HOUSTON, July 31, 2014 /PRNewswire/ -- Stewart
Information Services Corporation (NYSE-STC) today reported net
earnings attributable to Stewart of $6.3
million, or $0.27 per diluted
share, for the second quarter 2014, compared to earnings of
$26.9 million, or $1.09 per diluted share, for the second quarter
2013. Second quarter 2014 results included a charge of $10.5 million, or $0.30 per share, recorded in the title segment
relating to a previously announced litigation settlement as well as
approximately $3.2 million, or
$0.09 per share, of aggregate costs
recorded in the corporate segment related primarily to
acquisition-related costs.
Selected Financial Information
Summary results of operations are as follows (dollars in
millions, except per share amounts):
|
Second
Quarter
|
Six Months
|
|
2014
|
2013
|
2014
|
2013
|
|
|
|
|
|
Total
revenues
|
$446.8
|
$517.2
|
$840.4
|
$940.9
|
Pretax earnings
(loss) before noncontrolling interests (a)
|
11.5
|
48.9
|
(7.1)
|
56.0
|
Income tax expense
(benefit)
|
2.8
|
19.0
|
(5.2)
|
21.4
|
Net earnings (loss)
attributable to Stewart
|
6.3
|
26.9
|
(5.8)
|
30.1
|
Net earnings (loss)
per diluted share attributable to Stewart
|
0.27
|
1.09
|
(0.26)
|
1.25
|
a.
|
Pretax (loss)
earnings before noncontrolling interests for the first six months
of 2014 included $7.1 million of aggregate costs related to a
shareholder settlement, legal, due diligence and integration costs
related to acquisitions and a $10.5 million charge related to
settlement of a litigation matter. Pretax earnings before
noncontrolling interests for the first six months of 2013 included
a $5.4 million non-cash charge relating to the early retirement of
convertible senior notes, partially offset by a $1.7 million gain
on non-title-related insurance policy proceeds.
|
Compared to the second quarter 2013, title revenues decreased
14.3 percent in the second quarter 2014. Revenues for the second
quarter were negatively impacted by softer market conditions as the
number of title orders opened declined 17 percent compared to
second quarter 2013. Revenues from direct operations for the second
quarter 2014 decreased 4.3 percent compared to the same quarter
last year but increased 35.5 percent sequentially from the first
quarter 2014. Title orders closed declined 20 percent compared to
2013 largely due to the decline in refinancing orders. We closed 70
percent of title orders opened in the second quarter 2014 compared
to 73 percent in second quarter 2013.
Mortgage services revenues for the second quarter 2014,
including revenues from acquisitions closed during the quarter,
decreased 3.6 percent compared to the second quarter of 2013.
"While pleased with several internal developments and ongoing
initiatives in the second quarter 2014, the overall market
continued the themes observed over the last three quarters in the
housing industry," said Matthew W.
Morris, chief executive officer. "Total title orders, while
rebounding from the depressed level of the first quarter 2014,
remained well below year-ago numbers. The spring and early summer
housing selling season did not have the upward momentum expected by
most industry analysts. As a result, title segment revenues fell
15.3 percent compared to the second quarter 2013."
For the first six months of 2014, net loss attributable to
Stewart was $5.8 million, or
($0.26) per diluted share, compared
to net earnings of $30.1 million, or
$1.25 per diluted share, for the same
period in 2013. Pretax loss for the year to date period in 2014 was
$7.1 million, as compared to pretax
earnings of $56.0 million for the
prior year to date period. Results for the first six months
of 2014 include, in addition to the $10.5
million litigation settlement charge, aggregate costs of
approximately $7.1 million related to
a shareholder settlement as well as legal, due diligence and other
costs related to acquisitions.
Compared to the first six months of 2013, title revenues
decreased 10.7 percent in the first six months of 2014, while
mortgage services revenues decreased 16.4 percent. Revenues for the
first six months of 2014 were negatively impacted by softer market
conditions as the number of title orders opened declined 18.4
percent compared to first six months of 2013. We closed 67 percent
of title orders opened compared to 72 percent in the first six
months of 2013. Mortgage services revenues declined as the overall
improvement in the housing market during 2013 lowered demand for
distressed and default-related services. The decline was partially
offset by the aforementioned acquisitions.
