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Stewart 2Q profits plummet to $6.3M down from $26.9M in 1Q

Litigation and acquisition costs weigh on earnings

stock down

Stewart Information Services (STC) on Thursday reported net earnings attributable to Stewart of $6.3 million, or $0.27 per diluted share, for the second quarter 2014, compared to earnings of $26.9 million, or $1.09 per diluted share, for the second quarter 2013.

Second quarter 2014 results included a charge of $10.5 million, or $0.42 per share, recorded in the title segment relating to a previously announced litigation settlement as well as approximately $3.2 million, or $0.13 per share, of aggregate costs recorded in the corporate segment related primarily to acquisition-related costs.

Compared to the second quarter 2013, title revenues decreased 14.3% in the second quarter 2014. Revenues for the second quarter were negatively impacted by softer market conditions as the number of title orders opened declined 17% compared to second quarter 2013. Revenues from direct operations for the second quarter 2014 decreased 4.3% compared to the same quarter last year but increased 35.5% sequentially from the first quarter 2014. Title orders closed declined 20% compared to 2013 largely due to the decline in refinancing orders. We closed 70% of title orders opened in the second quarter 2014 compared to 73% in second quarter 2013.

Mortgage services revenues for the second quarter 2014, including revenues from acquisitions closed during the quarter, decreased 3.6% compared to the second quarter of 2013.

"While pleased with several internal developments and ongoing initiatives in the second quarter 2014, the overall market continued the themes observed over the last three quarters in the housing industry," said Matthew W. Morris, chief executive officer. "Total title orders, while rebounding from the depressed level of the first quarter 2014, remained well below year-ago numbers. The spring and early summer housing selling season did not have the upward momentum expected by most industry analysts. As a result, title segment revenues fell 15.3% compared to the second quarter 2013."  

For the first six months of 2014, net loss attributable to Stewart was $5.8 million, or ($0.26) per diluted share, compared to net earnings of $30.1 million, or $1.25 per diluted share, for the same period in 2013. Pretax loss for the year to date period in 2014 was $7.1 million, as compared to pretax earnings of $56.0 million for the prior year to date period.  Results for the first six months of 2014 include, in addition to the $10.5 million litigation settlement charge, aggregate costs of approximately $7.1 million related to a shareholder settlement as well as legal, due diligence and other costs related to acquisitions.


Stewart Information Services Earnings 2Q*

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Compared to the first six months of 2013, title revenues decreased 10.7% in the first six months of 2014, while mortgage services revenues decreased 16.4%. Revenues for the first six months of 2014 were negatively impacted by softer market conditions as the number of title orders opened declined 18.4% compared to first six months of 2013. We closed 67% of title orders opened compared to 72% in the first six months of 2013. Mortgage services revenues declined as the overall improvement in the housing market during 2013 lowered demand for distressed and default-related services. The decline was partially offset by the aforementioned acquisitions.

"As always, we are mindful of industry conditions, with some observers predicting a sub-$1 trillion mortgage origination market in 2014. Considering that in 2013 mortgage originations were approximately $1.8 trillion, a potential decline of this magnitude would resemble the 2005-2008 period. Given this, we believe disciplined adherence to cost containment and our five-year strategic plan developed in 2012 is more important than ever. Successful execution of our plan will ensure the offerings and financial stability our customers expect and the financial rewards our shareholders expect," continued Morris.


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