Enterprising Investor
11年前
Stewart Information Services Announces Value Creation Strategies (2/13/14)
Nominates Two New Independent Directors for 2014 Annual Meeting
Announces Initiative Designed to Generate $25 Million in Annual Run Rate Savings by 2015
Expects to Return $70 Million to Stockholders by End of 2015 through Share Repurchase Program
HOUSTON, Feb. 13, 2014 /PRNewswire/ -- Stewart Information Services Corp. (NYSE: STC) ("Stewart"), a leading provider of real estate services, including global residential and commercial title insurance, escrow and settlement services, lender services, underwriting, specialty insurance and other solutions that facilitate successful real estate transactions, today announced value creation strategies, including the nomination of two new independent directors, a cost savings initiative and a share repurchase program.
The cost savings initiative extends Stewart's ongoing streamlining efforts and is expected to generate annual run rate pre-tax savings of $25 million by year end 2015.
The Stewart Board has also reviewed its capital allocation plans for 2014 and 2015, and expects to return $70 million to stockholders through a share repurchase program. It is currently expected that the share repurchase activity will begin in the second half of 2014, with the majority expected to occur throughout 2015. Under the share repurchase program, Stewart has the ability to purchase shares of its outstanding common stock through open market and in privately negotiated transactions at prices deemed appropriate by management. The timing, form and amount of share repurchases under the program will depend on a variety of factors, including market conditions, share price, the Company's capital and liquidity position relative to internal and rating agency targets, legal requirements, including approval of release of cash from the regulated underwriter by the Company's insurance regulators, corporate considerations, and other factors.
Stewart further announced it will begin hosting earnings conference calls commencing with the first quarter earnings call of 2014.
Matthew W. Morris, Chief Executive Officer of Stewart, said, "As evidenced by the increase in our stock price over the last two years, enhancing stockholder value has been a top priority for the Stewart Board. The strategies announced today will drive incremental value by further streamlining our cost profile and returning capital to our stockholders. I look forward to working closely with the Board and management team as we continue to execute our strategies for promoting sustainable growth and enhanced value."
Stewart also announced today that it has agreed to nominate two new independent directors to the Stewart Board at the Company's 2014 Annual Meeting: Glenn C. Christenson, managing director of Velstand Investments, LLC, and Arnaud Ajdler, managing partner of Engine Capital LP.
Dr. Edward Douglas Hodo, Chairman of the Stewart Board of Directors, said, "We look forward to welcoming Glenn and Arnaud to our Board at the Annual Meeting. Both of these individuals are highly qualified and will bring to Stewart's Board extensive financial experience and unique perspectives on our Company and industry." "I am honored to be nominated to join the Stewart Board of Directors," said Mr. Christenson. "I look forward to working collaboratively as a director, and believe that together, we can advance the goal of generating superior returns for all stockholders."
Mr. Ajdler said, "We invested in Stewart because it is a strong company that presents tremendous opportunities for value creation. Like Glenn, I look forward to working with the Board and management team to unlock the value inherent in this great company."
In connection with today's announcements, Stewart has entered into an agreement with Foundation Asset Management and Engine Capital, which collectively own approximately 1,827,714 shares of Stewart common stock, representing approximately 8.5% of the Company's outstanding shares. Under the agreement, Foundation and Engine have agreed not to solicit proxies in connection with the 2014 Annual Meeting and to vote their shares in support of all of the Board's director nominees at the Annual Meeting. Foundation and Engine Capital have also agreed to a customary standstill provision. Pursuant to the agreement, Stewart will be establishing a special committee of the Stewart Board following the 2014 Annual Meeting to oversee Stewart's cost savings initiatives and help determine if additional cost savings are obtainable. The complete agreement between Stewart, Foundation and Engine Capital will be filed in a Form 8-K with the Securities and Exchange Commission.
Dr. Hodo added, "Stewart has a longstanding policy of open communications with stockholders and welcomes constructive input toward achieving our goal of enhancing value. We are pleased to have reached this agreement with Foundation and Engine Capital, and our Board is confident that today's announcements are in the best interests of the Company and all Stewart stockholders."
