PR Newswire | Oct 21, 2020 04:20PM EDT

10/21 15:20 CDT

Stewart Reports Third Quarter 2020 Results- Operating revenues of $590.7 million, an increase of $82.8 million, or 16 percent, compared to the prior year quarter- Net income of $55.9 million versus net income of $66.1 million ($30.4 million on an adjusted basis) in the prior year quarter- Diluted EPS of $2.21 compared to prior year quarter diluted EPS of $2.78 ($1.28 on an adjusted basis) HOUSTON, Oct. 21, 2020

HOUSTON, Oct. 21, 2020 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported net income attributable to Stewart for the third quarter 2020 of $55.9 million ($2.21 per diluted share), compared to net income attributable to Stewart of $66.1 million ($2.78 per diluted share) for the third quarter 2019. On an adjusted basis, Stewart's third quarter 2020 net income of $55.9 million ($2.21 per diluted share) increased 84 percent from $30.4 million in the third quarter 2019. Third quarter 2020 pretax income before noncontrolling interests was $76.3 million compared to pretax income before noncontrolling interests of $91.1 million for the third quarter 2019.

Third quarter 2019 results included pretax items of:

* $46.9 million of net realized and unrealized gains, primarily composed of a $50 million gain recorded in the ancillary services and corporate segment related to the merger termination fee paid by Fidelity National Financial (FNF), and a $2.7 million impairment charge on an equity method investment recorded in the title segment, and * $1.0 million of third-party advisory expenses related to the terminated FNF merger transaction recorded in other operating expenses within the ancillary services and corporate segment.

"In the third quarter, Stewart continued to benefit from a robust real estate transaction environment, as low interest rates continued to impact refinancing activity while purchase orders strengthened," commented Fred Eppinger, chief executive officer. "Together, they helped both our direct and agency operations outperform 2019 revenue levels. In addition, Stewart's more disciplined and focused operating approach allowed for enhanced margins. Lastly, the company closed two acquisitions in the quarter, with their benefits seen immediately in our core title results. As always, I would like to thank our employees for the work they are doing, continuing to tirelessly work under challenging conditions while insuring the safety of our customers and co-workers."

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

Quarter Ended Nine Months Ended September September 30, 30,

2020 2019 2020 2019

Total revenues 595.7 559.5 1,551.7 1,430.1

Pretax income before noncontrolling interests 76.3 91.1 134.6 113.2

Income tax expense (16.1) (21.4) (29.3) (26.0)

Net income attributable to noncontrolling interests (4.4) (3.6) (10.1) (8.6)

Net income attributable to Stewart 55.9 66.1 95.2 78.6

Non-GAAP adjustments, after taxes* - (35.7) 6.8 (34.2)

Adjusted net income attributable to Stewart* 55.9 30.4 102.0 44.4

Net income per diluted Stewart share 2.21 2.78 3.93 3.31

Adjusted net income per diluted Stewart share* 2.21 1.28 4.21 1.87

* See Appendix A

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

Quarter Ended September 30,

2020 2019 % Change

Operating revenues 562.7 499.2 13%

Investment income 5.0 4.8 6%

Net realized and unrealized gains (losses) - (2.8) 100%

Pretax income 82.4 49.5 66%

Pretax margin 14.5% 9.9%

Title segment pretax income grew $32.9 million, or 66 percent, while pretax margin also improved 460 basis points to 14.5 percent in the third quarter 2020 compared to the prior year quarter. Title operating revenues increased $63.5 million, or 13 percent, resulting from increases in direct title revenues of $35.0 million, or 14 percent, and gross independent agency revenues of $28.5 million, or 11 percent. The effect of changes in the fair value of equity securities investments was minimal during the third quarters of 2020 and 2019; however, during the third quarter 2019, the segment recorded a $2.7 million impairment charge on an equity method investment. Excluding the impairment charge, pretax income for the third quarter 2019 would have been $52.3 million (10.4 percent margin).