Real Estate Market
Existing home sales declined 4.5 percent in the second quarter
2014 from a year ago, partially due to the harsh winter weather in
first quarter 2014 that limited new contracts as well as rising
interest rates that negatively impacted
affordability. Following the usual seasonal pattern, though
muted somewhat, home sales increased 5.8 percent sequentially from
the first quarter 2014, although this increase was far less than
that anticipated by industry forecasts. Median home prices
rose 4.6 percent from a year ago and 11.2 percent from the first
quarter of this year. As in first quarter 2014, refinance
lending volume continued to fall significantly, declining 65.3
percent from the second quarter 2013.
"As always, we are mindful of industry conditions, with some
observers predicting a sub-$1
trillion mortgage origination market in 2014. Considering
that in 2013 mortgage originations were approximately $1.8 trillion, a potential decline of this
magnitude would resemble the 2005-2008 period. Given this, we
believe disciplined adherence to cost containment and our five-year
strategic plan developed in 2012 is more important than ever.
Successful execution of our plan will ensure the offerings and
financial stability our customers expect and the financial rewards
our shareholders expect," continued Morris.
Title Insurance Segment
Our title segment revenues increased sequentially 11.6 percent
from first quarter 2014. In the second quarter 2014, the title
segment generated a pretax margin of 11.2 percent, an increase of
630 basis points from first quarter 2014.
Our direct operations include local offices, commercial and
international operations. We generate commercial revenues both
domestically and internationally. U.S. and Canadian commercial
revenues decreased 8.3 percent to $34.2
million from the second quarter 2013 as a result of weaker
market conditions. International operating revenues (including
foreign-sourced commercial revenues of $3.4
million) increased 7.3 percent to $32.8 million from second quarter 2013 and
increased sequentially by 49.2 percent from first quarter 2014, due
largely to increased commercial transactions.
Total opened title orders in direct domestic operations
(excluding acquired offices) decreased 16.7 percent from the second
quarter 2013, driven principally due to the decline in refinancing
orders. However, opened orders increased 15.6 percent sequentially
from the first quarter 2014, resulting from increases in resale and
commercial orders. Refinancing orders were 18.1 percent of total
opened orders in second quarter 2014, down from 30.2 percent in the
second quarter 2013 and down sequentially from 19.1 percent in the
first quarter 2014. Title orders closed per workday in direct
operations decreased 20.0 percent from second quarter 2013 but rose
32.5 percent from first quarter 2014. Title revenue per closed
order in direct operations increased 19.8 percent and 11.0 percent
from second quarter 2013 and first quarter 2014, respectively. The
increase over the prior year quarter is primarily due to home price
appreciation, a shift in order mix to more resale and commercial
orders, and, to a lesser extent, a rate increase in Texas that became effective May 1, 2013. Only orders that have a premium
component are included in our open and closed order counts.
Independent agency revenues decreased 22.2 percent from the second
quarter 2013 and 1.8 percent sequentially from first quarter 2014.
Our independent agency remittance rate of 18.7 percent was
unchanged from second quarter 2013 but improved sequentially from
18.2 percent in the first quarter 2014.
Title policy loss experience continued to improve, including
both incurred losses and claims payments, during the second quarter
2014, reflecting our ongoing attention to prudent risk management
with emphasis on the quality and profitability of our independent
agency network. Due to this ongoing improvement, we recorded a
policy loss reserve reduction of $6.5
million relating to prior policy years, and anticipate
lowering our loss provisioning rate modestly for the remainder of
2014. During the second quarter 2013, we lowered our policy loss
reserves by $6.6 million. The title
loss ratio in any given quarter is significantly influenced by
changes in title revenues, new large claims incurred as well as
adjustments to reserves for existing large claims. Title loss
expense declined 24.8 percent to $18.2
million in the second quarter 2014 compared to $24.2 million in the second quarter 2013. As a
percentage of title revenues, title losses were 4.4 percent in the
second quarter 2014, 5.0 percent in the second quarter 2013, and
6.3 percent in the first quarter 2014. Total balance sheet policy
loss reserves were $494.1 million at
June 30, 2014.
Mortgage Services Segment
Revenues from our mortgage services segment were $39.4 million for the second quarter 2014,
increasing 5.5 percent compared to $37.3
million in the second quarter 2013 and increasing 37.1
percent sequentially from first quarter 2014. The segment reported
a pretax loss of $1.4 million in the
second quarter 2014 compared to pretax earnings of $5.2 million and a pretax loss of $1.6 million for the second quarter 2013 and
first quarter 2014, respectively.
