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Stewart Information Services Corp. (NYSE:STC)
Q3 2019 Earnings Call
Oct 23, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Stewart Information Services Third Quarter 2019 Earnings Conference Call and Webcast. Today's call is being recorded. At this time, all participants have been placed on listen-only mode and the floor will be open for your questions following the presentation.

I'd like now to turn the call over to Nat Otis. Please go ahead.

Nat Otis -- Director of Investor Relations and Senior Vice President of Finance

Good morning. Thank you for joining us today for Stewart's Third Quarter 2019 Earnings Conference Call.

We will be discussing the 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 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 with 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 statement regarding forward-looking information, risk factors and other sections of the company's Form 10-K and other filings with the SEC.

Now, let me turn the call over to Fred.

Frederick H. Eppinger -- Chief Executive Officer

Good morning, everyone, and thank you for joining us today. David will go through the financials in a minute. But before that, I wanted to take a few minutes to briefly touch on my thoughts after six weeks as CEO of Stewart. First though, I would like to thank our associates for helping deliver strong third quarter results during a period of significant distraction from the speculation around the pending merger and our leadership change.

Our people have remained focused and committed to deliver the great service our customers expect from Stewart. I believe the resilience in our results this quarter and over the last year, a period of significant uncertainty confirms what the market wants, and in many cases need a strong independent Stewart. This brings me to Stewart today and what our focus will be.

I want to remind -- briefly remind everyone that this is 125 year old company with a strong brand and a proud history of customer-oriented service that has been distracted over the past several years. And with the backdrop of multiple activist campaigns, call for sale, a year and a half merger process that ultimately -- did not ultimately consummated. Most of Stewart's customers remained loyal and our employees delivered quality service.

But this period of distraction was also a period of uneven financial performance. Limited investment in our business and lack of sustained growth. With these distractions behind us, I believe there is a tremendous opportunity to change this and build a company positioned to consistently compete and win in our industry. As the company moves beyond this period of uncertainty and uneven performance, I would like to point out a few important strengths we start with.

While I've just spoken about the strength of our people, which is a critical asset in a service and relationship-oriented business, the company's financial strength has never been on a firmer foundation. With a solid balance sheet and strong ratings, substantial statutory capital to grow premium growth and the ability to generate new significant future cash flows, we are well positioned to deliver on our new focus. Building a world-class company that is positioned for the next 125 years.

While we are not satisfied with our performance over the last several years. The good news is that, Stewart is not a traditional turnaround. As noted, we have many positive things in place to start us on the path of profitable growth again. And in fact, we have many of the foundational elements in place to support our effort.

That said, this is a journey. And it will take some time to get where we ultimately want to be. The transformation will not be completed overnight, but we will also not wait to get started. We will compete more effectively now and we will get better every day. We've done what we are calling a 100 day plan focused on examining all of our company's businesses, functions and capabilities to understand all the opportunities to strengthen our competitive position and prove our ability to deliver sustained winning performance.

Over the last six weeks, I've been able to meet with over 2,000 of our associates, and visit a number of our markets and a number of our customers. In these first few weeks as CEO, my confidence has grown in what can be done to improve our competitive position and performance. Over the remainder of these first 100 days, we will lay out in greater detail how reinvigorated Stewart will compete and win. I'm confident in the potential we can unlock at Stewart, given the quality of our people, our brand and our financial strength.

Going forward, the key will be to utilize these assets in a way that spreads (ph) improved growth and it drives improved performance, financial performance with the overall goals of providing value to our customers, our partners, people and shareholders.

David will now update you on the quarter.

David C. Hisey -- Chief Financial Officer

Thank you, Fred. And good morning, everyone. Stewart reported title revenues of $499 million, overall revenues of $560 million and net income of $66 million or $2.78 per adjusted share. On an adjusted basis or per diluted share, on an adjusted basis, net income improved to $30 million from $20 million from last year's quarter. While adjusted EPS increased to $1.28 per share from $0.85 per share from the third quarter of 2018.

As presented in Appendix A of our earnings release, the calculation for our adjusted diluted EPS which is a non-GAAP measure, includes adjustments related to the $50 million FNF merger termination, as well as equity-method investment impairment, merger expenses and other non-operating gains and losses.

