News and Events

Stewart Reports Results for the Second Quarter 2017

Stewart Reports Results for the Second Quarter 2017

  • Net income attributable to Stewart of $18.6 million, compared to a net income of $23.6 million in the prior year quarter
  • Total title revenues increased $3.6 million, or 1 percent, from prior year quarter
  • Total commercial revenues of $51.4 million, up 14 percent from prior year quarter
  • Total employee and other operating expenses decreased $10.8 million, or 5 percent, from prior year quarter
  • Acquired retail operations of Title365 in June, expanding direct operations in western U.S.

 

HOUSTON, July 20, 2017 -- Stewart Information Services Corporation (NYSE-STC) today reported net income attributable to Stewart of $18.6 million ($0.79 per diluted share) for the second quarter 2017 compared to net income attributable to Stewart of $23.6 million ($0.49 per diluted share, see further discussion below) for the second quarter 2016. Pretax income before noncontrolling interests for the second quarter 2017 was $33.1 million compared to pretax income before noncontrolling interests of $41.9 million for the second quarter 2016. Of note, the second quarter 2016 results include a $5.4 million net policy loss reserve reduction. Excluding this reduction, the second quarter 2016 pretax income before noncontrolling interests and net income attributable to Stewart were $36.5 million and $20.2 million, respectively. In addition, for purposes of calculating second quarter 2016’s net income per share, net income was reduced by a $12.0 million cash consideration paid in connection with the Class B share exchange. Excluding this payment, net income per diluted share would have been $1.00 (or $0.86 per diluted share excluding the net policy loss reserve reduction) for the second quarter 2016, as compared to $0.79 per diluted share for the second quarter 2017.

As of June 2, 2017, Stewart acquired the retail branch division of Title365 Company. Title365’s retail division operates primarily in Southern California. This asset acquisition reinforces Stewart’s commitment to providing innovative title solutions and focused, smart growth in key markets throughout the United States, as more than 250 employees and 15 Title365 offices are now operating under the Stewart name.

“We are very pleased that the Title365 retail team has joined the Stewart family,” noted Matthew W. Morris, chief executive officer. “As a result of this acquisition, Stewart gains experienced leadership and scale in several high-growth target markets, and the team from Title365 will benefit from our global reach, financial strength and extensive resources. This acquisition aligns with our strategic plan for targeted growth in our direct operations.”

“Our commercial operations delivered an exceptional quarter, validating our strategy to strengthen our balance sheet and invest in growing our commercial presence,” continued Morris. “Buoyed by another excellent quarter in Canada, international operations continue to be a strong contributor to overall results.”

“While our retail operations were affected by the loss of certain staff and management we initially referenced last quarter, we made several strategic hires and continue to aggressively recruit to rebuild and improve the affected markets. By the end of the fourth quarter 2017, we expect new hires along with the Title365 acquisition to largely offset short term revenue loss from the departures. This acquisition and our new hires underscore Stewart’s commitment to investing in the long term future of the company by improving our operating model, targeting growth opportunities and driving a culture of excellence,” concluded Morris.

Selected Financial Information

Summary results of operations are as follows (dollars in millions, except per share amounts):

 

Second Quarter

 

Six Months

 

2017

2016

 

2017

2016

 

 

 

 

 

 

Total revenues

485.5

489.4

 

928.5

927.7

Pretax income before noncontrolling interests

33.1

41.9

 

39.0

26.2

Income tax

11.0

14.4

 

10.9

7.7

Net income attributable to Stewart

18.6

23.6

 

22.7

12.4

Net income per diluted share attributable to Stewart(1)

0.79

0.49

 

0.96

0.02

(1) As previously reported, during the second quarter 2016, the Company paid a $12.0 million cash consideration to the holders of our Class B Common Stock as part of the exchange agreement announced during that quarter. Excluding this cash payment, the adjusted net income per diluted share for the second quarter and first six months of 2016 was $1.00 and $0.53, respectively. Under U.S. GAAP, the $12.0 million payment was recorded as a reduction to retained earnings, similar to a preferred stock dividend, and did not reduce the net income attributable to Stewart. However, the payment reduced the net income used in the calculation of basic and diluted earnings per share.

Title Segment

Summary results of the title segment are as follows (dollars in millions, except pretax margin):

 

Three months ended June 30,

 

 

2017

2016

% Change

 

 

 

 

 

 

Total revenues

470.4

467.5

1%

 

Pretax income

39.5

51.3

(23)%

 

Pretax margin

8.4%

11.0%

 

 

As noted above, the second quarter 2016 results included a $5.4 million net policy loss reserve reduction which resulted from favorable policy loss experience. Excluding this credit, the segment’s second quarter 2017 pretax income would have declined 14 percent from pretax income of $45.9 million (9.8 percent margin) in the second quarter 2016.

Direct revenue information is presented below (dollars in millions):

 

Three months ended June 30,

 

 

2017

2016

% Change

 

 

 

 

 

 

Commercial:

 

 

 

 

Domestic

46.5

39.9

17%

 

International

4.9

5.2

(6)%

 

Non-commercial:

 

 

 

 

Domestic

153.1

167.4

(9)%

 

International

27.2

24.5

11%

 

Total direct revenues

231.7

237.0

(2)%

 

Non-commercial domestic revenue includes revenues from purchase transactions and centralized title operations. Revenues from purchase transactions decreased 7 percent in the second quarter 2017 compared to the prior year quarter, while revenues from our centralized title operations, which primarily process refinancing and default title orders, declined 24 percent due primarily to decreased refinancing transactions. Total international revenues increased 8 percent in the second quarter 2017 compared to the prior year quarter, mainly due to transaction volume growth from our Canada and U.K. operations, partially offset by the effect of a stronger U.S. dollar against the Canadian dollar and British pound. Revenues from independent agency operations in the second quarter 2017 increased 4 percent compared to the second quarter 2016. The independent agency remittance rate decreased to 17.9 percent in the second quarter 2017 from 18.6 percent in the second quarter 2016 due to the geographic mix of our agency business; second quarter 2017 revenues from independent agencies, net of retention, were $41.8 million, similar to the prior year quarter.

Ancillary Services and Corporate Segment

Summary results of the ancillary services and corporate segment are as follows (dollars in millions):

 

Three months ended June 30

 

 

2017

2016

% Change

 

 

 

 

 

 

Total revenues

15.0

21.9

(32)%

 

Pretax loss

(6.3)

(9.4)

33%

 

The decline in the segment’s revenues in the second quarter 2017 compared to the prior year quarter was primarily due to the divestitures of the loan file review, quality control services and government services lines of business at the end of 2016.

 

The segment’s pretax results improved to a $6.3 million pretax loss, compared to a pretax loss of $9.4 million in the prior year quarter. This was driven by a $9.2 million, or 32 percent, decrease in the segment’s total employee costs and other operating expenses, more than offsetting the revenue decline during the second quarter. The segment’s results for the second quarter 2017 and 2016 included approximately $6 million and $7 million, respectively, of expenses attributable to parent company and corporate operations.

Expenses

As a result of ongoing cost management efforts, a reduction in employee counts tied to volume declines (primarily in our ancillary services and centralized title operations), and the aforementioned staff departures in direct operations, employee costs for the second quarter 2017 decreased $13.1 million, or 9 percent, from the second quarter 2016. Average employee counts for the second quarter 2017 decreased approximately 9 percent from the second quarter 2016. As a percentage of total operating revenues, employee costs for the second quarter 2017 were 29.0 percent, an improvement of 250 basis points compared to 31.5 percent in the prior year quarter.

 

Other operating expenses for the second quarter 2017 increased $2.3 million, or 3 percent, from the second quarter 2016 primarily as a result of increased outside search fees, driven by higher commercial and international revenues noted above. As a percentage of total operating revenues, other operating expenses for the second quarter 2017 were 18.5 percent, compared to 17.9 percent in the second quarter 2016.

Title losses were 5.2 percent of title revenues in the second quarter 2017 compared to 3.7 percent in the second quarter 2016; excluding the $5.4 million net policy loss reserve reduction mentioned above, the title loss ratio in the second quarter 2016 was 4.9 percent. Title loss expense increased to $24.5 million in the second quarter 2017, compared to $17.2 million (or $22.6 million after adjusting for the policy loss reserve reduction) in the second quarter 2016. The total estimated liability for title losses was $465.3 million at June 30, 2017.

Depreciation and amortization expenses decreased to $6.4 million in the second quarter 2017 compared to $7.3 million in the second quarter 2016, primarily due to lower amortization expense in the current year quarter resulting from the disposal of certain intangible assets in connection with the divestitures of several lines of the ancillary services business during 2016.

Other

Net cash provided by operations in the second quarter 2017 totaled $35.7 million, compared to $50.3 million in the second quarter 2016. The decline was primarily due to the lower net income generated during the second quarter 2017 and lower collections on accounts receivable.

Second quarter Earnings Call

Stewart will hold a conference call to discuss the second quarter 2017 earnings at 8:30 a.m. Eastern Time on Thursday, July 20, 2017. To participate, dial (866) 952-8559 (USA) and (785) 424-1881 (International) - access code STCQ217. Additionally, participants can listen to the conference call through Stewart’s Investor Relations website at www.stewart.com/en/investor-relations/earnings-call.html. The conference call replay will be available from 10:00 a.m. Eastern Time on July 20, 2017 until midnight on July 27, 2017, by dialing (800) 839-5130 (USA) or (402) 220-2693 (International) - the access code is also STCQ217.

About Stewart

Stewart Information Services Corporation (NYSE-STC) is a global real estate services company, offering products and services through our direct operations, network of Stewart Trusted Providers™ and family of companies. From residential and commercial title insurance and closing and settlement services to specialized offerings for the mortgage industry, we offer the comprehensive service, deep expertise and solutions our customers need for any real estate transaction. At Stewart, we believe in building strong relationships – and these partnerships are the cornerstone of every closing, every transaction and every deal. Stewart. Real partners. Real possibilities.™ More information is available at the Company’s website at stewart.com, or you can subscribe to the Stewart blog at blog.stewart.com, or follow Stewart on Twitter® @stewarttitleco.

