Stewart Reports Financial Results for the First Quarter 2012

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HOUSTON, April 26, 2012 /PRNewswire/ -- Stewart Information Services Corporation (NYSE-STC) today reported a net loss of $12.2 million for the first quarter 2012 compared with a net loss of $10.3 million in the first quarter 2011. Loss per share was $0.63 for the first quarter 2012, compared with a loss per share of $0.55 for the first quarter 2011.

Total revenues for the first quarter 2012 were $385.0 million, an increase of 5.1 percent from $366.4 million for the first quarter 2011. Revenues from our direct and agency operations increased 5.1 percent in the first quarter 2012 compared to the prior year period. Revenues from services provided by the real estate information (REI) segment increased 3.4 percent from the first quarter 2011, which was the strongest revenue quarter of the year for REI.

"Although first quarter results were disappointing, we remain confident that the steps we are taking will simplify and align our company for the benefit of our customers and shareholders. We are encouraged by the improvement in our direct operations and the productivity gains from our centralized and shared services initiatives. We are continuing to focus on a higher quality and more diversified revenue base in order to solidify a model to achieve profitability, as well as meet shareholder expectations, regardless of market conditions," commented Matthew W. Morris, chief executive officer.

"While we continue to grow our REI revenues, our margins were compressed as we ramped up our capacity necessary to service recently awarded contracts. Further, the revenue mix generated in the REI segment has shifted over the last twelve months from higher-margin loan modification services to lower margin servicing support and REO related services. Additional expenses related to standardization of compensation programs and other personnel changes also negatively affected results but will yield positive financial benefits in subsequent quarters. The title segment's pretax loss improved 27.8 percent from the first quarter 2011, reflecting ongoing improvement in core title operations," continued Mr. Morris.

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

First Quarter

2012

2011

Total revenues 

$ 385.0

$ 366.4

Pretax loss before noncontrolling interests

(7.9)

(6.4)

Income tax expense (a)                                                      

2.8

3.1

Net loss attributable to Stewart                                               

(12.2)

(10.3)

Net loss per share attributable to Stewart                                

(0.63)

(0.55)


(a) Income tax expense for the first quarters 2012 and 2011 includes income tax expense primarily related to taxes in foreign jurisdictions for our profitable international operations and on entities not included in our consolidated returns. We did not recognize the income tax benefit in the first quarters 2012 and 2011 relating to our pretax losses due to the recording of a valuation allowance against deferred tax assets. The valuation allowance will be evaluated for reversal as we return to profitability.

REI revenues increased 3.4 percent and 25.4 percent, respectively, from the first and fourth quarters of 2011.  However, REI pretax earnings decreased $8.0 million from $16.9 million (53.9 percent margin) in the first quarter 2011 to $8.9 million (27.4 percent margin) in first quarter 2012 while rising 13.4 percent sequentially from fourth quarter 2011's $7.8 million (30.3 percent margin).  Although we expect modest increases in revenues in our REI businesses during the remainder of 2012, we anticipate pretax margins in this segment to stabilize to a sustainable level of 25-30 percent in the next several quarters.

Title operating revenues in the first quarter 2012 increased 5.1 percent compared to the same quarter last year and declined 15.4 percent sequentially from the fourth quarter 2011.  Revenues from direct operations for the first quarter 2012 increased 8.9 percent compared to the same quarter last year and declined sequentially 9.8 percent from the fourth quarter 2011. Revenues from commercial transactions, included in direct operations, decreased 17.1 percent in the first quarter 2012 compared to the same quarter last year, while international revenues, also included in direct operations, increased 25.6 percent. Independent agency revenues increased 2.4 percent and declined 19.3 percent from the first and fourth quarters 2011, respectively. Agency revenues represented 56.4 percent of title operating revenues for the first quarter 2012 compared to 57.9 percent for the first quarter 2011 and 59.1 percent for the fourth quarter 2011.  We continue to pursue a network of high-quality, low claims risk agency operations, with emphasis on contribution to earnings rather than revenues.    

