Like its big four counterparts First American and Old Republic, Stewart, the smallest of the four largest title underwriters, still managed to turn a profit despite challenging housing market conditions.
“Our second quarter improved sequentially to the first quarter,” David Hisey, Stewart’s CFO, told investors and analysts on the firm’s second quarter 2023 earnings call Thursday morning. “However, low housing inventory, high mortgage rates, lower commercial and residential real estate activity, and economic conditions continue to exist in the market, contributing to lower second quarter operating results as compared to last year’s quarter.”
To be precise, Stewart reported total revenue for the quarter of $549.2 million, down from $844.1 million in Q2 2022, and the firm’s net income of $15.8 million was down from $61.7 million reported a year ago.
Stewart’s title segment also recorded a drop in its operating revenue, which fell 39% year-over-year $466.7 million. The title segment’s pretax income also fell, dropping 62% on an annual basis to $35.5 million.
When broken into residential versus commercial, residential title revenue dropped 24% year over year to $210.4 million, which commercial title revenue fell 37% annual to $47.6 million.
Compared to a year ago, Stewart recorded a 29% yearly decline in the total number of closer title orders in the quarter to 60,246, with commercial orders dropping 30% to 3,585, purchase orders dropping 22.2% to 43,082, and refinance orders falling 53%.
The firm noted that some of these declines were offset by an 11% annual increase in the average residential fee per file to $3,300 due to a higher purchase mix.
“As we’ve discussed before, we are not surprised that the challenging economic environment continued into the second quarter. Although interest rates declined early in the second quarter, they increased throughout the remainder of the quarter, and the 30-year mortgage interest rate now offers around 7%,” Fred Eppinger, Stewart’s CEO, said. “As would be expected, the increase in rates has offset some of the typical seasonal increases in residential volumes that are expected during the summer months. Fortunately, we have seen modest increases in the transaction volumes during the second quarter after experience a historic level in the first quarter.”
As Stewart looks to further and expand and gain market share, executives said they are putting emphasis on scaling their direct operation in attractive markets.
“We are routinely reevaluating markets where we have the opportunity to pre share and enhance our leadership strength,” Eppinger said. “Given the market uncertainty, we have been more selective in our decisions in order to ensure our deployment capital makes sense for the long-term.”
Other focuses include improving the firm’s technology tool and retaining talent, in an industry notorious for having a talent problem.
“We have been even more focused on retaining talent through this market so that we have the right team in place as the cycle improves,” Eppinger said. “Our efforts per year to result through increased year-over-year market share gains into each of our direct agency and commercial business.”
Executives said they are also focused on positioning Stewart’s commercial operations for growth. Looking ahead, they see opportunities for Stewart in the energy sector, but they believe they will continue to see challenges in the office and multifamily sectors.
“Over the cycle, there will be high and low quarters, as evidenced in the first quarter,” Eppinger said. “However, the modest increases in transaction volumes, margin improved significantly as indicated by our second quarter results. In addition, the investments we have been discussing once fully implemented should allow us to achieve low double-digit margins in the cycle.”