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 challenging 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 or 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 cost management program; 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, 2016, and if applicable, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K. All forward-looking statements included in this news release are expressly qualified in their entirety by such cautionary statements. We expressly disclaim any obligation to update, amend or clarify 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

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands of dollars, except per share amounts and except where noted)

 

Three months ended
 June 30,

 

Six months ended
 June 30,

 

 

    2017

    2016

 

2017

2016

 

Revenues:

 

 

 

 

 

 

Title revenues:

 

 

 

 

 

 

Direct operations

      231,662

      237,017

 

419,091

423,018

 

Agency operations

      234,407

      225,416

 

467,756

450,051

 

Ancillary services

       15,118

       21,182

 

32,422

43,217

 

Total operating revenues

481,187

483,615

 

919,269

916,286

 

Investment income

         4,941

         4,856

 

9,613

9,926

 

Investment and other (losses) gains - net

          (676)

            966

 

(389)

1,454

 

 

485,452

489,437

 

928,493

927,666

 

Expenses:

 

 

 

 

 

 

Amounts retained by agencies

      192,558

      183,485

 

383,733

367,329

 

Employee costs

      139,346

      152,427

 

279,131

302,636

 

Other operating expenses

       88,786

       86,458

 

167,103

174,168

 

Title losses and related claims

       24,462

       17,153

 

45,163

40,247

 

Depreciation and amortization

         6,441

         7,340

 

12,819

15,646

 

Interest

            712

            661

 

1,529

1,440

 

 

      452,305

      447,524

 

889,478

901,466

 

Income before taxes and noncontrolling interests

        33,147

         41,913

 

39,015

26,200

 

Income tax

        10,993

14,386         

 

10,850

7,738

 

Net income

        22,154

         27,527

 

28,165

18,462

 

Less net income attributable to noncontrolling interests

         3,586

         3,928

 

5,508

6,058

 

Net income attributable to Stewart

        18,568

         23,599

 

22,657

12,404

 

 

 

 

 

 

 

 

Net earnings per diluted share attributable to Stewart

0.79

0.49

 

0.96          

0.02

 

Diluted average shares outstanding (000)

23,620

23,559

 

 23,613

23,542

 

 

 

 

 

 

 

 

Selected financial information:

 

 

 

 

 

 

Net cash provided by operations

35,720

50,300

 

16,531

18,459

 

Other comprehensive income

3,465

4,364

 

6,890

13,384

 

               

 

Monthly Order Counts:

 

 

 

 

 

 

 

 

 

Opened Orders 2017:

Apr

May

Jun

Total

 

Closed Orders 2017:

Apr

May

Jun

Total

 

Commercial

 3,205

 3,817

 3,766

 10,788

 

Commercial

 2,385

 2,777

 3,005

 8,167

 

Purchase

21,461

23,127

23,235

 67,823

 

Purchase

15,225

 17,790

19,347

52,362

 

Refi

 7,231

 7,552

 9,400

 24,183

 

Refi

 4,945

 5,209

 6,144

16,298

 

Other

 1,522

 1,595

 1,306

 4,423

 

Other

 1,055

 1,432

 1,648

 4,135

 

Total

33,419

36,091

37,707

 107,217

 

Total

23,610

27,208

30,144

80,962

 

 

 

 

 

 

 

 

 

 

 

 

 

Opened Orders 2016:

Apr

May

Jun

Total

 

Closed Orders 2016:

Apr

May

Jun

Total

 

Commercial

4,014

3,848

4,275

12,137

 

Commercial

2,757

2,634

3,186

8,577

 

Purchase

23,926

23,525

23,978

71,429

 

Purchase

16,805

18,026

19,352

54,183

 

Refi

12,235

12,267

12,999

37,501

 

Refi

8,340

8,218

8,854

25,412

 

Other

1,035

996

1,131

3,162

 

Other

1,313

1,433

1,919

4,665

 

Total

41,210

40,636

42,383

124,229

 

Total

29,215

30,311

33,311

92,837

 

                                   

 

STEWART INFORMATION SERVICES CORPORATION

CONDENSED BALANCE SHEETS

(In thousands of dollars)

 

 

June 30, 2017 (Unaudited)

 

December 31, 2016

Assets:

 

 

Cash and cash equivalents

147,205

     185,772

Short-term investments

23,092

       22,239

Investments in debt and equity securities available-for-sale, at fair value

654,762

     631,503

Receivables – premiums from agencies

34,603

       31,246

Receivables – other

54,948

50,177

Allowance for uncollectible amounts

(9,108)

      (9,647)

Property and equipment, net

70,119

      70,506

Title plants, at cost

75,313

75,313

Goodwill

234,667

     217,094

Intangible assets, net of amortization

9,317

       10,890

Deferred tax assets

3,865

3,860

Other assets

59,261

52,771

 

1,358,044

1,341,724

Liabilities:

 

 

Notes payable

116,331

106,808

Accounts payable and accrued liabilities

97,095

115,640

Estimated title losses

465,294

462,572

Deferred tax liabilities

12,947

7,856

 

691,667

692,876

Stockholders' equity:

 

 

Common Stock and additional paid-in capital

183,350

180,959

Retained earnings

479,860

471,788

Accumulated other comprehensive loss

(1,991)

(8,881)

Treasury stock

(2,666)

(2,666)

Stockholders’ equity attributable to Stewart

658,553

641,200

Noncontrolling interests

7,824

7,648

Total stockholders' equity

666,377

648,848

 

1,358,044

1,341,724

 

Number of shares outstanding (000)

23,737

23,431

Book value per share

28.07

27.69

 

STEWART INFORMATION SERVICES CORPORATION

SEGMENT INFORMATION

(In thousands of dollars)

 

Three months ended:

June 30, 2017

 

June 30, 2016

 

Title

Ancillary Services and Corporate

Consolidated

 

Title

Ancillary Services and Corporate

Consolidated

Revenues:

 

 

 

 

 

 

 

Operating revenues

466,045

15,142

481,187

 

462,244

21,371

483,615

Investment income

4,941

-        

4,941

 

4,856

-        

4,856

Investment and other (losses) gains - net

(537)

(139)

(676)

 

408

558

966

 

470,449

15,003

485,452

 

467,508

21,929

489,437

Expenses:

 

 

 

 

 

 

 

Amounts retained by agencies

192,558

-        

192,558

 

183,485

-        

183,485

Employee costs

130,197

9,149

139,346

 

136,778

15,649

152,427

Other operating expenses

78,442

10,344

88,786

 

73,432

13,026

86,458

Title losses and related claims

24,462

-        

24,462

 

17,153

-        

17,153

Depreciation and amortization

5,321

1,120

6,441

 

5,364

1,976

7,340

Interest

2

710

712

 

-        

661

661

 

430,982

21,323

452,305

 

416,212

31,312

447,524

Income (loss) before taxes

39,467

(6,320)

33,147

 

51,296

(9,383)

41,913

 

 

 

 

 

 

 

 

 

Six months ended:

June 30, 2017

 

June 30, 2016

 

Title

Ancillary Services and Corporate

Consolidated

 

Title

Ancillary Services and Corporate

Consolidated

Revenues:

 

 

 

 

 

 

 

Operating revenues

886,760

32,509

919,269

 

872,725

43,561

916,286

Investment income

9,613

-        

9,613

 

9,926

-        

9,926

Investment and other (losses) gains - net

(127)

(262)

(389)

 

(1,604)

3,058

1,454

 

896,246

32,247

928,493

 

881,047

46,619

927,666

Expenses:

 

 

 

 

 

 

 

Amounts retained by agencies

383,733

-        

383,733

 

367,329

-        

367,329

Employee costs

258,357

20,774

279,131

 

267,808

34,828

302,636

Other operating expenses

146,697

20,406

167,103

 

144,465

29,703

174,168

Title losses and related claims

45,163

-        

45,163

 

40,247

-        

40,247

Depreciation and amortization

10,547

2,272

12,819

 

10,522

5,124

15,646

Interest

5

1,524

1,529

 

-        

1,440

1,440

 

844,502

44,976

889,478

 

830,371

71,095

901,466

Income (loss) before taxes

51,744

(12,729)

39,015

 

50,676

(24,476)

26,200

 

Appendix A

Adjusted revenues and adjusted EBITDA

Management uses a variety of financial and operational measurements other than its financial statements prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) to analyze its performance. These include: (1) adjusted revenues, which are reported revenues adjusted for any net realized gains and losses and (2) net income after earnings from noncontrolling interests and before interest expense, income tax expense, and depreciation and amortization and adjusted for net realized gains and losses, certain significant litigation expenses and non-operating costs such as severance, consulting and third-party provider transition costs, component exit-related costs and prior policy year reserve adjustments (adjusted EBITDA). Management views these measures as important performance measures of core profitability for its operations and as key components of its internal financial reporting. Management believes investors benefit from having access to the same financial measures that management uses.

The following tables reconcile the non-GAAP financial measurements used by management to our most directly comparable GAAP measures for the three and six months ended June 30, 2017 and 2016 (dollars in millions).

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

2017

2016

% Change

 

2017

2016

% Change

 

 

 

 

 

 

 

 

Revenues

485.5

     489.4

 

 

928.5

     927.7

 

Less: Net realized losses (gains)

0.7

      (1.0)

 

 

0.4

      (1.5)

 

Adjusted revenues

486.2

     488.4

(1)%

 

928.9

     926.2

0%

 

 

 

 

 

 

 

 

Net income attributable to Stewart

18.6

    23.6

 

 

22.7

    12.4

 

Noncontrolling interests

3.6

        3.9

 

 

5.5

        6.1

 

Income taxes

11.0

      14.4

 

 

10.9

      7.7

 

Income before taxes and noncontrolling interests

33.2

    41.9

 

 

39.1

    26.2

 

Litigation expense

-

-

 

 

-

       3.6

 

Other non-operating charges*

     -

-

 

 

-

       2.6

 

Prior policy year reserve adjustments, net

-

(5.4)

 

 

-

(5.4)

 

Net realized losses (gains)

 0.7   

      (1.0)

 

 

 0.4   

      (1.5)

 

Adjusted income before taxes and noncontrolling interests

33.9

    35.5

 

 

39.5

    25.5

 

Depreciation and amortization

6.4

       7.3

 

 

12.8

       15.6

 

Interest expense

0.7

       0.7

 

 

1.5

       1.4

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

41.0

      43.5

(6)%

 

53.8

      42.5

27%

*Excludes non-operating accelerated depreciation charges of $1.1 million for the six months ended June 30, 2016 as they were already included within the Depreciation and amortization line.

Stewart Reports Results for the First Quarter 2017

HOUSTON, April 20, 2017 /PRNewswire/ --

  • Net income attributable to Stewart of $4.1 million, compared to a net loss of $11.2 million in the prior year quarter
  • Total pretax margin improved 490 basis points from prior year quarter 
  • Total title revenues increased $10.1  million, or 2.5 percent, from prior year quarter
  • Total commercial revenues of $46.0 million, up 7.7 percent from prior year quarter
  • Total operating expenses decreased $16.8 million, or 3.7 percent from prior year quarter
  • Title segment pretax income increased $12.9 million from prior year quarter

Stewart Information Services Corporation (NYSE:STC) today reported net income attributable to Stewart of $4.1 million ($0.17 per diluted share) for the first quarter 2017 compared to a net loss attributable to Stewart of $11.2 million ($0.48 per diluted share) for the first quarter 2016. First quarter 2017 results included a $1.7 million ($0.07 per diluted share) net income tax benefit related to previously unrecognized tax credits.

Pretax income before noncontrolling interests for the first quarter 2017 was $5.9 million compared to a pretax loss before noncontrolling interests of $15.7 million for the first quarter 2016.

First quarter 2016 results included:

  • $2.8 million of charges recorded in the ancillary services and corporate segment relating to our exit of the delinquent loan servicing operations (including a $1.3 million realized loss associated with early lease termination costs),
  • $2.2 million of expenses recorded in the ancillary services and corporate segment associated primarily with a life insurance settlement with a former Class B shareholder,
  • $3.6 million of litigation-related accrual recorded in the ancillary services and corporate segment, and
  • $1.8 million of other net realized gains composed of $3.8 million of net realized gains recorded within the ancillary services and corporate segment, offset by $2.0 million of net realized losses recorded within the title segment.