Title orders closed per workday in our direct operations increased 10.5 percent from the first quarter 2011, and declined sequentially 6.6 percent from the fourth quarter 2011. Title revenue per closed order in our direct operations for the first quarter 2012 was comparable to the first quarter 2011.

During the first quarter, industry conditions improved as some of the restrictions and moratoriums on foreclosures previously in place were lifted.  This quarter also experienced a significant increase in short sale transactions, which now exceed the number of foreclosure transactions.  Some former highly-overbuilt markets are now experiencing rising prices as the inventory of homes shrinks.  We believe the housing market is on a trajectory of recovery as sale transaction volumes continue to rise.

As a percentage of title revenues, title losses were 9.0 percent, 9.4 percent and 9.9 percent in the first quarter 2012, first quarter 2011 and the fourth quarter 2011, respectively. Although we are maintaining a higher than historically normal provisioning rate, losses incurred on known claims decreased 25.4 percent and 7.9 percent compared to the first and fourth quarters 2011, respectively. The decline in losses incurred on known claims continues a trend noted for several quarters. Cash claim payments decreased 6.7 percent from the first quarter 2011 and increased 16.8 percent from fourth quarter 2011. The sequential increase in cash claims payments over fourth quarter 2011 is due principally to payments of large claims on policies written in years prior to 2008, which we continue to resolve. Cash payments on non-large claims continue to trend downward, as observed over several quarters. 

Employee costs in the first quarter 2012 increased 8.7 percent from the first quarter 2011 and increased 6.1 percent sequentially from the fourth quarter 2011. The increase in employee costs compared to last year is primarily related to increases in our REI operations and was expected as a result of staffing requirements to provide services under recently awarded contracts. To a lesser extent, the July 2011 acquisition of PMH Financial also contributed to the increase in employee costs in the first quarter 2012. Employee costs in the title segment increased less than 2 percent over first quarter 2011 to support the 5.1 percent increase in title revenues.  

Other operating expenses increased by 9.7 percent in the first quarter 2012 compared to the first quarter 2011 and declined 1.9 percent from the fourth quarter 2011. The increase from the first quarter 2011 is primarily related to professional fees due to the mid-2011 outsourcing of the internal audit function, costs related to litigation and outside search fees as a result of the increase in revenues. The decline from the fourth quarter 2011, while influenced by these factors, was due primarily to reduced variable costs in conjunction with lower revenue.

Cash used by operations improved significantly in the first quarter 2012 to $20.3 million compared to $38.6 million in the first quarter 2011. 

Stewart Information Services Corp. (NYSE-STC) is a customer-focused, global title insurance and real estate services company offering products and services through our direct operations, network of approved agencies and other companies within the Stewart family. Stewart provides these services to homebuyers and sellers; residential and commercial real estate professionals; mortgage lenders and servicers; title agencies and real estate attorneys; home builders; and United States and foreign governments. Stewart also provides loan origination and servicing support; loan review services; loss mitigation; REO asset management; home and personal insurance services; tax-deferred exchanges; and technology to streamline the real estate process. Recognized in 2012 by Forbes as one of the Most Trustworthy Companies in America, Stewart offers personalized service, industry expertise and customized solutions for virtually any type of real estate transaction, and is dedicated to being the preferred real estate services provider. More information can be found at http://www.stewart.com/news.