During the second quarter, we completed the previously announced
acquisitions of Wetzel Trott, Inc.
(closed April 2nd), the
title business of DataQuick Lending Solutions (closed April 2nd; the closing of the
collateral valuation business of DataQuick is scheduled for
August 1st) and LandSafe
Title (closed May 31st).
Integration efforts began immediately after closing, and we remain
confident of achieving the original synergy estimate of
approximately $5.0 million. In
accordance with segment accounting rules, the revenues associated
with the acquired centralized title businesses are reported in the
Mortgage Services segment, and the title office operations are
reported in the Title segment.
"We continued the diligent pursuit of our strategic initiatives
for Mortgage Services, completing the acquisitions of all but the
collateral valuation portion of the transactions announced in the
first quarter. We remain confident that, once integrated with our
existing Stewart Lender Services business, the depth and breadth of
our suite of service offerings position us to excel in the evolving
mortgage services market," noted Morris.
Expenses
Employee costs in the second quarter 2014
increased 3.3 percent from the second quarter 2013 and sequentially
6.6 percent from the first quarter 2014. Excluding the impact of
acquisitions, employee costs declined 3.6 percent from the second
quarter 2013 and increased 2.2 percent sequentially from the first
quarter 2014. As a percentage of total operating revenues, employee
costs were 34.2 percent, 28.5 percent, and 36.4 percent in the
second quarter 2014, second quarter 2013, and first quarter 2014,
respectively. Since year-end 2013, total headcount has increased by
approximately 700 employees, with an increase of approximately 690
employees due to our recent acquisitions and 360 employees related
to a new service offering and contract, partially offset by a
reduction of approximately 350 in existing operations.
Other operating expenses increased by 21.4 percent in the second
quarter 2014 compared to the second quarter 2013 and 31.6 percent
sequentially from the first quarter 2014. The increase from the
second quarter 2013 is due principally to the litigation settlement
charge, the costs associated with acquisition integration efforts
and the impact of acquisitions. Excluding the costs noted above,
other operating expenses increased 4.3 percent. As a percentage of
total operating revenues, other operating expenses were 20.2
percent, 14.3 percent, and 17.4 percent in the second quarter 2014,
second quarter 2013 and first quarter 2014, respectively.
During the second quarter 2014, our cost management program was
fully initiated. We identified specific opportunities for
structural cost reductions, estimated the savings to be achieved
from each, assigned project owners, and began developing
implementation plans, including resources necessary and estimated
timelines. We remain committed to our stated goal of achieving
$25 million of annualized cost
savings by the end of 2015 exclusive of market conditions.
Cash provided by operations was $18.3
million in the second quarter 2014 compared to $46.5 million for the same period in 2013. During
the second quarter, we acquired approximately 96,000 shares of our
common stock for an aggregate purchase price of approximately
$2.9 million pursuant to the
previously announced stock repurchase program.
Stewart will hold a conference call to discuss second quarter
2014 earnings at 8:30 a.m. Eastern
Time on Thursday, July 31,
2014. To participate, dial (866) 952-1906 (USA) and (785) 424-1825 (International) –
access code STCQ214. Additionally, participants can listen to the
conference call through Stewart's Investor Relations website at
http://www.stewart.com/investor-relations/earnings-call. The
conference call replay will be available from 10:00 a.m. Eastern Time on July 31, 2014 until midnight on August 5, 2014, by dialing (800) 283-4799
(USA) or (402) 220-0860
(International). The access code is also STCQ214.
About Stewart
Stewart Information Services Corp.
(NYSE: STC) is a leading provider of real estate services,
including global residential and commercial title insurance, escrow
and settlement services, lender services, underwriting, specialty
insurance, loan due diligence, compliance solutions, service
performance management and other solutions that facilitate
successful real estate transactions. Stewart offers personalized
service, industry expertise and customized solutions for virtually
any type of real estate transaction, through our direct operations,
network of approved agencies and other companies within the Stewart
family. Through a focus on integrity, smart growth and conservative
management, Stewart remains committed to serving our customers,
innovating and improving to meet their needs in an ever-changing
market.