"We are pleased with our first quarter results, and encouraged by the solid foundation we have set for the remainder of the year," said Matthew W. Morris, chief executive officer. "We reported pretax income of $6 million, an approximately $22 million improvement on operating revenue growth of $5 million when compared to the prior year quarter. Employee and other operating costs declined almost $20 million due to our ongoing cost discipline as well as the actions taken in 2016 to focus on our core title operations. Gains in operational efficiency were achieved in both the title segment and ancillary services and corporate segment, with pretax margins improving solidly from the prior year's first quarter. We remain focused on generating core title revenue growth in target markets and are investing as necessary in initiatives to that end. We believe that smart revenue growth coupled with further production cost efficiency will yield sustainable margin improvement."

Selected Financial Information
Summary results of operations are as follows (dollars in millions, except per share amounts):

 

Three months ended March 31

 
 

2017

2016

 

Total revenues

443.0

438.2

 

Pretax income (loss) before noncontrolling interests

5.9

(15.7)

 

Income tax (benefit)

(0.1)

(6.6)

 

Net income (loss) attributable to Stewart

4.1

(11.2)

 

Net income (loss) per diluted share attributable to Stewart

0.17

(0.48)

 
             

Title Segment
Summary results of the title segment are as follows (dollars in millions, except pretax margin):

 

Three months ended March 31

 
 

2017

2016

% Change

 
         

Total revenues

425.8

413.5

3.0%

 

Pretax income (loss)

12.3

(0.6)

2,086.4%

 

Pretax margin

2.9%

(0.1)%

   

The first quarter 2017 results included $0.4 million of net realized gains, compared with $2.0 million of net realized losses during the first quarter 2016, primarily related to additional contingent consideration expenses in connection with a prior year acquisition.

"First quarters are traditionally the weakest of the year for the title industry, and we are encouraged with the progress achieved by our title segment, which generated a $13 million pretax income improvement relative to title revenue growth of $10 million over the prior year quarter," continued Morris. "Revenues in our direct operations grew 1 percent, driven by our commercial and international operations, while revenues from independent agencies grew 4 percent. We continued to benefit from our emphasis on prudent underwriting and risk management, with the first quarter's title loss ratio just below 5 percent, while employee and other operating costs declined 8 percent. We expect to continue seeing modest but sustainable volume and price increases in existing and new home sales driven largely by demographics and the emerging millennial homebuyers, which will further enhance margins going forward."

Direct revenue information is presented below (dollars in millions):

 

Three months ended March 31

 
 

2017

2016

% Change

 
         

Commercial:

       

Domestic

41.6

38.7

7.5%

 

International

4.4

4.0

10.0%

 

Non-commercial:

       

Domestic

123.1

128.5

(4.2)%

 

International

18.3

14.8

23.6%

 

Total direct revenues

187.4

186.0

0.8%

 

Non-commercial domestic revenue includes revenues from purchase transactions and centralized title operations. Revenues from purchase transactions decreased 2.2 percent in the first quarter 2017 compared to the prior year quarter, while centralized revenues declined 17.6 percent, primarily due to decreased refinancing transactions. Total international revenues increased 20.7 percent in the first quarter 2017 compared to the prior year quarter, mainly due to transaction volume growth from our Canada operations. Revenues from independent agency operations in the first quarter 2017 increased 3.9 percent compared to the first quarter 2016. The independent agency remittance rate was 18.1 percent in the first quarter 2017 compared to 18.2 percent in the first quarter 2016; while revenues from independent agencies, net of retention, increased 3.4 percent from the prior year quarter.

Ancillary Services and Corporate Segment
Summary results of the ancillary services and corporate segment are as follows (dollars in millions):

 

Three months ended March 31

 
 

2017

2016

% Change

 
         

Total operating revenues

17.4

22.2

(21.7)%

 

Pretax loss

(6.4)

(15.1)

57.5%

 

The decline in the segment's operating revenues in the first quarter 2017 compared to the prior year quarter was primarily due to our exit of the delinquent loan servicing operations completed in the first quarter 2016 and the divestitures of the loan file review, quality control services and government services lines of business at the end of 2016.

The first quarter 2016 results included $2.5 million of net realized gains (composed primarily of a $3.6 million gain due to a reduction in estimated contingent consideration associated with a prior year acquisition, offset by $1.3 million of early lease termination costs related to our exit of the delinquent loan servicing operations) and $7.3 million of other charges (as detailed in the Expenses section below), for a total of $4.8 million of net charges.

Expenses
Expense comparisons for the first quarter 2017 to the prior year quarter included first quarter 2016 charges, recorded in the ancillary services and corporate segment, consisting of:

  • $3.6 million of litigation-related accrual,
  • $2.2 million of expenses associated primarily with a life insurance settlement with a former Class B shareholder, and
  • $1.5 million of depreciation and severance expenses related to our exit of the delinquent loan servicing operations.

As a result of ongoing cost management efforts, as well as a reduction in employee counts tied to volume declines, primarily in our ancillary services operations, employee costs for the first quarter 2017 decreased $10.4 million, or 6.9 percent, from the first quarter 2016. Average employee counts for the first quarter 2017 decreased approximately 9.1 percent from the first quarter 2016. As a percentage of total operating revenues, employee costs for the first quarter 2017 were 31.9 percent, an improvement of 280 basis points compared to 34.7 percent in the prior year quarter.

Other operating expenses for the first quarter 2017 decreased $9.4 million, or 10.7 percent, from the first quarter 2016. As a percentage of total operating revenues, other operating expenses for the first quarter 2017 were 17.9 percent, compared to 20.3 percent in the first quarter 2016. Excluding the non-operating charges discussed above, the other operating expenses ratio in the first quarter 2016 was 18.9 percent.

As a percentage of title revenues, title losses were 4.9 percent in the first quarter 2017 compared to 5.6 percent in the first quarter 2016. Title loss expense decreased to $20.7 million in the first quarter 2017 compared to $23.1 million in the first quarter 2016. The title loss ratio in any given quarter can be significantly influenced by changes in new large claims incurred, escrow losses and adjustments to reserves for existing large claims. The total estimated liability for title losses was $460.1 million at March 31, 2017.

Depreciation and amortization expenses decreased to $6.4 million in the first quarter 2017 compared to $8.3 million in the first quarter 2016, primarily due to the higher depreciation expense recorded in the first quarter 2016 resulting from accelerated depreciation charges relating to our exit from the delinquent loan servicing operations, and the lower amortization expense in the first quarter 2017 as a result of the disposal of certain intangible assets in connection with the divestitures of several lines of the ancillary services business.

Other
Cash flows from operations improved in the first quarter 2017 with net cash used by operations of $19.2 million compared to $31.8 million net cash used in the first quarter 2016. The improvement was primarily due to the net income generated during the first quarter 2017, offset by higher payments of claims.

First Quarter Earnings Call
Stewart will hold a conference call to discuss the first quarter 2017 earnings at 8:30 a.m. Eastern Time on Thursday, April 20, 2017. To participate, dial (888) 632-3384 (USA) and (785) 424-1675 (International) - access code STCQ117. Additionally, participants can listen to the conference call through Stewart's Investor Relations website at www.stewart.com/en/investor-relations/earnings-call.html. The conference call replay will be available from 10:00 a.m. Eastern Time on April 20, 2017 until midnight on April 27, 2017, by dialing (800) 839-2459 (USA) or (402) 220-7218 (International) - the access code is also STCQ117.

About Stewart
Stewart Information Services Corporation (NYSE-STC) is a global real estate services company, offering products and services through our direct operations, network of Stewart Trusted Providers™ and family of companies. From residential and commercial title insurance and closing and settlement services to specialized offerings for the mortgage industry, we offer the comprehensive service, deep expertise and solutions our customers need for any real estate transaction. At Stewart, we believe in building strong relationships – and these partnerships are the cornerstone of every closing, every transaction and every deal. Stewart. Real partners. Real possibilities.™ More information is available at the Company's website at stewart.com, or you can subscribe to the Stewart blog at blog.stewart.com, or follow Stewart on Twitter® @stewarttitleco.

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 challenging 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 or 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 cost management program; 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, 2016, and if applicable, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K. All forward-looking statements included in this news release are expressly qualified in their entirety by such cautionary statements. We expressly disclaim any obligation to update, amend or clarify 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
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands of dollars, except per share amounts and except where noted)

 
 

Three months ended
March 31,

 
 

2017

2016

 

Revenues:

     

Title insurance:

     

Direct operations

187,428

186,002

 

Agency operations

233,349

224,635

 

Ancillary services

17,304

22,035

 

Total operating revenues

438,081

432,672

 

Investment income

4,671

5,070

 

Investment and other gains - net

287

488

 
 

443,039

438,230

 

Expenses:

     

Amounts retained by agencies

191,175

183,844

 

Employee costs

139,785

150,209

 

Other operating expenses

78,318

87,711

 

Title losses and related claims

20,701

23,093

 

Depreciation and amortization

6,378

8,306

 

Interest

817

779

 
 

437,174

453,942

 

Income (loss) before taxes and noncontrolling interests

5,865

(15,712)

 

Income tax (benefit)

(144)

(6,648)

 

Net income (loss)

6,009

(9,064)

 

Less net income attributable to noncontrolling interests

1,922

2,130

 

Net income (loss) attributable to Stewart

4,087

(11,194)

 
       

Net earnings (loss) per diluted share attributable to Stewart

0.17

(0.48)

 

Diluted average shares outstanding (000)

23,569

23,348

 
       

Selected financial information:

     

Cash used by operations

(19,189)

(31,841)

 

Other comprehensive income

3,425

9,020

 

 

Monthly Order Counts:

                 

Opened Orders 2017:

Jan

Feb

Mar

Total

 

Closed Orders 2017:

Jan

Feb

Mar

Total

 

Commercial

3,570

3,578

4,302

11,450

 

Commercial

2,379

2,174

2,773

7,326

 

Purchase

17,793

19,064

24,385

61,242

 

Purchase

11,765

12,022

16,415

40,202

 

Refi

7,698

6,961

8,797

23,456

 

Refi

7,241

5,886

6,081

19,208

 

Other

1,542

1,406

1,648

4,596

 

Other

784

800

1,614

3,198

 

Total

30,603

31,009

39,132

100,744

 

Total

22,169

20,882

26,883

69,934

 
                       

Opened Orders 2016:

Jan

Feb

Mar

Total

 

Closed Orders 2016:

Jan

Feb

Mar

Total

 

Commercial

3,424

3,768

4,139

11,331

 

Commercial

2,398

2,415

2,805

7,618

 

Purchase

16,199

19,564

23,318

59,081

 

Purchase

10,985

12,117

15,607

38,709

 

Refi

9,054

11,957

12,456

33,467

 

Refi

8,215

7,506

8,810

24,531

 

Other

1,134

1,168

1,145

3,447

 

Other

1,087

1,494

1,204

3,785

 

Total

29,811

36,457

41,058

107,326

 

Total

22,685

23,532

28,426

74,643

 
                                   

 

STEWART INFORMATION SERVICES CORPORATION
CONDENSED BALANCE SHEETS
(In thousands of dollars)

 
 

March 31,
2017
(Unaudited)

December 31,
2016

Assets:

   

Cash and cash equivalents

122,575

185,772

Short-term investments

22,836

22,239

Investments in debt and equity securities available-for-sale, at fair value

656,199

631,503

Receivables – premiums from agencies

32,253

31,246

Receivables – other

52,487

50,177

Allowance for uncollectible amounts

(9,691)

(9,647)

