LandAmerica Reports Fourth Quarter and Full Year 2007 Results
February 21, 2008
RICHMOND, Va., -- LandAmerica Financial Group, Inc. , a leading provider of real estate transaction services, announces operating results for the fourth quarter and year ended December 31, 2007.
Fourth Quarter Fourth Quarter 2007 2006 Total revenue $845.4 Million $1,088.9 Million Net (loss) income $(45.9) Million $34.3 Million Net (loss) income per diluted share $(3.01) $1.95 Year 2007 Year 2006 Total revenue $3,705.8 Million $4,015.9 Million Net (loss) income $(54.1) Million $98.8 Million Net (loss) income per diluted share $(3.31) $5.61 FINANCIAL HIGHLIGHTS -- Total revenue decreased by 22.4% in fourth quarter 2007 from fourth quarter 2006, reflecting the continued decline in residential mortgage originations and lower commercial revenue during the quarter. As estimated by the Mortgage Bankers Association, industry-wide residential mortgage originations declined by approximately $234 billion, or 33.9%, in fourth quarter 2007 from the comparable period in 2006. -- Net loss in fourth quarter 2007 included pretax charges of $41.3 million related to closed offices ($30.4 million), the early extinguishment of debt ($6.4 million), and impairment of intangible and long-lived assets ($4.5 million). -- Net loss for full year 2007 included pretax charges of $75.6 million related to closed offices ($43.9 million), impairment of intangible and long-lived assets ($25.3 million), and the early extinguishment of debt ($6.4 million). -- There were approximately 160 offices closed during fourth quarter 2007 and approximately 285 offices closed for the full year 2007. -- In fourth quarter 2007, the Company reduced full-time equivalents ("FTEs") by approximately 1,700. FTEs were approximately 11,050 at December 31, 2007, compared to approximately 14,250 at December 31, 2006. -- Impairment of intangible and long-lived assets included the impairments of customer relationship and non-compete intangibles as well as title plant impairments. -- The claims provision as a percentage of operating revenue for the Title Operations segment was 8.6% in fourth quarter 2007, up from 5.4% in fourth quarter 2006. In third quarter 2007, the claims provision ratio was 9.9%. -- The total claims provision for 2007 included $235.1 million for 2007 policies and $53.4 million for increases in claims rates for policies in prior years. -- Direct revenue from title and non-title commercial operations was $126.5 million in fourth quarter 2007 compared to $138.4 million in fourth quarter 2006, a decrease of 8.6%. -- Cash flows from operating activities were $30.2 million for fourth quarter 2007 and $114.2 million for the full year 2007. -- Open orders in January 2008 of approximately 91,800 reflected a pickup in refinance and buy/sell activity; this was the strongest open order count since May 2007.
"Results for 2007 reflected an extremely difficult real estate market," said Chairman and Chief Executive Officer Theodore L. Chandler, Jr. "During the first half of the year, results were seasonally and cyclically depressed due to reductions in transactions from a weakening real estate environment. The liquidity crunch in the mortgage credit markets beginning early in the third quarter of the year brought a precipitous 34% decline in residential mortgage originations in fourth quarter 2007 compared to the same period in 2006. Despite the challenging operating environment, our liquidity remained strong, with cash flows from operations of $30 million for the quarter and $114 million for the year."
Chandler continued, "We have responded to these demanding market conditions with aggressive adjustments to our cost structure while continuing to make progress on our fusion initiatives designed to simplify our operations and improve our long-term performance. We believe that as liquidity in the credit markets slowly improves, our enhanced operating efficiency will allow us to capitalize on volume opportunities."
SEGMENT RESULTS Title Operations
Direct revenue decreased by $172.1 million, or 38.3%, in fourth quarter 2007 from fourth quarter 2006 and decreased by $144.9 million, or 9.5%, for the full year 2007 from the comparable period in 2006. Fourth quarter 2007 was negatively affected by the decline in residential mortgage originations and a 9.2% decrease in commercial revenue to $103.7 million from the 2006 fourth quarter high. For the full year 2007, the decline in residential mortgage originations was offset in part by strong commercial revenue totaling $426.5 million.
