Please stand by. Your program is about to begin. If you need any assistance during your conference today, please press star zero. Hello, and thank you for joining the Stewart Information Services Q2 2022 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have an opportunity to ask a question during the question and answer session. Instructions will be given at that time. Please note today's call is being recorded. Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn today's conference over to Brian Glaze, Chief Accounting Officer. Please go ahead.
Thank you, Shelby. Thank you for joining us today for Stewart Q2 2022 Earnings Conference Call. We will be discussing after the close. Joining me today are CEO, Fred Eppinger, and CFO, David Hisey. To listen online, please go to stewart.com website to access the link for this conference call. I will remind participants that this conference call may contain forward-looking statements that involve a number of risks and uncertainties. Because such statements are based on an expectation of future financial operating results and are not statements of fact, actual results may differ materially from those projected.
The risks and uncertainties forward-looking statements are subject to include, but are not limited to, the risks and other factors detailed in our press release published yesterday evening and in the statements 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 Q2 2022 Earnings Conference Call. David will go over the quarterly financial results in a minute, but before that, I'd like to cover our overall view of Stewart and our position in the current market. Excuse me. As I have discussed before, much of the work here at Stewart over the last two years has focused on restructuring, refocusing, and rebuilding the company's operations to better position ourselves to be a more successful and resilient company that ultimately can become to what we refer to as the premier title services company. The goal is to create a sustainable business that performs through all types of real estate cycles and economic conditions.
We have focused on improving margins, generating growth, and creating a stronger competitive position by improving our scale, improving our operational capabilities and our financial discipline. As part of our journey, we have focused on enhancing the customer experience through technology investments that have meaningfully changed our ease of use and expanded our product offerings in our agency, lender, and direct business. I am pleased with the progress we made and demonstrated in the second quarter as we maintained strong margins and continued to make progress on our operating priorities in a more challenging market. We have seen the market transition to a higher interest rate environment. The interest rate increases have put significant pressure on refinance transactions, which we have been less dependent on historically, and to a lesser extent, purchase transactions.
We expect that the current environment will continue throughout the H2 of 2022. While it's a more challenging environment, Stewart, because of our significant improvements, is well prepared to successfully manage through these market changes. I'd like to emphasize that even though the market has transitioned, our journey continues. We remain focused on our structural improvement, attaining critical scale in priority markets, aided by leading technology support and innovation to drive superior and consistent service delivery to our customers. To achieve our goal of becoming the premier title services company, we recognize that we must continue to make thoughtful investments even in this environment. In our direct operations, shared growth remains our important goal and our overall strategy in target MSA markets.
Over the last couple of years, we have focused on acquisitions of more than 20 regional title companies, and are always evaluating opportunities to deploy available capital. We are hard at work integrating these acquisitions into our production and other systems to improve the customer experience, as well as improve the overall operating efficiencies that we will be building on over the last few years. Above all, we are managing our business in a disciplined way, given the current environment. That never stops. In our agency business, we have made significant progress on our deployment of technology and service that provide greater connectivity, ease of use, and risk reduction for our agent partners. As the industry accelerates the implementation of online and paperless transactions, we are identifying ways to better support our agents as they undergo the critical transition.
We believe our opportunity to grow scale in our growth markets and improve our share with winning independent agents is on a very solid path forward. We are seeing revenue growth in our commercial operations, and we are investing in these operations for the future as they are an important component of our overall strategy. We are optimistic regarding the commercial markets overall, although the tougher capital markets may create some temporary headwinds in some parts of the country. To be clear, there is more work to be done as we maintain our focus on growing and enhancing our competitive position, improving scale and operating capabilities. We recognize that maintaining customer service levels are a fundamental part of who Stewart is, while also managing expenses is more important than ever.
Even in this changing market conditions, we still see opportunities to invest and grow share in our target market, allowing us to profitably grow throughout the cycle. Let me just finish by reiterating my positive long-term view of the real estate market and our ability to continue to grow and become the premier title services company. I would also like to thank our associates for all their hard work and our customers for their continued support. David will now update everyone on the results.
Thank you, Fred, and good morning. Let me also thank our associates for their amazing service and our customers for their trusted support. Moving into the middle of the home buying season, the residential market has been negatively impacted by 30-year mortgage rates persistently above 5% and slowing home sales and housing starts. Consumer sentiment has worsened due to the inflation and affordability and recession concerns. However, employment rates remain steady. Commercial real estate saw good activity in the quarter. However, rising rates and volatile capital markets are beginning to influence transactions. For the Q2 , Stewart reported net income of $62 million and diluted earnings per share of $2.26 on revenues of $840 million primarily for net unrealized gains and losses on equity securities with June's equity sell-off.
