, Stewart's third quarter 2022 net income was $37.5 million ($1.37 per diluted share) compared to $86.4 million ($3.17 per diluted share) in the third quarter 2021. Third quarter 2022 pretax income before noncontrolling interests was $45.5 million ($56.1 million on an adjusted basis) compared to pretax income before noncontrolling interests of $116.4 million ($113.6 million on an adjusted basis) for the third quarter 2021.

Third quarter 2022 results included $6.4 million of pretax net realized and unrealized losses, primarily related to net unrealized losses on fair value changes of equity securities investments recorded in the title segment. Third quarter 2021 results included $2.9 million of pretax net realized and unrealized gains primarily driven by an acquisition contingent liability adjustment recorded in the real estate solutions segment.

"Our third quarter results reflect the headwinds experienced from increased mortgage interest rates that have significantly impacted the market. We are managing our operations in a disciplined manner during these challenging times," commented Fred Eppinger, chief executive officer. "At the same time, we will continue to invest opportunistically to build a stronger and more resilient company. In line with our long-term focus on improving Stewart, we just welcomed to the Stewart family FNC Title Services, LLC, which specializes in providing title services for reverse mortgage transactions."

Selected Financial Information

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

The title segment's operating revenues in the third quarter 2022 decreased $120.0 million, or 16 percent, compared to the third quarter 2021, primarily due to volume declines in our direct title and agency operations. Overall segment operating expenses in the third quarter 2022 decreased $58 million, or 9 percent, compared to the prior year quarter, primarily due to lower agency retention and title loss expenses, consistent with lower title revenues, and lower total employee costs and other operating expenses. Average independent agency remittance rate in the third quarter 2022 was 17.6 percent compared to 17.9 percent in the third quarter 2021. As a percentage of operating revenues, combined title employee costs and other operating expenses were 43.4 percent in the third quarter 2022 compared to 37.5 percent in the third quarter 2021, primarily due to lower revenues in the third quarter 2022.

Title loss expense in the third quarter 2022 decreased by $4.9 million, or 16 percent, compared to the prior year quarter, primarily due to lower title revenues. As a percentage of title revenues, title loss expense in the third quarter 2022 was 3.9 percent compared to 4.0 percent in the third quarter 2021. 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 losses and gains in the third quarters 2022 and 2021, respectively, were primarily related to fair value changes of equity securities investments. Investment income in the third quarter 2022 increased compared to the prior year quarter, primarily as a result of higher interest income driven by the increased interest rate environment in the third quarter 2022.

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

Total non-commercial revenues declined $55.1 million, or 19 percent, primarily due to significantly lower residential purchase and refinancing activity during the third quarter 2022 compared to the prior year quarter. Domestic commercial revenues decreased $3.5 million, or 5 percent, in the third quarter 2022, primarily due to reduced transaction size compared to the third quarter 2021. Average domestic commercial fee per file was 11 percent lower in the third quarter 2022 at $13,700, compared to $15,400 in the third quarter 2021, while average residential fee per file increased 38 percent to $3,300, compared to $2,400 in the prior year quarter, due to a higher purchase mix in the third quarter 2022. Total international revenues in the third quarter 2022 decreased by $10.5 million, or 20 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):

Pretax income for the segment improved in the third quarter 2022, compared to the prior year quarter, primarily due to $7.8 million, or 13 percent, net increased revenues, driven by revenues from fourth quarter 2021 acquisitions, partially offset by lower revenues from appraisal management and notary solutions operations due to reduced market activity. Total operating expenses increased $4.7 million, or 8 percent, driven by higher employee costs related to increased employee count resulting from acquisitions and higher purchased intangible asset amortization expenses in the third quarter 2022 compared to the prior year quarter. Total intangible asset amortization expenses in the third quarters 2022 and 2021 were $5.8 million and $4.2 million, respectively; excluding these amortization expenses, pretax margin for the segment was 13.1 percent and 10.8 percent, respectively.

Corporate and Other Segment

Net expenses attributable to corporate operations in the third quarter 2022 increased $4.2 million, or 76 percent, to $9.7 million, compared to $5.5 million in the third quarter 2021, primarily as a result of higher interest expense resulting from debt issued in the fourth quarter 2021.

Expenses

Consolidated employee costs in the third quarter 2022 decreased $2.5 million, or 1 percent, compared to the third quarter 2021, primarily due to lower incentive compensation and temporary labor costs, partially offset by higher salaries and employee benefits primarily resulting from acquisitions. As a percentage of total operating revenues, consolidated employee costs for the third quarter 2022 were 27.2 percent compared to 23.8 percent in the third quarter 2021.

Total other operating expenses in the third quarter 2022 decreased by $1.4 million, or 1 percent, compared to the prior year quarter, primarily as a result of decreased costs tied to lower title and real estate solutions revenues, partially offset by higher technology and office closure costs. As a percentage of total operating revenues, consolidated other operating expenses for the third quarter 2022 were 21.1 percent compared to 18.4 percent in the third quarter 2021. The higher employee cost and other operating expenses ratios in the third quarter 2022 were primarily driven by lower operating revenues compared to the prior year quarter.    

Other

Net cash provided by operations in the third quarter 2022 decreased to $48.9 million, compared to net cash provided by operations of $106.9 million in the third quarter 2021, primarily due to lower net income in the third quarter 2022.  

Third Quarter Earnings Call

Stewart will hold a conference call to discuss the third quarter 2022 earnings at 8:30 a.m. Eastern Time on Thursday, October 27, 2022. To participate, dial (800) 343-5172 (USA) or (785) 424-1699 (International) - access code STCQ322. 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 October 27, 2022 until midnight on November 3, 2022, by dialing (800) 938-2801 or (402) 220-9031 (International) - the access code is also STCQ322.

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

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, office closure and severance expenses, 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 nine months ended September 30, 2022 and 2021 (dollars in millions, except share and per share amounts, and amounts may not add as presented due to rounding).

SOURCE Stewart Information Services Corporation