Direct orders closed were approximately 110,000 in fourth quarter 2007 compared to approximately 207,000 in fourth quarter 2006, with a closing ratio decreasing to 56.8% in fourth quarter 2007 from 86.3% in fourth quarter 2006. Direct revenue per direct order closed increased by approximately 13.6%, from approximately $2,200 in fourth quarter 2006 to approximately $2,500 in fourth quarter 2007 due to the mix of commercial versus residential business.
Agency revenue in fourth quarter 2007 decreased by $52.2 million, or 10.5%, from fourth quarter 2006. Agency revenue for the full year 2007 decreased by $220.0 million, or 11.1%, compared to full year 2006 due to the decline in market conditions across most regions, particularly in certain southeastern markets. Agents' commissions as a percentage of agency revenue were approximately 81.0% in fourth quarter 2007 compared to approximately 79.5% in fourth quarter 2006 and approximately 80.6% for the full year 2007 compared to approximately 80.0% for the full year 2006. These increases were caused by the shift in agency revenues away from the southeastern markets where agency commission rates tend to be lower.
Given the reduction in mortgage origination volumes, the Company has aggressively reduced operating costs. Salary and employee benefit costs decreased by $90.1 million, or 31.4%, in fourth quarter 2007 compared to fourth quarter 2006. FTEs were reduced by approximately 1,500 in fourth quarter 2007 bringing the full-year reduction in FTEs to approximately 2,900. Additionally, other expenses decreased by $9.2 million, or 6.0%, in fourth quarter 2007 from fourth quarter 2006 despite charges to close offices of $25.1 million incurred in fourth quarter 2007 compared to $2.0 million incurred in fourth quarter 2006. Other expenses for fourth quarter 2007 were lower than fourth quarter 2006 in response to lower business volumes.
The provision for policy and contract claims as a percentage of operating revenue was 8.6% in fourth quarter 2007 compared to 5.4% in fourth quarter 2006 and 8.6% for the full year 2007 compared to 6.1% for the full year 2006. The increase in the claims provision ratio in fourth quarter 2007 was primarily due to a higher claims rate of 6.8% for the 2007 policy year.
Lender Services
Also affected by declines in the residential real estate market, operating revenue in fourth quarter 2007 decreased by $15.3 million, or 20.2%, compared to fourth quarter 2006. Operating revenue for the full year 2007 increased by $26.7 million, or 10.6%, over the comparable period in 2006. Revenue for fourth quarter 2007 was negatively affected by lower volume in certain product lines in the mortgage origination business, which was offset in part by growth in default management services. Operating revenue for the full year 2007 was positively affected by increased business as a result of the merger with Capital Title, the growth in default management services, and by the acceleration of deferred revenue in the loan servicing business in first quarter 2007. The default management services business experienced growth in volume in fourth quarter and the full year 2007 due to increased demand for lien monitoring, broker price opinion and appraisal, foreclosure, reconveyance, and other related services as a result of the downturn in the residential real estate market.
To adjust for reductions in mortgage origination volumes, the Company reduced FTEs in fourth quarter by approximately 100 and for the full year 2007 by approximately 400, resulting in salary and employee benefit cost reductions of $3.9 million, or 14.5%, in fourth quarter 2007 compared to fourth quarter 2006. Additionally, other expenses decreased by $2.0 million, or 5.7%, in fourth quarter 2007 from fourth quarter 2006. Included in the other expenses were charges of $2.0 million for office closures in fourth quarter 2007 compared to $0.6 million in fourth quarter 2006. The increases for salaries and other expenses in full year 2007 over full year 2006 are primarily due to the Capital Title acquisition.
Pretax (losses) earnings were $(0.6) million in fourth quarter 2007 compared to $14.2 million in fourth quarter 2006 and $(10.3) million for the full year 2007 compared to $26.4 million for the full year 2006. The pretax losses in fourth quarter 2007 reflected weaker results primarily in the mortgage origination businesses. The decline in results for the full year 2007 was primarily due to the impairment of the customer relationship intangible asset in first quarter 2007 of $20.8 million, or $12.5 million after taxes, and declines in the residential real estate market, offset in part by growth in default management.
Contact ALTA at 202-296-3671 or [email protected].