Property and equipment, net

71,840

70,506

Title plants, at cost

75,313

75,313

Goodwill

217,094

217,094

Intangible assets, net of amortization

9,975

10,890

Deferred tax assets

3,863

3,860

Other assets

53,224

52,771

 

1,307,968

1,341,724

Liabilities:

   

Notes payable

100,845

106,808

Accounts payable and accrued liabilities

88,401

115,640

Estimated title losses

460,142

462,572

Deferred tax liabilities

9,480

7,856

 

658,868

692,876

Stockholders' equity:

   

Common Stock and additional paid-in capital

181,371

180,959

Retained earnings

468,844

471,788

Accumulated other comprehensive loss

(5,456)

(8,881)

Treasury stock

(2,666)

(2,666)

Stockholders' equity attributable to Stewart

642,093

641,200

Noncontrolling interests

7,007

7,648

Total stockholders' equity

649,100

648,848

 

1,307,968

1,341,724

     

Number of shares outstanding (000)

23,710

23,431

Book value per share

27.38

27.69

 

STEWART INFORMATION SERVICES CORPORATION
SEGMENT INFORMATION
(In thousands of dollars)

 

Three months ended:

Mar 31, 2017

 

Mar 31, 2016

 

Title

Ancillary
Services
and
Corporate

Consolidated

 

Title

Ancillary
Services
and
Corporate

Consolidated

Revenues:

             

Operating revenues

420,714

17,367

438,081

 

410,482

22,190

432,672

Investment income

4,671

-

4,671

 

5,070

-

5,070

Investment and other gains (losses) - net

410

(123)

287

 

(2,012)

2,500

488

 

425,795

17,244

443,039

 

413,540

24,690

438,230

Expenses:

             

Amounts retained by agencies

191,175

-

191,175

 

183,844

-

183,844

Employee costs

128,160

11,625

139,785

 

131,030

19,179

150,209

Other operating expenses

68,254

10,064

78,318

 

71,033

16,678

87,711

Title losses and related claims

20,701

-

20,701

 

23,093

-

23,093

Depreciation and amortization

5,226

1,152

6,378

 

5,158

3,148

8,306

Interest

3

814

817

 

-

779

779

 

413,519

23,655

437,174

 

414,158

39,784

453,942

Income (loss) before taxes

12,276

(6,411)

5,865

 

(618)

(15,094)

(15,712)

             

Appendix A
Adjusted revenues and adjusted EBITDA

Management uses a variety of financial and operational measurements other than its financial statements prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) to analyze its performance. These include: (1) adjusted revenues, which are reported revenues adjusted for any net realized gains and losses and (2) net income after earnings from noncontrolling interests and before interest expense, income tax expense, and depreciation and amortization and adjusted for net realized gains and losses, certain significant litigation expenses and non-operating costs such as severance, consulting and third-party provider transition costs, component exit-related costs and prior policy year reserve adjustments (adjusted EBITDA). Management views these measures as important performance measures of core profitability for its operations and as key components of its internal financial reporting. Management believes investors benefit from having access to the same financial measures that management uses.

The following tables reconcile the non-GAAP financial measurements used by management to our most directly comparable GAAP measures for the three months ended March 31, 2017 and 2016 (dollars in millions).

     

Quarter Ended

March 31,

 
     

2017

2016

% Change

           

Revenues

   

443.0

438.2

 

Less: Net realized gains

   

(0.3)

(0.5)

 

Adjusted revenues

   

442.7

437.7

1.1%

           

Net income (loss) attributable to Stewart

   

4.1

(11.2)

 

Noncontrolling interests

   

1.9

2.1

 

Income taxes

   

(0.1)

(6.6)

 

Income (loss) before taxes and noncontrolling interests

   

5.9

(15.7)

 

Litigation expense

   

-

3.6

 

Other non-operating charges*

   

-

2.6

 

Net realized gains

   

(0.3)

(0.5)

 

Adjusted income (loss) before taxes and noncontrolling interests

   

5.6

(10.0)

 

Depreciation and amortization

   

6.4

8.3

 

Interest expense

   

0.8

0.8

 
           

Adjusted EBITDA

   

12.8

(0.9)

1,522.2%

*Excludes non-operating accelerated depreciation charges of $1.1 million for the quarter ended March 31, 2016 as they were already included within the Depreciation and amortization line.

 



Stewart Reports Results for the First Quarter 2017

HOUSTON, April 20, 2017 /PRNewswire/ --

  • Net income attributable to Stewart of $4.1 million, compared to a net loss of $11.2 million in the prior year quarter
  • Total pretax margin improved 490 basis points from prior year quarter 
  • Total title revenues increased $10.1  million, or 2.5 percent, from prior year quarter
  • Total commercial revenues of $46.0 million, up 7.7 percent from prior year quarter
  • Total operating expenses decreased $16.8 million, or 3.7 percent from prior year quarter
  • Title segment pretax income increased $12.9 million from prior year quarter

Stewart Information Services Corporation (NYSE:STC) today reported net income attributable to Stewart of $4.1 million ($0.17 per diluted share) for the first quarter 2017 compared to a net loss attributable to Stewart of $11.2 million ($0.48 per diluted share) for the first quarter 2016. First quarter 2017 results included a $1.7 million ($0.07 per diluted share) net income tax benefit related to previously unrecognized tax credits.

Pretax income before noncontrolling interests for the first quarter 2017 was $5.9 million compared to a pretax loss before noncontrolling interests of $15.7 million for the first quarter 2016.

First quarter 2016 results included:

  • $2.8 million of charges recorded in the ancillary services and corporate segment relating to our exit of the delinquent loan servicing operations (including a $1.3 million realized loss associated with early lease termination costs),
  • $2.2 million of expenses recorded in the ancillary services and corporate segment associated primarily with a life insurance settlement with a former Class B shareholder,
  • $3.6 million of litigation-related accrual recorded in the ancillary services and corporate segment, and
  • $1.8 million of other net realized gains composed of $3.8 million of net realized gains recorded within the ancillary services and corporate segment, offset by $2.0 million of net realized losses recorded within the title segment.

"We are pleased with our first quarter results, and encouraged by the solid foundation we have set for the remainder of the year," said Matthew W. Morris, chief executive officer. "We reported pretax income of $6 million, an approximately $22 million improvement on operating revenue growth of $5 million when compared to the prior year quarter. Employee and other operating costs declined almost $20 million due to our ongoing cost discipline as well as the actions taken in 2016 to focus on our core title operations. Gains in operational efficiency were achieved in both the title segment and ancillary services and corporate segment, with pretax margins improving solidly from the prior year's first quarter. We remain focused on generating core title revenue growth in target markets and are investing as necessary in initiatives to that end. We believe that smart revenue growth coupled with further production cost efficiency will yield sustainable margin improvement."

Selected Financial Information
Summary results of operations are as follows (dollars in millions, except per share amounts):

 

Three months ended March 31

 
 

2017

2016

 

Total revenues

443.0

438.2

 

Pretax income (loss) before noncontrolling interests

5.9

(15.7)

 

Income tax (benefit)

(0.1)

(6.6)

 

Net income (loss) attributable to Stewart

4.1

(11.2)

 

Net income (loss) per diluted share attributable to Stewart

0.17

(0.48)

 
             

Title Segment
Summary results of the title segment are as follows (dollars in millions, except pretax margin):

 

Three months ended March 31

 
 

2017

2016

% Change

 
         

Total revenues

425.8

413.5

3.0%

 

Pretax income (loss)

12.3

(0.6)

2,086.4%

 

Pretax margin

2.9%

(0.1)%

   

The first quarter 2017 results included $0.4 million of net realized gains, compared with $2.0 million of net realized losses during the first quarter 2016, primarily related to additional contingent consideration expenses in connection with a prior year acquisition.

"First quarters are traditionally the weakest of the year for the title industry, and we are encouraged with the progress achieved by our title segment, which generated a $13 million pretax income improvement relative to title revenue growth of $10 million over the prior year quarter," continued Morris. "Revenues in our direct operations grew 1 percent, driven by our commercial and international operations, while revenues from independent agencies grew 4 percent. We continued to benefit from our emphasis on prudent underwriting and risk management, with the first quarter's title loss ratio just below 5 percent, while employee and other operating costs declined 8 percent. We expect to continue seeing modest but sustainable volume and price increases in existing and new home sales driven largely by demographics and the emerging millennial homebuyers, which will further enhance margins going forward."

Direct revenue information is presented below (dollars in millions):

 

Three months ended March 31

 
 

2017

2016

% Change

 
         

Commercial:

       

Domestic

41.6

38.7

7.5%

 

International

4.4

4.0

10.0%

 

Non-commercial:

       

Domestic

123.1

128.5

(4.2)%

 

International

18.3

14.8

23.6%

 

Total direct revenues

187.4

186.0

0.8%

 

Non-commercial domestic revenue includes revenues from purchase transactions and centralized title operations. Revenues from purchase transactions decreased 2.2 percent in the first quarter 2017 compared to the prior year quarter, while centralized revenues declined 17.6 percent, primarily due to decreased refinancing transactions. Total international revenues increased 20.7 percent in the first quarter 2017 compared to the prior year quarter, mainly due to transaction volume growth from our Canada operations. Revenues from independent agency operations in the first quarter 2017 increased 3.9 percent compared to the first quarter 2016. The independent agency remittance rate was 18.1 percent in the first quarter 2017 compared to 18.2 percent in the first quarter 2016; while revenues from independent agencies, net of retention, increased 3.4 percent from the prior year quarter.

Ancillary Services and Corporate Segment
Summary results of the ancillary services and corporate segment are as follows (dollars in millions):

 

Three months ended March 31

 
 

2017

2016

% Change

 
         

Total operating revenues

17.4

22.2

(21.7)%

 

Pretax loss

(6.4)

(15.1)

57.5%

 

The decline in the segment's operating revenues in the first quarter 2017 compared to the prior year quarter was primarily due to our exit of the delinquent loan servicing operations completed in the first quarter 2016 and the divestitures of the loan file review, quality control services and government services lines of business at the end of 2016.

The first quarter 2016 results included $2.5 million of net realized gains (composed primarily of a $3.6 million gain due to a reduction in estimated contingent consideration associated with a prior year acquisition, offset by $1.3 million of early lease termination costs related to our exit of the delinquent loan servicing operations) and $7.3 million of other charges (as detailed in the Expenses section below), for a total of $4.8 million of net charges.

Expenses
Expense comparisons for the first quarter 2017 to the prior year quarter included first quarter 2016 charges, recorded in the ancillary services and corporate segment, consisting of:

  • $3.6 million of litigation-related accrual,
  • $2.2 million of expenses associated primarily with a life insurance settlement with a former Class B shareholder, and
  • $1.5 million of depreciation and severance expenses related to our exit of the delinquent loan servicing operations.

As a result of ongoing cost management efforts, as well as a reduction in employee counts tied to volume declines, primarily in our ancillary services operations, employee costs for the first quarter 2017 decreased $10.4 million, or 6.9 percent, from the first quarter 2016. Average employee counts for the first quarter 2017 decreased approximately 9.1 percent from the first quarter 2016. As a percentage of total operating revenues, employee costs for the first quarter 2017 were 31.9 percent, an improvement of 280 basis points compared to 34.7 percent in the prior year quarter.