Our title revenues in the third quarter 2019 were up 3% from last year's quarter due to a strong housing market, primarily influenced by increased lending due to lower interest rates and solid direct commercial, residential and international business results. The title segment generated pre-tax income of $49 million or a 10% pre-tax margin. Excluding mark-to-market gains and losses related to equity securities investment, the impairment charge on an equity method investment, the segment's third quarter 2019 pre-tax income would have increased 5% to $52 million from last year's pre-tax income of $34 million.

With respect to our direct title business, commercial revenues were up 7% as the fee per file increased 22% to $12,600 as a result of increased transaction size. Direct residential revenues improved 18% as a result of increased lending. Our residential fee per file decreased 4% to $2,200 primarily as a result of change in business mix in which we had a higher ratio of refinancing the purchase orders.

Total international revenues increased $3 million or 10% on increased volumes from our Canada and UK operations. Compared to the third quarter 2018, open and closed orders in the third quarter 2019 grew 29% and 21% respectively. Regarding title losses, as a percent of title revenues, losses improved 20 basis points to 4.2%, compared to 4.4% from last year's quarter. We expect our title losses to remain at approximately 4.2% of title revenues for the year 2019. And note, that they can vary quarter-to-quarter.

At quarter end, our total balance sheet policy loss reserves were $452 million. Looking at ancillary (ph) services and corporate, we reported a segment pre-tax income of $42 million for the third quarter 2019, compared with a pre-tax loss of $11 million in the prior year quarter. Excluding the FNF merger termination fee and merger-related expenses, the segment's pre-tax loss in the quarter would have been $7 million versus $6 million in the prior year quarter.

The segment's operating revenues declined by $5 million as our search and valuation business was impacted by reductions in orders from several significant customers. The segment's results for the third quarter 2019 and 2018 included approximately $7 million and $13 million respectively of net expenses attributable to parent company and corporate operations with the higher expenses in the prior year quarter primarily caused by increased third-party merger advisory expenses.

With respect to operating expenses on a consolidated basis. Employee costs were up 4% compared to the third quarter 2018, primarily because of increased incentive compensation consistent with higher title revenues, partially offset by lower salaries expense as a result of lower average employee cost. They remained approximately 28% of operating revenues.

Other operating expenses for the third quarter 2019 declined 3% to $88 million from $91 million in the third quarter of 2018. This decrease was primarily driven by lower professional fee expenses in the third quarter 2019, partially offset by higher outside search fees, principally related to increased commercial revenues. As a percentage of total operating revenues and excluding FNF merger expenses, other operating expenses remained approximately 17%.

Lastly, on other matters, stockholders' equity attributed to Stewart was $754 million at September 30, 2019, the highest since 2007. At quarter end, we had approximately $943 million in total cash and liquid investments or $426 million after deducting required statutory reserves. We also have approximately $100 million available under our credit facility.

Our financial condition remains very strong with the debt-to-capital ratio of approximately 12% at quarter end and a book value per share of approximately $32. Net cash provided by operations during the quarter was $116 million, an increase of $79 million from the prior year quarter, primarily due to higher net income, which included the merger termination fee and lower payments on accounts payable during the quarter.

The effective tax rate for the third quarter 2019 was 24.5%, compared to 20% for the third quarter 2018. The increased rate was due to benefits we had in the prior year quarter due to research and development tax credits.

I'll now turn the call back over to the operator to take questions.

Questions and Answers:

Operator

(Operator Instructions) We'll take our first question from George Bose with KBW. Please go ahead.

George Bose -- KBW -- Analyst

Hey, guys. Good morning. This is Bose.

Frederick H. Eppinger -- Chief Executive Officer

Good morning, Bose.

George Bose -- KBW -- Analyst

Actually, the first question -- Good morning. The operating margin was -- it was definitely -- it was strong, stronger than we had expected. Strong as you've seen in a while. Is it -- I means, clearly the strength of the market is a big driver, but just even quarter-over-quarter the revenues are up and the expense is up very modestly. So anything you can sort of -- color you can provide on just the strength of the margin this quarter?

David C. Hisey -- Chief Financial Officer

Yeah. Hi, Bose, it's David Hisey here. Yeah, I mean, I think you sort of covered it right, it was pretty much the revenue leverage from the strong activities across the businesses and expenses didn't follow. I mean, you certainly get some benefit of the fixed cost structure. And so, as revenues go up we'll see that on the margin. And I think that's pretty much what we saw this quarter.

George Bose -- KBW -- Analyst

And -- I mean, is it too early to talk about sort of targets for normalized margin? When can we sort of discuss that?

