Hello, thank you for joining the Stewart Information Services second quarter 2023 earnings call. At this time, all participants are in a 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 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 for joining us today for Stewart's 2Q 2023 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. This conference call may contain forward-looking statements that involve a number of risks and uncertainties. Please refer to the company's press release and other filings with the SEC for a discussion of the risks and uncertainties that could cause our actual results to differ materially. During our call, we will discuss some non-GAAP measures. For reconciliation of these non-GAAP measures, please refer to the appendix in today's earnings release, which is available on our website at stewart.com. Let me now turn the call over to Fred. Thank you for joining us today for Stewart's second quarter 2023 earnings conference call. David will review the quarterly financial results in a minute, but before we get into the financial results that were released yesterday, I want to update you on our view of the market and our continued progress on important initiatives that we believe will set Stewart up for success in the long term. During the last three to four years, we have focused on fundamentally improving Stewart's operating performance and launching us on a journey to become the premier title services company. While the current economic environment poses significant challenges, we have materially improved our business, creating a strong and more resilient business that will thrive over a full real estate cycle. We also know there is more that we can do, and it is critical for us to remain focused on improving margins, growth, and resiliency to improve scale in attractive markets and enhancing our operational capabilities. In difficult markets such as the current one, it is often easy to lose focus on achieving these long-term goals. However, I'm very pleased with our progress on these enterprise initiatives during the second quarter and in our progress toward improving our long-term performance. Given the continued volatility in the market, we have balanced investments in these initiatives with the need to manage expenses very thoughtfully. 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 hovers around 7%. As would be expected, the increase in rates has offset some of the typical seasonal increases in residential order volumes that are expected during the summer months. Fortunately, we have seen modest increases in the transaction volumes during the second quarter after experiencing a historic low in the first quarter. Demand for new homes is strong, although listings for existing homes remains very low. We expect the challenges of this environment to continue throughout 2023. We have managed costs carefully throughout this market while focusing on our long-term strategy, which requires a careful balance between investing in initiatives and managing expenses. We've been careful not to take actions that we felt would threaten our competitive position and long-term value-creating opportunities. We believe that the real estate cycle will rebound in 2024. The best path forward for Stewart to get through this period is to invest in our people and remain focused on our long-term improvement plan while managing through a few challenging quarters. We remain focused on our long-term strategy, enhancing our operating model, investments in technology to enhance customer experience and improve efficiency of our operations, and building scale in targeted areas. We recognize that these strategic investments will cause our cost ratios to remain elevated in a market with exceptionally low transaction volumes. We believe that these long-term investments, coupled with thoughtful near-term expense management, will improve our structure and financial performance in the long term. In our direct operations, growing scale in attractive markets remains a priority. We are routinely reevaluating markets where we have the opportunity to increase share and enhance our leadership strength. Given the market uncertainty, we have been more selective in our decisions in order to ensure our deployment of capital makes sense for the long term. Positioning our commercial operations for growth across all our business lines has been a key focus of our journey, as those operations are important to follow our overall strategy. We are making investments in talent so that we have the leadership in place to achieve these objectives. We are investing in technology to support the commercial operations to allow us to better serve our customers, and we remain optimistic about commercial. As we discussed last quarter, the commercial environment remains uncertain in the short term due to changing financial markets. Certain commercial sectors, such as energy, remain very strong for us, but we see ongoing challenges in sectors like office and multifamily. However, we believe our focus will create long-term growth in the commercial markets. In our agency business, we are leveraging our technology to drive market share gains. We have made excellent progress on our deployment of technology and services to provide a significantly improved agent experience for Stewart. This experience includes greater connectivity, ease of use, and risk reduction for our agent partners. We are pleased that our platform of services for agents is as strong as it's ever been, and we've begun to see meaningful progress in target markets such as Florida and agency, commercial, and others. A significant component of our investments is focused on improving our technology for the title production process, automation, and centralization to improve operational efficiencies and capabilities. We have already