Other operating expenses for the first quarter 2017 decreased $9.4 million, or 10.7 percent, from the first quarter 2016. As a percentage of total operating revenues, other operating expenses for the first quarter 2017 were 17.9 percent, compared to 20.3 percent in the first quarter 2016. Excluding the non-operating charges discussed above, the other operating expenses ratio in the first quarter 2016 was 18.9 percent.

As a percentage of title revenues, title losses were 4.9 percent in the first quarter 2017 compared to 5.6 percent in the first quarter 2016. Title loss expense decreased to $20.7 million in the first quarter 2017 compared to $23.1 million in the first quarter 2016. The title loss ratio in any given quarter can be significantly influenced by changes in new large claims incurred, escrow losses and adjustments to reserves for existing large claims. The total estimated liability for title losses was $460.1 million at March 31, 2017.

Depreciation and amortization expenses decreased to $6.4 million in the first quarter 2017 compared to $8.3 million in the first quarter 2016, primarily due to the higher depreciation expense recorded in the first quarter 2016 resulting from accelerated depreciation charges relating to our exit from the delinquent loan servicing operations, and the lower amortization expense in the first quarter 2017 as a result of the disposal of certain intangible assets in connection with the divestitures of several lines of the ancillary services business.

Other
Cash flows from operations improved in the first quarter 2017 with net cash used by operations of $19.2 million compared to $31.8 million net cash used in the first quarter 2016. The improvement was primarily due to the net income generated during the first quarter 2017, offset by higher payments of claims.

First Quarter Earnings Call
Stewart will hold a conference call to discuss the first quarter 2017 earnings at 8:30 a.m. Eastern Time on Thursday, April 20, 2017. To participate, dial (888) 632-3384 (USA) and (785) 424-1675 (International) - access code STCQ117. Additionally, participants can listen to the conference call through Stewart's Investor Relations website at www.stewart.com/en/investor-relations/earnings-call.html. The conference call replay will be available from 10:00 a.m. Eastern Time on April 20, 2017 until midnight on April 27, 2017, by dialing (800) 839-2459 (USA) or (402) 220-7218 (International) - the access code is also STCQ117.

About Stewart
Stewart Information Services Corporation (NYSE-STC) is a global real estate services company, offering products and services through our direct operations, network of Stewart Trusted Providers™ and family of companies. From residential and commercial title insurance and closing and settlement services to specialized offerings for the mortgage industry, we offer the comprehensive service, deep expertise and solutions our customers need for any real estate transaction. At Stewart, we believe in building strong relationships – and these partnerships are the cornerstone of every closing, every transaction and every deal. Stewart. Real partners. Real possibilities.™ More information is available at the Company's website at stewart.com, or you can subscribe to the Stewart blog at blog.stewart.com, or follow Stewart on Twitter® @stewarttitleco.

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 challenging 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 or 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 cost management program; 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, 2016, and if applicable, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K. All forward-looking statements included in this news release are expressly qualified in their entirety by such cautionary statements. We expressly disclaim any obligation to update, amend or clarify 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
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands of dollars, except per share amounts and except where noted)

 
 

Three months ended
March 31,

 
 

2017

2016

 

Revenues:

     

Title insurance:

     

Direct operations

187,428

186,002

 

Agency operations

233,349

224,635

 

Ancillary services

17,304

22,035

 

Total operating revenues

438,081

432,672

 

Investment income

4,671

5,070

 

Investment and other gains - net

287

488

 
 

443,039

438,230

 

Expenses:

     

Amounts retained by agencies

191,175

183,844

 

Employee costs

139,785

150,209

 

Other operating expenses

78,318

87,711

 

Title losses and related claims

20,701

23,093

 

Depreciation and amortization

6,378

8,306

 

Interest

817

779

 
 

437,174

453,942

 

Income (loss) before taxes and noncontrolling interests

5,865

(15,712)

 

Income tax (benefit)

(144)

(6,648)

 

Net income (loss)

6,009

(9,064)

 

Less net income attributable to noncontrolling interests

1,922

2,130

 

Net income (loss) attributable to Stewart

4,087

(11,194)

 
       

Net earnings (loss) per diluted share attributable to Stewart

0.17

(0.48)

 

Diluted average shares outstanding (000)

23,569

23,348

 
       

Selected financial information:

     

Cash used by operations

(19,189)

(31,841)

 

Other comprehensive income

3,425

9,020

 

 

Monthly Order Counts:

                 

Opened Orders 2017:

Jan

Feb

Mar

Total

 

Closed Orders 2017:

Jan

Feb

Mar

Total

 

Commercial

3,570

3,578

4,302

11,450

 

Commercial

2,379

2,174

2,773

7,326

 

Purchase

17,793

19,064

24,385

61,242

 

Purchase

11,765

12,022

16,415

40,202

 

Refi

7,698

6,961

8,797

23,456

 

Refi

7,241

5,886

6,081

19,208

 

Other

1,542

1,406

1,648

4,596

 

Other

784

800

1,614

3,198

 

Total

30,603

31,009

39,132

100,744

 

Total

22,169

20,882

26,883

69,934

 
                       

Opened Orders 2016:

Jan

Feb

Mar

Total

 

Closed Orders 2016:

Jan

Feb

Mar

Total

 

Commercial

3,424

3,768

4,139

11,331

 

Commercial

2,398

2,415

2,805

7,618

 

Purchase

16,199

19,564

23,318

59,081

 

Purchase

10,985

12,117

15,607

38,709

 

Refi

9,054

11,957

12,456

33,467

 

Refi

8,215

7,506

8,810

24,531

 

Other

1,134

1,168

1,145

3,447

 

Other

1,087

1,494

1,204

3,785

 

Total

29,811

36,457

41,058

107,326

 

Total

22,685

23,532

28,426

74,643

 
                                   

 

STEWART INFORMATION SERVICES CORPORATION
CONDENSED BALANCE SHEETS
(In thousands of dollars)

 
 

March 31,
2017
(Unaudited)

December 31,
2016

Assets:

   

Cash and cash equivalents

122,575

185,772

Short-term investments

22,836

22,239

Investments in debt and equity securities available-for-sale, at fair value

656,199

631,503

Receivables – premiums from agencies

32,253

31,246

Receivables – other

52,487

50,177

Allowance for uncollectible amounts

(9,691)

(9,647)

Property and equipment, net

71,840

70,506

Title plants, at cost

75,313

75,313

Goodwill

217,094

217,094

Intangible assets, net of amortization

9,975

10,890

Deferred tax assets

3,863

3,860

Other assets

53,224

52,771

 

1,307,968

1,341,724

Liabilities:

   

Notes payable

100,845

106,808

Accounts payable and accrued liabilities

88,401

115,640

Estimated title losses

460,142

462,572

Deferred tax liabilities

9,480

7,856

 

658,868

692,876

Stockholders' equity:

   

Common Stock and additional paid-in capital

181,371

180,959

Retained earnings

468,844

471,788

Accumulated other comprehensive loss

(5,456)

(8,881)

Treasury stock

(2,666)

(2,666)

Stockholders' equity attributable to Stewart

642,093

641,200

Noncontrolling interests

7,007

7,648

Total stockholders' equity

649,100

648,848

 

1,307,968

1,341,724

     

Number of shares outstanding (000)

23,710

23,431

Book value per share

27.38

27.69

 

STEWART INFORMATION SERVICES CORPORATION
SEGMENT INFORMATION
(In thousands of dollars)

 

Three months ended:

Mar 31, 2017

 

Mar 31, 2016

 

Title

Ancillary
Services
and
Corporate

Consolidated

 

Title

Ancillary
Services
and
Corporate

Consolidated

Revenues:

             

Operating revenues

420,714

17,367

438,081

 

410,482

22,190

432,672

Investment income

4,671

-

4,671

 

5,070

-

5,070

Investment and other gains (losses) - net

410

(123)

287

 

(2,012)

2,500

488

 

425,795

17,244

443,039

 

413,540

24,690

438,230

Expenses:

             

Amounts retained by agencies

191,175

-

191,175

 

183,844

-

183,844

Employee costs

128,160

11,625

139,785

 

131,030

19,179

150,209

Other operating expenses

68,254

10,064

78,318

 

71,033

16,678

87,711

Title losses and related claims

20,701

-

20,701

 

23,093

-

23,093

Depreciation and amortization

5,226

1,152

6,378

 

5,158

3,148

8,306

Interest

3

814

817

 

-

779

779

 

413,519

23,655

437,174

 

414,158

39,784

453,942

Income (loss) before taxes

12,276

(6,411)

5,865

 

(618)

(15,094)

(15,712)

             

Appendix A
Adjusted revenues and adjusted EBITDA

Management uses a variety of financial and operational measurements other than its financial statements prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) to analyze its performance. These include: (1) adjusted revenues, which are reported revenues adjusted for any net realized gains and losses and (2) net income after earnings from noncontrolling interests and before interest expense, income tax expense, and depreciation and amortization and adjusted for net realized gains and losses, certain significant litigation expenses and non-operating costs such as severance, consulting and third-party provider transition costs, component exit-related costs and prior policy year reserve adjustments (adjusted EBITDA). Management views these measures as important performance measures of core profitability for its operations and as key components of its internal financial reporting. Management believes investors benefit from having access to the same financial measures that management uses.

The following tables reconcile the non-GAAP financial measurements used by management to our most directly comparable GAAP measures for the three months ended March 31, 2017 and 2016 (dollars in millions).

     

Quarter Ended

March 31,

 
     

2017

2016

% Change

           

Revenues

   

443.0

438.2

 

Less: Net realized gains

   

(0.3)

(0.5)

 

Adjusted revenues

   

442.7

437.7

1.1%

           

Net income (loss) attributable to Stewart

   

4.1

(11.2)

 

Noncontrolling interests

   

1.9

2.1

 

Income taxes

   

(0.1)

(6.6)

 

Income (loss) before taxes and noncontrolling interests

   

5.9

(15.7)

 

Litigation expense

   

-

3.6

 

Other non-operating charges*

   

-

2.6

 

Net realized gains

   

(0.3)

(0.5)

 

Adjusted income (loss) before taxes and noncontrolling interests

   

5.6

(10.0)

 

Depreciation and amortization

   

6.4

8.3

 

Interest expense

   

0.8

0.8

 
           

Adjusted EBITDA

   

12.8

(0.9)

1,522.2%

*Excludes non-operating accelerated depreciation charges of $1.1 million for the quarter ended March 31, 2016 as they were already included within the Depreciation and amortization line.

 



Stewart Reports Results for the First Quarter 2017

HOUSTON, April 20, 2017 /PRNewswire/ --

  • Net income attributable to Stewart of $4.1 million, compared to a net loss of $11.2 million in the prior year quarter
  • Total pretax margin improved 490 basis points from prior year quarter 
  • Total title revenues increased $10.1  million, or 2.5 percent, from prior year quarter
  • Total commercial revenues of $46.0 million, up 7.7 percent from prior year quarter
  • Total operating expenses decreased $16.8 million, or 3.7 percent from prior year quarter
  • Title segment pretax income increased $12.9 million from prior year quarter

Stewart Information Services Corporation (NYSE:STC) today reported net income attributable to Stewart of $4.1 million ($0.17 per diluted share) for the first quarter 2017 compared to a net loss attributable to Stewart of $11.2 million ($0.48 per diluted share) for the first quarter 2016. First quarter 2017 results included a $1.7 million ($0.07 per diluted share) net income tax benefit related to previously unrecognized tax credits.

