Stewart Information Services Corp 10-Q for FY2022 Q3

Stewart Information Services Corp (STC)

10-Q 2022-11-08 For: 2022-09-30

Added on April 09, 2026

About this 10-Q

Stewart Information Services Corp filed this 10-Q on November 8, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).

Headline figures

Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $716.4M; down 14.4% from $836.73M a year earlier
Net income: $29.43M; down 66.8% from net income of $88.66M a year earlier
Diluted EPS: $1.08; down 66.9% from $3.26 a year earlier

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Delaware		74-1677330
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1360 Post Oak Blvd.,	Suite 100
Houston,	Texas	77056
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1 par value per share	STC	New York Stock Exchange


Item		Page
	PART I – FINANCIAL INFORMATION

1.	Financial Statements	3

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

3.	Quantitative and Qualitative Disclosures About Market Risk	28

4.	Controls and Procedures	29
	PART II – OTHER INFORMATION
1.	Legal Proceedings	30

1A.	Risk Factors	30

2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

5.	Other Information	30

6.	Exhibits	31

	Signature	32


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
	($000 omitted, except per share)
Revenues
Title revenues:
Direct operations	307,408	366,091	976,364	999,098
Agency operations	340,470	401,762	1,154,546	1,138,023
Real estate solutions and other	69,737	61,934	281,152	176,057
Operating revenues	717,615	829,787	2,412,062	2,313,178
Investment income	5,158	4,053	15,519	13,127
Net realized and unrealized (losses) gains	(6,374)	2,887	(14,194)	17,816
	716,399	836,727	2,413,387	2,344,121
Expenses
Amounts retained by agencies	280,517	329,906	951,555	935,861
Employee costs	195,057	197,587	610,286	555,451
Other operating expenses	151,208	152,587	502,966	415,864
Title losses and related claims	25,486	30,345	81,105	92,687
Depreciation and amortization	14,067	9,144	42,103	22,394
Interest	4,553	712	13,471	1,960
	670,888	720,281	2,201,486	2,024,217
Income before taxes and noncontrolling interests	45,511	116,446	211,901	319,904
Income tax expense	(10,783)	(23,051)	(48,376)	(70,547)
Net income	34,728	93,395	163,525	249,357
Less income attributable to noncontrolling interests	5,294	4,732	14,534	11,639
Net income attributable to Stewart	29,434	88,663	148,991	237,718

Net income	34,728	93,395	163,525	249,357
Other comprehensive loss, net of taxes:
Foreign currency translation adjustments	(15,300)	(4,243)	(22,861)	(997)
Change in net unrealized gains and losses on investments	(8,921)	(2,183)	(41,513)	(10,330)
Reclassification adjustments for realized gains and losses on investments	(385)	(355)	(687)	(918)
Other comprehensive loss, net of taxes:	(24,606)	(6,781)	(65,061)	(12,245)
Comprehensive income	10,122	86,614	98,464	237,112
Less income attributable to noncontrolling interests	5,294	4,732	14,534	11,639
Comprehensive income attributable to Stewart	4,828	81,882	83,930	225,473

Basic average shares outstanding (000)	27,113	26,873	27,031	26,803
Basic earnings per share attributable to Stewart	1.09	3.30	5.51	8.87
Diluted average shares outstanding (000)	27,371	27,238	27,359	27,090
Diluted earnings per share attributable to Stewart	1.08	3.26	5.45	8.78