David C. Hisey -- Chief Financial Officer

Yeah. I think -- just sort of going back to Fred's comments on the 100 day initiatives and the like. I think, it's probably a little premature on sort of the longer-term margins. I think we need to get through that work and be back to you on that.

Frederick H. Eppinger -- Chief Executive Officer

Obviously, for the company, right, we have lagged the industry and for a lot of reasons. And so where you will see us is focused on positioning ourselves to be better kind of situated to be a winner in the industry, which means we got to -- we got to improve both margins and frankly our growth profile. But I think that's very possible to do is be very directive to do just a couple of areas where we need to focus and kind of think about our operating platform a little differently and how we approach the market. So...

George Bose -- KBW -- Analyst

Okay. Great. Thanks. Actually just one more from me. On the agent side they shared -- obviously, year-over-year, that's been declining. Can you just add any color there in terms of how are you going to address that?

Frederick H. Eppinger -- Chief Executive Officer

So, obviously, the segment that's going to be most affected by the merger is going to be the agency, because agents don't want a too much concentration with a leading company in the industry. So, we obviously had those implications of this announced merger where people shifted part of their shelf space away from us, because of -- they didn't want to be in the Fidelity family. And so, that's what we have to win back. And so what we've done immediately is be very directive and very clear with those folks in trying to win back that business. And I think -- again, I think that's something we can do. We just have to get on it and focus on it, but it is something that is easy to anticipate, given the transaction. I mean, to me it's a obvious thing that agents want to do to balance their business. So we are after that and I think beyond that, I think we got some investments that we had made for a while that will enhance the value proposition to agents on the technology side that we're going to start focusing on immediately. And so I think that's going to help as well. So we look to that segment to grow in the future forward.

George Bose -- KBW -- Analyst

Okay, great. Thank you.

Operator

Our next question comes from John Campbell with Stephens Inc. Please go ahead.

John Campbell -- Stephens Inc -- Analyst

Hi, guys. Good morning. Congrats on a great quarter. And Fred, welcome. Looking forward to working with you.

Frederick H. Eppinger -- Chief Executive Officer

Yeah. Thanks.

John Campbell -- Stephens Inc -- Analyst

Yeah. So in your prepared remarks and I think you just mentioned this in the last -- answer to that last question, but you mentioned kind of a lack of reinvestment in the business over the last few years. I'm hoping you can maybe flush that out a bit. I know it's probably a little early to size up maybe that total shortfall. And then, it's probably way too early to lay out how much reinvestment is needed going forward. So if you could just maybe provide any additional insight there, to what extent you can? And then maybe, if you could also touch on what you're looking to do with the $50 million break-up fee that you guys have?

David C. Hisey -- Chief Financial Officer

Yeah. So, as you can imagine, right, this company probably for multiple years now has kind of hunker down in a lot of ways and managed itself relatively well. I mean, if you look at our service force, et cetera, I'm very impressed with what folks have done over the last few years as we've kind of really been internally focused as we look at things like restructuring and et cetera. So if you look at our business, as you can imagine, in most of our businesses, there were some things that if you thought about long-term value creation, you would have invested in that and we did it. And so in almost every business and every area there is some places that I want to redirect our investment.

Now, what we won't do is, just lay on top of bunch of additional investment, there is other things we were doing that we're going to stop doing and reallocate that. So I would say that, it's not overwhelming, but it's important for us to kind of get focused on the future here and invest in some things. I would also say that, the other thing that is going to be important for us is to fill some holes.

As you can imagine over the last couple of three years, we've lost some critical skills and capabilities and pockets. Again, not overwhelming, but areas where we need to make sure that we fill those holes and hire the right skill sets and make sure we are competitive in some areas. So I'm pretty positive about where we are and kind of the resilience of the company, it's obvious when you look at kind of what we've done in the last two or three years. But the upside here is tremendous. If I can just make sure we accelerate some focused investment in the businesses, so we compete a little bit better.

And, again, is it overwhelming? No. But is it something that's going to take some time and some money? Sure. And in the next quarter, in particular, after the next quarter we'll be a lot clear on where it is and what we're doing. And it's coming together pretty quickly. But it is still a little early on exactly what we're going to do in some of the areas, but it's, again, pretty straightforward, right? You can see from our results over the last few quarters that essentially we were kind of not holding share, we were shrinking relative to the market and that's going to stop. So...

