Stewart Reports Operating Results for the Third Quarter and First Nine Months of 2008

Subscribe to RSS Feed
• What is RSS?

Wednesday October 29, 7:00 am ET


HOUSTON, Oct. 29, 2008/ -- Stewart Information Services Corporation NYSE-STC today 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)
                                                       2008           2007
    Total revenues                                    $395.2         $501.9
    Pretax loss before minority interests              (39.7)         (19.9)

    Net loss                                           (30.0)         (14.3)
    Net loss per share                                 (1.66)         (0.79)

                                                         Nine Months (b)
                                                      2008           2007
    Total revenues                                  $1,217.9       $1,607.0
    Pretax loss before minority interests             (124.7)          (5.3)

    Net loss                                           (83.9)          (8.9)
    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).


Financial Results

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.

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 throughout the United States and in 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 http://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. Factors that could cause expected or anticipated results to differ from those described in the forward-looking statements include those factors described in Item 1A of Stewart's annual report on Form 10-K for the year ended December 31, 2007. 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         Nine months ended
                                September 30              September 30
                              2008         2007         2008         2007
    Revenues
    Title insurance:
      Direct operations    176,381      234,161      557,655      734,203
      Agency operations    208,558      235,621      613,124      784,309
    Real estate
     information             9,110       16,510       35,128       49,540
    Investment income        7,015        8,800       22,551       27,018
    Investment and other
     (losses) gains - net   (5,832)       6,826      (10,541)      11,950
                           395,232      501,918    1,217,917    1,607,020

    Expenses
    Amounts retained
     by agencies           169,333      189,596      499,457      634,738
    Employee costs         140,006      170,422      438,045      526,310
    Other operating
     expenses               86,108      103,245      259,355      302,129
    Title losses and
     related claims         29,644       46,642      108,961      113,618
    Depreciation and
     amortization            8,360       10,403       26,401       30,437
    Impairment of
     other assets                -            -        6,011            -
    Interest                 1,433        1,512        4,369        5,054
                           434,884      521,820    1,342,599    1,612,286
    Loss before taxes and
     minority interests    (39,652)     (19,902)    (124,682)      (5,266)
    Income tax benefit     (11,269)      (9,162)     (45,556)      (6,241)
    Minority interests       1,592        3,530        4,730        9,883
    Net loss               (29,975)     (14,270)     (83,856)      (8,908)

    Loss per share           (1.66)       (0.79)       (4.64)       (0.49)

    Average number of
     shares (000)           18,109       18,114       18,082       18,206

    Segment information:
      Title revenues       386,122      485,408    1,182,789    1,557,480
      Title pretax loss
       before minority
       interests           (35,118)     (19,976)    (112,425)      (8,170)

      REI revenues           9,110       16,510       35,128       49,540
      REI pretax (loss)
       earnings before
       minority interests   (4,534)          74      (12,257)       2,904

    Selected financial
     information:
      Cash (used)
       provided by
       operations          (25,066)      (4,622)     (71,706)      14,810
      Title loss payments
       - net of recoveries  30,809       34,356      100,272       82,233
      Changes in other
       comprehensive
       earnings - net of
       taxes               (10,331)       7,360      (17,827)       7,907

    Number of title
     orders opened (000):
      July                      40           54
      August                    35           53
      September                 35           43
        Quarter                110          150
    Number of title
     orders closed (000):
        Quarter                 78          107

                                      September 30    December 31
                                          2008           2007

    Stockholders' equity                655,176        754,059
    Number of shares outstanding (000)   18,155         18,031
    Book value per share                  36.09          41.82



    STEWART INFORMATION SERVICES CORPORATION
    BALANCE SHEETS (condensed)
    (In thousands of dollars)

                                                   September 30    December 31
                                                       2008           2007
    Assets
    Cash and cash equivalents                         53,464         78,797
    Cash and cash equivalents - statutory
     reserve funds                                   145,697         30,442
      Total cash and cash equivalents                199,161        109,239

    Short-term investments                            54,735         79,780
    Investments - statutory reserve funds            344,655        518,586
    Investments - other                               75,730         98,511

    Receivables - premiums from agencies              35,903         48,040
    Receivables - other                              107,320         93,335
    Allowance for uncollectible amounts              (13,994)       (11,613)
    Property and equipment                            87,165         96,457
    Title plants                                      78,873         78,245
    Goodwill                                         210,033        208,824
    Intangible assets                                 11,999         17,157
    Other assets                                     122,477        105,413
    Other assets - pledged (a)                       230,250              -

                                                   1,544,307      1,441,974

    Liabilities
    Notes payable                                    146,811        108,714
    Line of credit (a)                               188,050              -
    Accounts payable and accrued liabilities          92,933        122,167
    Estimated title losses                           447,078        441,324
                                                     874,872        672,205

    Minority interests                                14,259         15,710

    Contingent liabilities and commitments

    Stockholders' equity
    Common and Class B Common Stock and additional
     paid-in capital                                 143,996        141,196
    Retained earnings                                513,262        597,118
    Accumulated other comprehensive earnings           2,015         19,842
    Treasury stock                                    (4,097)        (4,097)

      Total stockholders' equity                     655,176        754,059

                                                   1,544,307      1,441,974

    (a) The remaining $42.2 million available under the line of credit was
        drawn on October 1, 2008, resulting in an outstanding balance of
        $241.5 million, which is fully collateralized by auction rate
        securities noted above as other assets - pledged.  The auction rate
        securities and line of credit, as recorded above, are each reduced by
        $11.3 million relating to fair value adjustments. These fair value
        adjustments offset in investment and other (losses) gains - net and
        result in no net impact to the consolidated statement of earnings.



    October 29, 2008


click here to view 2014 news releases
click here to view 2013 archived news releases
click here to view 2012 archived news releases
click here to view 2011 archived news releases
click here to view 2010 archived news releases
click here to view 2009 archived news releases
click here to view 2008 archived news releases
click here to view 2007 archived news releases
click here to view 2006 archived news releases
click here to view 2005 archived news releases
click here to view 2004 archived news releases
click here to view 2003 archived news releases
click here to view 2002 archived news releases
click here to view 2001 archived news releases
click here to view 2000 archived news releases