	September 30, 2022 (Unaudited)	December 31, 2021
	($000 omitted)
Assets
Cash and cash equivalents	320,933	485,919
Short-term investments	18,077	17,650
Investments, at fair value:
Debt securities (amortized cost of $624,272 and $578,165)	582,461	589,772
Equity securities	87,166	89,442
	669,627	679,214
Receivables:
Premiums from agencies	43,426	45,428
Trade and other	65,620	75,079
Income taxes	9,395	5,420
Notes	5,995	1,124
Allowance for uncollectible amounts	(7,577)	(7,711)
	116,859	119,340
Property and equipment:
Land	2,545	2,545
Buildings	18,553	19,303
Furniture and equipment	220,224	216,261
Accumulated depreciation	(160,715)	(165,653)
	80,607	72,456
Operating lease assets	130,316	134,578
Title plants, at cost	73,358	76,859
Investments on equity method basis	4,341	4,754
Goodwill	961,726	924,837
Intangible assets, net of amortization	174,430	229,804
Deferred tax assets	4,328	3,846
Other assets	150,858	64,105
	2,705,460	2,813,362
Liabilities
Notes payable	446,372	483,491
Accounts payable and accrued liabilities	184,065	287,326
Operating lease liabilities	146,309	149,417
Estimated title losses	547,214	549,614
Deferred tax liabilities	23,999	48,779
	1,347,959	1,518,627
Contingent liabilities and commitments
Stockholders’ equity
Common Stock ($1 par value) and additional paid-in capital	321,492	309,622
Retained earnings	1,090,938	974,800
Accumulated other comprehensive income (loss):
Foreign currency translation adjustments	(31,778)	(8,917)
Net unrealized (losses) gains on debt securities investments	(33,030)	9,170

Treasury stock – 352,161 common shares, at cost	(2,666)	(2,666)
Stockholders’ equity attributable to Stewart	1,344,956	1,282,009
Noncontrolling interests	12,545	12,726
Total stockholders’ equity (27,123,388 and 26,893,430 shares outstanding)	1,357,501	1,294,735
	2,705,460	2,813,362


	Common Stock	Additional paid-in capital	Retained earnings	Accumulated other comprehensive income (loss)	Treasury stock	Noncontrolling interests	Total
	($000 omitted)
Nine Months Ended September 30, 2022
Balance at December 31, 2021	27,246	282,376	974,800	253	(2,666)	12,726	1,294,735

Net income attributable to Stewart	—	—	148,991	—	—	—	148,991
Dividends on Common Stock ($1.20 per share)	—	—	(32,853)	—	—	—	(32,853)

Stock-based compensation	155	9,084	—	—	—	—	9,239
Stock repurchases	(49)	(3,119)	—	—	—	—	(3,168)
Stock option and employee stock purchase plan exercises	124	5,675	—	—	—	—	5,799
Purchase of remaining interest in consolidated subsidiaries	—	—	—	—	—	(72)	(72)
Change in net unrealized gains and losses on investments, net of taxes	—	—	—	(41,513)	—	—	(41,513)
Reclassification adjustment for realized gains and losses on investments, net of taxes	—	—	—	(687)	—	—	(687)
Foreign currency translation adjustments, net of taxes	—	—	—	(22,861)	—	—	(22,861)
Net income attributable to noncontrolling interests	—	—	—	—	—	14,534	14,534
Distributions to noncontrolling interests	—	—	—	—	—	(14,863)	(14,863)
Net effect of other changes in ownership	—	—	—	—	—	220	220
Balance at September 30, 2022	27,476	294,016	1,090,938	(64,808)	(2,666)	12,545	1,357,501

Nine Months Ended September 30, 2021
Balance at December 31, 2020	27,080	274,857	688,819	17,022	(2,666)	7,294	1,012,406

Net income attributable to Stewart	—	—	237,718	—	—	—	237,718
Dividends on Common Stock ($0.99 per share)	—	—	(27,009)	—	—	—	(27,009)

Stock-based compensation	139	8,355	—	—	—	—	8,494
Stock repurchases	(41)	(2,104)	—	—	—	—	(2,145)
Stock option and employee stock purchase plan exercises	64	2,651	—	—	—	—	2,715
Purchase of remaining interest in consolidated subsidiary	—	(4,744)	—	—	—	(872)	(5,616)
Change in net unrealized gains and losses on investments, net of taxes	—	—	—	(10,330)	—	—	(10,330)
Reclassification adjustment for realized gains and losses on investments, net of taxes, net of taxes	—	—	—	(918)	—	—	(918)
Foreign currency translation adjustments, net of taxes	—	—	—	(997)	—	—	(997)
Net income attributable to noncontrolling interests	—	—	—	—	—	11,639	11,639
Distributions to noncontrolling interests	—	—	—	—	—	(11,683)	(11,683)
Net effect of other changes in ownership	—	—	—	—	—	2,426	2,426
Balance at September 30, 2021	27,242	279,015	899,528	4,777	(2,666)	8,804	1,216,700