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 severity and duration of current financial and economic conditions; continued weakness or further adverse changes in the level of real estate activity; changes in mortgage interest rates, existing and new home sales, and availability of mortgage financing; our ability to respond to and implement technology changes, including the completion of the implementation of our enterprise systems; the impact of unanticipated title losses on the need to further strengthen our policy loss reserves; any effect of title losses on our cash flows and financial condition; the impact of our increased diligence and inspections in our agency operations; changes to the participants in the secondary mortgage market and the rate of refinancings that affect the demand for title insurance products; regulatory non-compliance, fraud or defalcations by our title insurance agents 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 expected expense savings resulting from our expense reduction steps; 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, 2011, our quarterly reports on Form 10-Q, and our Current Reports on Form 8-K. We expressly disclaim any obligation to update any forward-looking statements contained in this news release to reflect events or circumstances that may arise after the date hereof, except as may be required by applicable law.

STEWART INFORMATION SERVICES CORPORATION

STATEMENTS OF OPERATIONS (condensed)

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

Three months ended

March 31

2012

2011

Revenues:

Title insurance:

Direct operations         

151,634

139,230

Agency operations

196,321

191,809

Real estate information

32,459

31,385

Investment income

3,128

3,861

Investment and other gains – net

1,445

132

384,987

366,417

Expenses:

Amounts retained by agencies

162,548

158,447

Employee costs

128,233

117,926

Other operating expenses

64,863

59,129

Title losses and related claims

31,387

31,200

Depreciation and amortization

4,524

4,830

Interest

1,364

1,278

392,919

372,810

Loss before taxes and noncontrolling interests

(7,932)

(6,393)

Income tax expense

2,823

3,131

Net loss

(10,755)

(9,524)

Less net earnings attributable to noncontrolling interests

1,402

769

Net loss attributable to Stewart

(12,157)

(10,293)

Net loss per diluted share attributable to Stewart

(0.63)

(0.55)

Average number of dilutive shares (000)

19,256

18,829

Segment information:

Title revenues

352,528

335,032

Title pretax loss before noncontrolling interests

(16,824)

(23,310)

REI revenues

32,459

31,385

REI pretax income before noncontrolling interests

8,892

16,917

Selected financial information:

Cash used by operations

(20,336)

(38,635)

Title loss payments - net of recoveries

33,516

35,915

Other comprehensive earnings (loss)

6,254

(389)

Number of title orders opened (000):

January

31.6

26.8

February

35.0

25.1

March

36.7

32.2

Quarter

103.3

84.1

Number of title orders closed (000): Quarter

70.6

61.9

Mar 31

 2012

Mar 31

 2011

Stockholders' equity

457,629

445,662

Number of shares outstanding (000)

19,328

19,123

Book value per share

23.68

23.31

 

STEWART INFORMATION SERVICES CORPORATION

BALANCE SHEETS (condensed)

(In thousands of dollars)

     March 31

December 31

2012

2011

Assets:

Cash and cash equivalents

92,501

117,196

Cash and cash equivalents – statutory reserve funds

22,610

23,647

     Total cash and cash equivalents

115,111

140,843

Short-term investments

32,952

33,137

Investments – statutory reserve funds

398,501

397,074

Investments – other

69,288

63,911

Receivables – premiums from agencies

38,292

47,351

Receivables – other

63,578

57,466

Allowance for uncollectible amounts

(14,636)

(16,056)

Property and equipment

57,106

56,437

Title plants

77,947

77,406

Goodwill

217,042

214,492

Intangible assets

8,235

8,693

Other assets

73,968

75,387

1,137,384

1,156,141

Liabilities:

Notes payable

7,432

11,722

Convertible senior notes payable

64,556

64,513

Accounts payable and accrued liabilities

76,412

86,389

Estimated title losses

502,154

502,611

Deferred income taxes

29,201

27,449

679,755

692,684

Contingent liabilities and commitments

Stockholders' equity:

Common and Class B Common stock and additional paid-in capital

152,453

152,102

Retained earnings

271,940

284,097

Accumulated other comprehensive earnings

22,935

16,681

Treasury stock

(2,666)

(2,666)

Stockholders' equity attributable to Stewart

444,662

450,214

Noncontrolling interests

12,967

13,243

Total stockholders' equity

457,629

463,457

1,137,384

1,156,141



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