Forward-looking statements. Certain statements in this news
release are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such
forward-looking statements relate to future, not past, events and
often address our expected future business and financial
performance. These statements often contain words such as
"expect," "anticipate," "intend," "plan," "believe," "seek,"
"will," "foresee" or other similar words. Forward-looking
statements by their nature are subject to various risks and
uncertainties that could cause our actual results to be materially
different than those expressed in the forward-looking statements.
These risks and uncertainties include, among other things, the
tenuous economic conditions; adverse changes in the level of real
estate activity; changes in mortgage interest rates, existing and
new home sales, and availability of mortgage financing; our ability
to respond to and implement technology changes, including the
completion of the implementation of our enterprise systems; the
impact of unanticipated title losses on the need to strengthen our
policy loss reserves; any effect of title losses on our cash flows
and financial condition; the impact of vetting our agency
operations for quality and profitability; changes to the
participants in the secondary mortgage market and the rate of
refinancing that affects the demand for title insurance products;
regulatory non-compliance, fraud or defalcations by our title
insurance agencies or employees; our ability to timely and
cost-effectively respond to significant industry changes and
introduce new products and services; the outcome of pending
litigation; the impact of changes in governmental and insurance
regulations, including any future reductions in the pricing of
title insurance products and services; our dependence on our
operating subsidiaries as a source of cash flow; the continued
realization of expense savings from our continual focus on aligning
our operations to quickly adapt our costs to transaction volumes
and market conditions; our ability to successfully integrate
acquired businesses; our ability to access the equity and debt
financing markets when and if needed; our ability to grow our
international operations; and our ability to respond to the actions
of our competitors. These risks and uncertainties, as well as
others, are discussed in more detail in our documents filed with
the Securities and Exchange Commission, including our Annual Report
on Form 10-K for the year ended December 31,
2013, our quarterly reports on Form 10-Q, and our Current
Reports on Form 8-K. We expressly disclaim any obligation to update
any forward-looking statements contained in this news release to
reflect events or circumstances that may arise after the date
hereof, except as may be required by applicable law.
STEWART
INFORMATION SERVICES CORPORATION
|
STATEMENTS OF
OPERATIONS (condensed)
|
(In thousands of
dollars, except per share amounts and except where
noted)
|
|
|
Three months
ended
June
30
|
Six months
ended
June
30
|
|
2014
|
2013
|
2014
|
2013
|
Revenues:
|
|
|
|
|
Title
insurance:
|
|
|
|
|
Direct
operations
|
202,831
|
211,900
|
352,520
|
371,546
|
Agency
operations
|
209,924
|
269,898
|
423,597
|
497,560
|
Mortgage
services
|
29,886
|
31,014
|
56,103
|
67,083
|
Investment
income
|
4,861
|
4,285
|
8,718
|
7,928
|
Investment and
other (losses) gains – net
|
(664)
|
123
|
(524)
|
(3,184)
|
|
446,838
|
517,220
|
840,414
|
940,933
|
Expenses:
|
|
|
|
|
Amounts retained by
agencies
|
170,779
|
219,489
|
345,458
|
406,554
|
Employee
costs
|
151,251
|
146,397
|
293,173
|
283,227
|
Other operating
expenses
|
89,164
|
73,426
|
156,901
|
137,223
|
Title losses and
related claims
|
18,170
|
24,169