Glenn Christenson
Glenn C. Christenson has been the managing director of Velstand Investments, LLC since 2004. He also serves as chief financial officer, senior vice president, treasurer and assistant secretary at Rancho Station, LLC. He served in various roles at Station Casinos Inc. (now Station Casinos LLC) between 1989 and 2007, including director, chief financial officer, chief administration officer, executive vice president, treasurer, principal accounting officer and assistant secretary. From 1983 to 1989, he served as a partner of Deloitte Haskins & Sells (now Deloitte & Touche), where he served as a partner-in-charge of Audit Services for the Nevada practice and National Audit Partner at the Hospitality Industry. Mr. Christenson has been a director of NPC and SPPC since 2007. He also serves as a director at Sierra Pacific Power Company, Nevada Power Company, and NV Energy, Inc. (alternate name, Sierra Pacific Resources). Previously, he served as a director of First American Financial Corporation and Nevada Community Bank. He was named to the Nevada Society of CPAs Hall of Fame for Business and Industry in 2002 and was designated one of the Most Influential Businessmen in southern Nevada by In Business magazine in 2002. In a poll of investors and analysts conducted by Institutional Investor Magazine, Mr. Christenson was named the top chief financial officer in the gaming and lodging industry from 2006 to 2007. Mr. Christenson is a Certified Public Accountant and holds an undergraduate degree in Business Administration from Wittenberg University and an MBA in Finance from The Ohio State University.
Arnaud Ajdler
Arnaud Ajdler has served as the managing partner of Engine Capital LP, a value-oriented investment firm focused on companies going through changes, since February 2013. Prior to that, Mr. Ajdler was a partner at Crescendo Partners, a value-oriented activist investment firm from 2005 to 2013. Mr. Ajdler is also an adjunct professor at the Columbia Business School where he teaches a course in Value Investing. Mr. Ajdler also serves as the Chairman of the Board of Directors of Destination Maternity, Inc. Mr. Ajdler served as a director of Charming Shoppes, Inc. from 2008 until the company was acquired in June 2012 by Ascena Retail Group Inc., as a director of O'Charley's Inc. from March 2012 until the Company was acquired in April 2012 by Fidelity National Financial Inc., and as a director of The Topps Company from August 2006 until the company was acquired in October 2007 by Madison Dearborn Partners, LLC and an affiliate of Michael Eisner. Mr. Ajdler received a BS in mechanical engineering from the Free University of Brussels, Belgium, an SM in Aeronautics from the Massachusetts Institute of Technology and an MBA from Harvard Business School.
About Stewart
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. Offering personalized service, industry expertise and customized solutions for virtually any type of real estate transaction, Stewart is the preferred real estate services provider. More information can be found at http://www.stewart.com/news, subscribe to the Stewart blog at http://blog.stewart.com or follow Stewart on Twitter @stewarttitleco.
http://www.prnewswire.com/news-releases/stewart-information-services-announces-value-creation-strategies-245348431.html
Enterprising Investor
11年前
Stewart Reports Earnings for the Fourth Quarter and Year 2013 (2/13/14)
- Pretax earnings were $15.5 million for the fourth quarter and $101.1 million for the year
- Net earnings attributable to Stewart were $17.5 million for the fourth quarter and $63.0 million for the year
- Title revenues decreased 10.6 percent for the fourth quarter 2013 compared to the prior year period and increased 3.8 percent overall for the year 2013 compared to 2012
- Title losses as a percentage of title revenues improved 220 basis points to 5.9 percent in 2013 compared to 8.1 percent in 2012
- Title segment pretax margins improved to 11.1 percent for the fourth quarter and 11.9 percent for the year 2013
HOUSTON, Feb. 13, 2014 /PRNewswire/ -- Stewart Information Services Corporation (NYSE: STC) today reported net earnings attributable to Stewart of $17.5 million, or $0.72 per diluted share, for the fourth quarter 2013, as compared to $61.8 million, or $2.56 per diluted share for the fourth quarter 2012. Comparisons of net earnings for 2013 to 2012 are affected by atypical income taxes in both periods, which resulted from the partial release of deferred tax asset valuation allowances in both years' fourth quarters and certain other tax adjustments reducing fourth quarter 2013 expense. The credit to income tax expense (benefit) from these items was $10.3 million ($0.42 per diluted share) and $36.6 million ($1.50 per diluted share) in the fourth quarters 2013 and 2012, respectively.