	September 30, 2022		December 31, 2021
	Amortized costs	Fair values	Amortized costs	Fair values
	($000 omitted)
Municipal	30,759	30,119	34,739	36,323
Corporate	279,392	257,575	249,757	258,102
Foreign	297,490	278,511	287,240	288,883
U.S. Treasury Bonds	16,631	16,256	6,429	6,464

	624,272	582,461	578,165	589,772


	September 30, 2022		December 31, 2021
	Gains	Losses	Gains	Losses
	($000 omitted)
Municipal	2	642	1,585	1
Corporate	226	22,043	9,389	1,044
Foreign	92	19,071	3,285	1,642
U.S. Treasury Bonds	7	382	60	25

	327	42,138	14,319	2,712


	Less than 12 months		More than 12 months		Total
	Losses	Fair values	Losses	Fair values	Losses	Fair values
	($000 omitted)
Municipal	633	28,835	9	33	642	28,868
Corporate	17,822	224,128	4,221	29,888	22,043	254,016
Foreign	13,264	210,499	5,807	65,721	19,071	276,220
U.S. Treasury Bonds	323	13,116	59	951	382	14,067

	32,042	476,578	10,096	96,593	42,138	573,171


	Level 1	Level 2	Fair value measurements
	($000 omitted)
Investments in securities:
Debt securities:
Municipal	—	30,119	30,119
Corporate	—	257,575	257,575
Foreign	—	278,511	278,511
U.S. Treasury Bonds	—	16,256	16,256
Equity securities	87,166	—	87,166
	87,166	582,461	669,627


	Title	Real Estate Solutions	Corporate and Other	Consolidated Total
	($000 omitted)
Balances at December 31, 2021	583,944	325,543	15,350	924,837
Acquisitions	25,325	—	—	25,325
Purchase accounting adjustments	345	26,961	(14,450)	12,856
Disposals	(392)	—	(900)	(1,292)
Balances at September 30, 2022	609,222	352,504	—	961,726


	Three Months Ended September 30, 2022			Three Months Ended September 30, 2021
	Before-Tax Amount	Tax Expense (Benefit)	Net-of-Tax Amount	Before-Tax Amount	Tax Expense (Benefit)	Net-of-Tax Amount
	($000 omitted)
Net unrealized gains and losses on investments:
Change in net unrealized gains and losses on investments	(11,292)	(2,371)	(8,921)	(2,764)	(581)	(2,183)
Reclassification adjustments for realized gains and losses on investments	(488)	(103)	(385)	(449)	(94)	(355)
	(11,780)	(2,474)	(9,306)	(3,213)	(675)	(2,538)

Foreign currency translation adjustments	(18,315)	(3,015)	(15,300)	(4,950)	(707)	(4,243)

Other comprehensive loss	(30,095)	(5,489)	(24,606)	(8,163)	(1,382)	(6,781)


	For the Three Months Ended September 30
	2022		2021		% Chg

Operating revenues	647.9		767.9		(16)	%
Investment income	5.2		4.1		27	%
Net realized and unrealized (losses) gains	(6.4)		0.3		(2,042)	%
Pretax income	51.8		119.1		(56)	%
Pretax margin	8.0	%	15.4	%


	Three Months Ended September 30,					Nine Months Ended September 30,
	2022	2021	Change	% Chg		2022	2021	Change	% Chg
	($ in millions)					($ in millions)
Non-commercial
Domestic	204.4	249.1	(44.7)	(18)	%	659.1	709.1	(50.0)	(7)	%
International	33.8	44.2	(10.4)	(24)	%	106.6	118.8	(12.2)	(10)	%
	238.2	293.3	(55.1)	(19)	%	765.7	827.9	(62.2)	(8)	%
Commercial:
Domestic	61.0	64.5	(3.5)	(5)	%	184.5	149.2	35.3	24	%
International	8.2	8.3	(0.1)	(1)	%	26.2	22.0	4.2	19	%
	69.2	72.8	(3.6)	(5)	%	210.7	171.2	39.5	23	%
Total direct title revenues	307.4	366.1	(58.7)	(16)	%	976.4	999.1	(22.7)	(2)	%


