Stewart Reports Operating Results for 2007
February 21, 2008
HOUSTON -- Stewart Information Services Corporation (NYSE-STC) reported the results of its operations for the year and fourth quarter ended December 31, 2007. (Dollar amounts in the table below are in millions, except per share figures.)
|
Year |
|
|
2007 (a) |
2006 (b) |
Total revenues |
$2,106.7 |
$2,471.5 |
Pretax (loss) earnings before minority interests |
(51.9) |
84.5 |
Net (loss) earnings |
(40.2) |
43.3 |
Net (loss) earnings per diluted share |
(2.21) |
2.36 |
|
|
|
|
2007 (c) |
2006 |
Total revenues |
$499.7 |
$645.8 |
Pretax (loss) earnings before minority interests |
(46.7) |
19.7 |
Net (loss) earnings |
(31.3) |
10.7 |
Net (loss) earnings per diluted share |
(1.74) |
0.59 |
(a) The year 2007 includes pretax charges of $40.9 million ($26.6 million after taxes, or $1.46 per share) to increase reserves due to large title claims of $33.4 million and a $7.5 million reserve adjustment relating to policies issued in prior years. Also included in 2007 are pretax gains of $8.8 million ($4.1 million after taxes and minority interests, or $0.22 per share) from the sale of two subsidiaries and real estate.
(b) The year 2006 includes pretax charges of $9.2 million ($6.0 million after taxes, or $0.33 per diluted share) relating to large title claims.
(c) The fourth quarter of 2007 includes pretax charges of $20.0 million ($13.0 million after taxes, or $0.72 per share) to increase reserves due to nine large title claims totaling $15.0 million, and an additional adjustment of $5.0 million relating to incurred but not reported reserves resulting from an increase in the frequency of large title claims.
The loss incurred by the Company in 2007 was its first full-year loss since 1974. The sudden collapse of the subprime mortgage lending market, tightening of credit availability in general, rising foreclosures, weakening home sales and falling home prices were factors contributing to a severe decline in the cyclical U.S. real estate market. For the year 2007 compared with 2006, existing home sales fell 12.6 percent and new home sales were down 26.1 percent. Existing home prices overall fell 6.0 percent.
Since the Company's revenues are closely related to the volume and value of real estate transactions, the Company's title revenues declined by 15.4 percent for the year 2007. For 2007, the Company's title order counts, based on orders per workday, were 14.6 percent and 20.8 percent lower for the year and fourth quarter, respectively, compared with the same periods in 2006.
In the fourth quarter of 2007 compared with the same period in 2006, business declined in the Company's title office, agency and underwriting operations in nearly all states. This decline was particularly significant in Florida and the western states of California, Nevada, Arizona and Washington. However the impact was far less severe in Texas and certain other states. Underwriting results in the fourth quarter of 2007 were reduced by additions to title loss reserves of $20.0 million, or $15.7 million more than in the fourth quarter of 2006. These additions to claim reserves were caused by a number of large claims primarily attributed to independent agency defalcations and a related increase in incurred but not reported reserves resulting from an increase in the frequency of large claims. In addition to the increase in losses from large claims, the Company's loss experience on normal claims worsened. Overall, the Company lost $46.7 million before taxes and minority interests in the fourth quarter of 2007.
The Company has responded aggressively to the decline in the real estate market and is taking the appropriate steps to restore profitability and achieve reasonable profit margins in the future. "Strong efforts have been made to increase revenues through sales training and market segmentation," said Stewart Morris, Jr., president and co-chief executive officer. "Our market opportunities have been helped by competitors exiting certain geographic markets. We have closed approximately 145 unprofitable locations, predominately branch offices, since December 31, 2006 and are closing additional locations in the first quarter of 2008. We have reduced employee counts and are concentrating on increasing employee productivity, controlling compensation expense in specific markets and renegotiating office leases," said Morris.
The Company reduced employee counts company-wide approximately 675 in the fourth quarter of 2007, totaling approximately 1,500 since the beginning of 2007. Additional reductions have occurred in the first quarter of 2008. The decrease since the beginning of 2006, when the real estate market downturn began, has been approximately 2,100, or 20.6 percent. Other operating expenses have not declined at the same rate as revenues due to the relatively fixed nature of some of these costs, such as rent and other occupancy expenses, and costs associated with our growing international and commercial businesses. Other operating expenses also increased due to the costs associated with acquisitions and the impact in the fourth quarter of 2007 of costs associated with closing offices.
"Title losses in our company and in the industry traditionally increase with a downturn in real estate activity. We are making every effort to manage the controllable factors that contribute to our losses," said Malcolm S. Morris, chairman and co-chief executive officer. "Our long-standing methodology for estimating our provision for future title losses, which is based on reported claims, historical loss payment experience, title industry averages and the current legal and economic environment, is basically unchanged. However, applying that methodology in light of our worse-than-expected claims payment experience related to policies issued in 2004-2006, together with a number of large claims, resulted in an increase in our provision for future losses, as a percentage of title operating revenues, to 8.5 percent in 2007 from 6.0 percent in 2006."
The Company continued to grow its profitable international and commercial businesses during 2007. The increase in business in international markets was attributable to Canada, Mexico and Central Europe. In addition, acquisitions made since the same period in the prior year increased revenues $4.9 million and contributed pretax earnings of $0.9 million in the fourth quarter of 2007.