Pretax earnings for the fourth quarter 2013 were $15.5 million, a decrease of $11.2 million when compared to pretax earnings of $26.7 million for the fourth quarter 2012. The decline in pretax earnings is primarily attributable to a $15.7 million decrease in earnings from our mortgage services segment. During the latter half of 2013, the continued improvement in the housing market, although beneficial for our title operations overall, resulted in less demand for services related to distressed properties, which resulted in declining revenues in our mortgage services operations. During the third and fourth quarters of 2013, we entered into new contracts that, once fully implemented, will result in additional revenues in the first half of 2014.
For the year ended December 31, 2013, net earnings attributable to Stewart of $63.0 million, or $2.60 per diluted share, represents a decrease of $46.2 million from the same period in 2012. The decline in net earnings is attributable to the higher adjustment to the tax asset valuation allowance in 2012 compared to 2013 discussed previously and to the decrease in earnings in our mortgage services segment. Pretax earnings for the year ended December 31, 2013 were $101.1 million, an increase of $11.7 million from the same period in 2012. Results for the year ended December 31, 2013 include a non-cash charge of $5.4 million, or $0.22 per diluted share, relating to the early retirement of $37.8 million of our 6% Convertible Senior Notes due October 2014, as well as gains of $2.3 million, or $0.09 per diluted share, on non-title-related insurance policy proceeds (no tax benefit or expense is associated with either item; thus there was no tax-related effect on earnings per share).
Total revenues for the fourth quarter 2013 were $450.2 million, a decrease of $70.8 million, or 13.6 percent, from $521.0 million for the fourth quarter 2012. Operating revenues decreased 13.7 percent to $445.1 million in the fourth quarter 2013 compared to $515.6 million in the fourth quarter 2012. Compared to the fourth quarter 2012, title revenues decreased 10.6 percent in the fourth quarter 2013, while mortgage services revenues decreased 46.5 percent.
Total revenues for 2013 were $1,928.0 million, an increase of $17.6 million, or 0.9 percent, from $1,910.4 million for the 2012 year.
"Our 2013 results reflect transitions for Stewart and our industry during which we made significant progress adapting by focusing on our core business, aligning operations around delivery channels, enhancing productivity and reducing our risk profile," said Matthew W. Morris, chief executive officer. "Over the course of the year, we divested non-core assets, significantly lowered our title loss ratio and better aligned our product offerings with our customers' needs in order to deliver high-quality, trusted services. As the market continues to change and the regulatory landscape evolves, we believe we are well positioned to excel through our disciplined growth strategies and innovative service efforts like the Stewart Trusted ProviderTM program."
"Our title operations delivered another solid year of earnings, as we managed the business to maximize profitability in the face of increasing interest rates. Revenues, which were impacted by the weakening in refinancing title orders and a significant decline in total opened orders due to harsh winter weather conditions in the last month of the year, increased $61.7 million for the year, while title segment earnings increased $50.2 million."
"During the course of the quarter, we continued to transform our mortgage services operations from a default-centric operation to one that can provide high-quality offerings to mortgage lending clients across a more normalized market. Although revenues continued to decline significantly and the ramp-up of revenues from new products and services is taking longer than expected, we remain confident in future opportunities. We believe our continued ability to diversify our mortgage service offerings as well as our client base positions us for solid performance in this segment."
"We remain optimistic regarding the outlook for real estate in 2014, as the industry continues to adapt to an origination market that is much smaller overall, and one that is purchase-driven rather than refinance-driven. We will continue our priority of increasing our commercial presence while expanding our direct office presence in attractive markets. We will maintain our focus on ensuring our network of independent title agencies represent the best in the industry. We recognize that exceptional customer service sets us apart, and so we will continue to invest in innovative, high-quality, cost-effective service delivery. Most importantly, we will maintain our focus on reducing our cost structure and improving the efficiency of our operations to expand margins. These are the fundamentals of success, and we believe consistent execution of them will produce improving financial results, sustainable growth and enhanced shareholder value," concluded Morris.