John Campbell -- Stephens Inc -- Analyst

Got it. That makes sense. And then on the commercial growth, that was a good result for you guys. I think you called out over 20% growth in fee-per-file. I'm guessing that you guys probably got a few larger deals in the quarter. So if you can just maybe provide a little color on kind of the lumpiness of the orders? And then, any additional color out as far as the purchase versus refi mix and just any kind of geographical impacts?

David C. Hisey -- Chief Financial Officer

Yeah. (Technical Issue) Hisey here. On the commercial, I think it's just a continued focus of the businesses had on sort of the larger commercial customers across the country. That's a trend we've been seeing for sort of the last year or so. So I don't think it was -- there were any significant one-off deals, I think it was just sort of bigger transactions across the franchise.

In terms of the purchase refi mix. I mean, I think we're sort of seeing what the market is seeing there. (Technical Issue) sales against the competition when we have that order information. And so I would expect the trends you're seeing in the market to sort of impact us as well. (Technical Issue) look at all the housing economists that sort of look at this stuff. I mean, they have in continued strong housing market may be refis tapering off a bit as we go into next year and that would sort of be our expectation as well.

John Campbell -- Stephens Inc -- Analyst

Okay. That's helpful. And then just a tack on to that. On the commercial side, any color as far as open orders and kind of what the pipeline looks like getting into 4Q?

David C. Hisey -- Chief Financial Officer

I think the guys think it's -- that this is still strong and -- but as you know on those kinds of deals, I mean, timing matters. But decent pipeline going in the quarter, just needed to close them.

John Campbell -- Stephens Inc -- Analyst

Okay. That's helpful. Thanks, guys.

David C. Hisey -- Chief Financial Officer

Thanks.

Operator

The next question will come from Geoffrey Dunn with Dowling & Partners. Please go ahead.

Geoffrey Dunn -- Dowling & Partners -- Analyst

Thanks, good morning. Fred, acknowledging six weeks on the job, but as you think about your vision of the opportunities for Stewart. Is this equally an expense and top line opportunity, is it more top line than expense or vice versa? How do you view the opportunity for the operations based on what you've seen over the first six weeks and, obviously, your experience before that?

Frederick H. Eppinger -- Chief Executive Officer

Yeah. I mean, obviously, if you look at our performance over the last, say 10 years, decade, right? Our margins lagged the industry, but our growth did too. We've lost share over the last decade. And so, obviously, we need to change that profile. And so what you will see is an expansion of margins as well as growth above the industry. I mean -- and I think both are very possible. The question is, how do you get at those margin expansions? I would tell you that most of it is going to be leveraged. We're going to be leveraging it from some additional growth.

Again, are there some things that we're going to stop doing? Yeah. I would say there's going to be a reallocation of dollars from some parts of the company to other parts of the dollar -- part of the company. And so, I think this is kind of leveraging our portfolio. The other thing you've seen is, some of our ancillary businesses, I think, are areas where we can manage better. And there is some real leverage there in the overall business as we do that.

So, again, it probably answers a little bit of both, but more on the top line and the (inaudible) just few expenses because they want to leverage our ability to win at the local market level.

And again, as you can imagine, when you're reacting to things versus proactively thinking about it, all your expense dollars are not going into the right places, right? So for us, we got to get on the front foot and make sure that we're investing in the right places that actually lead to profitable growth. And we're going to do that. And again, it was interesting again, even in six weeks, a couple of things that striked me. The energy of the place and kind of the people are focused on why to get back on the front foot and win. I think what you saw in commercial is a little bit of that. I mean, I think the energy level around some of our outstanding commercial team is going to be there going into the future. So you have a bunch of folks that kind of know-how to win and want to focus on the right things.

But the other thing that I've seen is just a bunch of things that we were going to do, they did it. Like there was a number of areas where we know what we need to do, but we held off. And I got to make sure we do that. And I got to make sure that we find funding for that. So, this might be a little bit of a step back before step forward in some cases, but we know the objective function. We can't -- in three years, we're not going to be at the bottom quartile of the industry returns and losing share, I can tell you that.

So, I'm pretty confident that we can turn this around, we just got to make sure we invest in some areas and focus on winning in the local markets.

Geoffrey Dunn -- Dowling & Partners -- Analyst

Okay. And then, in your comments you did have a bit of a cautionary, couple of sentences about, this is not an overnight process. Just to frame that, I mean, is it reasonable to think about next three, five quarters, really 2020 being a transition period could be a bit lumpy, depending on what your initiatives are, plus or minus? And really the payout is more of '21, '22 type of thing?

