Good day, everyone, and welcome to the Stewart Information Services' Third Quarter 2015 Earnings Conference Call and Webcast. As a reminder, today’s call is being recorded. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation. I would now like to turn the call over to Nat Otis, Director of Investor Relations. Please go ahead.

Thank you, Keith. Good morning. Thank you for joining us for our third quarter 2015 earnings conference call. We will be discussing results that were released earlier this morning. Joining me today are CEO, Matt Morris; and CFO, Allen Berryman. To listen in online, please go to the stewart.com Web site to access the link for this conference call. I will remind participants that the conference call may contain forward-looking statements that involve a number of risks and uncertainties because of such statements are based on an expectation of future financial operating results and are not statements of fact. Actual results may differ materially from those projected. The risk and uncertainties with forward-looking statements are subject to include, but are not limited to, the risks and other factors detailed in our press release published this morning and in the statement regarding forward-looking information, risks factors and other sections of the company’s Form 10-K and other filings with the SEC. Let me now turn the call over to Matt.

Thank you, Nat, and appreciate everyone joining us this morning. Today, we reported third quarter 2015 earnings with our title segment producing another quarter of solid results and our mortgage services segment remaining challenged by the delinquent loan servicing operations, which we are exiting. As a consequence of our decision last quarter to exit this business line, we took a non-cash impairment charge of 35.9 million associated with goodwill and certain intangibles in the mortgage services segment. As to overall revenues, we are pleased to report continued growth with total operating revenues increasing 9.9% over last year’s third quarter. A portion of that growth stems from 2014 acquisitions, which were finalized in August of last year. We did see strong growth in residential retail and refinancing orders closed as well with closings up 17.8% over the prior year quarter. Looking ahead, although the industry has seen a decline in mortgage applications since the October 3 implementation of the new integrated disclosure requirements, we are encouraged that our efforts to prepare our people, processes and technology will minimize any disruptions. Our title segment continued to deliver solid results generating revenue growth of 14.3% and a pre-tax margin of 15.6%. This is a 200 basis point improvement over last year’s adjusted pre-tax margin of 13.6%. Our title operations benefited from increases in transaction volume, good domestic commercial growth which is up 16.5% over prior year and the cost management program. While our mortgage services segment results are overshadowed by delinquent loan servicing operations, we are seeing continued improving revenues of opportunities in other mortgage service offerings supporting our shift towards mortgage originations. As announced during the second quarter, we are exiting the delinquent loan servicing operations and anticipate the wind down and final exit of these operations will occur by the end…

Thank you, Matt, and good morning everyone. In addition to the impairment charge Matt mentioned a moment ago, we recorded several charges during the quarter and while I’ll provide more detail as to the underlying drivers of these items as I discuss the individual business unit results, I want to summarize them here and provide some context to the quarter’s overall results. We incurred 5.7 million of expense related to the cost management program and CFPB integrated disclosure readiness recorded primarily as other operating expense in the corporate segment. While there may be some modest trailing costs in the fourth quarter, we have essentially completed the cost management program and the related implementation expenses. As a recap, approximately half of the $30 million in annualized cost savings is due to outsourcing as well as other process changes yielding headcount reductions, which will be visible in the corporate segment fourth quarter numbers especially when compared to the second quarter corporate numbers. Another approximately 12 million relates to various actions in the title segment, which were visible in improving margins as we saw in both second and third quarters of 2015 versus the prior year. The remaining component is from various procurement initiatives where we achieved lower unit pricing. Although we’ve concluded the cost management program originally announced in first quarter 2014 in conjunction with our value creation strategy, we continue to implement projects to improve our cost effectiveness. We expect to further leverage the work already done in areas such as outsourcing and other technology enhancements, and we expect those to further support our ongoing efforts to improve margins in 2016 and beyond. We also accrued 1.5 million of litigation costs in the title segment relating to a previously disclosed matter dating back to 2005, which fully resolved this matter. Lastly,…

[Operator Instructions]. We can take our first question from Bose George with KBW. Please go ahead.

Hi, guys. This is actually Chas Tyson on for Bose. I’m curious now that you’ve finished the 30 million cost saving program, what other areas you’re looking at for efficiencies? If you can give some color there as well as any potential sizing of future cost savings that you think are inherent in the business.

I think what we’re doing is looking to leverage some of the things that we put in place during this original cost management program whether it’s using the outsourcing vendor more totally or whether it’s additional technology improvements that might be able to lower our headcount going forward. We’ve got several things that we’re trying to scope right now, so it’s a little early for us to put a number out there. But we do feel like we can leverage what we learned in this initial effort to carry that program going forward.

Okay. Following on from that, we calculate the operating pre-tax margin you guys have been doing over the last couple of years. It’s kind of like a mid single digits number. You add back the mortgage services from this number and it should be a couple of points above that. Is there like a target margin that you guys look for or a way for us to think about what other cost cuts that could come through?

Well, I think we’ve said now for some time that we’re looking to in the aggregate to achieve a 10% pre-tax margin on a normalized origination environment. I mean, we clearly haven’t altered that position recently or nor do we expect to going forward.