[table removed]
Real Estate Market
The national real estate market showed steady improvement throughout the fourth quarter 2013, particularly in existing home sales, with the twelve-month moving average sales rate increasing 10.0 percent from the same quarter 2012, and sequentially 1.2 percent from the third quarter 2013. Increasing median home prices accompanied this higher volume, rising 10.8 percent from the fourth quarter 2012. Refinancing originations declined during the quarter, slowed by an increase in interest rates, which have risen by more than 100 basis points since January 2013. According to Fannie Mae, fourth quarter 2013 refinance lending decreased 67.8 percent from the fourth quarter 2012 and decreased 42.5 percent sequentially from the third quarter 2013.
Title Insurance Segment
Our title segment revenues declined 10.5 percent and 16.2 percent from the fourth quarter 2012 and third quarter 2013, respectively. As noted above, refinancing originations, and therefore title orders, fell significantly from the prior year quarter, and, although existing home sales continue to show improvement on a twelve month moving average basis, unadjusted existing home sales declined almost 8 percent over the prior year period. In the fourth quarter 2013, the title segment generated a pretax margin of 11.1 percent, an improvement of 120 basis points from fourth quarter 2012 and, sequentially, a decrease of 120 basis points from the third quarter 2013.
Revenues from direct operations for the fourth quarter 2013 decreased 7.3 percent compared to the same quarter last year and 9.8 percent sequentially from the third quarter 2013. Our direct operations include local closing offices, commercial, and international operations. We generate commercial revenues both domestically and internationally. U.S. and Canadian commercial revenues increased 11.3 percent to $42.3 million from the fourth quarter 2012 and increased sequentially by 34.7 percent from the third quarter 2013. International operating revenues (including foreign-sourced commercial revenues) decreased 0.8 percent to $27.9 million from the fourth quarter 2012 and sequentially by 18.8 percent from the third quarter 2013.
Total opened title orders in direct domestic operations declined over the prior year, decreasing 26.5 percent from the fourth quarter 2012 and 19.3 percent sequentially from the third quarter 2013. Opened orders for residential resale transactions declined significantly from third quarter 2013 due to the normal seasonal slowdown in activity, which was exacerbated by the unusually harsh winter weather in December, and refinancing orders falling significantly during the fourth quarter. Refinancing orders were 18 percent of total opened orders in fourth quarter 2013, down from 35 percent in the fourth quarter 2012. Title orders closed per workday in direct operations decreased 28.6 percent and 19.5 percent from the fourth quarter 2012 and the third quarter 2013, respectively. Title revenue per closed order in direct operations increased 20.8 percent and 1.4 percent from the fourth quarter 2012 and the third quarter 2013, respectively, primarily due to home price appreciation, a shift in order mix to more resale and commercial orders, and, to a lesser extent, a rate increase in Texas that became effective May 1, 2013.
Independent agency revenues decreased 13.0 percent from the fourth quarter 2012 and 21.0 percent sequentially from the third quarter 2013. Our independent agency remittance rate improved to 20.8 percent in the fourth quarter 2013 from 18.2 percent in the fourth quarter 2012 and improved sequentially from 18.4 percent in the third quarter 2013. The improvement in agency remittance rates is due largely to the geographic mix of revenues from independent agencies. Independent agency revenues net of agent retention expense in the fourth quarter 2013 were $50.4 million, essentially unchanged from the prior year's fourth quarter of $50.6 million. However, independent agency revenues net of agent retention expense increased 11.0 percent for the year 2013 compared to 2012, and over the past year, the average annual premium received per agency increased 19.5 percent.
We are taking the lead in assisting our independent agencies to prepare for new regulation by the Consumer Financial Protection Bureau and enabling them to meet the changing market and regulatory requirements for settlement services providers. In this regard, our Stewart Trusted ProviderTM Program has been well received by independent agencies and lenders. In order to improve profitability and reduce risk, we are continuing with our disciplined strategy of partnering with the highest-quality independent agencies in the industry, and are focusing our growth efforts on capturing a greater percentage of business from current agencies and signing new high-quality agencies in states with favorable remittance rates.
