Welcome to the Stewart Information Services' fourth quarter and full year 2015 earnings conference call and webcast. 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, Tanisha. Good morning. Thank you for joining us for our fourth 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 online, please go to the stewart.com website to access the link for this conference call. I will remind participants this 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. Again, we appreciate everyone joining us this morning today. This morning, we reported fourth quarter 2015 earnings with our title segment delivering another quarter of solid results, while our mortgage services segment remained challenged by the delinquent loan servicing operations, which we are exiting. Allen is going to provide the specifics our financial results in a moment, but let me first offer my thoughts on 2015 and the outlook for 2016 at the more macro level. 2015 will be remembered as the year of TRID for the title industry, bringing more processing technology changes than we have seen in decades. We are seeing a return to business as usual as any lingering questions are resolved and processes and technology refined. In addition to the industry change, 2015 was eventful year for Stewart. We accomplished that lays the foundation for a continued prosperous future. We launched a major brand refresh and committed resources to discipline target sales growth. We rigorously evaluated the performance of our network of direct offices and consequently exited several underperforming states. We instituted new processes and technology that improve operational efficiencies and initiated an enterprisewide effort that will revamp our title and escrow production over the next 24 months, enabling further efficiencies and expense reduction. We accomplished significant outsourcing pursuant to our cost management program resulting in our enhanced year-over-year pretax margin and we expect to leverage the lessons learned to further reduce costs, improving margins in 2016 and beyond. Restoring our mortgage services operations to profitability has been more difficult than anticipated. We responded to rapidly shifting market conditions and announced the exit from our delinquent loan servicing operations in second quarter of 2015. Unfortunately, those operations have and continue to negatively impact results through the first quarter this year. Market conditions change…

Thank you, Matt. Good morning everyone. Total operating revenues decreased 3.3% in the fourth quarter of 2015 compared to the year ago quarter with title revenues essentially the same as last year and mortgage services revenues declining by 40.2% as we exit the default servicing business. Although overall close title orders declined by 1.5% from fourth quarter 2014, a shift in mix the offset revenue decline what would otherwise have been experienced. We closed 2.6% fewer residential orders in fourth quarter of 2015 which was offset by growth in refinancing and commercial orders closed at 5% and 1.5% respectively. We believe that our residential closings in the quarter were somewhat negatively impacted by the new integrated disclosure requirements known as Know Before You Owe, which became effective October 3, 2015. Commercial revenues continued to show strength with worldwide growth of 9.1% over the prior year. Notwithstanding the modest growth in overall title segment revenues, the segment generated solid pretax results with pretax margin growing approximately 200 basis points to 12.1%. In addition to the growth in higher margin commercial revenues, our cost management program positively influenced pretax margin. With an expected sharp decline in refinancing originations in 2016 as well as an ongoing reduction in the number of delinquent and defaulted loans, we anticipate title revenues associated with these transactions to decline primarily affecting our centralized title operations within the mortgage services segment. While we have seen new customer growth in mortgage services, our operational focus will be on continuing to rationalize our cost structure to return the segment to profitability in the second quarter with margin growth on track for further improvement in back half of the year. As in previous quarters, we have included a table in the press release setting forth adjusted income before taxes and adjusted…

The floor is now open for questions. [Operator Instructions]. Our first question is coming from Bose George with KBW. Please go ahead. Your line is open.

Hi. This is actually Chas Tyson, on for Bose. I had a question on mortgage services segment. A couple of quarters ago you guys had given guidance on that segment, targets of $120 million to $140 million of revenue with low teens EBITDA margins. Given that commentary you made about lower centralized refi and default production in 2016, are there any updated thoughts on those revenue or margin numbers?

I would say right now that the revenue numbers in 2016 are probably modestly lower than that. But I would also say that as mentioned a minute ago, our goal is to get that segment back in to profitability beginning in Q2 and then ramping it up from there. I still expect to see as a pretax margin of about, let's call it, high single digits with an EBITDA tight margin in low double-digit as we get towards to the back half of 2016.

Okay. And should we think, if we look at the segment and try to ex that delinquent services part of the business, I know you mentioned that you are trying to look at the cost structure to get to profitability in 2Q, but I guess if we think about the segment going in 2Q, ex that delinquent services do you need to rationalize the cost structure or take out some cost to get profitability? Or would it already be profitable even absent finding efficiencies?

Well, we would clearly need to rationalize some of the cost structure to get to the margin targets that I just outlined. But I think we can get there on just business as usual with those remaining operations.

Okay. Got it. And then I want to ask, if you had a viewpoint this kind of limit on the industry in general, whether there is a possibility for consolidation among larger players from an antitrust perspective? Do you think that would be a possibility?

It's hard to speculate on that. It's really so many variables involved in potential industry consolidation. You don't want to try to predict what regulatory actions might be taken or not. So I think at this point, we would rather not speculate on that.

Fair enough. Thanks very much.

Thank you. Our next question comes from John Campbell with Stephens Inc. Please go ahead. Your line is open.