Pretax income before noncontrolling interests for the first quarter 2017 was $5.9 million compared to a pretax loss before noncontrolling interests of $15.7 million for the first quarter 2016.

First quarter 2016 results included:

  • $2.8 million of charges recorded in the ancillary services and corporate segment relating to our exit of the delinquent loan servicing operations (including a $1.3 million realized loss associated with early lease termination costs),
  • $2.2 million of expenses recorded in the ancillary services and corporate segment associated primarily with a life insurance settlement with a former Class B shareholder,
  • $3.6 million of litigation-related accrual recorded in the ancillary services and corporate segment, and
  • $1.8 million of other net realized gains composed of $3.8 million of net realized gains recorded within the ancillary services and corporate segment, offset by $2.0 million of net realized losses recorded within the title segment.

"We are pleased with our first quarter results, and encouraged by the solid foundation we have set for the remainder of the year," said Matthew W. Morris, chief executive officer. "We reported pretax income of $6 million, an approximately $22 million improvement on operating revenue growth of $5 million when compared to the prior year quarter. Employee and other operating costs declined almost $20 million due to our ongoing cost discipline as well as the actions taken in 2016 to focus on our core title operations. Gains in operational efficiency were achieved in both the title segment and ancillary services and corporate segment, with pretax margins improving solidly from the prior year's first quarter. We remain focused on generating core title revenue growth in target markets and are investing as necessary in initiatives to that end. We believe that smart revenue growth coupled with further production cost efficiency will yield sustainable margin improvement."

Selected Financial Information
Summary results of operations are as follows (dollars in millions, except per share amounts):

 

Three months ended March 31

 
 

2017

2016

 

Total revenues

443.0

438.2

 

Pretax income (loss) before noncontrolling interests

5.9

(15.7)

 

Income tax (benefit)

(0.1)

(6.6)

 

Net income (loss) attributable to Stewart

4.1

(11.2)

 

Net income (loss) per diluted share attributable to Stewart

0.17

(0.48)

 
             

Title Segment
Summary results of the title segment are as follows (dollars in millions, except pretax margin):

 

Three months ended March 31

 
 

2017

2016

% Change

 
         

Total revenues

425.8

413.5

3.0%

 

Pretax income (loss)

12.3

(0.6)

2,086.4%

 

Pretax margin

2.9%

(0.1)%

   

The first quarter 2017 results included $0.4 million of net realized gains, compared with $2.0 million of net realized losses during the first quarter 2016, primarily related to additional contingent consideration expenses in connection with a prior year acquisition.

"First quarters are traditionally the weakest of the year for the title industry, and we are encouraged with the progress achieved by our title segment, which generated a $13 million pretax income improvement relative to title revenue growth of $10 million over the prior year quarter," continued Morris. "Revenues in our direct operations grew 1 percent, driven by our commercial and international operations, while revenues from independent agencies grew 4 percent. We continued to benefit from our emphasis on prudent underwriting and risk management, with the first quarter's title loss ratio just below 5 percent, while employee and other operating costs declined 8 percent. We expect to continue seeing modest but sustainable volume and price increases in existing and new home sales driven largely by demographics and the emerging millennial homebuyers, which will further enhance margins going forward."

Direct revenue information is presented below (dollars in millions):

 

Three months ended March 31

 
 

2017

2016

% Change

 
         

Commercial:

       

Domestic

41.6

38.7

7.5%

 

International

4.4

4.0

10.0%

 

Non-commercial:

       

Domestic

123.1

128.5

(4.2)%

 

International

18.3

14.8

23.6%

 

Total direct revenues

187.4

186.0

0.8%

 

Non-commercial domestic revenue includes revenues from purchase transactions and centralized title operations. Revenues from purchase transactions decreased 2.2 percent in the first quarter 2017 compared to the prior year quarter, while centralized revenues declined 17.6 percent, primarily due to decreased refinancing transactions. Total international revenues increased 20.7 percent in the first quarter 2017 compared to the prior year quarter, mainly due to transaction volume growth from our Canada operations. Revenues from independent agency operations in the first quarter 2017 increased 3.9 percent compared to the first quarter 2016. The independent agency remittance rate was 18.1 percent in the first quarter 2017 compared to 18.2 percent in the first quarter 2016; while revenues from independent agencies, net of retention, increased 3.4 percent from the prior year quarter.

Ancillary Services and Corporate Segment
Summary results of the ancillary services and corporate segment are as follows (dollars in millions):

 

Three months ended March 31

 
 

2017

2016

% Change

 
         

Total operating revenues

17.4

22.2

(21.7)%

 

Pretax loss

(6.4)

(15.1)

57.5%

 

The decline in the segment's operating revenues in the first quarter 2017 compared to the prior year quarter was primarily due to our exit of the delinquent loan servicing operations completed in the first quarter 2016 and the divestitures of the loan file review, quality control services and government services lines of business at the end of 2016.

The first quarter 2016 results included $2.5 million of net realized gains (composed primarily of a $3.6 million gain due to a reduction in estimated contingent consideration associated with a prior year acquisition, offset by $1.3 million of early lease termination costs related to our exit of the delinquent loan servicing operations) and $7.3 million of other charges (as detailed in the Expenses section below), for a total of $4.8 million of net charges.

Expenses
Expense comparisons for the first quarter 2017 to the prior year quarter included first quarter 2016 charges, recorded in the ancillary services and corporate segment, consisting of:

  • $3.6 million of litigation-related accrual,
  • $2.2 million of expenses associated primarily with a life insurance settlement with a former Class B shareholder, and
  • $1.5 million of depreciation and severance expenses related to our exit of the delinquent loan servicing operations.

As a result of ongoing cost management efforts, as well as a reduction in employee counts tied to volume declines, primarily in our ancillary services operations, employee costs for the first quarter 2017 decreased $10.4 million, or 6.9 percent, from the first quarter 2016. Average employee counts for the first quarter 2017 decreased approximately 9.1 percent from the first quarter 2016. As a percentage of total operating revenues, employee costs for the first quarter 2017 were 31.9 percent, an improvement of 280 basis points compared to 34.7 percent in the prior year quarter.

Other operating expenses for the first quarter 2017 decreased $9.4 million, or 10.7 percent, from the first quarter 2016. As a percentage of total operating revenues, other operating expenses for the first quarter 2017 were 17.9 percent, compared to 20.3 percent in the first quarter 2016. Excluding the non-operating charges discussed above, the other operating expenses ratio in the first quarter 2016 was 18.9 percent.

As a percentage of title revenues, title losses were 4.9 percent in the first quarter 2017 compared to 5.6 percent in the first quarter 2016. Title loss expense decreased to $20.7 million in the first quarter 2017 compared to $23.1 million in the first quarter 2016. The title loss ratio in any given quarter can be significantly influenced by changes in new large claims incurred, escrow losses and adjustments to reserves for existing large claims. The total estimated liability for title losses was $460.1 million at March 31, 2017.

Depreciation and amortization expenses decreased to $6.4 million in the first quarter 2017 compared to $8.3 million in the first quarter 2016, primarily due to the higher depreciation expense recorded in the first quarter 2016 resulting from accelerated depreciation charges relating to our exit from the delinquent loan servicing operations, and the lower amortization expense in the first quarter 2017 as a result of the disposal of certain intangible assets in connection with the divestitures of several lines of the ancillary services business.

Other
Cash flows from operations improved in the first quarter 2017 with net cash used by operations of $19.2 million compared to $31.8 million net cash used in the first quarter 2016. The improvement was primarily due to the net income generated during the first quarter 2017, offset by higher payments of claims.

First Quarter Earnings Call
Stewart will hold a conference call to discuss the first quarter 2017 earnings at 8:30 a.m. Eastern Time on Thursday, April 20, 2017. To participate, dial (888) 632-3384 (USA) and (785) 424-1675 (International) - access code STCQ117. Additionally, participants can listen to the conference call through Stewart's Investor Relations website at www.stewart.com/en/investor-relations/earnings-call.html. The conference call replay will be available from 10:00 a.m. Eastern Time on April 20, 2017 until midnight on April 27, 2017, by dialing (800) 839-2459 (USA) or (402) 220-7218 (International) - the access code is also STCQ117.

About Stewart
Stewart Information Services Corporation (NYSE-STC) is a global real estate services company, offering products and services through our direct operations, network of Stewart Trusted Providers™ and family of companies. From residential and commercial title insurance and closing and settlement services to specialized offerings for the mortgage industry, we offer the comprehensive service, deep expertise and solutions our customers need for any real estate transaction. At Stewart, we believe in building strong relationships – and these partnerships are the cornerstone of every closing, every transaction and every deal. Stewart. Real partners. Real possibilities.™ More information is available at the Company's website at stewart.com, or you can subscribe to the Stewart blog at blog.stewart.com, or follow Stewart on Twitter® @stewarttitleco.

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 challenging 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 or 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 cost management program; 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, 2016, and if applicable, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K. All forward-looking statements included in this news release are expressly qualified in their entirety by such cautionary statements. We expressly disclaim any obligation to update, amend or clarify 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
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands of dollars, except per share amounts and except where noted)

 
 

Three months ended
March 31,

 
 

2017

2016

 

Revenues:

     

Title insurance:

     

Direct operations

187,428

186,002

 

Agency operations

233,349

224,635

 

Ancillary services

17,304

22,035

 

Total operating revenues

438,081

432,672

 

Investment income

4,671

5,070

 

Investment and other gains - net

287

488

 
 

443,039

438,230

 

Expenses:

     

Amounts retained by agencies

191,175

183,844

 

Employee costs

139,785

150,209

 

Other operating expenses

78,318

87,711

 

Title losses and related claims

20,701

23,093

 

Depreciation and amortization

6,378

8,306

 

Interest

817

779

 
 

437,174

453,942

 

Income (loss) before taxes and noncontrolling interests

5,865

(15,712)

 

Income tax (benefit)

(144)

(6,648)

 

Net income (loss)

6,009

(9,064)

 

Less net income attributable to noncontrolling interests

1,922

2,130

 

Net income (loss) attributable to Stewart

4,087

(11,194)

 
       

Net earnings (loss) per diluted share attributable to Stewart

0.17

(0.48)

 

Diluted average shares outstanding (000)

23,569

23,348

 
       

Selected financial information:

     

Cash used by operations

(19,189)

(31,841)

 

Other comprehensive income

3,425

9,020

 

 

Monthly Order Counts:

                 

Opened Orders 2017:

Jan

Feb

Mar

Total

 

Closed Orders 2017:

Jan

Feb

Mar

Total

 

Commercial

3,570

3,578

4,302

11,450

 

Commercial

2,379

2,174

2,773

7,326

 

Purchase

17,793

19,064

24,385

61,242

 

Purchase

11,765

12,022

16,415

40,202

 

Refi

7,698

6,961

8,797

23,456

 

Refi

7,241

5,886

6,081

19,208

 

Other

1,542

1,406

1,648

4,596

 

Other

784

800

1,614

3,198

 

Total

30,603

31,009

39,132

100,744

 

Total

22,169

20,882

26,883

69,934

 
                       

Opened Orders 2016:

Jan

Feb

Mar

Total

 

Closed Orders 2016:

Jan

Feb

Mar

Total

 

Commercial

3,424

3,768

4,139

11,331

 

Commercial

2,398

2,415

2,805

7,618

 

Purchase

16,199

19,564

23,318

59,081

 

Purchase

10,985

12,117

15,607

38,709

 

Refi

9,054

11,957

12,456

33,467

 

Refi

8,215

7,506

8,810

24,531

 

Other

1,134

1,168

1,145

3,447

 

Other

1,087

1,494

1,204

3,785

 

Total

29,811

36,457

41,058

107,326

 

Total

22,685

23,532

28,426

74,643

 
                                   

 

STEWART INFORMATION SERVICES CORPORATION
CONDENSED BALANCE SHEETS
(In thousands of dollars)

 
 

March 31,
2017
(Unaudited)

December 31,
2016

Assets:

   

Cash and cash equivalents

122,575

185,772

Short-term investments

22,836

22,239

Investments in debt and equity securities available-for-sale, at fair value

656,199

631,503

Receivables – premiums from agencies

32,253

31,246

Receivables – other

52,487

50,177

Allowance for uncollectible amounts

(9,691)

(9,647)

Property and equipment, net

71,840

70,506

Title plants, at cost

75,313

75,313

Goodwill

217,094

217,094

Intangible assets, net of amortization

9,975

10,890

Deferred tax assets

3,863

3,860

Other assets

53,224

52,771

 

1,307,968

1,341,724

Liabilities:

   

Notes payable

100,845

106,808

Accounts payable and accrued liabilities

88,401

115,640

Estimated title losses

460,142

462,572

Deferred tax liabilities

9,480

7,856

 

658,868

692,876

Stockholders' equity:

   

Common Stock and additional paid-in capital

181,371

180,959

Retained earnings

468,844

471,788

Accumulated other comprehensive loss

(5,456)

(8,881)

Treasury stock

(2,666)

(2,666)

Stockholders' equity attributable to Stewart

642,093

641,200

Noncontrolling interests

7,007

7,648

Total stockholders' equity

649,100

648,848

 

1,307,968

1,341,724

     

Number of shares outstanding (000)

23,710

23,431

Book value per share

27.38

27.69

 

STEWART INFORMATION SERVICES CORPORATION
SEGMENT INFORMATION
(In thousands of dollars)

 

Three months ended:

Mar 31, 2017

 

Mar 31, 2016

 

Title

Ancillary
Services
and
Corporate

Consolidated

 

Title

Ancillary
Services
and
Corporate

Consolidated

Revenues:

             

Operating revenues

420,714

17,367

438,081

 

410,482

22,190

432,672

Investment income

4,671

-

4,671

 

5,070

-

5,070

Investment and other gains (losses) - net

410

(123)

287

 

(2,012)

2,500

488

 

425,795

17,244

443,039

 

413,540

24,690

438,230

Expenses:

             

Amounts retained by agencies

191,175

-

191,175

 

183,844

-

183,844

Employee costs

128,160

11,625

139,785

 

131,030

19,179

150,209

Other operating expenses

68,254

10,064

78,318

 

71,033

16,678

87,711

Title losses and related claims

20,701

-

20,701

 

23,093

-

23,093

Depreciation and amortization

5,226

1,152

6,378

 

5,158

3,148

8,306

Interest

3

814

817

 

-

779

779

 

413,519

23,655

437,174

 

414,158

39,784

453,942

Income (loss) before taxes

12,276

(6,411)

5,865

 

(618)

(15,094)

(15,712)

             

Appendix A
Adjusted revenues and adjusted EBITDA

Management uses a variety of financial and operational measurements other than its financial statements prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) to analyze its performance. These include: (1) adjusted revenues, which are reported revenues adjusted for any net realized gains and losses and (2) net income after earnings from noncontrolling interests and before interest expense, income tax expense, and depreciation and amortization and adjusted for net realized gains and losses, certain significant litigation expenses and non-operating costs such as severance, consulting and third-party provider transition costs, component exit-related costs and prior policy year reserve adjustments (adjusted EBITDA). Management views these measures as important performance measures of core profitability for its operations and as key components of its internal financial reporting. Management believes investors benefit from having access to the same financial measures that management uses.

The following tables reconcile the non-GAAP financial measurements used by management to our most directly comparable GAAP measures for the three months ended March 31, 2017 and 2016 (dollars in millions).

     

Quarter Ended

March 31,

 
     

2017

2016

% Change

           

Revenues

   

443.0

438.2

 

Less: Net realized gains

   

(0.3)

(0.5)

 

Adjusted revenues

   

442.7

437.7

1.1%

           

Net income (loss) attributable to Stewart

   

4.1

(11.2)

 

Noncontrolling interests

   

1.9

2.1

 

Income taxes

   

(0.1)

(6.6)

 

Income (loss) before taxes and noncontrolling interests

   

5.9

(15.7)

 

Litigation expense

   

-

3.6

 

Other non-operating charges*

   

-

2.6

 

Net realized gains

   

(0.3)

(0.5)

 

Adjusted income (loss) before taxes and noncontrolling interests

   

5.6

(10.0)

 

Depreciation and amortization

   

6.4

8.3

 

Interest expense

   

0.8

0.8

 
           

Adjusted EBITDA

   

12.8

(0.9)

1,522.2%

*Excludes non-operating accelerated depreciation charges of $1.1 million for the quarter ended March 31, 2016 as they were already included within the Depreciation and amortization line.

 



Stewart Reports Results for the First Quarter 2017

HOUSTON, April 20, 2017 /PRNewswire/ --

  • Net income attributable to Stewart of $4.1 million, compared to a net loss of $11.2 million in the prior year quarter
  • Total pretax margin improved 490 basis points from prior year quarter 
  • Total title revenues increased $10.1  million, or 2.5 percent, from prior year quarter
  • Total commercial revenues of $46.0 million, up 7.7 percent from prior year quarter
  • Total operating expenses decreased $16.8 million, or 3.7 percent from prior year quarter
  • Title segment pretax income increased $12.9 million from prior year quarter

Stewart Information Services Corporation (NYSE:STC) today reported net income attributable to Stewart of $4.1 million ($0.17 per diluted share) for the first quarter 2017 compared to a net loss attributable to Stewart of $11.2 million ($0.48 per diluted share) for the first quarter 2016. First quarter 2017 results included a $1.7 million ($0.07 per diluted share) net income tax benefit related to previously unrecognized tax credits.

Pretax income before noncontrolling interests for the first quarter 2017 was $5.9 million compared to a pretax loss before noncontrolling interests of $15.7 million for the first quarter 2016.

First quarter 2016 results included:

  • $2.8 million of charges recorded in the ancillary services and corporate segment relating to our exit of the delinquent loan servicing operations (including a $1.3 million realized loss associated with early lease termination costs),
  • $2.2 million of expenses recorded in the ancillary services and corporate segment associated primarily with a life insurance settlement with a former Class B shareholder,
  • $3.6 million of litigation-related accrual recorded in the ancillary services and corporate segment, and
  • $1.8 million of other net realized gains composed of $3.8 million of net realized gains recorded within the ancillary services and corporate segment, offset by $2.0 million of net realized losses recorded within the title segment.

"We are pleased with our first quarter results, and encouraged by the solid foundation we have set for the remainder of the year," said Matthew W. Morris, chief executive officer. "We reported pretax income of $6 million, an approximately $22 million improvement on operating revenue growth of $5 million when compared to the prior year quarter. Employee and other operating costs declined almost $20 million due to our ongoing cost discipline as well as the actions taken in 2016 to focus on our core title operations. Gains in operational efficiency were achieved in both the title segment and ancillary services and corporate segment, with pretax margins improving solidly from the prior year's first quarter. We remain focused on generating core title revenue growth in target markets and are investing as necessary in initiatives to that end. We believe that smart revenue growth coupled with further production cost efficiency will yield sustainable margin improvement."

Selected Financial Information
Summary results of operations are as follows (dollars in millions, except per share amounts):

 

Three months ended March 31

 
 

2017

2016

 

Total revenues

443.0

438.2

 

Pretax income (loss) before noncontrolling interests

5.9

(15.7)

 

Income tax (benefit)

(0.1)

(6.6)

 

Net income (loss) attributable to Stewart

4.1

(11.2)

 

Net income (loss) per diluted share attributable to Stewart

0.17

(0.48)

 
             

Title Segment
Summary results of the title segment are as follows (dollars in millions, except pretax margin):

 

Three months ended March 31

 
 

2017

2016

% Change

 
         

Total revenues

425.8

413.5

3.0%

 

Pretax income (loss)

12.3

(0.6)

2,086.4%

 

Pretax margin

2.9%

(0.1)%

   

The first quarter 2017 results included $0.4 million of net realized gains, compared with $2.0 million of net realized losses during the first quarter 2016, primarily related to additional contingent consideration expenses in connection with a prior year acquisition.

"First quarters are traditionally the weakest of the year for the title industry, and we are encouraged with the progress achieved by our title segment, which generated a $13 million pretax income improvement relative to title revenue growth of $10 million over the prior year quarter," continued Morris. "Revenues in our direct operations grew 1 percent, driven by our commercial and international operations, while revenues from independent agencies grew 4 percent. We continued to benefit from our emphasis on prudent underwriting and risk management, with the first quarter's title loss ratio just below 5 percent, while employee and other operating costs declined 8 percent. We expect to continue seeing modest but sustainable volume and price increases in existing and new home sales driven largely by demographics and the emerging millennial homebuyers, which will further enhance margins going forward."

Direct revenue information is presented below (dollars in millions):

 

Three months ended March 31

 
 

2017

2016

% Change

 
         

Commercial:

       

Domestic

41.6

38.7

7.5%

 

International

4.4

4.0

10.0%

 

Non-commercial:

       

Domestic

123.1

128.5

(4.2)%

 

International

18.3

14.8

23.6%

 

Total direct revenues

187.4

186.0

0.8%

 

Non-commercial domestic revenue includes revenues from purchase transactions and centralized title operations. Revenues from purchase transactions decreased 2.2 percent in the first quarter 2017 compared to the prior year quarter, while centralized revenues declined 17.6 percent, primarily due to decreased refinancing transactions. Total international revenues increased 20.7 percent in the first quarter 2017 compared to the prior year quarter, mainly due to transaction volume growth from our Canada operations. Revenues from independent agency operations in the first quarter 2017 increased 3.9 percent compared to the first quarter 2016. The independent agency remittance rate was 18.1 percent in the first quarter 2017 compared to 18.2 percent in the first quarter 2016; while revenues from independent agencies, net of retention, increased 3.4 percent from the prior year quarter.

Ancillary Services and Corporate Segment
Summary results of the ancillary services and corporate segment are as follows (dollars in millions):

 

Three months ended March 31

 
 

2017

2016

% Change

 
         

Total operating revenues

17.4

22.2

(21.7)%

 

Pretax loss

(6.4)

(15.1)

57.5%

 

The decline in the segment's operating revenues in the first quarter 2017 compared to the prior year quarter was primarily due to our exit of the delinquent loan servicing operations completed in the first quarter 2016 and the divestitures of the loan file review, quality control services and government services lines of business at the end of 2016.