Title policy loss development continued to improve during the fourth quarter 2013, reflecting an ongoing decline in prior policy year loss experience on non-large title losses as well as our continued attention to prudent risk management with emphasis on the quality and profitability of our independent agency network. The title loss ratio in any given quarter is significantly influenced by any new large claims incurred as well as adjustments to reserves for existing large claims. As a percentage of title revenues, title losses were 6.2 percent in the fourth quarter 2013, a decrease of 140 basis points from the fourth quarter 2012 and 30 basis points from the third quarter 2013. For the year, title losses as a percentage of title revenues decreased to 5.9 percent in 2013 from 8.1 percent in 2012. The decrease in the title loss ratio was due to lower provisioning rates in 2013 compared to 2012, while higher losses in the current year relating to large title losses were offset by non-large loss reserve reductions of a net $2.8 million for the year. Total balance sheet policy loss reserves were $506.9 million at December 31, 2013, and continued to be above the actuarial mid-point of total estimated policy losses.
Mortgage Services Segment
Revenues from our mortgage services segment were $25.6 million for the fourth quarter 2013, as compared to $46.7 million in the fourth quarter 2012, largely due to the project-based nature of the contracts in this segment. As noted in third quarter 2013 results, this segment is transitioning from its historical service offerings for the management of defaulted and distressed loans to a more sustainable suite of service offerings to support the ongoing loan origination and servicing support needs of lenders in a heightened regulatory environment. Many lending institutions are under pressure to maintain earnings while managing the rising costs of regulatory compliance, which we believe will drive increased demand for the outsourced solutions we offer.
We are focused on reducing expenses in the segment; however, we were unable to achieve efficiencies fast enough to offset the decline in revenues. As a result, the segment reported a pretax loss of $1.6 million in the fourth quarter 2013 compared to pretax earnings of $14.2 million and a pretax loss of $1.4 million for the fourth quarter 2012 and third quarter 2013, respectively. We maintained much of the existing operational infrastructure to support newly acquired contracts that are in the process of ramping up to their full revenue potential. Many of these contracts require several months to reach steady-state revenues and normalized margins. Nonetheless, in January 2014, we began adjusting employee levels. Additionally, this quarter the mortgage services segment was negatively impacted by the integration costs and operating results of a recent acquisition of assets as these assets are assimilated and we work to reach their full contribution potential. The acquisition of these assets, which we expect to be accretive to earnings during the first half of 2014, enables us to continue diversifying our mortgage service offerings to a broader client base.
Notwithstanding the short-term operating losses of our mortgage services segment, we continue to execute on our longer-term strategy of providing mortgage process outsourcing services which are high-quality, flexible and responsive. Adding new service capabilities within the broad category of servicing and origination support is a key component of our strategy and will serve to deepen our relationship with mortgage lenders, enhance our abilities to improve the real estate transaction process and counterbalance highly cyclical title revenues while increasing our margins.
Expenses
Employee costs in the fourth quarter 2013 decreased 2.9 percent from the fourth quarter 2012 and decreased sequentially 4.4 percent from the third quarter 2013. As a percentage of total operating revenues, employee costs were 31.6 percent, 28.1 percent, and 27.6 percent in the fourth quarter 2013, fourth quarter 2012, and third quarter 2013, respectively. As newly opened title orders decline, we are actively managing employee costs in the title segment to counteract the expected revenue decline while being mindful of the short term-nature of depressed opened orders due to seasonal factors. We also continue to pursue our growth objectives for our direct title operations and, to that end, are aggressively recruiting additional sales professionals in our target growth markets. As noted above, employee costs in the mortgage services segment did not decline at the same rate as revenues and were also impacted by the increase in employees related to the recent acquisition. Therefore, headcount reductions targeted to reduce mortgage services annualized employee costs by approximately 7 percent took place in January 2014.
Other operating expenses decreased by 12.0 percent in the fourth quarter 2013 compared to the fourth quarter 2012 and decreased 3.1 percent sequentially from the third quarter 2013. The decline from the prior year fourth quarter is due to a decline in litigation defense-related accruals. The sequential decrease in the fourth quarter 2013 from the third quarter 2013 is partially due to decreased variable costs associated with the 9.8 percent sequential decrease in direct title operations revenues. As a percentage of total operating revenues, other operating expenses were 15.8 percent, 15.5 percent, and 13.7 percent in the fourth quarter 2013, fourth quarter 2012 and third quarter 2013, respectively.
