Hello, and thank you for joining the Stewart Information Services Q4 and full year 2021 earnings call. At this time, all participants are in listen-only mode. Later, you will have an opportunity to ask questions during the question-and-answer session. Instructions will be given at that time. Please note, this call is being recorded. Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn today's program over to Nat Otis, Head of Investor Relations. Please go ahead.
Great. Thanks, Emma. Morning. Thank you for joining us today for Stewart's Q4 2021 earnings conference call. We will be discussing results that were released yesterday after the close. Joining me today are CEO Fred Eppinger and CFO David Hisey. To listen online, please go to the stewart.com website to access the link for this conference call. I will remind participants this conference call may contain forward-looking statements that involve a number of risks and uncertainties. Because such statements are based on the expectation of future financial operating results and are not statements of fact, actual results may differ materially from those projected.
The risks and uncertainties with forward-looking statements include, but are not limited to, the risks and other factors detailed in our press release published yesterday evening, and in the statement regarding forward-looking information, risk factors, and other sections of the company's Form 10-K and other filings with the SEC. Let me now turn the call over to Fred.
Thank you for joining us today for Stewart's Q4 2021 earnings conference call. David will take you through the quarter's financial results in a minute, but before then, I would like to touch on Stewart's 2021 results and what we see in front of us for 2022 and beyond. We are now two full years into what we call the journey to become the premier title services company. 2020 and 2021 were two of the best as well as the most challenging years in the title industry as a whole, given tremendous changes in the market, historically low rates, and an ongoing impact and uncertainty caused by COVID. For Stewart specifically, it has been a period filled with significant change and increased focus.
The focus on significant structural improvement with enhanced operating discipline and a renewed commitment to the customer experience. More remains to be done in our journey, but we are encouraged by our progress as we have materially improved from 2019 to 2021. We have significantly improved in every aspect of our business and have demonstrated our ability to materially improve our margins while significantly growing our business. We are pleased with the results in all our lines this quarter across residential and commercial, where we are building a strategy to take advantage of what looks like a very positive commercial market that lies ahead. We've enhanced our core business by leveraging added scale in targeted geographies while also placing a greater focus on managing more effectively and efficiently.
We have built scale in targeted services, and we continue to benefit from an influx of industry talent that sees Stewart as a destination for forward-thinking leaders, offering a significant long-term opportunity. In the area of technology, we understand that the real estate transaction will continue to evolve, becoming less paper-intensive, more remote and more digital. As we have done with many of our recent transactions, we will continue to invest when appropriate in technologies and services that help facilitate this change and therefore improving the customer ease of use and experience. While we are proud of our accomplishments to date, we recognize there is more to be done in the face of higher interest rate environment and a further evolution of the market.
The long-term outlook for the residential real estate market remains encouraging as purchase segment trends are projected to continue to be strong and demographic realities such as first-time millennial home buying add to the opportunity of an increasing favorable mix shift. That said, our industry and our company will likely need to navigate a near-term horizon of greater interest rate uncertainty as the Fed acts more aggressively to curb inflation by taking actions that may lead to further pullback of the refinancing activity. At Stewart, we have been preparing for this market transition by reconstructing a title company that is better able to sustain the ups and downs of a full real estate cycle. A key part of building a resilient foundation is the work we continue to do to gain adequate local scale in priority markets.
As part of this process, we continue to opportunistically add new title agencies and teams to our Stewart family, increasing talent and leadership in those market segments along the way. Historically, Stewart has been less weighted to refinancing volumes. As we have grown, we have looked to acquire companies and talent that align with our view of future mix. We continue to reconstruct Stewart to be resilient under all conditions by focusing on our business mix, deeper agency relationships, additional commercial opportunities, and investing in technology and operating model improvements to deliver the enhanced customer experience. Let me finish by thanking our associates for all their hard work and customers for their continued support. We are on a journey together to make the company more successful and resilient. David will now update everyone on our results.
Thank you, Fred, and good morning. Let me also thank our associates for their amazing service and our customers for their steadfast support. Although we are in a seasonally slower residential period and the market is adjusting to Fed commentary and rising rates, the residential purchase market remains active, driven by demand. Commercial real estate continues to recover particularly in the industrial and multifamily segments. Office is increasingly active and energy is poised to benefit from continued economic recovery and environmental focus. There are several watch items that could impact future business performance, including Fed and government policy in action, improving yet historically high mortgage delinquency and forbearance.