Frederick H. Eppinger -- Chief Executive Officer

I think that's fair. Again, do I think about it that way? Not necessarily. Because we're going to move forward and compete better every day. And this is of so much of an execution-based business that this is kind of -- if you can out hustle you can do things. But there is going to be some investments, some refocused -- refocusing of the company and some decisions that essentially are going to be about the long-term, not the short term. So I think it's a fair characterization.

Geoffrey Dunn -- Dowling & Partners -- Analyst

All right. And then last question for David. What occurred sequentially with head count in Q3 and what are the preliminary actions into Q4?

David C. Hisey -- Chief Financial Officer

(Technical Issue) head counts have been coming down a little bit, I think, with the merger. We've been pretty firm on hiring. I think, we'll see that trend continuing into the fourth quarter. I think where we go from there is really a function of what you just talked about with Fred in terms of the initiatives and investments and that kind of thing.

Geoffrey Dunn -- Dowling & Partners -- Analyst

Okay. Thanks.

Operator

[Operator Instructions] Our next question comes from Mackenzie Aron with Zelman & Associates. Please go ahead.

Mackenzie Aron -- Zelman & Associates -- Analyst

Thank you. Good morning.

David C. Hisey -- Chief Financial Officer

Good morning.

Mackenzie Aron -- Zelman & Associates -- Analyst

Just wanted to follow up on that question around needing to rebuild the team in certain areas. Fred, can you give us any color around what you've seen so far? There are certain areas of the business that seem to have had more attrition? Or is it pretty broad-based anything by geography? Is there anything that you can call out from kind of a head count or personnel perspective?

Frederick H. Eppinger -- Chief Executive Officer

Yeah. I don't think it's -- I don't think it's specific to any area. I do think that, what you see when you go through something like this is that, you lose some bench. And again, we have some holes in some areas that we're going to -- we're going to want to and need to be (inaudible), but it's -- we've been remarkably resilient, so it's not -- again, it's not overwhelming, but it's fair. I mean, again, you can imagine some functions, particularly overhead functions that when you go through something like this, there is some people who are just kind of hang around. So there are some areas that we will be beefing up and we will be making sure that we hire. And again, I would tell you that I've already -- we've already had a lot of calls and conversations with people that we want back that already coming back. And interesting enough, we've also had people from competitors that are talking to us about want to come too.

So again, my view is that, this isn't overwhelming, but it's important, it's important part of what we have to do, we have to make sure that we have a resilient organization and we have the skills we need in all the different areas. But again, it's just part of what we need to do.

Mackenzie Aron -- Zelman & Associates -- Analyst

Great. And then just going back to the agency conversation as well. How -- what is the sense around how sticky some of the shifts have been from agents that have cut ties with Stewart. Are those relationships that can be turned on relatively quickly or what's been the initial kind of reaction and impression that you've heard?

Frederick H. Eppinger -- Chief Executive Officer

Great question. I think for the most part, those are things that we can win back. I'm meeting actually tomorrow with over 100 agents to discuss kind of us and what we're doing. I'm pretty -- that's a business that we're going to grow a lot. I feel pretty confident in that, we can be a good partner for particularly winning agents, agents that are investing in their business and growing the business. But they did shift, right? And again, I think it's completely logical. I think if I was of agent, I would have probably done the same thing. So for us, we got to focus on that and make sure that we have provided the value proposition we need to win them back.

So I'm confident that we can get it back. The question is how long does it take? Hopefully, it's not too long, but we got to work it, we got to focus on it and make sure we are talking to them and making sure we understand what their -- the reasoning wise and why we should get it back. But again, it's not illogical. This is not one of those things in my view that is not unknowable, we know exactly what they were thinking as business people. So we need to go to and get them back.

And if you look at some of the growth over the last few years, structurally in industry of regional companies. Regional companies have done a good job taking some share from the larger companies in the agency channel. And that's something we can get back easily. We're a little bit more nimble than the bigger guys, that's something that we should focus on, particularly since a lot of those regional companies were built to sell and you've seen some transactions from their perspective. And so they have some disruption as well. So I think both short term and structurally, the agency channel is a channel that we can really do some good damage there and grow some share.

Mackenzie Aron -- Zelman & Associates -- Analyst

Great. Well, thanks for all the color and best of luck.

Frederick H. Eppinger -- Chief Executive Officer

Thanks.

