Stewart Reports Third Quarter 2019 Results

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

Title operating revenues in the third quarter 2019 increased 3 percent compared to the prior year quarter primarily due to a 15 percent improvement in direct title revenues, which was partially offset by a 7 percent decline in independent agency gross revenues. The segment's overall operating expenses in the third quarter 2019 decreased $5.5 million (1 percent) compared to the prior year quarter, primarily resulting from a 7 percent lower agency retention expense, largely resulting from lower agency gross revenues, partially offset by a 5 percent increase in combined employee and other operating costs primarily due to increased direct title revenues.

During the third quarters 2019 and 2018, the segment recorded $0.3 million of net unrealized losses and $2.2 million of net unrealized gains, respectively, relating to changes in fair value of equity securities investments. Excluding the effects of these equity securities' fair value remeasurements and the $2.7 million impairment charge on an equity method investment, the title segment's pretax income in the third quarter 2019 was $52.5 million, an increase of $18.7 million, or 55 percent, compared to pretax income of $33.8 million in the third quarter 2018.

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

Non-commercial domestic revenues increased in the third quarter 2019, compared to the prior year quarter, primarily as a result of increased closed orders driven by lower interest rates. Domestic commercial revenues increased due to a higher fee per file during the third quarter 2019 compared to the prior year quarter. Third quarter 2019 domestic commercial fee per file increased 22 percent to approximately $12,600 as a result of increased transaction sizes, while domestic residential fee per file decreased 4 percent to approximately $2,200 primarily due to the higher ratio of refinancing to purchase orders in the third quarter 2019 versus the prior year quarter. Total international title revenues increased $3.2 million, or 10 percent, primarily driven by increased volumes in Canada and the United Kingdom.

Gross revenues from independent agency operations declined 7 percent in the third quarter 2019 compared to the third quarter 2018. The independent agency remittance rate in the third quarter 2019 was 17.8 percent, a slight improvement from 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):

The segment's operating revenues decreased $4.6 million in the third quarter 2019 compared to the prior year quarter, primarily due to lower revenues from search and valuation services as a result of reductions in orders from several significant customers. The segment's results for the third quarter 2019 and 2018 included approximately $7.3 million and $12.6 million, respectively, of net expenses attributable to parent company and corporate operations, with the higher expenses in the prior year quarter being driven by increased merger-related charges. Excluding the FNF merger termination fee and merger-related expenses, the third quarter 2019 pretax loss would have been $7.4 million versus $5.6 million in the prior year quarter.

Expenses Employee costs for the third quarter 2019 were $143.8 million, an increase of 4 percent from $138.3 million in the third quarter 2018. This increase was primarily due to increased incentive compensation consistent with higher direct title revenues, partially offset by reduced salaries expense resulting from lower average employee counts in the third quarter 2019 compared to the prior year quarter. As a percentage of total operating revenues, employee costs for the third quarter 2019 and 2018 were 28.3 percent and 27.7 percent, respectively.

Other operating expenses in the third quarter 2019 were $87.8 million, a decrease of 3 percent from $90.8 million in the third quarter 2018. This decrease was primarily driven by lower professional fee expenses in the third quarter 2019, partially offset by higher outside search fees, principally related to increased commercial revenues. As a percentage of total operating revenues, other operating expenses for the third quarter 2019 were 17.3 percent compared to 18.2 percent in the prior year quarter. Excluding the non-operating charges mentioned above, the other operating expenses ratio for the third quarters 2019 and 2018 were 17.1 percent and 16.8 percent, respectively.

Title loss expense for the third quarter 2019 was $21.1 million, which was 2 percent lower compared to $21.5 million from the prior year quarter. Title losses, as a percentage of title revenues, were 4.2 percent in the third quarter 2019, compared to 4.4 percent in the third quarter 2018. We expect our title losses to remain at approximately 4.2 percent of title revenues for the year 2019.

Other Net cash provided by operations in the third quarter 2019 was $115.7 million, compared to net cash provided of $36.4 million in the prior year quarter. This increase was primarily due to the higher net income, which included the merger termination fee, and lower payments on accounts payables during the third quarter 2019.

Third Quarter Earnings Call Stewart will hold a conference call to discuss the third quarter 2019 earnings at 8:30 a.m. Eastern Time on Wednesday, October 23, 2019. To participate, dial (800) 894-5910 (USA) and (785) 424-1052 (International) - access code STCQ319. 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 4:00 p.m. Eastern Time on October 23, 2019 until midnight on October 30, 2019, by dialing (800) 688-4915 (USA) or (402) 220-1319 (International) - the access code is also STCQ319.

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 volatility of 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; 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.

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 investment and other gains and losses and (2) net income after earnings from noncontrolling interests 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 net income). Adjusted diluted earnings per share (adjusted 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 our most directly comparable GAAP measures for the quarter and nine months ended September 30, 2019 and 2018 (dollars in millions, except share and per share amounts).

CONTACT: Nat Otis, SVP - Finance/Investor Relations, (713) 625-8360