Consistent with the increased title revenues in the third quarter 2020, the segment's overall operating expenses increased $33.6 million, or 7 percent, as agency retention expenses and combined title employee costs and other operating expenses increased 11 percent and 3 percent, respectively, from the third quarter 2019. Our average independent agency remittance rate for the third quarter 2020 improved to 18.2 percent compared to 17.8 percent in the prior year quarter; while combined title employee costs and other operating expenses, as a percentage of title revenues, was 39.5 percent in the third quarter 2020 compared to 43.4 percent in the prior year quarter. Title loss expense increased in the third quarter 2020 primarily due to increased title revenues, higher domestic loss provisioning rates due to the current economic environment, and unfavorable loss development in our Canadian business. As a percentage of title revenues, the title loss expense in the third quarter 2020 was 5.1 percent compared to 4.2 percent from the prior year quarter.

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

Quarter Ended September 30,

2020 2019 % Change

Non-commercial:

Domestic 208.2 160.5 30%

International 30.4 28.8 6%

Commercial:

Domestic 36.7 49.7 (26)%

International 4.8 6.1 (21)%

Total direct title revenues 280.1 245.1 14%

Direct title revenues in the third quarter 2020 increased from the prior year quarter as a result of improved domestic non-commercial revenues, primarily driven by increased purchase and refinancing residential orders from both existing and newly acquired title offices. This increase was partially offset by decreased commercial revenues resulting from reduced transaction sizes and volumes. Domestic commercial fee per file in the third quarter 2020 was approximately $9,700, which was 23 percent lower than the third quarter 2019; while domestic residential fee per file was approximately $1,900, or 11 percent lower than the third quarter 2019, primarily due to a higher mix of refinancing compared to purchase transactions.

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

Quarter Ended September 30,

2020 2019 % Change

Operating revenues 28.0 8.6 224%

Net realized gains - 49.7 (100)%

Pretax (loss) income (6.0) 41.6 (115)%

The segment's results for the third quarter 2019 included a $50.0 million realized gain related to the FNF merger termination fee and $1.0 million of merger expenses. Excluding net realized gains and merger expenses, the segment's pretax results for the third quarter 2020 improved $1.1 million, or 15 percent, compared to the prior year quarter. Third quarter segment operating revenues improved, primarily driven by $24.2 million of revenues generated by U.S. Appraisals, which were partially offset by a $4.8 million decline in search and valuation services' revenues due to significantly lower customer orders. The segment's results for the third quarter 2020 and 2019 included approximately $6.3 million and $7.3 million, respectively, of net expenses attributable to parent company and corporate operations, with the higher expenses in the third quarter 2019 being primarily driven by the FNF merger expenses mentioned above.

ExpensesFor the third quarter 2020, total employee costs and other operating expenses related to new acquisitions aggregated to $6.1 million and $21.7 million, respectively. Excluding these acquisitions, total employee costs increased $5.7 million, or 4 percent, in the third quarter 2020 compared to the third quarter 2019, primarily due to higher incentive compensation on improved overall operating results. As a percentage of total operating revenues, consolidated employee costs for the third quarter 2020 improved to 26.3 percent from 28.3 percent in the third quarter 2019.

Excluding acquisitions, other operating expenses decreased $11.0 million, or 13 percent, in the third quarter 2020 compared to the third quarter 2019. This decline primarily resulted from lower outside title search expenses on lower revenues from commercial services and search and valuation services, and reduced spending related to marketing, travel, rent and other occupancy, and third-party consulting. As a percentage of total operating revenues, consolidated other operating expenses for the third quarter 2020 improved to 16.7 percent compared to 17.3 percent in the third quarter 2019.

OtherNet cash provided by operations in the third quarter 2020 was $90.8 million compared to net cash provided by operations of $115.7 million in the prior year quarter. The lower cash from operations in the third quarter 2020 was primarily due to the $50.0 million FNF merger termination fee received in the third quarter 2019, partially offset by a higher third quarter 2020 income from business operations.

Third quarter Earnings CallStewart will hold a conference call to discuss the third quarter 2020 earnings at 8:30 a.m. Eastern Time on Thursday, October 22, 2020. To participate, dial (800) 894-5910 (USA) and (785) 424-1052 (International) - access code STCQ320. 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 11:00 a.m. Eastern Time on October 22, 2020 until midnight on October 29, 2020, by dialing (800) 938-2796 (USA) or (402) 220-9030 (International) - the access code is also STCQ320.