Adjusted net income for the second quarter was $70 million or $2.58 per diluted share, compared to $86 million or $3.17 per diluted share in last year's quarter. Total revenues were $417 million or 2% compared to last year's quarter. Our agency and commercial operations, which was partially offset by lower residential revenues on reduced transaction volumes. The title segment pretax income was $94 million compared to $126 million. Pretax margin for the second quarter was 12.3% compared to 16.7%, primarily due to the effects of the fair value changes in residential volume and the investments we are making to grow revenue, improve customer service, and reduce title production costs, as Fred mentioned in his opening remarks.
In regard to our direct title business, $13 million or 25% as a result of higher transaction volume across most markets and 10% higher average fee $1,100. Decreased $11 million or 5%, driven by lower purchase and refinancing transactions in the Q2 of 2022. Residential fee per file for the quarter was approximately $2,900 versus $2,200 last year due to the higher purchase mix. Total international revenues in the second quarter were $4 million or 8% lower compared to last year, primarily due to lower transaction volumes in our Canadian operations. Total open and closed orders in the Q2 both declined by 28%, primarily due to the elevated interest rate environment. Generated another solid quarter with revenues of $410 million, 5% higher than last year.
The average agency remittance rate slightly decreased to 17.1% from 17.5%, primarily due to geographic mix. On title losses, total title loss expense in the Q2 decreased by $7 million or 21% from last year's quarter, primarily due to our overall favorable claims experience, partially offset by higher total title revenue. As a percentage of title revenues, the title loss expense in the Q2 of 2022 was 3.5% compared to 4.5% last year. For the full year 2022, we anticipate our title losses will be approximately 4% of title revenues. Regarding our Real Estate Solutions segment, which we began to break out last quarter, pretax income improved by $4 million compared to last year due to the acquisitions completed towards the end of last year.
Pretax margin was 7.4% for the Q2 of 2022, 14.7% prior to purchase amortization, compared to 3.8% and 6.6% respectively in the Q2 of 2021. It's important to note that these businesses are also impacted by mortgage and real estate volumes, each one slightly differently. You know, you should expect to see some of what we see in title also in the Real Estate Solutions business, the impact by the market. In regard to operating expenses, which consist of employee and other operating costs, total operating expenses for the quarter increased mainly due to increased variable costs related to revenue and higher employee count. Employee costs as a percentage of operating revenues for the Q2 was 25% compared to 24% last year.
While Q2 other operating expenses were higher at 19% of operating revenues compared to 17% last year due to the increased size of our Real Estate Solutions operations, which typically have higher other operating expenses due to third-party services. Our financial position provides strong support for our customers, employees, and the real estate market. Our total cash and investments on the balance sheet are approximately $557 million over regulatory requirements, and we have a fully available $200 million line of credit facility.
As of June 30, 2020, stockholders' equity attributable to Stewart was approximately $1.35 billion, and our book value per share was approximately $50, an increase of 5% from December 31, 2021. Lastly, net cash provided by operations for the Q2 was $83 million, compared to $103 million in last year's quarter, primarily due to lower net income in the Q2 of 2022. We are always grateful for and inspired by our customers and associates. We advocate for everybody's improved safety and prosperity and are confident in our support of real estate markets. I'll now turn it back to the operator for questions.
Thank you. At this time, if you would like to ask a question, please press the star and one on your touch tone phone. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. We'll take our first question from Bose George with KBW.
Morning, Bose.
Hey, good morning. Actually, first I wanted to ask just about investment income. You know, what's a good run rate for that number? The increase this quarter, was that, you know, just reflecting the increase in market rates?
Yeah, Bose, that's a good question. We have seen a slight increase due to the rise in rates. We also in the quarter, we get dividends from different title plants and things like that. We had some growth in some of that activity. It's really a combination of some of those dividends and the, you know, the interest rate environment. You know, I think on your question on run rate, you know, probably somewhere in the, you know, $5 million to $6 million, but you're probably closer to. Well, just it depends on what happens with rates from here, but I think sort of that $5 million to $6 million is probably a good number.
Okay, great. Can you just talk about trends you're seeing in July, in both the purchase and in the commercial market?
Yeah. Just say that again. In commercial, you know, the market I would say is probably transitioning a little bit like what we saw maybe six months or so, you know, in residential, although not to that degree because there's still a lot of activity. Even though we continue to see increases in open orders, we hear from customer feedback that transactions are, you know, taking a little longer to execute. You know, I guess I would just describe the market as still good, but, you know, transitioning and starting to be impacted by the capital markets and interest rate environment.
Okay, great. Thank you.
We will take our next question from John Campbell with Stephens Inc.
