Stewart Reports Operating Results for the Third Quarter and First Nine Months of 2008
October 30, 2008
HOUSTON, -- Stewart Information Services Corporation reported the results of its operations for the third quarter and nine months ended September 30, 2008. (Dollar amounts in the table below are in millions, except per share figures.)
|Third Quarter (a)|
|Pretax loss before minority interests||(39.7)||(19.9)|
Net loss per share
|Nine Months (b)|
|Pretax loss before minority interests||(124.7)||(5.3)|
|Net loss per share||(4.64)||(0.49)|
(a) The third quarter of 2008 includes net pretax charges of $5.6 million
($3.6 million after taxes, or $0.20 per share), comprising a charge of
$10.5 million for loss reserves relating to large title claims, an
impairment charge of $2.6 million relating to equity securities held
for investment and office closure costs of $2.5 million offset by a
reduction in title losses due to recoveries recorded on a fidelity
bond of $10.0 million. The third quarter of 2007 includes pretax
charges of $17.1 million ($11.1 million after taxes, or $0.61 per
share) relating to large title claims totaling $6.0 million and a
reserve adjustment of $11.1 million relating to current and prior year
policies. The third quarter of 2007 also includes a pretax gain on the
sale of property of $5.6 million ($2.0 million after taxes and
minority interests, or $0.11 per share).
(b) The first nine months of 2008 include net pretax charges of $41.3 million ($26.8 million after taxes, or $1.48 per share) relating to reserve adjustments of $10.0 million for prior policy years, $28.2 million relating to large title claims and agency defalcations, a software impairment charge of $6.0 million, office closure costs of $4.4 million and an impairment of equity securities held for investment of $2.6 million. These charges were offset somewhat by a reduction in title losses due to recoveries recorded on a fidelity bond of $10.0 million. The first nine months of 2007 includes pretax charges of $24.5 million ($15.9 million after taxes, or $0.87 per share) relating to a charge of $13.4 million for large title claims and a $11.1 million charge for reserve adjustments relating to current and prior year policies. These charges were offset by gains from the sales of businesses and property totaling $8.8 million ($4.1 million after taxes and minority interests, or $0.22 per share).
Issues in the credit markets intensified significantly during the third quarter of 2008, which resulted in a severe tightening of available credit. Residential building permits on an annualized basis have fallen to the lowest level since prior to 1980. Existing home sales were 7.7 percent less on a seasonally-adjusted annualized basis in the third quarter of 2008 when compared with the same period in 2007. This is a direct result of oversupply, foreclosures, declining prices, economic uncertainty and more stringent loan underwriting standards, in spite of lower interest rates. Commercial transactions have also been negatively impacted as a result of the financial market tightening and limited lending due to more stringent underwriting standards. As a result, our orders opened dropped 26.9 percent in the third quarter compared with a year ago.
Revenues in the third quarter of 2008 fell to $395.2 million, a decline of 21.3 percent from the $501.9 million in the same period last year. The decline in revenues contributed to a loss (before taxes and minority interests) of $39.7 million in the third quarter of 2008 compared with a loss of $19.9 million in the third quarter of 2007.
Total revenues for the first nine months of 2008 were $1.2 billion, down 24.2 percent from $1.6 billion for the same period in 2007. Overall, the Company reported a loss (before taxes and minority interests) of $124.7 million in the first nine months of 2008 compared with a loss of $5.3 million in the same period in 2007.
Our international operations remained profitable for the third quarter and year-to-date periods, somewhat offsetting the loss in our U.S. residential operations. In addition, our overall results for the third quarter and year-to-date 2008 reflect the benefits of our ongoing cost reduction initiatives. Employee costs and other operating expenses decreased significantly in the third quarter and year-to-date periods of 2008 when compared with the same periods in 2007. Although lower in the current year periods compared with 2007, other operating expenses have not declined at the same rate as our revenues due to the relatively fixed cost nature of many of our operations.
Our provision for title losses in the third quarter 2008 decreased over the same period in 2007, due primarily to charges recorded to strengthen reserves last year in the third quarter that were not required in the current year. We also recorded $10.0 million of insurance recoveries in the third quarter of 2008 relating to title losses filed against our fidelity bond, which were offset by a comparable increase in reserves for large losses. Our loss provision ratio remains at an elevated level compared to normal levels due to adverse payment experience relating to prior policy years and an increase in the frequency of large title losses and agency defalcations, which is to be expected during down-market cycles.
"We continue to aggressively cut operations that show continuing losses and unacceptable risk exposure. We have also canceled 1,750 independent agencies since June 1, 2008," said Malcolm S. Morris, co-chief executive officer and chairman. "Even though the agencies being canceled are relatively minor to our total revenues, they represent a sizeable portion of our claims and management-related expenses. These cancellations are being accompanied by significant staff and overhead expense reductions within our underwriting companies," added Morris.
"Development of new revenue and expense controls are our daily focus," said Stewart Morris, Jr., co-chief executive officer and president. "We closed another 40 branch and office locations during the quarter and reduced headcount by 470 in the third quarter of 2008, bringing the total of our employee reductions to 2,900, or 29.3 percent, since December 31, 2006. Total closed branch and office locations since the beginning of 2008 is 110, which resulted in closure costs of $4.4 million. Revenue growth is being driven by sales training and marketing support to assist our existing sales associates in more effectively executing our strategies.
"Hurricane Ike in September had a significant adverse effect on revenues in the greater Houston area as a result of the postponement of transactions by affected participants," added Morris. "While certain offices were closed following the hurricane, we lost no ongoing work and were not prevented from completing closings that needed to take place, once again proving the value of our investment in our paperless, Internet-based title processing and transaction management technology. Our prior planning and investment in preemptive actions and scripted disaster recovery were resources well spent."
A major accomplishment this quarter was an agreement reached with UBS Bank regarding $241.5 million of auction rate securities held in exchanger funds by our tax-deferred property exchange business. UBS has provided a line of credit collateralized by the full par value of the auction rate securities. This line of credit has provided significant liquidity to the exchanger funds of our tax-deferred property exchange business. We expect the line of credit to be repaid in full through the transfer to UBS of the securities held as collateral at par value or pursuant to the settlement among UBS and various states and state regulatory agencies.
Source: Stewart Information Services Corporation