The first quarter 2016 results included $2.5 million of net realized gains (composed primarily of a $3.6 million gain due to a reduction in estimated contingent consideration associated with a prior year acquisition, offset by $1.3 million of early lease termination costs related to our exit of the delinquent loan servicing operations) and $7.3 million of other charges (as detailed in the Expenses section below), for a total of $4.8 million of net charges.

Expenses
Expense comparisons for the first quarter 2017 to the prior year quarter included first quarter 2016 charges, recorded in the ancillary services and corporate segment, consisting of:

  • $3.6 million of litigation-related accrual,
  • $2.2 million of expenses associated primarily with a life insurance settlement with a former Class B shareholder, and
  • $1.5 million of depreciation and severance expenses related to our exit of the delinquent loan servicing operations.

As a result of ongoing cost management efforts, as well as a reduction in employee counts tied to volume declines, primarily in our ancillary services operations, employee costs for the first quarter 2017 decreased $10.4 million, or 6.9 percent, from the first quarter 2016. Average employee counts for the first quarter 2017 decreased approximately 9.1 percent from the first quarter 2016. As a percentage of total operating revenues, employee costs for the first quarter 2017 were 31.9 percent, an improvement of 280 basis points compared to 34.7 percent in the prior year quarter.

Other operating expenses for the first quarter 2017 decreased $9.4 million, or 10.7 percent, from the first quarter 2016. As a percentage of total operating revenues, other operating expenses for the first quarter 2017 were 17.9 percent, compared to 20.3 percent in the first quarter 2016. Excluding the non-operating charges discussed above, the other operating expenses ratio in the first quarter 2016 was 18.9 percent.

As a percentage of title revenues, title losses were 4.9 percent in the first quarter 2017 compared to 5.6 percent in the first quarter 2016. Title loss expense decreased to $20.7 million in the first quarter 2017 compared to $23.1 million in the first quarter 2016. The title loss ratio in any given quarter can be significantly influenced by changes in new large claims incurred, escrow losses and adjustments to reserves for existing large claims. The total estimated liability for title losses was $460.1 million at March 31, 2017.

Depreciation and amortization expenses decreased to $6.4 million in the first quarter 2017 compared to $8.3 million in the first quarter 2016, primarily due to the higher depreciation expense recorded in the first quarter 2016 resulting from accelerated depreciation charges relating to our exit from the delinquent loan servicing operations, and the lower amortization expense in the first quarter 2017 as a result of the disposal of certain intangible assets in connection with the divestitures of several lines of the ancillary services business.

Other
Cash flows from operations improved in the first quarter 2017 with net cash used by operations of $19.2 million compared to $31.8 million net cash used in the first quarter 2016. The improvement was primarily due to the net income generated during the first quarter 2017, offset by higher payments of claims.

First Quarter Earnings Call
Stewart will hold a conference call to discuss the first quarter 2017 earnings at 8:30 a.m. Eastern Time on Thursday, April 20, 2017. To participate, dial (888) 632-3384 (USA) and (785) 424-1675 (International) - access code STCQ117. Additionally, participants can listen to the conference call through Stewart's Investor Relations website at www.stewart.com/en/investor-relations/earnings-call.html. The conference call replay will be available from 10:00 a.m. Eastern Time on April 20, 2017 until midnight on April 27, 2017, by dialing (800) 839-2459 (USA) or (402) 220-7218 (International) - the access code is also STCQ117.

About Stewart
Stewart Information Services Corporation (NYSE-STC) is a global real estate services company, offering products and services through our direct operations, network of Stewart Trusted Providers™ and family of companies. From residential and commercial title insurance and closing and settlement services to specialized offerings for the mortgage industry, we offer the comprehensive service, deep expertise and solutions our customers need for any real estate transaction. At Stewart, we believe in building strong relationships – and these partnerships are the cornerstone of every closing, every transaction and every deal. Stewart. Real partners. Real possibilities.™ More information is available at the Company's website at stewart.com, or you can subscribe to the Stewart blog at blog.stewart.com, or follow Stewart on Twitter® @stewarttitleco.

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 challenging 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 or 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 cost management program; 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, 2016, and if applicable, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K. All forward-looking statements included in this news release are expressly qualified in their entirety by such cautionary statements. We expressly disclaim any obligation to update, amend or clarify 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
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands of dollars, except per share amounts and except where noted)

 
 

Three months ended
March 31,

 
 

2017

2016

 

Revenues:

     

Title insurance:

     

Direct operations

187,428

186,002

 

Agency operations

233,349

224,635

 

Ancillary services

17,304

22,035

 

Total operating revenues

438,081

432,672

 

Investment income

4,671

5,070

 

Investment and other gains - net

287

488

 
 

443,039

438,230

 

Expenses:

     

Amounts retained by agencies

191,175

183,844

 

Employee costs

139,785

150,209

 

Other operating expenses

78,318

87,711

 

Title losses and related claims

20,701

23,093

 

Depreciation and amortization

6,378

8,306

 

Interest

817

779

 
 

437,174

453,942

 

Income (loss) before taxes and noncontrolling interests

5,865

(15,712)

 

Income tax (benefit)

(144)

(6,648)

 

Net income (loss)

6,009

(9,064)

 

Less net income attributable to noncontrolling interests

1,922

2,130

 

Net income (loss) attributable to Stewart

4,087

(11,194)

 
       

Net earnings (loss) per diluted share attributable to Stewart

0.17

(0.48)

 

Diluted average shares outstanding (000)

23,569

23,348

 
       

Selected financial information:

     

Cash used by operations

(19,189)

(31,841)

 

Other comprehensive income

3,425

9,020

 

 

Monthly Order Counts:

                 

Opened Orders 2017:

Jan

Feb

Mar

Total

 

Closed Orders 2017:

Jan

Feb

Mar

Total

 

Commercial

3,570

3,578

4,302

11,450

 

Commercial

2,379

2,174

2,773

7,326

 

Purchase

17,793

19,064

24,385

61,242

 

Purchase

11,765

12,022

16,415

40,202

 

Refi

7,698

6,961

8,797

23,456

 

Refi

7,241

5,886

6,081

19,208

 

Other

1,542

1,406

1,648

4,596

 

Other

784

800

1,614

3,198

 

Total

30,603

31,009

39,132

100,744

 

Total

22,169

20,882

26,883

69,934

 
                       

Opened Orders 2016:

Jan

Feb

Mar

Total

 

Closed Orders 2016:

Jan

Feb

Mar

Total

 

Commercial

3,424

3,768

4,139

11,331

 

Commercial

2,398

2,415

2,805

7,618

 

Purchase

16,199

19,564

23,318

59,081

 

Purchase

10,985

12,117

15,607

38,709

 

Refi

9,054

11,957

12,456

33,467

 

Refi

8,215

7,506

8,810

24,531

 

Other

1,134

1,168

1,145

3,447

 

Other

1,087

1,494

1,204

3,785

 

Total

29,811

36,457

41,058

107,326

 

Total

22,685

23,532

28,426

74,643

 
                                   

 

STEWART INFORMATION SERVICES CORPORATION
CONDENSED BALANCE SHEETS
(In thousands of dollars)

 
 

March 31,
2017
(Unaudited)

December 31,
2016

Assets:

   

Cash and cash equivalents

122,575

185,772

Short-term investments

22,836

22,239

Investments in debt and equity securities available-for-sale, at fair value

656,199

631,503

Receivables – premiums from agencies

32,253

31,246

Receivables – other

52,487

50,177

Allowance for uncollectible amounts

(9,691)

(9,647)

Property and equipment, net

71,840

70,506

Title plants, at cost

75,313

75,313

Goodwill

217,094

217,094

Intangible assets, net of amortization

9,975

10,890

Deferred tax assets

3,863

3,860

Other assets

53,224

52,771

 

1,307,968

1,341,724

Liabilities:

   

Notes payable

100,845

106,808

Accounts payable and accrued liabilities

88,401

115,640

Estimated title losses

460,142

462,572

Deferred tax liabilities

9,480

7,856

 

658,868

692,876

Stockholders' equity:

   

Common Stock and additional paid-in capital

181,371

180,959

Retained earnings

468,844

471,788

Accumulated other comprehensive loss

(5,456)

(8,881)

Treasury stock

(2,666)

(2,666)

Stockholders' equity attributable to Stewart

642,093

641,200

Noncontrolling interests

7,007

7,648

Total stockholders' equity

649,100

648,848

 

1,307,968

1,341,724

     

Number of shares outstanding (000)

23,710

23,431

Book value per share

27.38

27.69

 

STEWART INFORMATION SERVICES CORPORATION
SEGMENT INFORMATION
(In thousands of dollars)

 

Three months ended:

Mar 31, 2017

 

Mar 31, 2016

 

Title

Ancillary
Services
and
Corporate

Consolidated

 

Title

Ancillary
Services
and
Corporate

Consolidated

Revenues:

             

Operating revenues

420,714

17,367

438,081

 

410,482

22,190

432,672

Investment income

4,671

-

4,671

 

5,070

-

5,070

Investment and other gains (losses) - net

410

(123)

287

 

(2,012)

2,500

488

 

425,795

17,244

443,039

 

413,540

24,690

438,230

Expenses:

             

Amounts retained by agencies

191,175

-

191,175

 

183,844

-

183,844

Employee costs

128,160

11,625

139,785

 

131,030

19,179

150,209

Other operating expenses

68,254

10,064

78,318

 

71,033

16,678

87,711

Title losses and related claims

20,701

-

20,701

 

23,093

-

23,093

Depreciation and amortization

5,226

1,152

6,378

 

5,158

3,148

8,306

Interest

3

814

817

 

-

779

779

 

413,519

23,655

437,174

 

414,158

39,784

453,942

Income (loss) before taxes

12,276

(6,411)

5,865

 

(618)

(15,094)

(15,712)

             

Appendix A
Adjusted revenues and adjusted EBITDA

Management uses a variety of financial and operational measurements other than its financial statements prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) to analyze its performance. These include: (1) adjusted revenues, which are reported revenues adjusted for any net realized gains and losses and (2) net income after earnings from noncontrolling interests and before interest expense, income tax expense, and depreciation and amortization and adjusted for net realized gains and losses, certain significant litigation expenses and non-operating costs such as severance, consulting and third-party provider transition costs, component exit-related costs and prior policy year reserve adjustments (adjusted EBITDA). Management views these measures as important performance measures of core profitability for its operations and as key components of its internal financial reporting. Management believes investors benefit from having access to the same financial measures that management uses.

The following tables reconcile the non-GAAP financial measurements used by management to our most directly comparable GAAP measures for the three months ended March 31, 2017 and 2016 (dollars in millions).

     

Quarter Ended

March 31,

 
     

2017

2016

% Change

           

Revenues

   

443.0

438.2

 

Less: Net realized gains

   

(0.3)

(0.5)

 

Adjusted revenues

   

442.7

437.7

1.1%

           

Net income (loss) attributable to Stewart

   

4.1

(11.2)

 

Noncontrolling interests

   

1.9

2.1

 

Income taxes

   

(0.1)

(6.6)

 

Income (loss) before taxes and noncontrolling interests

   

5.9

(15.7)

 

Litigation expense

   

-

3.6

 

Other non-operating charges*

   

-

2.6

 

Net realized gains

   

(0.3)

(0.5)

 

Adjusted income (loss) before taxes and noncontrolling interests

   

5.6

(10.0)

 

Depreciation and amortization

   

6.4

8.3

 

Interest expense