Good morning, John.
Hey, guys. Good morning. Just a big picture question here, maybe for you, Fred or David, either one of you guys. You know, you guys have talked to the 10%, you know, total company pre-tax margin in the past. I know you've got some more pressure building on the purchase side of the market, and there's obviously a lot of moving parts that kind of lead up to that 10%. Based on what you're seeing today and what you're kind of expecting, do you think you can manage that 10% mark this year and maybe even next?
Yeah, that's a great question. I mean, that's exactly what I believe. We, if you look at the trend for us, our margins were about 4.5% and 19%, about 6.5% in 2020. Obviously in 2021, it was about 12.5% for the company. I always say there's likely 200 basis points in that number in 2021 because it was so extremely a good number and the big companies didn't really staff up. You used a lot of overtime, and so your same store sales were extraordinary, and you couldn't sustain that from a work management point of view, but it inflated just everybody's margins, and now we're settling into more normal market. I believe that we're that much better.
I think we are a double-digit, low double-digit kinda margin company. Maybe it could be a high single in some quarter, but I feel pretty good that had a structural improvement in the institution. Now we've got to manage ourselves, right, to do that. We are a solidly better company now.
David, on the reserve ratio, 3.5% this quarter. I think in the press release you had mentioned 4% for the full year. Maybe implying a little bit of a step up in the back half. Is that out of conservatism, or are you seeing something maybe in the back book that leads you to kind of project that up for the back half?
No, we're not really seeing any pickup in the claims rate or anything like that. I think it's just when we sort of look at our actuarial work and the fact that we're, you know, at the higher end of the range, you know, that might have been where. You know, we just think that that's probably a more, you know, sort of more reflective of the run rate of title losses and so that's where we settle on the 4%.
Okay, that's helpful. If I could squeeze in maybe just one more here. I know. I think you guys sold the Coldwell Banker, and so the non-title revs stepped down a little bit sequentially. I think that was the driver of that. I'm curious about, you know, what remains in the Real Estate Solutions segment. If you can maybe help us kind of size up the mix between recurring and transactional revenue there as you see it today.
Yeah. Well, I mean, the businesses that are in that segment are valuation businesses. Like I said in my remarks, I mean, there's those are impacted by what happened in the origination market. We've got Informative Research. That's a credit-related business. It has both things that are highly sensitive to origination, so ordering a credit report, but then it provides other, you know, credit analytics and the like that aren't as sensitive. But I would say it's predominantly sensitive in terms of its revenue mix. You know, PropStream's a little different. It's a subscription real estate service. I think it, you know, it's not as sensitive. It, you know, some we'll have to see. But, you know, when markets get a little tougher, that kind of information's very valuable for both investors and realtors for their prospecting.
It's probably not as sensitive to volumes. We have some with around mobile and digital notary, and that's all pretty sensitive to transaction volume and origination. I would say in general, it's pretty sensitive. I think I would just highlight that, each of those businesses is a high-quality business and driven by entrepreneurial and excellent management teams. I think they will, you know, they will hold their own, if not better in the current market, and we're seeing that in the numbers.
Okay, great. Good work in the quarter, guys. Thank you.
Thank you.
We'll take our next question from Geoffrey Dunn with Dowling & Partners.
Thanks. Good morning.
Good morning.
A couple questions. I wanted to revisit your comments on commercial. Rewind six months in resi, you know, things are starting to take a bit longer. You're seeing more purchase deals pop up than refi. Are there more lags from a mix shift standpoint with respect to the fee per file, or are you also seeing that kind of the deal size, deal mix stabilize, so maybe if volumes do the fee per file side?
Yeah, no, it's a great question, Geoffrey. I would just say that up until now, we've been seeing, you know, pretty good strength across all the real estate asset classes. You know, obviously, the bigger transactions with the big multifamily been pretty active and have driven a higher fee per file. We've been also fortunate that in local markets, there's been smaller strip centers built, things, that kind of thing. The larger transactions, you know, clearly influence the fee per file. Forward, you know, I think we're just gonna have to see. I think you could see a little more pressure on the bigger transactions because those are the ones that typically finance in the capital markets.
Capital markets are more volatile, financing costs are going up. You know, at some point, that should probably have an influence on cap rates, which, you know, may sort of help valuation. I would just say that it's sort of early in whatever, but as it stands now, from what we hear from customers, you know, the market volatility and the higher rates are definitely influencing how people think about deals.
Okay. Technical question within this, I think at another company in the past. Q2 , is that typically when you're getting these title plant dividends, so maybe on a recurring annual basis, an extra $1.5 million in Q2 NII?
That's right. It's typically the Q2 . I would say, but the number you said is in the ballpark for sure.