Hi guys. Good morning.

Good morning John.

With respect to the mortgage services segment, can you isolate or maybe just tell us a little bit more about just maybe the originations side of the business, what's that doing to both of the services? Is that growing outside of the default related services?

Refinance volume is falling. I think as we have seen as an industry trend and so most of our refinance business is in that mortgage services segment and so while it is origination, that business line is primarily made up of particularly defaults. These are services which are obviously declining as the economy improves as well as falling refinance volumes.

Okay. Got it. And then obviously, with some of the severance costs coming out of mortgage services, you guys have already taken a lot of those actions. So it's not necessarily as you get in the next few quarters, you guys have to cut additional staff. It sounds like you already maybe have made some cuts and we should see those as naturally some of those most saves you left into the next two or three quarters?

I think that's fair. I mean, obviously we are going to react to volume fluctuations and continue to make cost rationalization as volumes fluctuate. So to say that we are completely done with the cost cutting on the side of the business that's unrelated to what we are exiting, it's probably not completely accurate.

Got it. And then just industry trend, obviously the 30 year has declined every single week to start this year. Are you guys seeing any kind of lift like modest lift at refis to start the year?

We are. I think that's in line with what we are seeing in the overall market, but we would echo what we are seeing in the press on refinance increases as mortgage rates are declining starting this year.

Got it. And then last one from me. On the reserve, that was a little bit higher than what we were expecting this quarter. I know there is some volatility there. Was that anything that you guys can isolate in the past? Any particular maybe commercial claim or anything like that?

No. Nothing really stuck out in the quarter. In any given quarter, we are going to obviously have a little bit of volatility, whether just depending on whether we have got some adjustments, positive or negative, to our overall reserve position. But no one large thing stuck out in the quarter. I still feel really comfortable about us reserving about 5.5% range going forward recognizing that there is always going to be a little up or down in any given quarter.

Sure. Thanks for taking the questions, guys.

Thank you. Our next question comes from Patrick Kealey with FBR. Please go ahead. Your line is open.

Good morning. Thanks for taking the questions. First off on the title business, you saw nice year-over-year growth in the pretax margin and outlined some cost-saving initiatives for 2016. So being at 12% now, what would you say is your long-term goal, given the initiative you have now? And not asking for a timeline, but say a couple years out where would you expect that to be in a normal origination environment?

Well, in a normal origination environment, you are probably pushing it closer to 15%, just assuming all of the things being equal. But as we said, we are continuing to work on some production efficiencies that we think will help us get there, so that we are set up for that sort of margin achievement in that environment.

Okay. Great. And then on the capital management side of things, given market volatility and your new share repurchase authorization you guys put out toward the end of last year, how are you thinking about that. maybe near term and a little bit longer term between further dividend increases versus looking at your own stock at today's levels?

Well, I would first point out that part of the capital management equation is also managing our underwriter's balance sheet. And we don't really know yet what our statutory balance sheet looks like. So probably not looking to do stock repurchase until we have a better sense of what our overall statutory balance sheet looks like as well as just some other variables that we take into account in any scenario. So it's something that's obviously we evaluate on an ongoing basis and try to make the smartest decision possible, given the circumstances at the time.

And just to highlight that again. So I think we have talked about the prioritization of just the stability of the underwriter, first and foremost. Secondarily would be dividends in the range which we are looking at right now. And then subsequent to that, just looking at growth opportunities then stock repurchase would be in there. Either board would continue to look at ongoing capital opportunities to see how to return long-term value to shareholders.

Great. And then if I can squeeze one more. You talked number of cost rationalizations you guys are looking at. So if I think about that on a timeline, is there any you can highlight as maybe a little bit more near-term or low hanging fruit versus the others you mentioned? Or is it really just everything is kind of on an ongoing basis and it will blend in here over the next couple quarters as we move through 2016 and maybe into 2017?

Yes. I think it should blend in. I believe we are picking really the low hanging fruit and that's why, as Allen commented, we haven't pushed a number out there. We feel like the cost management program itself took the big buckets and now we have some longer-term initiatives over the next couple years will continue to improve margins going forward.

If you think about sort of production efficiencies that implies lower unit cost of production and obviously you get the savings of lower unit cost of production, it's just a little hard to trace it straight line, because of volume fluctuations. But that's why we try to focus more on just lowering unit costs because that's a savings that you get in up or down transaction environments.

Okay. Very helpful. Thank you guys.

Thank you.

Thank you. Our next question comes from Kevin Kaczmarek with Zelman & Associates. Please go ahead. Your line is open.

Thanks. Given TRID related issues in the fourth quarter on the title side, I know you gave some margin guidance on the mortgage services segment, but on title can you give us a sense of whether your expenses were abnormally elevated at the end of 4Q? And how they should maybe trend into the first part of 2016?