About StewartStewart 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(tm) 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.(tm) 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(r) @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 CORPORATIONCONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)(In thousands of dollars, except per share amounts and except where noted)

Quarter Ended Sept. 30, 9 Months Ended Sept. 30,

2020 2019 2020 2019

Revenues:

Title revenues:

Direct operations 280,114 245,068 696,611 634,198

Agency operations 282,605 254,155 802,022 699,835

Ancillary services 27,957 8,628 44,573 30,708

Total operating revenues 590,676 507,851 1,543,206 1,364,741

Investment income 5,027 4,752 14,530 14,631

Net realized and unrealized (losses) gains (7) 46,905 (6,035) 50,730

595,696 559,508 1,551,701 1,430,102

Expenses:

Amounts retained by agencies 231,051 208,973 659,138 576,559

Employee costs 155,638 143,815 428,817 412,967

Other operating expenses 98,531 87,826 245,003 251,030

Title losses and related claims 28,427 21,059 68,600 55,532

Depreciation and amortization 5,144 5,694 13,436 17,458

Interest 562 1,080 2,075 3,369

519,353 468,447 1,417,069 1,316,915

Income before taxes and noncontrolling interests 76,343 91,061 134,632 113,187

Income tax expense (16,058) (21,393) (29,293) (25,978)

Net income 60,285 69,668 105,339 87,209

Less net income attributable to noncontrolling interests 4,376 3,560 10,107 8,561

Net income attributable to Stewart 55,909 66,108 95,232 78,648

Net earnings per diluted share attributable to Stewart 2.21 2.78 3.93 3.31

Diluted average shares outstanding (000) 25,297 23,773 24,256 23,780

Selected financial information:

Net cash provided by operations 90,752 115,718 140,862 107,289

Other comprehensive income (loss) 4,589 (1,624) 11,375 20,033

Monthly Domestic Order Counts:

Opened Orders 2020: July August Sept Total Closed Orders 2020: July August Sept Total

Commercial 1,330 1,071 1,302 3,703 Commercial 1,415 1,096 1,288 3,799

Purchase 24,001 23,406 26,261 73,668 Purchase 17,206 16,212 18,989 52,407

Refinancing 28,729 28,181 29,913 86,823 Refinancing 17,609 17,239 21,179 56,027

Other 212 275 580 1,067 Other 112 106 337 555

Total 54,272 52,933 58,056 165,261 Total 36,342 34,653 41,793 112,788

Opened Orders 2019: July August Sept Total Closed Orders 2019: July August Sept Total

Commercial 1,378 1,466 1,407 4,251 Commercial 1,211 1,401 1,344 3,956

Purchase 21,979 20,663 17,937 60,579 Purchase 16,102 16,057 13,921 46,080

Refinancing 12,977 17,341 15,069 45,387 Refinancing 8,417 9,274 10,143 27,834

Other 497 312 319 1,128 Other 225 236 143 604

Total 36,831 39,782 34,732 111,345 Total 25,955 26,968 25,551 78,474

STEWART INFORMATION SERVICES CORPORATIONCONDENSED BALANCE SHEETS(In thousands of dollars)



Sept. 30, 2020 (Unaudited) December 31, 2019

Assets:

Cash and cash equivalents 381,560 330,609

Short-term investments 21,288 23,527

Investments in debt and equity securities, at fair value 650,599 645,039

Receivables - premiums from agencies 32,749 26,405

Receivables - other 50,988 50,067

Allowance for uncollectible amounts (4,456) (4,469)

Property and equipment, net 50,976 50,461

Operating lease assets, net 110,038 99,028

Title plants 72,850 72,627

Goodwill 382,235 248,890

Intangible assets, net of amortization 22,002 4,623

Deferred tax assets 4,451 4,407

Other assets 44,909 41,571

1,820,189 1,592,785

Liabilities:

Notes payable 101,256 110,632

Accounts payable and accrued liabilities 143,207 126,779

Operating lease liabilities 122,475 113,843

Estimated title losses 466,812 459,053

Deferred tax liabilities 35,570 28,719

869,320 839,026

Stockholders' equity:

