Stewart Reports Fourth Quarter 2021 Results

HOUSTON, Feb. 9, 2022 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported net income attributable to Stewart for the fourth quarter 2021 of $85.5 million ($3.12 per diluted share), compared to net income attributable to Stewart of $59.7 million ($2.22 per diluted share) for the fourth quarter 2020. On an adjusted basis, Stewart's fourth quarter 2021 net income was $80.5 million ($2.94 per diluted share), an improvement of $24.1 million, or 43 percent, from the fourth quarter 2020. Fourth quarter 2021 pretax income before noncontrolling interests was $114.1 million compared to pretax income before noncontrolling interests of $83.9 million for the fourth quarter 2020.

Fourth quarter 2021 results included $6.5 million of pretax net realized and unrealized gains, which included $8.1 million of net unrealized gains on fair value changes of equity securities investments and $1.3 million of net gains related to acquisition contingent liability adjustments, partially offset by $2.9 million of net realized losses primarily related to sale of securities investments and other assets. 

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.

"The year finished on a positive note, as improving purchase, commercial and agency activity more than offset declining refinancing volumes. By combining this top line strength with our continued focus on operational discipline across all of our channels, the fourth quarter results further illustrate the significant progress Stewart has made in a relatively short period of time," commented Fred Eppinger, chief executive officer. "While we believe that this past quarter reflects the start of a broader market shift away from some of the interest rate-driven order activity of the past couple of years, we see opportunity in a market that is more heavily weighted to residential home buying and improving commercial activity. Our goal has always been to build a stable and resilient business that can thrive through the full real estate cycle."

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

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

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

Pretax income for the title segment increased by $23.4 million, or 25 percent, in the fourth quarter 2021 compared to the prior year quarter, while pretax margin was 13.5 percent in the fourth quarter 2021 which was comparable to 13.6 percent in the fourth quarter 2020. Title operating revenues in the fourth quarter 2021 grew $177.5 million, or 26 percent, as a result of improvements in direct title and gross independent agency revenues of $81.9 million, or 24 percent, and $95.6 million, or 27 percent, respectively. In line with higher title revenues, overall segment operating expenses in the fourth quarter 2021 increased $154.3 million, or 26 percent, primarily driven by 28 percent and 31 percent higher agency retention expenses and combined title employee costs and other operating expenses, respectively, compared to the prior year quarter. Average independent agency remittance rate in the fourth quarter 2021 was 18.0 percent, compared to 18.2 percent in the prior year quarter. As a percentage of title revenues, combined title employee costs and other operating expenses increased to 40.6 percent in the fourth quarter 2021 compared to 38.8 percent in the fourth quarter 2020, primarily due to office consolidation costs and state sales tax assessments.

Title loss expense decreased $13.1 million, or 28 percent, in the fourth quarter 2021 compared to the prior year quarter, primarily due to favorable claims experience which was partially offset by higher title revenues. As a percentage of title revenues, the title loss expense in the fourth quarter 2021 was 3.9 percent compared to 6.8 percent in the prior year quarter. For the year, the title loss ratio was 4.2 percent compared to 5.3 percent in 2020.

The segment's net realized and unrealized gains in the fourth quarter 2021 primarily included $8.1 million of net unrealized gains on fair value changes of equity securities investments, $2.0 million of net losses related to acquisition contingent liability adjustments, and $0.8 million of net realized losses on sale of securities investments, while net realized and unrealized gains in the fourth quarter 2020 were related to $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. Investment income in the fourth quarter 2021 was slightly lower compared to the prior year quarter, primarily due to lower interest income resulting from lower interest rates.  

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

Overall revenue improvements in both non-commercial and commercial operations contributed to higher direct title revenues in the fourth quarter 2021 compared to the prior year quarter. Non-commercial revenues increased $45.2 million, or 16 percent, primarily driven by increased residential purchase transactions and scale, partially offset by reduced refinancing transactions in the fourth quarter 2021 compared to the fourth quarter 2020. Domestic commercial revenues increased $35.0 million, or 60 percent, in the fourth quarter 2021, primarily due to improved commercial transaction size and volume compared to the prior year quarter. Domestic commercial and residential fees per file in the fourth quarter 2021 were approximately $19,400 and $2,700, respectively, which were 50 percent and 38 percent, respectively, higher compared to the fourth quarter 2020. Total international revenues grew $4.3 million, or 10 percent, primarily due to increased residential and commercial transaction volumes in our Canadian operations in the fourth quarter 2021 compared to the prior year quarter.

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 improved $45.6 million, or 120 percent, in the fourth quarter 2021, compared to the prior year quarter, primarily due to revenues generated by recent acquisitions and increased revenues from appraisal management and online notary services. Net realized and unrealized gains during the fourth quarter 2021 were primarily related to acquisition contingent liability net gain adjustments, which were partially offset by asset disposal charges. The ancillary services operations in the fourth quarter 2021 generated pretax income of $5.3 million (which included $3.3 million of net gains related to acquisition contingent liability adjustments and $5.6 million of purchased intangibles amortization expense), compared to a fourth quarter 2020 pretax loss of $0.6 million (which included $1.6 million of purchased intangibles amortization expense).

Net expenses attributable to parent company and corporate operations in the fourth quarter 2021 were approximately $7.9 million, which included increased interest expense resulting from newly issued debt, while net expenses for the fourth quarter 2020 were approximately $10.4 million, which included costs related to charitable contributions and consulting fees.

Expenses
Consolidated employee costs in the fourth quarter 2021 increased $37.1 million, or 20 percent, compared to the fourth quarter 2020, primarily driven by increased salaries and employee benefits (due to a 22 percent higher average employee count driven by acquisitions) and higher incentive compensation on improved overall operating results. As a percentage of total operating revenues, consolidated employee costs for the fourth quarter 2021 improved to 23.3 percent compared to 25.3 percent in the prior year quarter.

Total other operating expenses in the fourth quarter 2021 increased $80.7 million, or 62 percent, compared to the prior year quarter. This increase was primarily driven by increased service expenses tied to higher ancillary services revenues, higher outside title search and premium tax expenses on improved title revenues, state sales tax assessments and office consolidation costs. As a percentage of total operating revenues, consolidated other operating expenses for the fourth quarter 2021 increased to 22.2 percent, compared to 17.9 percent in the fourth quarter 2020, primarily due to the increased size of our ancillary and other real estate services operations, which typically have higher operating expenses, driven by 2021 acquisitions.  

Other
Net cash provided by operations in the fourth quarter 2021 was $133.0 million, compared to net cash provided by operations of $134.9 million in the fourth quarter 2020.

Fourth Quarter Earnings Call
Stewart will hold a conference call to discuss the fourth quarter 2021 earnings at 8:30 a.m. Eastern Time on Thursday, February 10, 2022. To participate, dial (800) 891-3968 (USA) and (203) 518-9544 (International) - access code STCQ421. Additionally, participants can listen to the conference call through Stewart's Investor Relations website at https://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 10, 2022 until midnight on February 17, 2022, by dialing (800) 938-1584 (USA) or (402) 220-1542 (International) - the access code is also STCQ421.

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 https://www.stewart.com, subscribe to the Stewart blog at https://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, 2020, 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 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 non-recurring 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, 2021 and 2020 (dollars in millions, except share and per share amounts, and amounts may not foot as presented due to rounding).

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SOURCE Stewart Information Services Corporation