Stewart Reports Fourth Quarter 2020 Results

HOUSTON, Feb.10, 2021 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported net income attributable to Stewart for the fourth quarter 2020 of $59.7 million ($2.22 per diluted share), compared to break-even results for the fourth quarter 2019. On an adjusted basis, Stewart's fourth quarter 2020 net income of $56.4 million ($2.09 per diluted share) increased 174 percent from $20.6 million ($0.87 per diluted share) in the fourth quarter 2019. Fourth quarter 2020 pretax income before noncontrolling interests was $83.9 million compared to pretax income before noncontrolling interests of $3.8 million for the fourth quarter 2019.

Fourth quarter 2020 results included $4.4 million of pretax net realized and unrealized gains, composed of $3.9 million of net unrealized gains on fair value changes of equity securities investments and $0.5 million of net realized gains on sale of securities investments recorded in the title segment.

Fourth quarter 2019 results included the following pretax items:

• $8.0 million of net realized and unrealized losses, which included $11.7 million of impairment expenses relating to long-lived assets, partially offset by $2.2 million of realized gains on sale of securities investments and $1.1 million of net unrealized gains on fair value changes of equity securities investments,
• $6.5 million of severance expenses related to our corporate reorganization included in employee costs ($4.3 million in the ancillary services and corporate segment and $2.2 million in the title segment),
• $5.9 million of office closure costs primarily related to lease terminations included in other operating expenses ($4.7 million in the title segment and $1.2 million in the ancillary services and corporate segment),
• $2.2 million of executive insurance policy settlement expense recorded as part of other operating expenses within the ancillary services and corporate segment,
• $1.7 million of commercial services' escrow loss recorded as part of title loss expense in the title segment, and
• $2.1 million of other non-operating charges ($1.3 million in the ancillary services and corporate segment and $0.8 million in the title segment).

"Our fourth quarter 2020 results were driven by revenue growth across all lines of business and by actively managing our cost structure. Even with real estate trends remaining strong through the fourth quarter, I was especially encouraged to see solid performance across all major channels, including purchase, refinancing, commercial, international and ancillary services," commented Fred Eppinger, chief executive officer. "We continued to execute on our plan to leverage top line performance to drive enhanced company profitability, as we not only took advantage of elevated transaction activity in the quarter, but also made acquisitions that strengthened our real estate technology, valuations and core title offerings. Lastly, I remain thankful for the tremendous dedication and hard work of our associates in these challenging times, their efforts have been nothing short of extraordinary and, hopefully, 2021 will bring all of us a greater level of safety and security."

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

* See Appendix A for an explanation and reconciliation of all non-GAAP adjustments.

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

Title segment pretax income increased $74.6 million, while pretax margin improved 960 basis points to 13.6 percent in the fourth quarter 2020 compared to the prior year quarter. Title operating revenues increased $184.3 million, or 36 percent, resulting from increases in direct title revenues of $106.0 million, or 45 percent, and gross independent agency revenues of $78.3 million, or 29 percent. In line with the increased title revenues, the segment's fourth quarter 2020 overall operating expenses increased $116.3 million, or 24 percent, with agency retention expenses and combined title employee costs and other operating expenses increasing 28 percent and 16 percent, respectively, from the prior year quarter. Average independent agency remittance rate improved to 18.2 percent in the fourth quarter 2020, compared to 17.7 percent in the prior year quarter, while combined title employee costs and other operating expenses, as a percentage of title revenues, improved to 38.8 percent in the fourth quarter 2020 compared to 45.7 percent in the prior year quarter.

Title loss expense increased $17.7 million, or 61 percent, in the fourth quarter 2020 compared to the prior year quarter, primarily due to increased title revenues and higher loss provisioning rates due to the macroeconomic environment. As a percentage of title revenues, the title loss expense in the fourth quarter 2020 was 6.8 percent compared to 5.7 percent from the prior year quarter; on a full year basis, the title loss ratio was 5.3 percent in 2020 compared to 4.6 percent in 2019. Given the current economic environment, we anticipate that our 2021 loss ratio will be comparable to the full year 2020 loss ratio.

