Stewart Reports Second Quarter 2019 Results
HOUSTON, July 25, 2019 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported net income attributable to Stewart of $19.3 million ($0.81 per diluted share) for the second quarter 2019, compared to net income attributable to Stewart of $22.4 million ($0.95 per diluted share) for the second quarter 2018. Pretax income before noncontrolling interests for the second quarter 2019 was $29.4 million compared to a pretax income before noncontrolling interests of $31.3 million for the second quarter 2018.
Second quarter 2019 results included:
- $3.7 million of third-party advisory expenses related to the Fidelity National Financial (FNF) merger transaction recorded in other operating expenses within the ancillary services and corporate segment, and
- $0.4 million in net investment and other gains.
Second quarter 2018 results included $2.4 million in net investment and other gains.
"We are pleased with our second quarter results as we have been able to capitalize on the selling season in our direct domestic title business while continuing to reduce corporate expenses," stated Matthew W. Morris, chief executive officer. "A continued stable real estate market along with favorable buyer demographics and falling interest rates provide continued momentum as we enter the second half of 2019," added Morris.
"We appreciate the dedication of our loyal associates who have remained focused on delivering the highest level of customer experience as we work through the regulatory approval process for our merger with Fidelity National. Our results today underscore Stewart's value through our financial strength, strong balance sheet, growing statutory surplus, solid credit ratings and consistent cash flows," concluded Morris.
Merger Update With respect to the proposed merger, on June 10, 2019, FNF exercised the second option to extend the closing date of the transaction by an additional three months to September 18, 2019. We continue to work with FNF to gain approval for the merger from the Federal Trade Commission and the remaining state regulators, including Texas and New York.
Selected Financial Information Summary results of operations are as follows (dollars in millions, except per share amounts):
Title Segment Summary results of the title segment are as follows (dollars in millions, except pretax margin):
Title operating revenues in the second quarter 2019 decreased 3 percent compared to the prior year quarter primarily due to the decrease in independent agency revenues. The segment's overall operating expenses in the second quarter 2019 decreased $16.8 million, or 4 percent, compared to the prior year quarter, primarily driven by the 2 percent reduction in combined employee and other operating costs and the 6 percent lower agency retention expense largely resulting from lower agency gross revenues. The segment recognized $0.4 million of net unrealized losses in the second quarter 2019 and $1.8 million of net unrealized gains in the prior year quarter relating to changes in fair value of equity securities investments. Excluding the effects of these equity securities' fair value remeasurements, the title segment's pretax income in the second quarter 2019 was $39.4 million, an increase of $3.5 million, or 10 percent, compared to pretax income of $35.9 million in the second quarter 2018.
Direct title revenues information is presented below (dollars in millions):
Non-commercial domestic revenues, which include revenues from purchase transactions and centralized title operations, increased as a result of the increase in combined purchase and refinancing closed orders and the higher premium effect of increased home sale prices in the second quarter 2019 compared to the prior year quarter. Domestic commercial revenues increased due to a higher fee per file during the second quarter 2019, compared to the second quarter 2018. Second quarter 2019 domestic commercial fee per file increased 25 percent to approximately $11,600, as a result of increased transaction sizes, while domestic residential fee per file increased 3 percent to approximately $2,300 primarily due to home price appreciation, more than offsetting the effects of reduced fee per file from increased refinancing volume.
Gross revenues from independent agency operations declined 7 percent in the second quarter 2019, compared to last year's quarter. The independent agency remittance rate in the second quarter 2019 was 17.2 percent, compared to 17.6 percent in the prior year quarter.
Ancillary Services and Corporate Segment Summary results of the ancillary services and corporate segment are as follows (dollars in millions):
Excluding the $3.7 million FNF merger-related expenses noted above for the segment, the second quarter 2019 pretax loss would have been $6.0 million, a 7 percent improvement compared to the prior year quarter. Second quarter 2019 segment revenues decreased $5.3 million compared to the prior year quarter, primarily due to lower revenues from search and valuation services as a result of lower customer orders. Additionally, the segment's results for the second quarter 2019 and 2018 included approximately $9.4 million and $6.3 million, respectively, of net expenses attributable to parent company and corporate operations, with the increased expenses in the second quarter 2019 driven by the merger-related charges.
Expenses Employee costs for the second quarter 2019 were $139.9 million, a decrease of 4 percent from $146.3 million in the second quarter 2018. This reduction was primarily due to an 8 percent decrease in average employee counts, principally related to volume declines in our direct title and ancillary services operations as well as increasing efficiencies in how we manage the business. As a percentage of total operating revenues, employee costs for the second quarter 2019 and 2018 were comparable at 30.0 percent and 30.1 percent, respectively.
Other operating expenses in the second quarter 2019 of $86.1 million were flat, compared to $86.0 million in the second quarter 2018. Total professional fee expenses increased in the second quarter 2019, primarily driven by the third-party advisory expenses related to the FNF merger, which was offset by reduced outside search fees primarily related to lower search and valuation services' volume. As a percentage of total operating revenues, other operating expenses for the second quarter 2019 were 18.4 percent (17.7 percent, excluding merger expenses) compared to 17.7 percent in the prior year quarter.
Title loss expense for the second quarter 2019 was $18.8 million compared to $18.7 million from the prior year quarter. Title losses, as a percentage of title revenues, were 4.1 percent in the second quarter 2019, which was comparable to 4.0 percent in the second quarter 2018. We expect our title losses to remain in the range of 4.0 to 4.2 percent of title revenues for 2019.
Other Net cash provided by operations in the second quarter 2019 was $31.5 million, compared to net cash provided of $36.3 million in the prior year quarter, primarily due to the lower net income and increased payments of liabilities during the second quarter 2019.
Other comprehensive income in the second quarter 2019 was $7.9 million, compared to other comprehensive loss of $6.7 million in the second quarter 2018, primarily as a result of the net recovery of the market value of our debt securities investments, largely due to the continued decreases in the overall interest rate environment, and favorable foreign currency exchange rate changes during the second quarter 2019.
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 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 challenging economic conditions; 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; the continued realization of expense savings from our cost management program; our ability to successfully integrate acquired businesses; 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, 2018, and if applicable, 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 INCOME (UNAUDITED)
(In thousands of dollars, except per share amounts and except where noted)
2019:
2019:
2018:
2018:
STEWART INFORMATION SERVICES CORPORATION
CONDENSED BALANCE SHEETS
(In thousands of dollars)
(Unaudited)
2018
STEWART INFORMATION SERVICES CORPORATION
SEGMENT INFORMATION
(In thousands of dollars)
Services
and
Corporate
Services
and
Corporate
Appendix A
Adjusted revenues and adjusted EBITDA
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 investment and other gains and losses and (2) net income after earnings from noncontrolling interests and before interest expense, income tax expense, and depreciation and amortization and adjusted for net investment and other gains and losses and other non-operating costs such as FNF merger expenses and other third-party advisory costs (adjusted EBITDA). 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 our most directly comparable GAAP measures for the quarter and six months ended June 30, 2019 and 2018 (dollars in millions).
Change
Change
CONTACT: Nat Otis, SVP - Finance/Investor Relations, (713) 625-8360