Yes. We did see some increased over time in our title segment in the fourth quarter. It was about $2.5 million more in overtime in this fourth quarter versus the year ago fourth quarter. Obviously, it's hard to say that every dollar of that would be for TRID but the working assumption which I think is a valid one is that the lion's share of that increased overtime was due to TRID. So as you move into the seasonal slower time of the year, you are naturally not going to incur a lot of overtime to begin with and then you also do other things like it adjusting hours or what have you to respond to changes in volume in the first part of the year.

Okay. And then on the order side, would you guys, I guess is there an extra backlog of orders that didn't get processed that you expect a catch-up in 1Q? Or how is that trending in terms of the order closing times?

It's interesting. We saw a lot of that take place in Q4 and I think there is some holdover. But honestly, a lot of that picked up towards the end of the year and I would say closed a little bit sooner than we may have anticipated.

Okay. And I guess on the commercial side, have you seen any upticks in claims related to energy? Or do you have any sense of your exposure here?

No. We really haven't seen any real uptick in our commercial claims. We have had a relatively, what I would call anyway, a relatively benign year from that perspective, just relatively few. We had some in the first quarter. You probably remember the discussion back to and around some of the claims were approved in the first quarter, but since then it's been really pretty modest.

Okay. And then I guess lastly on the Asian revenue, what were some of the drivers there? Was there anything that stood out in the quarter in terms of the regular order flow or whether their revenues were abnormally affected by TRID?

Only anecdotal information there. I had said in a couple of meetings with some of our agents back in middle part of the fourth quarter and it was clearly impacting them then. But my expectation is that as they got into December they started to see some of that closing activity normalized. You can see from our table in the press release, our orders closed November through December and jumped up nicely and I would anticipate that the agents had a similar experience.

Okay. So I guess in a way, you guys accrue for it. We shouldn't be modeling any sort of --?

No. Since we don't really know agent order flows, we just know cash receive flow. And that kind of gives us an idea of trends.

Okay. Great. Thanks.

Thank you. [Operator Instructions]. And we will go ahead and take our next question from Geoffrey Dunn with Dowling & Partners. Please go ahead. Your line is open.

Thank you. Good morning.

Good morning.

A couple of accounting questions. First. I am trying to get a better idea of how your services profitability compares to other real estate services products out there? When we look at that margin, is there any purchase price adjustments that are in there, but you typically see other companies extract out?

Yes. That includes amortization of acquired intangibles.

So when you are talking kind of low double-digit margin, if you adjust for the purchase price amortization, where does that margin shake out?

That would adjust for the purchase price amortization.

Okay. So the guidance is excluding purchase price amortization which was included in the results of this quarter?

Yes. It is included in the result. So on a GAAP basis, obviously it includes it.

All right. So are you guys going to start breaking that out for us? Because I think the implication then is, we are looking at probably more of a high single-digit margin.

For GAAP? High single digit GAAP and low double digit adjusted for purchase price amortization. We can certainly put that in our 10-K.

Okay. And then with respect to your corporate, has management give any additional thought in terms of allocating that to the segments?

Well, obviously we recognize they are a little different in our treatment of corporate expenses and a lot of what centralized services operations that end up in that segment. So that's something we are evaluating. It's a little premature to speculate on how we might change it. But we are thinking about that again.

Okay. Great. Thank you.

Thank you. Our next question comes from Ryan Byrnes with Janney. Please go ahead. Your line is open.

Great. Thanks. Good morning, everybody. Just had a question on the open orders within commercial. The second quarter in a row they were down double-digits. Just wanted to see if something was going on within the commercial segment there?

Nothing that we have seen that we can point out. Given the nature of commercial transactions, we usually are careful on the quarterly comparisons but we continue to see commercial growth and are encouraged by commercial productivity.

Okay. And then shifting back to the corporate segment, again I realize there are a bunch of kind of one-timers running through that this year. But again, it was worse year-over-year, the pre-tax losses were around in $160 million versus $140 million last year. Just trying to figure out, what a decent run rate, again how should we think about that going forward?

Probably a little premature for me to give guidance on that. Obviously as I said a minute ago, we are rethinking how we look at that cost pool there, but I would expect certainly in first quarter we will normalize the actual operating expenses of that operation of that segment. So I think I will just leave it that for now.

Okay. And then just my last one would be, the agents split. They continue again obviously year-over-year with some solid improvements same as this the third quarter. Is that just kind of reflective of the geographic mix shift? And is that something you guys should expect to continue?

The improvement in the quarter was largely due to improved mix in terms of getting more revenue from the higher remitting states. Clearly we have targeted from a revenue growth perspective, we are targeting growth in the states that are higher remitting. Having said that, we do think that sort of 18.5% remittance rate would be a good outcome for us in 2016.

Great. Thanks.

Thank you. [Operator Instructions]. And it does appear, we have no further questions. I will now hand the floor back over to Matt Morris for any additional or closing remarks.

Thank you very much. And again, I appreciate everyone joining us this morning. Just to close, reiterate that we are encouraged by the company's transformation over the last several years and we do remain committed to further margin expansion growth with some fine projects to drive shareholder value. So we appreciate your time this morning and have a great day.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.