Consumer pullback, a lingering virus, an uncertain jobs environment, rising inflation and super-slow supply chains. Consistent with our strategy, we are focused on the areas that will have the most meaningful and durable impact on our long-term operating performance. Gaining scale in attractive direct markets, improving scale and geographic focus in our agency and commercial operations, broadening our lender services offerings, and throughout our business, improving service and digital capabilities to provide seamless end-to-end user experience. During the quarter, we added Great American, Greater Illinois, Devon, Homeland, Las Cruces and Rainier to key direct operations markets. Our lender services and data businesses added Informative Research, a provider of credit data, and PropStream, a provider of real estate data. Credit and property data provide the business generation and improvement information so critical to our customers in a transitioning market.
We are excited about these businesses, their possibilities and their teams, and welcome them to Stewart. For the Q4 of 2021, Stewart yesterday reported net income of $85.5 million and diluted earnings per share of $3.12 on operating revenues of $951 million. On an adjusted basis, Q4 net income was $80.5 million, an improvement of $24 million or 43% compared to last year's quarter. The adjustments to our quarter net income were primarily due to net unrealized gains on equity securities investments. Compared to last year's quarter, total title revenues increased $178 million or 26% due to strong results from our residential agency and commercial operations.
The title segment generated pre-tax income of $118 million, which is $23 million or 25% higher as a result of increased revenues and continued management focus. Pre-tax margin for the segment was comparable to last year. With respect to our direct title business, domestic residential revenues increased $43 million or 18% due to higher purchase transactions and improving scale. Residential fee per file for the Q4 was approximately $2,700, which was 38% better than last year's quarter due to higher purchase mix. Domestic commercial revenues improved $35 million, driven by increased volume and average fee per file of $19,400. Total international revenues improved $4 million or 10% compared to last year's quarter due to increased transaction volumes in our Canadian operation.
Total open and closed orders in the Q4 decreased 22% and 14% respectively, primarily due to lower refinancing transaction as expected with the market trend. However, commercial and purchase closed orders increased 7% and 3% respectively compared to last year's quarter. Similar to our direct title operations, our agency operations generated a solid quarter with revenues of $445 million or 27% higher than last year. The average agency remittance rate during the quarter was 18%, roughly in line with last year's quarter. On title losses, total title loss expense decreased $13 million or 28% due to favorable claims experience.
As a percentage of title revenues, title loss expense in the Q4 was 4% compared to 7% in last year's quarter, while for the year it was 4% in 2021 compared to 5% in 2020. In regard to operating expenses, which consists of employee and other operating costs, total operating expenses increased primarily due to higher employee count, increased variable costs tied to higher revenues, state sales tax assessments, and office consolidation costs. Employee costs as a percentage of operating revenues improved to 23% from 25% last year, while other operating expenses increased to 22% from 18% last year, primarily due to the increased size of our ancillary and other real estate services operations.
On other matters, we completed our $450 million senior notes offering and used the proceeds to repay outstanding credit facility borrowings and for acquisitions. To maintain liquidity flexibility, we obtained a $200 million unsecured revolving line of credit, which is fully available for future drawings. Our financial position remains on a solid foundation to support our customers, employees, and the real estate market. Our total cash and investments on the balance sheet are approximately $620 million over regulatory requirements, and we have the new available line of credit facility. Stockholders' equity attributable to Stewart increased to $1.3 billion. Our book value per share was approximately $48, an increase of 27% from last year.
Lastly, net cash provided by operations for 2021 was $390 million, compared to net cash provided by operations of $276 million last year. We are grateful for and inspired by our customers and associates, advocates for everyone's improved safety and prosperity, confident in our supportive real estate markets. Now I'll turn it back to the operator for questions.
Our first question is coming from Bose George with KBW.
Morning, Bose.
attribution, to the earnings this quarter after the deal closed and just how we should think about accretion next year.
We missed the beginning, Bose. Could you do that again? I just missed the beginning.
Yeah, sure. Yeah, just on the PropStream acquisition just wanted to how we should think about accretion from that.
Hey, Bose. It's David here. On propstream we've been thinking about that as about a $40 million run rate revenue business at 40% pretax margins.
