Stewart Reports Operating Results for 2007

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HOUSTON, (Feb. 20, 2008) 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
 
Fourth Quarter
  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
December 31
Year ended
December 31
 
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
 
         
        
STEWART INFORMATION SERVICES CORPORATION BALANCE SHEETS (condensed)
(In thousands of dollars)

 
December 31
 
December 31
 
 
2007
 

2006

 
Assets        
Cash and cash equivalents
109,239
 
136,137
 
Short-term investments
79,780
 
161,711
 
Investments - statutory reserve funds
518,586
 
490,540
 
Investments - other
98,511
 
78,249
 
Receivables - premiums from agencies
48,040
 
58,023
 
Receivables - other
93,335
 
61,556
 
Allowance for uncollectable amounts
(11,613)
 
(9,112)
 
Property and equipment
96,457
 
99,325
 
Title plants
78,245
 
70,324
 
Goodwill
208,824
 
204,302
 
Intangible assets
17,157
 
15,444
 
Other assets
17,157
 
91,708
 
         
 
1,441,974
 
1,458,207
 
         
Liabilities        
Notes payable
108,714
 
109,549
 
Accounts payable and accrued liabilities
108,658
 
130,589
 
Estimated title losses
446,116
 
384,396
 
Deferred income taxes
11,832
 
14,139
 
Minority interests
15,710
 
17,272
 
 
691,030
 
655,945
 
         
Contingent liabilities and commitments        
         
Stockholders' equity        
Common and Class B Common Stock and
additional paid-in capital
141,196
 
148,517
 
Retained earnings
597,118
 
649,598
 
Accumulated other comprehensive earnings
16,727
 
8,061
 
Treasury stock
(4,097)
 
(3,914)
 
         
Total stockholders' equity
750,944
 

802,262

 
         
 
1,441,974
 
1,458,207
 

 February 20, 2008

Source: Stewart Information Services Corporation


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