Cash provided by operations was $16.3 million in the fourth quarter 2013 compared to $63.7 million for the same period in 2012. For the year ended December 31, 2013, cash provided by operations was $87.2 million, a decline of $33.3 million, or 27.7 percent, over the same period in 2012.
About Stewart Information Services
Stewart Information Services Corp. (NYSE: STC) is a leading provider of real estate services, including global residential and commercial title insurance, escrow and settlement services, lender services, underwriting, specialty insurance, loan due diligence, compliance solutions, service performance management and other solutions that facilitate successful real estate transactions. Stewart offers personalized service, industry expertise and customized solutions for virtually any type of real estate transaction, through our direct operations, network of approved agencies and other companies within the Stewart family. Through a focus on integrity, smart growth and conservative management, Stewart remains committed to serving our customers, innovating and improving to meet their needs in an ever-changing market.
http://www.prnewswire.com/news-releases/stewart-reports-earnings-for-the-fourth-quarter-and-year-2013-245348691.html
Enterprising Investor
11年前
Stewart Reports Earnings for the Second Quarter 2013 (7/25/13)
- Net earnings attributable to Stewart increased $2.0 million (8.0 percent) to $26.9 million
- Earnings per diluted share increased $0.04 (3.8 percent) to $1.09
- Pretax earnings improved $17.7 million (56.5 percent) to $48.9 million
- Pretax margin improved to 9.4 percent from 6.5 percent
- On a year-to-date basis, revenues increased $72.2 million to yield a $32.7 million increase in pretax earnings, an incremental margin of 45.3 percent
HOUSTON, July 25, 2013 /PRNewswire/ -- Stewart Information Services Corporation (NYSE-STC) today reported net earnings attributable to Stewart of $26.9 million, or $1.09 per diluted share, for the second quarter 2013, representing an improvement of $2.0 million over the second quarter 2012 net earnings of $24.9 million, or $1.05 per diluted share. Pretax earnings for the second quarter 2013 were $48.9 million, an improvement of $17.7 million over the second quarter 2012's $31.2 million.
For the first six months of 2013, net earnings attributable to Stewart of $30.1 million, or $1.25 per diluted share, represent an improvement of $17.3 million over the same period in 2012. Results for the first six months of 2013 include a non-cash charge of $5.4 million, or $0.22 per share, relating to the early retirement of $37.1 million of our 6% Convertible Senior Notes due October 2014, as well as a gain of $1.7 million, or $0.07 per share, on non-title-related insurance policy proceeds (no tax benefit or expense is associated with either item; thus no tax-related earnings per share effect).
Total revenues for the second quarter 2013 were $517.2 million, an increase of $33.5 million, or 6.9 percent, from $483.7 million for the second quarter 2012. Operating revenues increased 7.0 percent to $512.8 million in the second quarter 2013 compared to $479.2 million in the second quarter 2012. Compared to second quarter 2012, title revenues increased 9.7 percent in the second quarter 2013, while mortgage services revenues decreased 22.2 percent. Total revenues for the first six months of 2013 were $940.9 million, an increase of $72.2 million, or 8.3 percent, from $868.7 million for the same period in 2012.
"Throughout 2012 and continuing into 2013, we have diligently executed our plan to simplify our operations and align our organization to our customers' needs. This focus has resulted in improved financial performance over the last several quarters, and the second quarter 2013 continued the trend of solid financial results," said Matthew W. Morris, chief executive officer. "Our title operations delivered a 15.4 percent pretax margin, up from 9.9 percent in the prior year quarter, driven by improving transaction volume and increasing prices, as well as lower title losses. We have been able to capitalize on Texas being our home market, with strong job growth feeding ongoing population growth and the concurrent demand for housing. We further benefited from a 3.8 percent rate increase in Texas effective May 1, the first rate increase for the Texas title industry in more than 20 years."
"Although revenues and pretax margins in our mortgage services operations declined compared to the prior year quarter and this year's first quarter, the decline was anticipated and does not alter our strategy of continuing to invest in new service offerings, diversify our client base and generate sustainable revenues. We believe that we are well positioned to continue offering outsourcing services and solutions to our lending clients to help them manage the challenge of ever-increasing regulations," continued Morris.