The Company remains committed to its long-term strategies and restructuring efforts in this extremely difficult real estate environment. The year 2008 will be one of improvements in technology efficiencies as the Company continues its consolidation of data centers, conversion from its legacy production systems and refinement of SureClose®, our customer-oriented transaction management platform. As the Company progresses in the implementation of its shared-services initiative and consolidation of field operations, it will set the stage for measurable, reduced back-office expenses in future years. Aligning and leveraging the Company's systems and processes for growth and expansion opportunities will provide significant long-term benefits.
During the year, the Company completed its stock purchase plan, acquiring approximately 258,000 shares, or 1.5 percent, of its outstanding Common Stock. In December 2007, the Company paid an annual dividend of 75 cents per share, the same as in the previous two years, representing a yield of approximately 2.5 percent at the date of announcement.
Stewart Information Services Corporation is a customer-driven, technology-enabled, strategically competitive, real estate information, title insurance and transaction management company. Stewart provides title insurance and related information services required for settlement by the real estate and mortgage industries through more than 9,500 policy-issuing offices and agencies in the United States and international markets. Stewart also provides post-closing lender services, automated county clerk land records, property ownership mapping, geographic information systems, property information reports, document preparation, background checks and expertise in tax-deferred exchanges. More information can be found at www.stewart.com.
This press release may contain forward-looking statements, which include all statements other than statements of historical facts. Forward-looking statements are not guarantees of performance and no assurance can be given that Stewart's expectations will be achieved. In particular, historical order counts do not necessarily indicate future revenues since Stewart cannot predict the number of orders that will result in closings.
STEWART INFORMATION SERVICES CORPORATION
STATEMENTS OF EARNINGS
(In thousands of dollars, except per share amounts)
|
Three months ended |
Year ended |
||
|
2007 |
2006 |
2007 |
2006 |
Revenues |
|
|
|
|
Title insurance: |
|
|
|
|
Direct operations |
213,138 |
262,647 |
947,342 |
1,028,688 |
Agency operations |
256,410 |
351,309 |
1,040,719 |
1,321,994 |
|
|
|
|
|
Real estate information services |
16,497 |
21,244 |
66,037 |
81,159 |
Investment income |
9,055 |
9,229 |
36,073 |
34,913 |
Investment and other gains - net |
4,570 |
1,379 |
16,520 |
4,727 |
|
499,670 |
645,808 |
2,106,691 |
2,471,481 |
|
|
|
|
|
Expenses |
|
|
|
|
Amounts retained by agencies |
208,300 |
282,668 |
843,038 |
1,067,071 |
Employee costs |
162,797 |
182,311 |
689,107 |
728,529 |
Other operating expenses |
107,868 |
106,948 |
409,999 |
405,951 |
Title losses and related claims |
54,884 |
41,708 |
168,501 |
141,557 |
Depreciation and amortization |
10,688 |
10,842 |
41,125 |
37,747 |
Interest |
1,788 |
1,666 |
6,842 |
6,090 |
|
546,325 |
626,143 |
2,158,612 |
2,386,945 |
|
|
|
|
|
(Loss) Earnings before taxes and minority interests |
(46,655) |
19,665 |
84,536 |
84,536 |
Income taxes (benefit) expense |
(17,685) |
4,614 |
(23,926) |
23,045 |
Minority interests |
2,342 |
4,306 |
12,225 |
18,239 |
Net (loss) earnings |
(31,312) |
10,745 |
(40,220) |
43,252 |
|
|
|
|
|
Average number of diluted shares (000) |
18,030 |
18,308 |
18,162 |
18,304 |
Diluted (loss) earnings per share |
(1.74) |
0.59 |
(2.21) |
2.36 |
|
|
|
|
|
Segment information: |
|
|
|
|
Title revenues |
483,173 |
624,564 |
2,040,654 |
2,390,322 |
Title pretax (loss) earnings before minority interests |
(45,867) |
19,852 |
(54,037) |
83,234 |
REI revenues |
16,497 |
21,244 |
66,037 |
81,159 |
REI pretax (loss) earnings before minority interests |
(788) |
(187) |
2,116 |
1,302 |
|
|
|
|
|
Selected financial information: |
|
|
|
|
Cash (used) provided by operations |
(2,805) |
44,878 |
14,949 |
105,064 |
Title loss payments - net of recoveries |
30,593 |
27,320 |
117,550 |
107,170 |
Changes in other comprehensive earnings - net of taxes |
759 |
318 |
8,666 |
2,433 |
|
|
|
|
|
Number of title orders opened (000): |
|
|
|
|
October |
48 |
59 |
|
|
November |
42 |
55 |
|
|
December |
38 |
48 |
|
|
Quarter |
128 |
162 |
|
|
Number of title orders closed (000) |
|
|
|
|
Quarter |
93 |
124 |
|
|
|
|
|
|
|
|
December 31 |
|
December 31 |
|
|
2007 |
|
2006 |
|
|
|
|
|
|
Stockholders' equity |
750,944 |
|
802,262 |
|
Number of shares outstanding (000) |
18,031 |
|
18,231 |
|
Book value per share |
41.65 |
|
44.00 |
|
|
|
|
|
|
Contact ALTA at 202-296-3671 or [email protected].