Operator

The next question comes from DeForest Hinman with Walthausen & Company. Please go ahead.

Frederick H. Eppinger -- Chief Executive Officer

Good morning.

DeForest Hinman -- Walthausen & Co. -- Analyst

Hello. Thanks for taking questions from shareholders. Great discussion. Thanks for your review in your first few weeks on the job, you spent some time in terms of areas that we need to improve, but maybe so people can better understand the opportunity. Fred, can you talk about things that we do well? And will you talk about the culture of winning, where areas we can -- we were already performing well, we can do even better?

Frederick H. Eppinger -- Chief Executive Officer

Yeah. I think, again, one of the things, I've watched this company for a lot of years actually. And one of the passing things about it is, we have an underutilized brand. And what struck me and it continues to strike me. If we look at our local market service metrics and how the relationships are. In some of these local markets with our people, it's extraordinary. And given all the distraction and all the things that has gone through in this company, the fact that we have lost some people. If you look at the quality of the relationships locally and some of this service stuff. In a business like this which -- if you have that, that's quite sticky. And the question is, how do you leverage that? But it is a tremendous strength.

The other thing I would tell you is almost every customer who I talk to, they like our relative position versus the big guys, right? They think we're a little bit more responsive, a little bit more -- we hustle our tad better, our insight about some of the segments, like in commercial is a little bit better, the way we work with them. So again, it's a real interesting strength in this company that I think as people partner with us better in a more global sense versus just at a micro person to person sense. It creates a real opportunity, but there's real strength here. I mean, again, if you look at across all industries, if you took a company, generic industry. And you said, you are for sale for 18 months. I did falls apart. You wouldn't see the strength of our results over this period. I mean, the stability of this company says something. The resilience that we are experiencing, the bounce back we had in the last six weeks as people refocused on what we needed to do. That tells us that we have an underlying strength here that's real. There is something there to leverage. Now again, that said, we work to do. Together, we have a lot of work to do to make us one of the better companies in the industry. So -- but to your point, this company has tremendous strength to build off.

DeForest Hinman -- Walthausen & Co. -- Analyst

Okay. And then, as shareholders as we're looking for that plan, I know you talked about opportunities and you talked about revenue and the margin profile. How are you going to be setting up those benchmarks, both internally and help us think about how to make people hit those expectations? And how are you going to communicate? How we're moving toward those expectations or benchmarks as shareholders. Is it going to be, we're going to have some one-year targets? And then we're talking about two or three year targets? Just any color that you could provide will be very helpful for shareholders.

Frederick H. Eppinger -- Chief Executive Officer

Yeah. So my view of this industry as in many insurance type financial services companies is that, this is an execution-based business. This is not -- so much of this is about winning day to day. It's kind of a game of inches, if you will. And so, when you're in a game -- when you're in a business like that, execution delivery is everything. And so what we're going to be doing is, obviously, be very clear about where we're going and it's going to cascade to this organization. So people have a clarity of what we need to achieve together. And from the outside world, again, what I'll try to do is be clear over kind of the next two, three years where we think we're going and what it's going to look like.

Again, my view is, some of these people overestimate what you can track quarter-to-quarter and what a quarter really needs. But if you look at the right metrics over a period of time, right? It's is obvious what we have to improve and it could be in this business. So you will see us way out, kind of what I would call a long-term plan for the company. You will see more importantly, internally a clarity to all our colleagues to say what do we need to achieve together.

And again, none of this stuff is easy. But my view is that, we have a strong enough foundation and we have clarity of what we think the opportunities are. So we can execute a plan that's relatively transparent. So I hope that's helpful. Again, it's going to unfold. as I said over the next 100 days as we kind of look at things. Because what I wanted to do is, take a time to take a step back right here and look at all our businesses and look at all our positions, so that I know how we need to reallocate our investment and our resources to the greatest opportunities. Because that's -- we got to make sure we jump on some of this and kind of make some progress quickly.

DeForest Hinman -- Walthausen & Co. -- Analyst

That's very helpful color. Shifting gears to capital allocation. I believe this was touched on, but you have an interesting situation. I know there's some appropriate level of capitalization in terms of cash and investment portfolio, but on a very high level, it seems like you have a lot of excess capital currently, and you've also received a break fee from the deal not being completed. You just spent half an hour talking about the opportunity in front of us. Is it appropriate to be buying stock and kind of rewarding shareholders for waiting for this transaction to close and potentially lowering the share count and what will soon, we hope to be a much better earnings profile in the future?