"As always, we are mindful of developing market conditions. Late in the second quarter and continuing so far into the third quarter, we saw newly opened orders begin to decline, largely as a result of fewer refinancing transactions. Even though refinancing transactions continue to represent a lower proportion of our total direct orders than industry averages, we are actively implementing measures to control costs as closings decline. Notwithstanding the potential for a decline in revenues in the third quarter, we are continuing our plans to focus on strong resale volume and expand our direct office presence in select markets, as our new operating model allows for office expansion that is quickly profitable," concluded Mr. Morris.
Summary results of operations are as follows (dollars in millions, except per share amounts):
[Table removed]
The real estate market showed steady improvement throughout the second quarter 2013, particularly in existing home sales, with the 12-month moving average seasonally-adjusted annualized sales rate increasing 10.5 percent from the same quarter 2012, and sequentially 2.6 percent from the first quarter 2013. Increasing median home prices accompanied this higher volume, rising 10.0 percent from the second quarter 2012. Refinance activity also remained strong during the quarter, driven by record low interest rates and the modified HARP program. Second quarter 2013 refinance lending increased 19.6 percent from the same quarter 2012 and increased 9.1 percent sequentially from the first quarter 2013 according to Fannie Mae. We are beginning to see a decline in refinancing orders in our direct operations as a result of the approximately 100 basis point increase in interest rates since January of this year.
Revenues from our title segment increased 9.2 percent and 24.3 percent from the second quarter 2012 and first quarter 2013, respectively. Revenues from direct operations for the second quarter 2013 increased 12.6 percent compared to the same quarter last year and increased 32.7 percent sequentially from the first quarter 2013. Our direct operations include local closing offices, commercial, and international operations. We generate commercial revenues both domestically and internationally; U.S. and Canadian commercial revenues increased 21.6 percent to $37.3 million from the second quarter 2012 and sequentially by 40.9 percent from the first quarter 2013. This was the best second quarter for commercial revenues since 2007. International operating revenues (including foreign-sourced commercial revenues) declined 6.3 percent to $30.6 million from the second quarter 2012 and increased sequentially from the first quarter 2013 by 53.6 percent.
Opened title orders in direct operations improved over the prior year period, increasing 4.2 percent from the second quarter 2012, and 10.4 percent sequentially from the first quarter 2013. Title orders closed per workday in direct operations increased 9.1 percent and 16.2 percent from the second quarter 2012 and the first quarter 2013, respectively. Title revenue per closed order in direct operations increased 3.6 percent and 11.7 percent from the second quarter 2012 and the first quarter 2013, respectively, primarily due to home price appreciation and, to a lesser extent, a rate increase in Texas that was effective May 1. Although industry-wide order counts continue to be influenced by refinancing activity driven by historically low interest rates, our overall proportion of total direct orders in the second quarter from refinancing transactions was lower than industry averages, which we expect will result in less volatility in future revenues as refinancing transactions retract.
Independent agency revenues increased 7.5 percent from the second quarter 2012 and increased 18.6 percent sequentially from the first quarter 2013. Our independent agency remittance rate improved to 18.7 percent in the second quarter 2013 from 17.6 percent in the second quarter 2012 and from 17.8 percent in the first quarter 2013. Since early 2009, we have vetted our independent agencies with the goal of achieving the highest-quality network of independent agencies. Since the fourth quarter 2008, our average annual premium revenue received per independent agency has increased more than 125 percent and we have reduced the number of independent agencies in our network by approximately 42 percent. Further, the policy loss ratio of our current independent agency network for the second quarter 2013 is less than one-fourth of its level in the fourth quarter 2008. As the operating environment for independent agencies evolves due to proposed new regulation by the Consumer Financial Protection Bureau and increased lender due diligence, we have taken a lead in helping our independent agencies prepare for the market changes by offering regular educational opportunities and effective solutions. We have provided leadership to the American Land Title Association in its efforts to develop title insurance and settlement company best practices. Our focus on partnering with the highest quality independent agencies in the industry should yield consistent and improving profitability.