|
40,937
|
47,731
|
Depreciation and
amortization
|
5,055
|
4,221
|
9,450
|
8,578
|
Interest
|
883
|
656
|
1,545
|
1,611
|
|
435,302
|
468,358
|
847,464
|
884,924
|
Earnings (loss)
before taxes and noncontrolling interests
|
11,536
|
48,862
|
(7,050)
|
56,009
|
Income tax expense
(benefit)
|
2,789
|
18,963
|
(5,168)
|
21,352
|
Net earnings
(loss)
|
8,747
|
29,899
|
(1,882)
|
34,657
|
Less net earnings
attributable to noncontrolling interests
|
2,468
|
3,000
|
3,946
|
4,552
|
Net earnings
(loss) attributable to Stewart
|
6,279
|
26,899
|
(5,828)
|
30,105
|
|
|
|
|
|
Net earnings
(loss) per diluted share attributable to Stewart
|
0.27
|
1.09
|
(0.26)
|
1.25
|
Average number of
dilutive shares (000)
|
24,848
|
24,919
|
22,491
|
24,743
|
|
|
|
|
|
Segment
information:
|
|
|
|
|
Title
revenues
|
402,831
|
475,429
|
763,849
|
857,843
|
Title pretax
earnings before noncontrolling interests
|
44,932
|
73,151
|
62,538
|
103,484
|
|
|
|
|
|
Mortgage services
revenues
|
39,378
|
37,321
|
68,110
|
78,515
|
Mortgage services
pretax (loss) earnings before noncontrolling
interests
|
(1,379)
|
5,169
|
(2,943)
|
14,992
|
|
|
|
|
|
Corporate
revenues
|
4,629
|
4,470
|
8,455
|
4,575
|
Corporate pretax
loss before noncontrolling interests
|
(32,017)
|
(29,458)
|
(66,645)
|
(62,467)
|
|
|
|
|
|
Selected financial
information:
|
|
|
|
|
Cash provided
(used) by operations
|
18,283
|
46,484
|
(31,906)
|
43,094
|
Title loss payments
- net of recoveries
|
21,419
|
29,737
|
54,236
|
63,419
|
Other comprehensive
earnings (loss)
|
7,773
|
(14,333)
|
9,395
|
(16,778)
|
|
|
|
|
|
Number of title
orders opened (000):
|
|
|
|
|
April
|
32.8
|
41.0
|
|
|
May
|
32.0
|
40.4
|
|
|
June
|
31.9
|
34.6
|
|
|
Quarter
|
96.7
|
116.0
|
180.4
|
221.1
|
|
|
|
|
|
Number of title
orders closed (000):
|
|
|
|
|
April
|
22.0
|
27.9
|
|
|
May
|
22.6
|
29.6
|
|
|
June
|
23.3
|
27.4
|
|
|
Quarter
|
67.9
|
84.9
|
120.1
|
158.0
|
|
|
|
|
|
|
|
|
June
30
2014
|
December
31
2013
|
Stockholders'
equity
|
|
|
663,903
|
663,089
|
Number of shares
outstanding (000)
|
|
|
22,444
|
22,501
|
Book value per
share
|
|
|
29.58
|
29.47
|
STEWART
INFORMATION SERVICES CORPORATION
|
BALANCE SHEETS
(condensed)
|
(In thousands of
dollars)
|
|
|
|
|
June
30
|
December
31
|
|
2014
|
2013
|
Assets:
|
|
|
Cash and cash
equivalents
|
150,376
|
194,289
|
Short-term
investments
|
38,992
|
38,336
|
Investments –
statutory reserve funds
|
438,714
|
450,564
|
Investments –
other
|
130,329
|
86,779
|
Receivables –
premiums from agencies
|
45,334
|
45,249
|
Receivables –
other
|
65,776
|
69,289
|
Allowance for
uncollectible amounts
|
(9,847)
|
(9,871)
|
Property and
equipment, net
|
54,154
|
54,266
|
Title
plants
|
76,822
|
76,822
|
Goodwill
|
273,176
|
231,838
|
Intangible
assets
|
11,572
|
13,050
|
Deferred tax
asset
|
2,108
|
144
|
Other
assets
|
82,774
|
75,303
|
|
|
|
|
1,360,280
|
1,326,058
|
|
|
|
Liabilities:
|
|
|
Notes
payable
|
65,456
|
5,827
|
Convertible senior
notes payable
|
27,162
|
27,119
|
Accounts payable
and accrued liabilities
|
108,960
|
119,961
|
Estimated title
losses
|
494,066
|
506,888
|
Deferred tax
liability
|
733
|
3,174
|
|
|
|
|
696,377
|
662,969
|
|
|
|
Contingent
liabilities and commitments
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
Common and Class B
Common stock and additional paid-in capital
|
192,578
|
194,768
|
Retained
earnings
|
446,489
|
452,314
|
Accumulated other
comprehensive earnings
|
20,277
|
10,882
|
Treasury
stock
|
(2,666)
|
(2,666)
|
Stockholders'
equity attributable to Stewart
|
656,678
|
655,298
|
Noncontrolling
interests
|
7,225
|
7,791
|
Total stockholders'
equity
|
663,903
|
663,089
|
|
|
|
|
1,360,280
|
1,326,058
|
SOURCE Stewart Information Services Corporation