Okay. And normalized origination mark would mean like 1.5 trillion of originations or --?

Something like that, right, something like that.

Okay. And then on the mortgage services segment, is there a way for us to think about what the contribution of revenue and pre-tax earnings from the delinquent business was as opposed to the rest of the segment this quarter?

We’re not really breaking that our separately. I can tell you that for the revenue stream from the businesses and the ongoing businesses were pretty stable in the quarter. We have seen some nice growth in some of the origination products that are part of that ongoing business. But as I said a few moments ago, the ongoing revenue decline in that delinquent loan servicing operation is just sort of swamping the results for now.

Sure. Should we think that the 120 million to 140 million annualized of revenue that you guided to last quarter for next year is you’re at the run rate right now this quarter? And also are you at the target EBITDA margins for the non-delinquent portion?

Following the question completely but let me say this, the run rate revenue that we talked about in the last quarter, it’s still a good run rate revenue for the ongoing business operations. We do expect to see continued revenue declines related to the delinquent loan servicing operations in this quarter, which is now fourth quarter and first quarter 2016.

Sure. So I guess the question I guess I’m trying to ask is, is the non-delinquent portion of revenue, is that about at the run rates between 30 million and 35 million or so this quarter as well as are you at the target EBITDA margins for that revenue that’s going to keep going on next year?

No, probably there’s a little more revenue growth to come in those new business lines or those business lines that are ongoing. I would say there’s probably opportunity for us to improve the margins in that area as well.

Okay, got it. Thank you.

Our next question comes from Ryan Byrnes with Janney. Please go ahead.

Great. Thanks, guys. A quick question on – with the 250 people, the severance costs, should we – is that part of the $5 million to $7 million of one-time costs or is that going to be in addition to that?

No, that’s part of it. The 5 million to 7 million is intended to be sort of an all-in number whether it’s severance or the accelerated amortization costs or whatever it may cost us to ultimately exit that lease that’s associated with that facility.

Okay, thanks for that. And then, again with the goodwill impairment, I think I heard you note that this will take care of all of the delinquent book but I think you also mentioned that it took away some goodwill from a 2013 acquisition. Just wanted to see if I heard that right or maybe if you have a little more color there? And then also maybe if you could possibly just break down the goodwill behind the title segment and also the mortgage services segment of what you’re manning?

I don’t have that breakdown here in front of me but I can tell you there is no goodwill impairment in the title segment. I mean we did review that as well and there is no goodwill impairment there. As respects the mortgage services goodwill, yes, I did say that that write-off included the goodwill of a 2013 acquisition that had not performed up to expectations. And so that goodwill was written off as well. I would say that what’s left on the mortgage services segment right now we feel is completely recoverable and should have no further issue with that.

Okay. And then again I know we haven’t – I guess you’re not giving us a breakdown of the go-forward piece of the mortgage segment but should that business be a positive earnings driver I guess in the second quarter of 2016, I guess once all of the delinquent stuff is flushed through?

Yes.

Okay, great. And then, again, just kind of switch up completely, kind of want to get your thoughts on kind of capital management now that again the $70 million kind of commitment or pledge is nearly over. Just want to get your thoughts as to what we should expect heading into 2016 be it increased dividends or buybacks?

We really haven’t made a decision yet on increasing the dividend. At this point, we would expect that we at least maintain the dividend that we’re paying now and we haven’t really discussed with the Board a next level of share repurchase. What I would say is that we will always be mindful of opportunities, and if those opportunities present themselves then we would act on them. I did mention a moment ago too our liquidity ratio, and so that’s also one of the capital management considerations that we always keep in the front of our mind is in getting that liquidity ratio back to a 1 to 1 perspective we think is really important for our commercial business. And I don’t have the third quarter statutory balance sheet completed yet, so it’s a little early for me to say what that liquidity ratio might look like. But that’s also a factor in any decisioning that we do in 2016 on capital management.

Okay, great. Thanks for the color there guys.

Sure thing.

Our next question comes from Kevin Kaczmarek with Zelman and Associates.

Hi, guys. I guess looking at the delinquent servicing operations another way, I saw a layoff announcement of 200 to 300 people in Virginia I guess about a month ago. How many people are left in the delinquent servicing, and how many of those employees will be laid off kind of in 4Q and 1Q you think?

Yes, I think that’s pretty much all of them. I know there’s a staggered schedule for executing the terminations that stretches out over third quarter and fourth quarter. I honestly don’t know right now exactly how that breaks out between quarters, but I know there is staggered schedule for fourth quarter of this year and first quarter of next year. But I know there is a staggered schedule that they’re going to be released over.

Okay. And on the restructuring program, can you give us a sense – I know that the cost saves came out of 3Q gradually. I guess there was something on August 1 that happened and something in July. How many – on a run rate basis, how much more of expenses should we expect 4Q to go down by – because I think some of it came out in 3Q and some of it would come out in 4Q as well?