Common Stock and additional paid-in capital 300,648 188,279

Retained earnings 637,223 564,392

Accumulated other comprehensive income (loss) 8,676 (2,699)

Treasury stock (2,666) (2,666)

Stockholders' equity attributable to Stewart 943,881 747,306

Noncontrolling interests 6,988 6,453

Total stockholders' equity 950,869 753,759

1,820,189 1,592,785

Number of shares outstanding (000) 26,719 23,709

Book value per share 35.33 31.52

STEWART INFORMATION SERVICES CORPORATIONSEGMENT INFORMATION(In thousands of dollars)

Three months ended: September 30, 2020 September 30, 2019

Ancillary Ancillary Title Services Consolidated Title Services Consolidated and and Corporate Corporate

Revenues:

Operating revenues 562,719 27,957 590,676 499,223 8,628 507,851

Investment income 5,027 - 5,027 4,752 - 4,752

Net realized and unrealized (losses) gains (3) (4) (7) (2,776) 49,681 46,905

567,743 27,953 595,696 501,199 58,309 559,508

Expenses:

Amounts retained by agencies 231,051 - 231,051 208,973 - 208,973

Employee costs 149,050 6,588 155,638 138,071 5,744 143,815

Other operating expenses 73,091 25,440 98,531 78,505 9,321 87,826

Title losses and related claims 28,427 - 28,427 21,059 - 21,059

Depreciation and amortization 3,748 1,396 5,144 5,110 584 5,694

Interest - 562 562 - 1,080 1,080

485,367 33,986 519,353 451,718 16,729 468,447

Income (loss) before taxes 82,376 (6,033) 76,343 49,481 41,580 91,065

Nine months ended: September 30, 2020 September 30, 2019

Ancillary Ancillary Title Services Consolidated Title Services Consolidated and and Corporate Corporate

Revenues:

Operating revenues 1,498,633 44,573 1,543,206 1,334,033 30,708 1,364,741

Investment income 14,530 - 14,530 14,631 - 14,631

Net realized and unrealized (losses) gains (6,545) 510 (6,035) 608 50,122 50,730

1,506,618 45,083 1,551,701 1,349,272 80,830 1,430,102

Expenses:

Amounts retained by agencies 659,138 - 659,138 576,559 - 576,559

Employee costs 411,633 17,184 428,817 395,804 17,163 412,967

Other operating expenses 203,942 41,061 245,003 217,924 33,106 251,030

Title losses and related claims 68,600 - 68,600 55,532 - 55,532

Depreciation and amortization 11,302 2,134 13,436 15,309 2,149 17,458

Interest - 2,075 2,075 - 3,369 3,369

1,354,615 62,454 1,417,069 1,261,128 55,787 1,316,915

Income (loss) before taxes 152,003 (17,371) 134,632 88,144 25,043 113,187

Appendix ANon-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 nine months ended September 30, 2020 and 2019 (dollars in millions, except share and per share amounts).

Quarter Ended Sept. Nine Months Ended 30, Sept. 30,

2020 2019 % 2020 2019 % Change Change

Total revenues 595.7 559.5 1,551.7 1,430.1

Less: Net realized and unrealized gains (losses) - 46.9 (6.0) 50.7

Adjusted revenues 595.7 512.6 16% 1,557.7 1,379.4 13%

Net income attributable to Stewart 55.9 66.1 95.2 78.6

Non-GAAP pretax adjustments:

Net realized and unrealized (gains) losses* - (46.9) 6.0 (50.7)

FNF merger-related expenses - 1.0 - 6.7

Cost initiatives severance expenses - - 2.8 -

Net tax effects of non-GAAP adjustments - 10.2 (2.0) 9.8

Non-GAAP adjustments, after taxes - (35.7) 6.8 (34.2)

Adjusted net income attributable to Stewart 55.9 30.4 84% 102.0 44.4 130%

Diluted average shares outstanding (000) 25,297 23,773 24,256 23,780

Adjusted net income per share 2.21 1.28 4.21 1.87

*Net realized and unrealized gains for the quarter and nine months endedSeptember 30, 2019 included the $50.0 million FNF merger termination fee.

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SOURCE Stewart Information Services Corporation