Okay, perfect. That's helpful. Thanks. Then actually switching over to commercial obviously, there was a big jump in the commercial premium this quarter. You know, anything unusual to call out there or just reflecting a very strong commercial market?
Give what?
Follow up.
Yeah, I gave a little bit of that in my remarks, Bose. I mean, I think we've seen both on the product side multifamily industrial office coming back a little and then also a number of the geographies, particularly in the Northeast, Boston, New York really started to pick up. Yeah, I think just sort of across the board, product and geographies were much better.
We're pleased. We have a bullish outlook of commercial, like I think others do as well. It's always lumpy for us if you have a few big ones, but we're very confident this is a strong commercial market right now. You saw we also have been making some investments internationally, and we've got some opportunity, I think, there too as we look forward. Good.
Okay, great. Thanks a lot.
Our next question comes from John Campbell with Stephens Inc.
Hey, John. Good morning.
Hey, guys. Good morning. Congrats on a great quarter and a great year.
Yeah. Great year.
Yeah, I wanted to see if we could maybe dive in the M&A side of things for just a second. David, I guess first, if you could maybe talk to the M&A capital deployed last year and roughly how much of that was tied to kind of ancillary services versus the platform build out. Or excuse me, against the title business. And then Fred, maybe if you could talk to just the broader strategy around the platform, and as you kind of step back from what was obviously a busy year, how much of the heavy lifting you feel like there's left on that kind of platform build out?
Great. Go ahead.
Yeah, sure, John. You know, a lot of stuff in the Q4 and then throughout the year, some other activity. You know, it's probably a few hundred million in services, right, between PropStream and IR as we disclosed. You know, I think we did about $600 or $600-plus total, so the rest would have gone to the sort of the core platform the title agency type activity.
Yeah. I think as you look at our business it's been a pretty interesting couple of years. You know, we went from about a $1.8 billion company to a $3.3 billion, right? We grew over $1.5 billion. Obviously, the market was good, but we've kind of repositioned ourselves. As we've talked we looked at all the MSAs, and I would say there's still 15 or 20 MSAs I'd like to see a material change in our share position, but it's a lot less vulnerable than it was. You saw we just took some additional actions this quarter on some consolidations, leasing, eliminations, closing some offices. There's not a lot of that stuff left to do, but I think there's opportunity in a material way in some of our MSAs.
The other thing or point I would make is that if you look at our 90 markets, essentially, our leadership is so much better and well-positioned, that there's ability to do tuck-ins in micro geographies and stuff, if it makes sense. I think there's opportunities that continue to be in front of us. If I use the word platform a little broader, we still also when we started the journey, I said there's three years of work here to really get some catch-up. We still have some work on our data management. We still have some work on some of the technology investments we wanna make. There's still some work on our operating model as far as workflows goes that we're making good progress on.
You know, we still have improvement in front of us that we gotta focus on. I like the combination for us that there's opportunities to grow as well as continue to improve. You know, it's gonna be interesting. Our view of the market is while it is, it's now seasonal again and it's not as good as last year, it's gonna be a very good market. I mean, our outlook for the next couple of years is that we think these are gonna be two of the better years in history in the industry if the purchase holds up. You know, there's some uncertainty coming into the Q1, but we feel pretty good about where we are in total.
I think we have more work to be done, but I feel we're in a good place as we continue to move forward.
Yeah, makes sense. That's helpful. You know, I saw the office consolidation cost that you guys called out in the press release.
Yeah.
It doesn't look like you backed that out of your adjusted numbers. Is there a way to frame up? Was that a meaningful cost or any kind of color there?
Yeah. It was in the $5 million range. You know, we always look, John, to try to improve the business when we can. You know, that's an example. Just get it ready for the longer term and the cycles.
Yeah. As you know, when we started, I described it as an inch deep and a mile wide, and we had a lot of stuff in a lot of places. Our whole view is-
If we can't see clarity to winning at a local market level, we shouldn't really keep investing there. Again, most of that is behind us, but we still have some work to do in a number of markets to gain you know a level of share that we feel comfortable we can deliver consistent service and great margins through the cycle. You know, a little bit of work to do.