made significant progress improving the customer experience across all channels, and are rolling out our agency technology platform, which significantly enhances ease of use and connectivity with agents. Another area of priority as we work to improve our operating efficiency is the centralization and digitization of our title plans. During the quarter, we have made significant progress on our roadmap of integrating completed acquisitions into our production and other systems, which improves the customer experience as well as the overall operating efficiency that we have building on for the past several years. Integrating the remaining acquired companies is a top priority for the balance of 2023. Maintaining strong financial position is always important, but even more during a market like this. Our strong financial position, like we currently have, allows us to make opportunistic investments. Financially, our long-term goal remains to generate high single or low double-digit margins over the cycle. Over the cycle, there will be high and low quarters, as evidenced in the first quarter. However, the modest increases in transaction volumes, margins 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 over the cycle. While we are encouraged by improvements in talent, technology, and customer experience in our financial model, work remains to be done and the journey is not complete. We remain focused on our strategic plan of building an improved competitive position by building more efficient and having a disciplined operating model that functions well throughout all the real estate cycles. We have emphasized growing scale and attractive markets across all lines of our business, and we have made significant progress in improving customer experience in all our channels. Retaining key talent is always important, and 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. Our efforts are yielding results through increased year-over-year market share gains in each of our direct agency and commercial businesses. Let me conclude by reinforcing that we have been managing our expenses and investments with sensible balance between operating discipline and current short-term market challenges, and strengthening Stewart for long-term growth and performance. A strong financial footing should best position us to take advantage of the opportunities that this cycle will provide. Finally, my positive long-term view of the real estate market and the ability of Stewart to become a premier title service company has not wavered. Our associates have worked hard throughout these challenging times, and I appreciate all they have accomplished. I also want to thank our customers for their continued loyalty and support. David will now update everyone on the results. Good morning, everyone, and thank you, Fred. Before anything else, I would also like to thank our associates for their wonderful service and our customers for their support. Our second quarter improved sequentially to the first quarter. 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. Yesterday, Stewart reported net income of $16 million, or $0.58 per diluted share on total revenues of $549 million. After adjusting for net, realized and unrealized gains and losses and other items detailed in Appendix A of the press release, the second quarter adjusted net income was $19 million or $0.69 per diluted share, compared to net income of $70 million second quarter 2022. Regarding the second quarter title segment, total revenues decreased $278 million or 37%, while pre-tax income decreased to $35 million compared to $94 million last year. After adjustments for purchase intangible amortization and other items, the segment's pre-tax income was $37 million or 8% margin, compared to $105 million or 14% margin in last year's quarter. On our direct title business, total open and closed orders declined by 18% and 29% respectively compared to last year, primarily due to the current real estate market. Domestic commercial revenues decreased $26 million or 38% due to lower transaction volume and size. Average commercial fee per file was approximately 11,600 compared to 13,100 in last year's quarter. Domestic residential revenues declined $50 million or 21% due to lower purchase and refinancing transactions. However, average residential fee per file was up 11% to 3,300 versus 2,900 due to higher purchase mix. Total international operating revenues declined $18 million or 35%, primarily due to lower transaction volumes in our Canadian operations. As a result of lower commercial and residential activity in the market, second quarter revenues from our agency operations decreased $201 million or 49%. The average agency remittance rate slightly improved to 17.7% versus 17.1% last year, primarily as a result of geographic mix. Investment income increased due to higher rates and due to our working with our bank partners to better utilize escrow balances where appropriate. In regard to title losses, total title loss expense in the second quarter decreased $7 million or 25%, primarily due to lower title revenues. As a percent of title revenues, title loss expense was 4.2%, compared to 3.5% in last year's quarter, which benefited from last year's favorable claims experience. For the full year 2023, we expect title losses to average in the low 4% of title revenues. For the Real Estate Solutions segment, pretax income was $3 million in the second quarter, compared to $6 million last year, primarily due to lower revenues driven by the real estate and economic environment. Pretax margin for the second quarter was 4.6, compared to 7.4%, and then after adjusting for purchase intangible amortization and catch-up state sales tax expenses related to an acquisition, adjusted pretax margin was 14.4%, which is comparable to the 14.7% in the prior year quarter. Related