Stewart(STC) - 2023 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements This section presents unaudited condensed consolidated financial statements for Q3 and 9M 2023 and 2022, showing a significant year-over-year decline in revenues and net income Condensed Consolidated Statements of Income and Comprehensive Income Net income attributable to Stewart significantly decreased in Q3 2023 to $14.0 million from $29.4 million due to lower total revenues Condensed Consolidated Statements of Income (Q3 & 9M) | Indicator | Q3 2023 ($M) | Q3 2022 ($M) | 9M 2023 ($M) | 9M 2022 ($M) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | 601.7 | 716.4 | 1,675.2 | 2,413.4 | | Income before taxes | 27.1 | 45.5 | 42.1 | 211.9 | | Net income attributable to Stewart | 14.0 | 29.4 | 21.6 | 149.0 | | Diluted EPS attributable to Stewart | $0.51 | $1.08 | $0.79 | $5.45 | Condensed Consolidated Balance Sheets Total assets slightly decreased to $2.67 billion as of September 30, 2023, primarily due to reduced cash and investments Condensed Consolidated Balance Sheet Highlights | Asset/Liability/Equity | Sep 30, 2023 ($M) | Dec 31, 2022 ($M) | | :--- | :--- | :--- | | Cash and cash equivalents | 203.0 | 248.4 | | Total Investments | 660.7 | 710.1 | | Total Assets | 2,669.1 | 2,737.9 | | Notes payable | 445.2 | 447.0 | | Estimated title losses | 521.4 | 549.4 | | Total Liabilities | 1,309.9 | 1,367.6 | | Total stockholders' equity | 1,359.2 | 1,370.3 | Condensed Consolidated Statements of Cash Flows Cash provided by operating activities significantly declined to $43.6 million in 9M 2023 from $167.0 million in 2022, driven by lower net income Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity | 2023 ($M) | 2022 ($M) | | :--- | :--- | :--- | | Cash provided by operating activities | 43.6 | 167.0 | | Cash used by investing activities | (36.8) | (225.3) | | Cash used by financing activities | (51.2) | (98.1) | | Change in cash and cash equivalents | (45.4) | (165.0) | Notes to Condensed Consolidated Financial Statements Notes detail revenue declines in direct and agency title insurance, increased unrealized losses on debt securities, and the Title segment's reduced income before taxes - Statutory reserve funds, which are not available for current claim payments, were approximately $510.8 million in investments and $11.0 million in cash as of September 30, 2023[23] Operating Revenues by Type (Nine Months Ended Sep 30) | Revenue Type | 2023 ($M) | 2022 ($M) | | :--- | :--- | :--- | | Title insurance premiums: Direct | 470.8 | 646.8 | | Title insurance premiums: Agency | 723.5 | 1,154.5 | | Escrow fees | 117.2 | 166.7 | | Real estate solutions and abstract fees | 253.4 | 302.5 | | Total Operating Revenues | 1,647.9 | 2,412.1 | Segment Income Before Taxes (Nine Months Ended Sep 30) | Segment | 2023 ($M) | 2022 ($M) | | :--- | :--- | :--- | | Title segment | 70.2 | 228.2 | | Real estate solutions segment | 7.3 | 16.2 | | Corporate and other segment | (35.4) | (32.6) | | Consolidated | 42.1 | 211.9 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the decline in Q3 2023 net income to lower transaction volumes in the title business, driven by a high-interest-rate environment that has hampered home sales and mortgage originations - Q3 2023 net income attributable to Stewart was $14.0 million ($0.51 per diluted share), a significant drop from $29.4 million ($1.08 per diluted share) in Q3 2022[52] - Management identifies key headwinds including rising interest rates, low housing inventory, and declining mortgage originations[65] - Existing home sales were down 15% YoY in September 2023, and total single-family mortgage originations fell 17% in Q3 2023[66] - The company is focused on a cost-effective, scalable business model through technology, centralization, and outsourcing, with plans to improve margins via automation and system consolidation[96] Results of Operations Operating revenues fell across all categories due to market headwinds, with direct title revenues dropping 17% in Q3 2023 and agency revenues falling 22% Direct Title Revenues (Q3) | Category | 2023 ($M) | 2022 ($M) | % Change | | :--- | :--- | :--- | :--- | | Non-commercial | 196.7 | 238.2 | (17)% | | Commercial | 59.7 | 69.2 | (14)% | | Total direct title revenues | 256.4 | 307.4 | (17)% | Closed Orders (Q3) | Order Type | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Commercial | 3,661 | 4,444 | (18)% | | Purchase | 39,903 | 46,592 | (14)% | | Refinance | 10,397 | 14,343 | (28)% | | Total | 60,308 | 66,798 | (10)% | Expense Analysis (Q3) | Expense Category | 2023 ($M) | 2022 ($M) | % Change | | :--- | :--- | :--- | :--- | | Amounts retained by agencies | 219.0 | 280.5 | (22)% | | Employee costs | 181.5 | 195.1 | (7)% | | Other operating expenses | 130.5 | 151.2 | (14)% | | Title losses and related claims | 22.3 | 25.5 | (13)% | Liquidity and Capital Resources The company held $901.0 million in total cash and investments as of September 30, 2023, with $43.3 million at the parent holding company - Total cash and investments were $901.0 million as of September 30, 2023, with $521.8 million held in statutory reserves and not available for current claim payments[89][92] - The parent holding company's cash and unregulated subsidiaries totaled $43.3 million at September 30, 2023, funded by dividends and reimbursements from subsidiaries[90] - The company paid total dividends of $37.5 million ($1.38 per share) in the first nine months of 2023, an increase from $32.5 million ($1.20 per share) in the same period of 2022[100] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in its investment strategies or market risks since the 2022 Form 10-K disclosures - The company reports no material changes to its market risk disclosures from the 2022 Form 10-K during the quarter ended September 30, 2023[109] Controls and Procedures Management concluded that disclosure controls and procedures were adequate and effective as of September 30, 2023, with no material changes to internal control - The principal executive and financial officers concluded that disclosure controls and procedures were adequate and effective as of September 30, 2023[110] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control[111] PART II – OTHER INFORMATION Legal Proceedings The company is subject to ordinary course claims and lawsuits, but does not expect any to have a material adverse effect, believing reserves are adequate - This section incorporates by reference the discussion of legal proceedings in Note 11 of the financial statements and the 2022 Form 10-K[114] - The Company does not expect that any ordinary course proceedings will have a material adverse effect on its consolidated financial condition or results of operations and believes it has adequate reserves[44] Risk Factors The company states there have been no material changes to the risk factors previously disclosed in its 2022 Form 10-K - The company reports no material changes to its risk factors since the 2022 Form 10-K[115] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase common stock in 9M 2023, except for shares covering tax withholding on vested restricted stock units - No common stock was repurchased during the first nine months of 2023, except for approximately 37,100 shares (aggregate purchase price of approximately $1.6 million) related to tax withholding on vested restricted unit grants[116] Other Information Book value per share decreased to $49.42 as of September 30, 2023, from $50.21 at year-end 2022 - Book value per share decreased to $49.42 as of September 30, 2023, from $50.21 as of December 31, 2022[117] Exhibits This section lists the exhibits filed with the 10-Q report, including CEO/CFO certifications and XBRL data files - The report lists filed exhibits, including CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL data files[119]