Stewart Information Services Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; includes results for the fourth quarter. Stewart provides title insurance and real estate transaction services, alongside appraisal, online closing, credit and property-data services. It reports title and ancillary services and corporate segments.
Key financial results
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenues, including investment income and realized/unrealized gains | $3.306 billion | $2.288 billion | +44% |
| Operating revenues | $3.265 billion | $2.272 billion | +44% |
| Pretax income before noncontrolling interests | $434.0 million | $218.5 million | +99% |
| Pretax margin on total revenues | 13.1% | 9.5% | +3.6 percentage points |
| Net income attributable to Stewart | $323.2 million | $154.9 million | +109% |
| Diluted earnings per share | $11.90 | $6.22 | +91% |
| Cash provided by operating activities | $390.3 million | $275.8 million | +$114.5 million |
For Q4 2021, net income attributable to Stewart was $85.5 million, or $3.12 per diluted share, versus $59.7 million, or $2.22, in Q4 2020. Pretax income before noncontrolling interests was $114.1 million versus $83.9 million.
Segments: Full-year title segment revenue was $3.034 billion and pretax income was $440.2 million, compared with $2.205 billion and $246.9 million in 2020. Ancillary services and corporate revenue was $271.5 million, compared with $83.1 million; its pretax loss narrowed to $6.2 million from $28.4 million. In Q4, title pretax margin was 13.5%, versus 13.6% a year earlier; ancillary services and corporate reported a $4.2 million pretax loss, versus an $11.0 million loss.
Margins and losses: The full-year title loss ratio improved to 4.2% of title operating revenue from 5.3%. Employee costs declined to 23.8% of total operating revenue from 27.0%, while other operating expenses rose to 19.2% from 16.5%. Operating expenses totaled $2.872 billion, up 39%.
Liquidity, debt and capital
- At year-end, cash and investments totaled approximately $1.2 billion, including statutory reserves and other funds subject to legal or regulatory restrictions. Cash and investments held in the U.S. were $798.3 million, or $517.5 million net of statutory reserves.
- Cash and cash equivalents were $485.9 million; debt and stockholders’ equity were $483.5 million and $1.295 billion, respectively. Debt-to-equity and debt-to-capitalization ratios were approximately 34% and 26%, excluding short-term Section 1031 loans.
- Debt included $444.1 million outstanding on 3.60% senior notes due 2031 and $37.1 million of Section 1031-related loans. The $200 million revolving credit facility was substantially available; reported availability was $197.5 million after an unused letter of credit.
- Investing cash outflow was $645.3 million, principally reflecting $600.0 million of business acquisitions. Financing cash inflow was $310.4 million. The company paid $36.6 million in dividends, or $1.365 per share.
- Management stated it expected operating cash flows and available underwriter funds, subject to regulatory restrictions, to cover operations and claims; additional financing could be needed for strategic objectives or unforeseen circumstances.
Material changes and unusual items
- Revenue growth reflected stronger real estate transaction activity, higher title fees per file and acquisitions. Direct title revenue increased 37%; ancillary services revenue rose 214%, primarily from acquired businesses.
- Closed orders rose 13% overall. Purchase closed orders increased 22%, commercial orders 15%, and refinance orders 4%; refinancing activity was weaker than in 2020.
- Stewart spent approximately $600 million on acquisitions in 2021, including title offices and ancillary businesses, and acquired Cloudvirga. Acquisitions materially increased goodwill and intangible assets; goodwill rose to $924.8 million from $431.5 million.
- Full-year net realized and unrealized gains were $24.3 million, versus a $1.7 million loss in 2020. The 2021 total included $17.7 million of unrealized gains on equity securities and gains from asset sales and acquisition contingent-liability adjustments. Q4 results included $6.5 million of pretax net realized and unrealized gains.
- Title loss reserves were $549.6 million, up from $496.3 million. Management said the reserve was above the actuarial midpoint; a 100-basis-point change in the loss provisioning percentage would have affected 2021 pretax results by approximately $30 million.
- The company issued $450 million of senior notes and refinanced prior credit-facility and term-loan borrowings. Other comprehensive income shifted to a $16.8 million loss, mainly due to lower fair values of debt securities as interest rates rose.
Outlook, risks and contingencies
The filing does not provide specific company earnings or revenue guidance. Management cited industry forecasts for 2022, not Stewart guidance: an average 30-year fixed mortgage rate of 3.6%, new home sales growth of 16%, and existing home sales growth of 1%. It expected higher rates to reduce refinancing and constrain affordability, while strong housing demand and higher home prices could support transaction activity.
Key risks include real estate and mortgage-market cyclicality; rising rates affecting transaction volumes, investment values and floating-rate borrowing costs; estimation uncertainty in title-loss reserves; agent fraud, escrow losses and wire fraud; cybersecurity and technology disruption; acquisition integration and goodwill impairment; and extensive insurance regulation. COVID-19 effects, inflation, supply constraints and extreme weather were also identified as potential sources of disruption.
Stewart disclosed approximately $3.3 billion of third-party escrow funds and $2.5 billion of Section 1031 exchange proceeds held in off-balance-sheet accounts at year-end; the company is contingently liable for these funds. It reported ordinary-course litigation and regulatory matters and did not expect them to materially affect consolidated results. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; management also assessed controls as effective.
Important facts for investors to verify
- How much of earnings growth is sustainable from operations versus investment gains, favorable title claims experience and acquisition-related effects.
- Whether title-loss reserves remain adequate as claims develop; note the $549.6 million reserve, its position above the actuarial midpoint, and the disclosed $30 million sensitivity.
- Acquisition performance, integration costs and returns on the substantial goodwill and intangible assets added in 2021.
- Parent-company liquidity and access to subsidiary dividends, given statutory reserve requirements and restrictions on insurer distributions.
- Debt-service capacity, credit-facility availability and exposure to real estate market, interest-rate, fraud and cybersecurity risks.