Makes sense. Last one, just if I can squeeze in one more. On the reserves, it looks like it came down to maybe 3.9% or so this quarter. Obviously, it was down last quarter as well. I don't know if you're seeing better trends in the back half, you're feeling better about that, but just give us an idea or a sense of how we should be thinking about that for 2022.
Yeah. We've got it mid-4s. I would leave that guidance the same. Maybe it'll be a couple ticks higher than that or a couple ticks below that, but that mid-4 number I think is a solid number. If you remember what happened during some of the turmoil, we were very thoughtful about reserves. So if you look at where we are on a range, we're at kind of the most conservative point in our range. So if things happen well, it kind of gets thrown into the earnings because we have been reserving quite strongly, which I think is appropriate given the uncertainty. But the mid-4s is right, I mean. Again, whether it's 0.2 above that or 0.2 below that, I. But it's that's the right number still.
There's nothing material that we see that would make us take that down.
Okay. That's helpful. Thank you, guys.
Our next question comes from Geoffrey Dunn, Dowling & Partners.
Hi. Good morning.
Geoffrey, how are you?
Doing well, thanks. I got a few questions here. As you noted, I mean, the outlook is strong for 2022, 2023, but you are facing seasonality for the first time in a year or two with this Q1, and you also got some rate headwinds.
Yes.
Can you give us an idea of how January trended for open and closed? Just remind how you think about a Q1 in a typical year, since it seems like we're maybe back to the normal pattern.
Wanna go over to David and ask him to take that one.
Hey, Geoff, it's David here. I mean, I think we saw continued decline a little bit in January from from where we were in December and then get a little bit below January of last year. I think what's really going on, I mean, we've seen what since the December Fed meeting through the January Fed meeting just a tremendous increase in the ten-year and the mortgage rate itself. I mean a month of sort of negative activity there, and we've seen that a little bit on the orders. Most of that's in refinance. Purchase continues to be strong, probably be at similar levels to last year, if not a little up.
You know, that's generally what's going on. Refinances are getting hit pretty hard with the rates.
Yeah. You can see in the data that's in the release you see our December open orders. You can see the drop, right? What's interesting is last year there was no seasonality. It's one of the unique things of last year was we didn't see any. To your point, I think it is back to normal. It'll be a little choppy, probably in the Q1 back where returning to what the normal cycle is. I would also say that early January had a bunch of bad weather in retail, so that what was interesting last year is the weather was great across the country, so you didn't have any hiccups. I think it's gonna be fine, but it's gonna be just. We're going back to a more seasonal outlook.
That's why I look at the whole year and I feel really good, I said. You know, I think it's gonna be a fine year, but it's gonna be less than last year, you know?
Right. On that outlook, I mean, if you erase the last two years, the forecast from the MBA for 2022, 2023 seem almost ideal for Title-
Right.
you know, given a strong purchase market. Is success in 2022, 2023 based on the existing forecast a double-digit margin for Title?
Yes. Yeah. I mean, again, I've said this a couple of times. I think what happens in our business, it was so good last year that your same store, basically you're at 100% capacity, and then you have refi on top of it, you use overtime. Your marginal margin, if you will, in this industry is quite high when you have what you've had in the last year. A lot of people didn't hire for that excess volume. They just ran overtime. That's getting out of the system. There's a couple of points of margin for everybody in the industry as that comes down. You know, again, we believe we are better, right?
We think we managed we've positioned ourselves, so we believe we can maintain the double-digit margins. That's what we're shooting for.
All right. Just two more here. In terms of the MS and corporate segment, can you give us an idea of a bit of the run rates there? It looks like corporate might be in, like, an $8 million-$9 million run rate when you factor in a full quarter of debt expense. Then you got your Informative Research around 15% margin, PropStream at 40%. If I assume that the kind of core MS business is a negligible margin there is this a double-digit margin on the mortgage services operations once PropStream's integrated?
Yeah. Our goal in that area is low double digits, right? I think we're right on track to do what we need to do to do that. It's a combination of a couple things. One is to your point, there's a mix thing going on there where we didn't have kind of what I would say data-type assets and services, and so that mix is enhancing it a little bit. But we're also I mentioned last call and a couple of other times, the assembly of all the assets, particularly around appraisal, there was some real important platform work we need to do to get that to our target kind of returns.