to our consolidated operating expenses, our employee cost ratio increased 34% versus 25% in last year's quarter, primarily due to lower operating revenues. Lower operating revenues also led to other operating expense ratio of 24% versus 19% last year. On other matters, our financial position remains solid to support our customers and associates in the real estate market. At 30 June 2023, our total cash and investments were approximately $370 million over statutory premium reserve requirements. We also have a fully available $200 million line of credit facility. Total stockholders' equity attributable to Stewart was approximately $1.36 billion, with a book value per share of approximately $50. Lastly, net cash provided by operations was $35 million, compared to net cash provided of $83 million in last year's quarter due to lower net income. We greatly appreciate our customers and associates. We advocate for everybody's safety and prosperity and remain confident in our real estate markets. I'll now turn it back to the operator for questions. At this time, if you would like to ask a question, please press the star and one on your touchtone phone. You may remove yourself from the queue by pressing star two. Once again, that is star and one if you would like to ask a question, we will take our first question from Bose George with KBW. Your line is open. Hey, good morning. Good morning. Good morning. I just wanted to ask first about investment income. You know, is that new level of investment income something we can run rate? You know, if not, like, how should we think about that number going forward? Yeah, Bose, this is David here. I think the way to think of it, if you're looking about, like, the increase of this quarter versus last year's quarter, you know, probably about 70% of that is coming from these escrow activities that we just initiated, and so that would be ongoing. Then, you know, the rest is really the difference in better rates, particularly on short-term balances. You know, I think that's probably relatively stable and will vary with balances, but the escrow component is definitely incremental. Okay, great. In terms of the agent premiums, can you just remind us, is there a lag in that, in that number? You know, given the magnitude of the decline versus what happened with direct, does that just reflect a lag and there's a bit of a catch-up after? There is a little bit of lag in our agency revenues, Bose. We looked at a number of things about it. This same kind of difference, this gap occurred in the second quarter of 2021 as well. We caught up over that. We don't see any share shift or anything like that when we look at the agency-level activity. I'm pretty comfortable that we'll kind of even out here over the next, you know, few months. Okay. okay, great. Thanks very much. Thanks. We'll take our next question from Soham Bhonsle with BTIG. Your line is open. Hey, good morning, guys. First one is just on the purchase orders. Looks like, you know, your declines were a little bit better than your peer that announced results today as well. Is there something specific going on there? Is there a share take that we should be thinking about, or is this sort of your acquisition sort of kicking in now and that you're getting a benefit of that? Yeah. If we look over the last five quarters, each of our businesses has gained share. We don't know this quarter yet until the filings come in, but we've had nice momentum in share growth. It's really irrelevant. We haven't had any acquisitions kind of in a comparative time frame that has affected it. Commercial is more lumpy, but both agency and directly seem really five consistent quarters of share gain, which is good. I y ou know, it's not huge, but it's a, you know, step in the right direction. Got it. On the expenses and sort of tying this in with margins, Fred, you know, the performance this quarter was strong, but if we sort of assume flattish volumes, let's say, next quarter on a sequential basis, is there any reason that margins can at least stay flat to higher next quarter? Are there any expense items we should be thinking about? I'm just trying to figure out if, you know, this is sort of a peak for margin this year, or do we sort of see something higher as we go in the next quarter? There's no unusual expenses. The incremental $20 million we're spending, as I talk about for the improvement initiatives, are kinda evenly spread. There's no extraneous kinda thing I can think of that would spike in the next two quarters. It's gonna be exclusively driven by volume, the revenue volume. Again, we have made improvements in our operations on the margin, but a lot of the improvements you don't, you don't really see unless the volume goes up. If you know what I mean, because it's kind of like, if you have excess capacity in the system as you get more efficient. It's gonna be pretty steady, I think, and driven mostly by the volume. The only odd thing about volume is, you know, the pattern in something like commercial, is heavily skewed to, like, the fourth quarter and just the end of the year, in December in particular, which, you know, drives, you know, a change in that particular business. Everything else is pretty, you know, driven by the general market framework of how revenues unfold here. Got it. Then I guess just on commercial, and we're hearing sort of mixed things, right, in the market. I guess, just wanna get your views on how you're seeing the back half year? Yeah. I mean, it's down, right? I mean, obviously, and the financial things that are going on are putting a little bit of pressure on new investment, if you will. There are some, obviously some segments that are very good. Like, we were seeing some really nice volume in energy and some of the factors, but obviously, things like, you know, office is tough. It's