Frederick H. Eppinger -- Chief Executive Officer

Yeah. My primary use -- right now, I'm going to -- I'm going to hold the capital and I'm going to focus the capital on building the business. That doesn't say over time, I'm going to get some clarity on where we are with our capital base. And if anybody followed what I've done in the past, I tend to give back excess capital if I don't feel I can use it to grow the business, that's what I do. But right now, what I'm going to do is, focus on trying to build this business. And right now, my primary concern about our capital is, using it to build the business. And I want to get more clarity over the next 12 months and after that I can have a little bit better answer, but right now, that's what the answer is.

DeForest Hinman -- Walthausen & Co. -- Analyst

Okay. So just a little bit more color on that, would that include M&A type transactions?

Frederick H. Eppinger -- Chief Executive Officer

It could, it could. Again, I think plus one of the things that is clear in this business is that, winning at the local market and having a strong position at local markets is very, very helpful. Could I feel -- could there be some appropriate transactions that assist and that help us? Sure. We don't need them necessarily, but that could be. But I want to look at all the alternatives and to really understand how we build this business and that's really my priority right now.

DeForest Hinman -- Walthausen & Co. -- Analyst

Okay. Thank you.

Frederick H. Eppinger -- Chief Executive Officer

Thank you.

Operator

[Operator Instructions] The next question comes from Geoffrey Dunn with Dowling & Partners. Please go ahead.

Geoffrey Dunn -- Dowling & Partners -- Analyst

Thanks. I just had a few number of follow-ups. David, first, could you share your open order per day experience in the first few weeks of October?

David C. Hisey -- Chief Financial Officer

On a seasonal basis, we've continued to be strong, right? I mean, obviously, we're going into the slower time of the year. But relative to history, we're seeing good activity.

Geoffrey Dunn -- Dowling & Partners -- Analyst

Can you put any specific number around the first two weeks or no?

David C. Hisey -- Chief Financial Officer

I prefer not to, but it's strong relative to prior years.

Geoffrey Dunn -- Dowling & Partners -- Analyst

Okay. And then, investment income dip this quarter as the yield, obviously, had a bit more cash in there, but what are your thoughts around yield and in the investment income level relative to this quarter going forward? Particularly, if we're looking at two more rate cuts this year?

David C. Hisey -- Chief Financial Officer

Yeah. I mean, we -- It's a good question and there's a lot of people that would debate that. We had been building cash going into the transaction. I think the ultimate use of that is sort of ties to the comment that Fred just had. I think there is -- depending on what happens with rates as it stands right now, you may not really be getting paid for duration. But I think that's something investment community looks at and we will be taken up with the Board and whether we want to -- how we want to reinvest some of that money in it. It might not only be in the investment portfolio, it might be, as Fred said, in the business.

Geoffrey Dunn -- Dowling & Partners -- Analyst

Okay. And then, is $6 million still the right underlying run rate for corporate expenses?

David C. Hisey -- Chief Financial Officer

(Technical Issue) all the noise out, we've had the M&A stuff and all that, and that's probably fair.

Geoffrey Dunn -- Dowling & Partners -- Analyst

Okay. And then last question. How do we think about the agency premiums going into the fourth quarter? And it's in your reminder, do you have a lag reporting there, so we should see a sequential uptick given 3Q direct activity or what is the trend there?

Frederick H. Eppinger -- Chief Executive Officer

There is a lag. So some of the activity you've been seeing on the increased order side will carry over into that business going into the fourth quarter.

Geoffrey Dunn -- Dowling & Partners -- Analyst

All right. Great. Thank you.

Operator

It does appear that we have no further questions at this time. I would like to turn the call back to our speakers for any additional remarks.

Frederick H. Eppinger -- Chief Executive Officer

That concludes this quarter conference call. Thank you for joining us today and your interest in Stewart. Bye bye.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Nat Otis -- Director of Investor Relations and Senior Vice President of Finance

Frederick H. Eppinger -- Chief Executive Officer

David C. Hisey -- Chief Financial Officer

George Bose -- KBW -- Analyst

John Campbell -- Stephens Inc -- Analyst

Geoffrey Dunn -- Dowling & Partners -- Analyst

Mackenzie Aron -- Zelman & Associates -- Analyst

DeForest Hinman -- Walthausen & Co. -- Analyst

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