You know, I wanted to minimize some customer disruption, so we kicked that work into this year, and it's gonna carry forward into this year. But it's all coming together nicely, and so I feel very confident that that business is gonna be able to be by whatever, mid to through the year, low double digits and sustain that. I think we've got a nice business there and it's established and we're right on track for where we wanna be.
Okay. Just two number questions. What was holding company cash at year-end? I think there was $5.6 million of purchase price amortization in Q4. What's the full Q1 run rate for PropStream, including PropStream?
Yeah. On the amortization, Jeff, we're still going through all the purchase accounting and stuff. I think that's probably in the area, but it could go up a little bit once we finish everything. In terms of holdco cash I think we are probably in the $50 million-$70 million range.
All right. Thank you.
Thanks.
Our next question comes from Ryan Gilbert in BTIG.
Morning.
Hi. Good morning, guys. Thanks for taking my questions. First one is on competition in the title business. I'm just wondering if you had any thoughts around competitive dynamics in the Q4, and then what your expectations are for 2022.
Yeah, I don't think there's much of a change. What's interesting, I think gonna happen, there is a number of competitors that are very skewed towards refi, a lot of regionals, et cetera. There's some action starting to take that's gonna create opportunities for us whether it's staffing or resource allocation, stuff like that. We're getting back to what I would consider a more normal market, and I think the strong players will have some advantage during this time. It'll again, I'm looking forward to actually there's challenges with this transition, but in my view it's a more normal market where local market share and kind of your position on the purchase side is gonna drive your success. I feel pretty good about what's transpiring here.
Again, it's the commercial you've already mentioned. I think the commercial is back from where it was, and so that's a really good market. Again, leading that, the larger players with capital and underwriting skill have a huge advantage with that in that world. So again, there's some interesting things, what I would say, as we're getting back to a more normal mixed market, but still very attractive. It lends it creates some opportunity, I think, for everybody that's got some size and scale. Good.
Okay. Got it. That's helpful. Second question on refinance volume. You know, down 30% in the quarter, and it looked like open orders were maybe closer to down 40%. You know, that's I think better than year-over-year decline rate than what, certainly what I was expecting, and I think the market is maybe closer to down 60%. Do you feel like you picked up share in refi in the quarter? Or are there any specific dynamics around refinance that you want to call out that benefited Stewart relative to the market overall?
Yeah. That's a great question. What's interesting, we have less refi than anybody in the top 6 or 7 competitors. We didn't focus on a centralized offering historically. We don't have a lot of the national agents that drive refi. We have some great relationships with great people, but if you looked at the national agents, we're a weak player historically because of some ease of use questions that occurred a couple years ago. But so we, our mix of refi is more distributed than our competitors. What I mean by that, it is more the direct offices, and so it's a piece of our business versus with these huge national agents that are dedicated to it or a centralized title. We don't have a big centralized title operation.
I think there might be a lag here for some reason because of that. I'm not sure we're immune, if you will, to the trends on refi. It is interesting and it is a different profile. Because it's less to us, it's a less meaningful change to our revenue stream. It is an interesting observation because I think you're right. I haven't seen all the data reported, but we would anticipate that the market's down in the 50s and that's what we're planning for, if you will, 50s or so.
Craig, we're not as big out on the West Coast or
That's true.
California. I mean, the other guys are a lot bigger in California, and that's a big refi market.
That's very true.
Okay. Got it. That's really helpful. Last one from me, just a point of clarification. I think you mentioned in response to one of the other questions, there was some uncertainty in 1Q 2022. Is that just a function of the increase in mortgage rates that we've seen year to date or any other areas of uncertainty?
I think that's the question, right? I mean, everybody has anticipated, all you guys, as you thought through your models. I mean, everybody's been talking about it. We all look at the same forecasts. We're very comfortable that it's gonna be a pretty good year. If something happens beyond that because of the inflation, obviously that would change a little bit. That's why there's some uncertainty in it. The rest of it, to me, is kind of what we see as kind of on track to what our views are. Again, we feel like this could be a very good year for us and for the industry, those particularly that are purchase focused.
Okay, great. Thanks very much.
Thanks.
That does conclude the question and answer session. I'll turn the program back over to Brad for closing remarks.
Again, I wanna thank everybody for joining us on our Stewart Q4 call. Thank you so much for your interest.
This does conclude today's program. Thank you for your participation. You may disconnect at any time.