gonna be down. We don't see any, you know, pattern to that. As far as a jump in the next quarter or something, we feel like it's the orders are kind of steady at a lower level right now. We again, this is another place, as you know, we, we've invested a lot in, and we're continuing to, and we believe we can continue to build that business, but there's some headwinds here in the short term as far as volume in the market. I'm gonna stay with you. I mean, if I just look, as Fred said, if I just look at our transaction types for the quarter, there's nothing really in the office sector. I mean, there's probably some smaller stuff, but the bigger transactions, as Fred said, are really energy dominates. There's some industrial, hospitality, multi-use, that kind of thing. It's probably fair to characterize that the decline in office has been offset by the other segments. Got it. All right. Thanks a lot, guys. Thank you. We'll take our next question from John Campbell with Stephens Inc. Your line is open. Hey, John. Good morning. Hey, guys. Good morning. back on the investment income, I mean, it sounds like you guys do expect that 2Q level will be a pretty good run rate. I'm guessing this probably holds for consensus, but just looking at my model, I mean, if I run rate that, that's $0.60, over $0.60 of EPS upside. you know, you guys just reported roughly that same amount in 2Qs. Obviously that's pretty meaningful. I just wanna get a better sense for the sustainability of that step up. David, you talked to, I think, 70% of the lift coming from escrow actions you guys have taken with bank partners. I'm hoping you can provide a little bit of color there. What exactly did you do that drove such a large impact? What allowed you to make that move now versus not doing it in the past? Yeah, I mean, I think. Well, it depends. If you're comparing quarter to quarter, which is probably the better comparison than that earlier answer I gave, which, like, 70% is due to the escrow and 30% is due to better rates, holes. We should probably see, you know, call it $2 million a month benefit from the escrow activities. Really what that is, and it's taken a few months. It's not like we started on it yesterday. It's the stuff you've been seeing in one of our competitors, right? It's just with rates rising, and they didn't really rise to a level we could make significant earnings because the banks are always a little late in raising rates until towards the end of the year. you know, it's really been the work from the last few months to get, call it, roughly, you know, $900 million or so of escrows deployed in the states that allow it and with any of the disclosures that are needed. That's why it takes a little while. You have to work with the banks, you have to make sure all the regulations are met. In some instances, you have to make sure you have disclosures, right? But that's all essentially been done at the end of the second quarter, and that's why we should get the benefit going forward. John, your observation are good, though. When we first started this journey three years ago, we looked at, should we buy a bank? Because we didn't have a bank, we didn't have access to the return on the escrows, and we couldn't, because of our scale, couldn't make it work. The value of short money back then was so little that banks were not really interested in partnering with you, and we were smaller, too. Now that we've grown and the value of money, obviously, the return on short money was so much better and the deposits were so valuable, our banking partners have done a really great job stepping up with us, and we now can capture some portion of that earnings on our escrow. In my view, it was an important thing for us to do, and as money became more valuable, it was something we had to go after, and the team did a nice job doing it. Again, we tried to get at this a couple of ways early on, and it just, for us, it was really hard to execute against, you know buying a bank or getting banks as interested as it was this year. I'm glad we were able to get it done. Yeah, absolutely. I mean, the macro seems a little bit shaky still on the commercial side. Resi feels like it wants to pick up a little bit, but that's a great addition to the earnings mix, so congrats there. Second question here on the order mix. You know, since you guys acquired FNC and BCHH, obviously, there's been some moving parts there. I'm hoping to get a little bit more color or clarity on the other order line. Just maybe as a starting point, just roughly the mix of default versus BCHH and FNC, and also how we should be thinking about that blended fee profile for other? John, for us, that's primarily the reverse stuff from FNC. You know, the fee per file there, I mean, those deals aren't quite as big as a typical purchase business. The fee per file is gonna be a little less than that $3,300, $3,400 that we report for purchase. We don't have much of a default business. That's why that's predominantly FNC reverse. Okay. Is there typically much seasonality in that line? Also, kinda, what's a good closing ratio? Is that can be kinda sporadic, or is the last two quarters kind of a good average to think about? Well, yeah, I mean, that mark, there's been a little bit of dislocation in that market, it's not as seasonal, right? If you think about why people typically go get reverse mortgages, well, you know, they're, you know, typically older, there's an age requirement, and then they have a lot of equity in their house, and it's sort of a pseudo-retirement product. The reason there's been a little bit, there hasn't been as much activity maybe as there could be going forward, even though there's a lot of equity, built up equity, and the population is aging, is because the market's been a little dislocated, right? You had, AAG, which was the largest