Okay. Last question. I think you mentioned that staffing was up. I don't know if that was just on a year-over-year basis with acquisitions, if you added staffing in the quarter. Can you just talk about what your recent staffing trends have been? You are setting the company up in the back half of the year, particularly, Fred, given all the work you've had of getting all the right people into the right places, getting everybody on the same page, building scale in certain markets. It seems like maybe it might be a bit more challenging to adjust staffing after effectively a two-year restructuring on maybe how the company approaches certain areas of the market. Can you just elaborate on that?
Yeah, sure. Obviously, we've built, whether it was the services business, we've actually built up quite a bit and in some of the title geographies, we've built up, kind of a year-over-year thing. You see that. Obviously, we have to be very thoughtful right now about managing, and we've taken, you know, targeted actions in various businesses where we need to balance staffing resources. To your point, I feel good about where we are and our talent. We just have to be thoughtful about incremental investment and targeted investment right now. It's, you know, a little bit uncertain, the market, obviously, and we just have to manage ourselves well. As far as our talent level, I couldn't be more pleased as far as how we're situated.
David referred to in some of our services businesses. I just feel great about the quality of those operations and what we're doing there. Again, it's one of those interesting times, right? It's a transition in market. Obviously, interest rates are up. It's also uncertain. We have to be very, very thoughtful how we invest and where we invest and how we manage our
Again, to the question on our margins, you know, obviously last year was extraordinary. You're gonna have a decrease in margins, but I think we're well-positioned. You know, and as I said from the beginning, we can sustain the high single digits, kind of low double-digit margin through the cycle. I feel really good about where we are, and I think we can.
Okay. Thanks, Fred.
Again, to ask a question, please press star one. That is star one if you would like to ask a question. Our next question comes from Ryan Gilbert with BTIG.
Thanks. Morning, everyone.
Morning.
Morning.
Morning. First question is on the residential purchase market. It looks like June orders were down maybe 11, 12% year-over-year. When we think about, you know, your comment around the current environment continuing through the H2 of 2022, is a low double-digit decline on sort of how you're framing this? Or is July tracking down more on a year-over-year basis than 11 or 12%?
Go ahead.
Yeah. I mean, I think we're not in the month of July, Ryan. You know, if you just sort of compare the sequential months, it's down a little bit to June as we stand today, but it's not down at the double-digit level. I think we just have to see how the rest of the year plays out. You know, we saw the rate increase yesterday. We still have pretty high mortgage spreads. You know, they're well over 200 basis points, which is high relative to history. But on the other hand, you've got a lot of people just sitting on the sidelines waiting to see how things play out.
We didn't see the same level month-over-month, but I think there's a big question mark for the rest of the year. You know, as Fred said, we're managing the business, you know, assuming that there could be you know could be a little worse.
Okay. Got it. Thanks. How did fee per file trend through the quarter? It seems like home price depreciation has been more resilient than I would have expected given the slowdown in housing demand and higher interest rates.
Well, we were at about on residential fee per file, we're around $2,900. I think we've started to see, you know, that slow down. I mean, it was up significantly from $2,200 you know, quarter ago. But with the predominantly purchase mix now, and I think we have seen some home price appreciation, but, you know, just reading headlines and seeing what's going on, you know, prices are definitely stabilizing, if not coming in a little bit. It depends on your market. So I would probably say we're, you know, we're near the top on that based on where HPI is and mix of purchase and refi.
Okay. Got it. Last one for me, on agent mix. It's up on a year-over-year basis. I guess, just given some of the comments you made about, you know, deploying new initiatives to support the agency business, should we expect your agency revenue as a percent of operating revenue to continue to increase throughout the year? Or do you think mix kind of stabilizes from here?
It's a great question. We have seen some nice traction for us in agency. It's really two big initiatives. We did a lot of integrations and connectivity agents through easy, you know, improving ease of use. We have initiatives around some targeted state mix to some real growth states we'd like to shift to, and we'd like to do a better job serving the commercial needs of agents. We've seen traction in both of those. You know, we're not immune to the trends in the marketplace. You know, but I like our traction in that way. I think in the short term, you could see a little shift towards agency.
Remember, we're also quite focused on growing our direct business, so I don't think there's gonna be a material change between us in both places over any, you know, multiple quarters. I think you're gonna see some progress and okay, I'm seeing progress in agency, and I think we continue to see some more progress.
Okay, great. Thanks very much.
Thank you.
It appears that we have no further questions at this time. I will now close the remarks.
I just want to thank everybody for joining us, for our second quarter earnings call. Thank you so much.
That concludes today's teleconference. Thank you for your participation. You may now disconnect.