The segment's investment income decreased $1.1 million, or 21 percent, in the fourth quarter 2020, primarily as a result of lower interest rates during 2020. As noted previously, net realized and unrealized gains for the fourth quarter 2020 consisted primarily of net unrealized gains on fair value changes of equity securities investments (as noted above), while net realized and unrealized losses for the fourth quarter 2019 included $7.1 million of impairment expenses related to long-lived assets, partially offset by net gains from sale of securities investments and fair value changes of equity securities investments.

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

Direct title revenues increased as a result of overall improvements in commercial and non-commercial revenues, primarily driven by increased transactions during the fourth quarter 2020 compared to the prior year quarter. Domestic non-commercial revenues increased $90.6 million, or 61 percent, as a result of higher purchase and refinancing residential closed orders from both existing and newly acquired title offices. Domestic commercial revenues improved $3.4 million, or 6 percent, due to increased transaction size and volume. Total international revenues increased $11.9 million, or 38 percent, primarily due to higher volumes in our Canadian and European operations. Domestic commercial fee per file in the fourth quarter 2020 was approximately $12,900, an improvement of 6 percent from the fourth quarter 2019; while domestic residential fee per file was approximately $2,000, or 4 percent lower than the prior year quarter, primarily due to a higher mix of refinancing compared to purchase transactions.

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

The segment's operating revenues increased from the prior year quarter as a result of 2020 acquisitions, which generated $34.5 million in the fourth quarter 2020. Revenues from our capital markets search and home equity valuation services operations declined $3.2 million, or 48 percent, due to significantly lower customer orders. Net realized losses in the fourth quarter 2019 were primarily related to impairments of long-lived assets. Pretax results for ancillary services operations, including acquisitions, improved $0.5 million, or 48 percent, in the fourth quarter 2020 compared to the prior year quarter. Net expenses attributable to parent company and corporate operations for the fourth quarter 2020 were approximately $10.4 million, which included costs related to charitable contributions, increased employee vacation carryover, and third-party strategic consulting; while net expenses for the fourth quarter 2019 were approximately $10.9 million, which included reorganization severance expenses, executive insurance policy settlement costs, charitable contributions and asset impairment charges.

Expenses
Total employee costs and other operating expenses related to operations of new acquisitions were $20.6 million and $34.0 million, respectively, for the fourth quarter 2020. Excluding these acquisitions, total employee costs increased $9.6 million, or 6 percent, in the fourth quarter 2020 compared to the prior year quarter, primarily due to higher incentive compensation on improved overall operating results, partially offset by lower severance expenses. As a percentage of total operating revenues, consolidated employee costs for the fourth quarter 2020 improved to 25.3 percent from 30.1 percent in the fourth quarter 2019.

Excluding acquisitions, other operating expenses increased $1.9 million, or 2 percent, in the fourth quarter 2020 compared to the prior year quarter. This increase primarily resulted from higher outside title search, attorney fee split and premium tax expenses on higher title revenues, and increased third-party consulting, partially offset by lower insurance, travel and office closure expenses. As a percentage of total operating revenues, consolidated other operating expenses for the fourth quarter 2020 was 17.9 percent compared to 18.4 percent in the fourth quarter 2019.

Other
Net cash provided by operations was $134.9 million in the fourth quarter 2020, compared to $59.1 million in the prior year quarter. The increased cash from operations was primarily driven by the higher net income and lower payments on accounts payables, partially offset by lower collections on accounts receivable.

Fourth quarter Earnings Call
Stewart will hold a conference call to discuss the fourth quarter 2020 earnings at 8:30 a.m. Eastern Time on Thursday, February 11, 2021. To participate, dial (866) 342-8591 (USA) and (203) 518-9713 (International) - access code STCQ420. 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 February 11, 2021 until midnight on February 18, 2021, by dialing (800) 283-7928 (USA) or (402) 220-0866 (International) - the access code is also STCQ420.

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 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 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 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.

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, which primarily include merger expenses, cost initiative severance expenses, office closure costs and insurance settlement 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.

Below is a reconciliation of the non-GAAP financial measurements used by management to the most directly comparable GAAP measures for the quarter and year ended December 31, 2020 and 2019 (dollars in millions, except share and per share amounts).

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SOURCE Stewart Information Services Corporation