originator acquired by Finance of America. You had the capital markets, you know, the primary execution is the FHA HECM product, and so the capital markets, that hadn't been as smooth, you know, on that. That's, for the most part, stabilizing, and you can see that with, you know, people are starting to advertise again. You see Tom Selleck every now and then on TV. You know, he's a AG pitch guy. You know, you should expect a gradual improvement there, but I think that market's, you know, still a little fragile with all the things that have been going on, but you should expect a gradual improvement. Okay, great. Thanks for taking our questions, guys. Thank you. We'll take our next question from Geoffrey Dunn with Dowling & Partners. Your line is open. Thanks. Good morning. Good morning. I want to follow up on John's question about NII and just make sure I have all the details here. Incrementally to what we already see on your balance sheet, you were effectively able to deploy about $900 million of escrow funds into interest-bearing accounts. Is that the way to think about the, the math? Correct. In terms of the notional balances. The tricky part is, what do you multiply that by, right? That has to be worked out with all the individual banks, and so you can't just, like, go take a money market rate and apply it to it. It's also offset by things like service charges and that kind of thing. You know, our rates are typically in the 3.5%, maybe a little better, just depends on how things are going. You know, as we get more mature in the program, you would expect that to maybe come up a little, and then we just had a 0.25 point raise yesterday. I think that might be a framework to think about. Okay. In doing those moves, was there any opportunity cost on the expense side, meaning you gave up expense credits to get the NII? Well, it's, it's embedded in the transaction, right? Yeah. I mean, before we were offsetting wire costs and things like that, to your point, but we weren't getting much more. Now we're getting something incremental, but those costs are still being offset. That's why I say you can't just take money market and then apply it to the balances. Right. Yeah. My last question is, in terms of sensitivity, obviously, we got another 25 bits yesterday. Who knows if we'll get anything else in the fall? You know, is it based on the 3.5, is it maybe correct to say, you know, 60% of a 25 bip change kinda flows into your incremental yield? It depends on how persuasive we are when we call these guys. Yeah. We might need some of your smoothness on that one, yeah. All right. In terms of if all else held equal, that $12 million run rate this quarter should react positively to any additional rate actions, including yesterday? Yeah, well, keep in mind for the quarter, and I forget if we chatted about this or not, but in the quarter, right, that's why the quarter-to-quarter comparison, it's really the delta in the second quarter versus the second quarter, to think about, because the second quarter happens to have a title plant dividend in it. You can't just, you can't just work off the 12, you have to work probably more off the delta. That's why I said it's about a $2 million a month benefit from the escrow. Okay. What is the title plant dividend this quarter? Well, it's about $2 million in each quarter. Sorry, the title plant dividend? It was about 2 in the second quarter of 2022, and about the same in the second quarter of 2023. It's a one-time, w e are an owner of a part owner of, we get it that once a year. As David said, that's just a one-time thing. Well, That's why [crosstalk] $10 million run rate going into 3Q. Correct. Yeah, that's why you can't just take the 12 and apply it. Yeah. Got it. Okay, thank you. Once again, that is star 1, if you would like to ask a question. We'll take a follow-up question from Soham Bhonsle with BTIG. Your line is open. Hey, guys, just one follow-up on the Real Estate Solutions business. If I look at revenue this quarter on a year-over-year basis, right, it was down about, you know, 13% or so, and that's better than the first quarter, which was down about 30%. It looks like it outpaced orders, essentially. I guess the question is, you know, Fred, you've talked about, hey, you know, there's some sensitivity to volumes, obviously, but it sounds like there's some subscription kicking in as well. Is that the right way to think about it, just going forward? There, that it has a mix. Exactly. There's a mix in there of some things like our data business that's more stable. Frankly, we have some services businesses that are having some real good share gains. It's a combo. It's a little bit, it obviously moves with volume, but it's a little bit dampened because of that. You got Just to give a little more color on that, you have the data businesses, as Fred said, credit, which is Informative Research and real estate, which is DropStream. Those are more stable because they're not as transactionally driven, they're actually doing better in the market. I think that's where you're seeing the improvement. That improvement's being offset a bit by the transactional businesses, which are appraisal, notary, that kind of thing. Which go right with the volume decrease. Those are very, you know, they're challenged like the rest of the market. Yeah, I mean, I just wanted to ask because the, the step change quarter-over-quarter on a year-over-year basis was pretty significant just in terms of declines, right? Right. Yeah. I guess it does sound like some share take there. Okay, thank you. Thank you. We have no further questions on the line at this time. I'll turn the program back over to management for any additional or closing remarks. Just want to thank everybody for joining us for this second quarter call. Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time.