Revenues from our mortgage services segment decreased 15.8 percent from the second quarter 2012 and decreased 9.4 percent sequentially from the first quarter 2013. The decline in revenues is largely due to the scheduled expiration of certain contracts related to providing distressed loan services. During the second quarter, preparatory work began on several recently signed contracts, which should generate revenues beginning in mid-third quarter 2013 and partially offset the revenue loss from the expiring contracts. As a result, mortgage services pretax earnings in the second quarter 2013 were $5.2 million (13.9 percent margin) as compared to $12.8 million (28.8 percent margin) in the second quarter 2012 and $9.8 million (23.8 percent margin) in the first quarter 2013. The offerings in our mortgage services segment continue to expand, with new projects and contracts within the broad category of servicing support creating a more diverse client base and providing the foundation for more sustainable revenues over market cycles. The focus is on providing mortgage process outsourcing services which are high-quality, flexible and responsive.
Title policy loss development continued to improve more than anticipated during the second quarter 2013, reflecting an ongoing decline in prior policy year loss experience as well as our continued attention to prudent risk management and emphasis on quality and profitability of our network of independent agencies. Due to this ongoing improvement, we lowered our overall loss provisioning rate effective with policies issued in the second quarter 2013, and recorded a policy loss reserve reduction of $6.6 million relating to prior policy years. As a percentage of title revenues, title losses were 5.0 percent, 8.7 percent and 6.1 percent in the second quarter 2013, second quarter 2012 and first quarter 2013, respectively. Excluding the reserve reduction and adjustments related to large claims, title losses were 5.9 percent, 7.5 percent and 6.1 percent in the second quarter 2013, second quarter 2012 and first quarter 2013, respectively. The title loss ratio in any given quarter is significantly influenced by any new large claims incurred as well as adjustments to reserves for existing large claims. Adjustments to new and existing large losses did not exceed our normal provisioning rate during the first or second quarters of 2013. Although there can be no assurances that this result for large losses will continue for the remainder of 2013, we continue to manage and resolve large claims prudently and in keeping with our commitments to our policyholders. Cash claim payments in the second quarter 2013 increased 7.4 percent over the second quarter 2012 and decreased 11.7 percent from the first quarter 2013 in which payments on previously reserved large losses had been made.
Employee costs in the second quarter 2013 increased 11.7 percent from the second quarter 2012 and increased sequentially 7.0 percent from the first quarter 2013. As a percentage of total operating revenues, employee costs were 28.5 percent, 27.4 percent, and 32.3 percent in the second quarter 2013, second quarter 2012, and first quarter 2013, respectively. Employee costs in the mortgage services segment did not substantially decline due to the preparatory work on recently signed contracts, as discussed above. Many of the employees servicing the expired contracts will be utilized for the new contracts as production ramps up in the third quarter.
Other operating expenses increased by 4.3 percent in the second quarter 2013 compared to the second quarter 2012 and increased 15.1 percent sequentially from the first quarter 2013. As a percentage of total operating revenues, other operating expenses were 14.3 percent, 14.7 percent, and 15.1 percent in the second quarter 2013, second quarter 2012, and first quarter 2013, respectively. The sequential increase in the second quarter 2013 from the first quarter 2013 is primarily due to increased variable costs associated with the 24.4 percent sequential increase in title revenues.
Cash provided by operations was $46.5 million in the second quarter 2013 compared to $39.7 million for the same period in 2012. On a year to date basis, cash provided by operations was $43.1 million, an improvement of $23.7 million, or 122.4 percent, over the first six months of 2012.
Stewart Information Services Corp. (NYSE: STC) is a leading provider of real estate services, including global residential and commercial title insurance, escrow and settlement services, lender services, underwriting, specialty insurance and other solutions that facilitate successful real estate transactions. Stewart offers personalized service, industry expertise and customized solutions for virtually any type of real estate transaction, through our direct operations, network of approved agencies and other companies within the Stewart family. Through a focus on integrity, smart growth and conservative management, Stewart remains committed to serving our customers, innovating and improving to meet their needs in an ever-changing market.
http://www.prnewswire.com/news-releases/stewart-reports-earnings-for-the-second-quarter-2013-216900081.html
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