PR Newswire | Jul 22, 2020 05:04PM EDT

07/22 16:03 CDT

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

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 UpdateStewart 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 InformationSummary 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 49.0 29.4 58.3 22.1noncontrolling interests

Income tax expense (11.3) (7.0) (13.2) (4.6)

Net income attributable to (3.5) (3.0) (5.7) (5.0)noncontrolling interests

Net income attributable to 34.1 19.3 39.3 12.5Stewart

Non-GAAP adjustments, after (1.7) 2.4 6.6 2.5taxes*

Adjusted net income 32.5 21.7 45.9 15.0attributable to Stewart*

Net income per diluted 1.44 0.81 1.66 0.53Stewart share

Adjusted net income per 1.37 0.91 1.93 0.63diluted Stewart share*



* See Appendix A

Title SegmentSummary 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 SegmentSummary 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.

ExpensesConsolidated 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.

OtherNet 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 CallStewart 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 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 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 5,064 422 (6,027) 3,826gains (losses)

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 21,541 18,786 40,172 34,473claims

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 49,020 29,352 58,289 22,126noncontrolling interests

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 3,534 3,019 5,731 5,001to noncontrolling interests

Net income attributable to 34,146 19,306 39,323 12,540Stewart

Net earnings per diluted 1.44 0.81 1.66 0.53share attributable to Stewart

Diluted average shares 23,756 23,758 23,757 23,750outstanding (000)

Selected financialinformation:

Net cash provided (used) by 61,470 31,454 50,110 (8,429)operations

Other comprehensive income 20,888 7,896 6,786 21,657

Monthly Domestic Order Counts:

Opened ClosedOrders April May June Total Orders April May June Total2020: 2020:

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 ClosedOrders April May June Total Orders April May June Total2019: 2019:

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 December (Unaudited) 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 June 30, 2020 June 30, 2019ended:

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

Revenues:

Operating 495,601 11,155 506,756 458,700 7,798 466,498revenues

Investment 4,285 - 4,285 5,155 - 5,155income

Net realized andunrealized gains 4,550 514 5,064 (219) 641 422(losses)

504,436 11,669 516,105 463,636 8,439 472,075

Expenses:

Amounts retained 228,720 - 228,720 191,091 - 191,091by agencies

Employee costs 131,947 5,581 137,528 134,677 5,219 139,896

Other operating 63,700 10,913 74,613 74,995 11,058 86,053expenses

Title losses and 21,541 - 21,541 18,786 - 18,786related claims

Depreciation and 3,733 328 4,061 5,048 727 5,775amortization

Interest - 622 622 1,124 1,124

449,641 17,444 467,085 424,597 18,128 442,725

Income (loss) 54,795 (5,775) 49,020 39,039 (9,689) 29,350before taxes

Six months June 30, 2020 June 30, 2019ended:

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

Revenues:

Operating 935,913 16,616 952,529 834,810 22,080 856,890revenues

Investment 9,503 - 9,503 9,879 - 9,879income

Net realized andunrealized (6,541) 514 (6,027) 3,385 441 3,826(losses) gains

938,875 17,130 956,005 848,074 22,521 870,595

Expenses:

Amounts retained 428,086 - 428,086 367,586 - 367,586by agencies

Employee costs 262,583 10,597 273,180 257,733 11,418 269,151

Other operating 130,851 15,622 146,473 139,421 23,786 163,207expenses

Title losses and 40,172 - 40,172 34,473 - 34,473related claims

Depreciation and 7,554 738 8,292 10,200 1,564 11,764amortization

Interest - 1,513 1,513 2,288 2,288

869,246 28,470 897,716 809,413 39,056 848,469

Income (loss) 69,629 (11,340) 58,289 38,661 (16,535) 22,126before taxes

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 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 % 2020 2019 % Change Change

Total revenues 516.1 472.1 956.0 870.6

Less: Net realized and 5.1 0.4 (6.0) 3.8unrealized gains (losses)

Adjusted revenues 511.0 471.7 8% 962.0 866.8 11%

Net income attributable to 34.1 19.3 39.3 12.5Stewart

Non-GAAP pretax adjustments:

Net realized and unrealized (5.1) (0.4) 6.0 (3.8)(gains) losses

Cost initiatives severance 2.8 - 2.8 -expenses

FNF merger-related expenses - 3.7 - 5.7

Other non-operating charges - - - 1.5

Net tax effects of non-GAAP 0.6 (0.9) (2.2) (0.9)adjustments

Non-GAAP adjustments, after (1.7) 2.4 6.6 2.5taxes

Adjusted net income 32.5 21.7 50% 45.9 15.0 206%attributable to Stewart

Diluted average shares 23,756 23,758 23,757 23,750outstanding (000)

Adjusted net income per share 1.37 0.91 1.93 0.63

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SOURCE Stewart Information Services Corporation