Exhibit
3.1	—	Restated Certificate of Incorporation of the Registrant, dated April 28, 2016 (incorporated by reference in this report from Exhibit 3.1 of the Current Report on Form 8-K filed April 29, 2016)
3.2	—	Third Amended and Restated By-Laws of the Registrant, as of April 27, 2016 (incorporated by reference in this report from Exhibit 3.2 of the Current Report on Form 8-K filed April 28, 2016)
10.1†*		Amended and Restated Employment Agreement, effective October 13, 2022, by and between the Registrant and Frederick Eppinger











31.1*	—	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	—	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	—	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	—	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	—	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*	—	XBRL Taxonomy Extension Schema Document
101.CAL*	—	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	—	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	—	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	—	XBRL Taxonomy Extension Presentation Linkbase Document
104*	—	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


	Amortized costs	Fair values
	($000 omitted)
In one year or less	88,203	87,384
After one year through five years	355,367	333,584
After five years through ten years	155,555	140,592
After ten years	25,147	20,901
	624,272	582,461


	2022		2021
	($000 omitted)
Balances at January 1	549,614		496,275
Provisions:
Current year	81,108		91,259
Previous policy years	(3)		1,428
Total provisions	81,105		92,687
Payments, net of recoveries:
Current year	(14,191)		(12,181)
Previous policy years	(55,964)		(40,745)
Total payments, net of recoveries	(70,155)		(52,926)

Effects of changes in foreign currency exchange rates	(13,350)		(1,485)
Balances at September 30	547,214		534,551
Loss ratios as a percentage of title operating revenues:
Current year provisions	3.8	%	4.3	%
Total provisions	3.8	%	4.3	%


	Three Months Ended September 30,					Nine Months Ended September 30,
	2022	2021	Change	% Chg		2022	2021	Change	% Chg
Opened Orders:
Commercial	4,456	4,461	(5)	—	%	16,028	13,635	2,393	18	%
Purchase	60,646	73,558	(12,912)	(18)	%	201,228	220,979	(19,751)	(9)	%
Refinance	20,047	64,374	(44,327)	(69)	%	85,574	205,834	(120,260)	(58)	%
Other	1,825	1,762	63	4	%	4,546	5,254	(708)	(13)	%
Total	86,974	144,155	(57,181)	(40)	%	307,376	445,702	(138,326)	(31)	%

Closed Orders:
Commercial	4,444	4,204	240	6	%	14,007	12,538	1,469	12	%
Purchase	46,592	56,570	(9,978)	(18)	%	149,272	160,763	(11,491)	(7)	%
Refinance	14,343	47,549	(33,206)	(70)	%	71,507	165,843	(94,336)	(57)	%
Other	1,419	1,139	280	25	%	4,778	3,492	1,286	37	%
Total	66,798	109,462	(42,664)	(39)	%	239,564	342,636	(103,072)	(30)	%


	Three Months Ended September 30,							Nine Months Ended September 30,
	2022		2021		Change*	% Chg		2022		2021		Change*	% Chg
	($ in millions)							($ in millions)

Amounts retained by agencies	280.5		329.9		(49.4)	(15	%)	951.6		935.9		15.7	2	%
As a % of agency revenues	82.4	%	82.1	%				82.4	%	82.2	%
Employee costs	195.1		197.6		(2.5)	(1	%)	610.3		555.5		54.8	10	%
As a % of operating revenues	27.2	%	23.8	%				25.3	%	24.0	%
Other operating expenses	151.2		152.6		(1.4)	(1	%)	503.0		415.9		87.1	21	%
As a % of operating revenues	21.1	%	18.4	%				20.9	%	18.0	%
Title losses and related claims	25.5		30.3		(4.9)	(16	%)	81.1		92.7		(11.6)	(12	%)
As a % of title revenues	3.9	%	4.0	%				3.8	%	4.3	%


* Filed herewith
† Management contract or compensatory plan


						Stewart Information Services Corporation
						Registrant

By:						/s/ David C. Hisey
						David C. Hisey, Chief Financial Officer, Secretary and Treasurer


(a)			designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)			designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)			evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)			disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


(a)			all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)			any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


/s/ Frederick H. Eppinger
Name:						Frederick H. Eppinger
Title:						Chief Executive Officer


/s/ David C. Hisey
Name:						David C. Hisey
Title:						Chief Financial Officer, Secretary and Treasurer