Yes, I think the way to look at it is in 4Q you should have one full quarter’s worth of benefit of the entire 30 million. So, as I mentioned a little bit earlier, the way that cost management program broke down is that half of it really sort of took place in the third quarter. So you’re going to get the full benefit of that, $15 million in the fourth quarter whereas the other parts of it related to the direct operations and some of the procurement initiatives that’s coming in over the last 12 months. So I would say that going into fourth quarter what you’ll see is more of the full impact of that 15 million that I mentioned at the outset was related to outsourcing and other technology type things that enable us to lower headcount.

Okay, so 15 million of run rate came out in 3Q. Do you know how much the absolute amount was in 3Q? Was that gradually throughout the quarter, so maybe half that?

I would say that it would probably gradually through the quarter, so if you just wanted to take an average of that and call it 8, then that would be fine.

Okay. And then I realize it’s early on trend and I saw your commentary in the release and I also realize the average order closing time is a bit longer than the 20 or so days since October 3. But can you give us some color on the closings that have occurred on the new forms and how those have been progressing, and whether there are any software bugs or anything else that either your agents or your direct operations are dealing with?

Yes, there really hasn’t been any closings again that’s related to mortgage applications as of October 3. And as you stated, most of the time to closings extended for lenders. So we are taking those order systems or have little blips here and there due to the rollout, but all seems to be progressing well. I just came back from a Mortgage Bankers Association earlier this week and American Land Title Association two weeks prior to that and that’s definitely the topic of conversation, but we’re a little bit in the wait and see mode. But a lot of integration with different lender systems, communication with the lenders and realtors but to date we really haven’t seen those closing occur yet.

Okay, great. Thanks. That’s all I have.

[Operator Instructions]. We can go next to John Campbell with Stephens Inc.

Hi, guys. Good morning. Congrats on the quarter.

Thank you.

Just on the closing ratio, that was about 200 bps higher I guess sequentially and about 1,000 bps higher from last year. Was that mostly due to you guys and just lenders rushing to close ahead of trend? What exactly drove that?

Some of it is just the math of open order accounts slowing down on a seasonal basis from Q2, but I’m not aware of any particular single factor that drove the closing ratio to go up. I mean it could be a combination of all of the things you mentioned, whether it’s just trying to get deals closed in the third quarter ahead of trend or just serendipitous timing.

Got it. And then nice work on the remittance ratio. I know how hard that is to move those splits, but it sounds like that you guys picked up some additional business in Florida and might have lost a little bit in California and Texas which are more states for you guys. What was the main driver there? Is that just taking additional share? Is that those individual real estate markets just picking up?

We really had a pretty significant focus on some of the higher remitting states, Florida being one of those. So one quarter does not a trend make but we’re encourage by the quarterly results in Florida. And of course, the slowdown in business in California and our agent base didn’t necessary hurt us from a – it helped us from a remittance rate perspective. But as I’ve said earlier, I would be a little reluctant to claim that that’s going to be the remittance rate on a go-forward basis. It’s a little early to say that.

Right, that makes sense. And then just back on trend as we think about next year and maybe the years to follow, just give us Matt or Allen, just either one of you guys, just give us your thoughts on what that kind of does to the space? Are we going to see any type of shifts in the M&A environment, any kind of shifts around retention rates or anything of a sort?

I think there is some uncertainty there obviously that relates to more regulations. There is a question of too small to comply and whether some of the smaller agencies can – whether it’s worth it to be compliance with not only some of these regulations and changes in technology but also with increasingly stringent vendor requirements. And so there maybe some fluctuation there as that goes forward. We think overall and in our mindset even as we look at our strategies the last couple of years, there’s definitely a pursuit of quality, which we I think benefits us. In the long run, there’s definitely a move towards tighter relationships between the agencies and underwriters, the underwriters providing more support to be compliant, which we think is a positive for us. So, there’s still a lot of uncertainty there. I think as we look at more regulation, more possibly to comply, needing more services from the underwriter, these are things that we’ve tried strategically to position ourselves well to take advantage of.

Thanks for that color, Matt. I appreciate it, guys.

It appears we have no further questions at this time. I’ll return the floor to Mr. Matt Morris for closing remarks.

Okay. Thank you very much for joining us. As we said, the third quarter of 2015 demonstrated continued progress for our goal of enhancing margins, improving return on equity and driving efficiencies throughout our operations. Even though our third quarter results were impacted by the non-cash impairment charge, the quarter was a productive and positive one for us. Our title segment margins continued to improve. We finalized the cost management program we announced in 2014 and we generated solid cash flow during the quarter. As we look forward to the fourth quarter, we are mindful as we stated of the potential impact on closing some implementation of the new integrated disclosure requirement. Given the significance of changes all along the mortgage origination to close cycle, we believe there maybe some disruptions in closings, which could result in revenue generation shifting to later in the quarter and into first quarter of 2016. So far, in October, we’ve only experienced a modest decline in open orders per workday as compared to September, so that obviously is too early to discern a trend at this point. During the fourth quarter, we will have a full quarter’s benefit of the cost management program to help offset any potential revenue delay to 2016. Again, thank you for the time this morning and have a great day.

Ladies and gentlemen, this does conclude today’s teleconference. We thank you for your participation. You may now disconnect and have a great day.