Stewart Reports Financial Results for the First Quarter 2009
HOUSTON, April 30 -- Stewart Information Services Corporation (NYSE:STC - News) today reported the results of its operations for the quarter ended March 31, 2009 (dollar amounts are in millions, except for per share figures):
First Quarter (a) ---------------- 2009 2008 ---- ---- Total revenues $313.5 $394.1 Pretax loss (b) (37.3) (40.9) Income tax expense (benefit) (c) 3.2 (16.8) Net loss attributable to Stewart (42.0) (25.3) Net loss per share attributable to Stewart (2.31) (1.40) (a) The first quarter of 2009 includes pretax charges of $8.9 million relating to the impairment of investment securities and other assets. The first quarter of 2009 also includes pretax credits of $2.6 million relating to a recovery on a previously recognized agency defalcation and $3.0 million relating to the reversal of an accrual for a legal matter resolved in the Company's favor. The first quarter of 2008 includes a pretax charge of $4.6 million relating to an agency defalcation. (b) Before noncontrolling interests (c) The Company did not recognize an income tax benefit in the first quarter of 2009 relating to its pretax loss due to the recording of a valuation allowance against deferred tax assets. The valuation allowance will be evaluated for reversal when the Company returns to profitability. The income tax expense of $3.2 million recorded in the first quarter of 2009 is related to certain goodwill book/tax differences and taxes in foreign jurisdictions for our international operations.
Revenues decreased 20.5 percent to $313.5 million in the first quarter of 2009 compared with $394.1 million for the first quarter of 2008. The Company reported a loss before taxes (and before noncontrolling interests) of $37.3 million for the first quarter of 2009 compared with a loss of $40.9 million for the same period in 2008.
The revenue decline in the first quarter of 2009 was due to fewer closed title orders arising from the continuing decline in new and existing home sales, as well as a decline in selling prices and average revenue per file closed. Average revenue per file closed was lower due to a shift in mix of orders, with the first quarter of 2009 experiencing fewer large commercial orders and many more residential refinancing orders (which generate lower revenues per order closed than sale transactions) than in the first quarter of 2008. Title orders declined in the first quarter of 2009 by 6.3 percent from the same period a year ago, which was the lowest quarterly decline since the fourth quarter of 2005. A significant percentage of title orders opened in the first quarter of 2009 related to the refinancing of existing mortgages. These loans are taking longer to process by lenders than has historically been the case due to tightened lending standards and internal capacity constraints of the lenders. Even so, our overall closing ratio showed improvement during March 2009.
The Company continues to reduce costs and improve productivity in its core operations. Total expenses declined 19.4 percent to $350.8 million in the first quarter of 2009 compared with $435.0 million for the first quarter of 2008. In addition to workforce reductions described below, the Company continues to pursue the implementation of title search and production efficiencies company-wide through its regional production center initiative. As a result, significant savings per order processed are being achieved in operationally mature centers. The Company's back-office centralization initiatives remain on target and will begin generating benefits during 2009 in the areas of human resources, finance and accounting, procurement and information technology by continuing to reduce costs while providing high quality customer service.
The Company reduced its employee count during the first quarter of 2009 by approximately 170, or 2.7 percent, as part of its ongoing efforts to reduce costs. Employee costs were 24.5 percent lower in the first quarter of 2009 compared with the first quarter of 2008 due to realizing the full benefit of headcount reductions made during 2008 and the reductions made in the first quarter of this year. Since December 31, 2007, we have reduced headcount by 28.2 percent.
As a result of our aggressive efforts to reduce spending to current market conditions, other operating costs declined 21.6 percent in the first quarter of 2009 compared with the same period in 2008. This decline is consistent with the decrease in revenues. Many of our other operating costs are relatively fixed, such as rent and other occupancy expenses. However, we benefited from decreases in some of these fixed costs in the first quarter of 2009 due to cost reduction efforts in 2008.
Our title loss provision as a percentage of title revenues was 7.0 percent in the first quarter of 2009 compared with 8.0 percent in the same period of 2008.
Stewart's book value per share decreased to $25.33 at March 31, 2009 compared with $27.95 at December 31, 2008.
"Beginning in December 2008, record-low interest rates fueled refinancing activity and, to a lesser extent, sale transactions, which have resulted in improving trends in our order counts," said Stewart Morris, Jr., president and co-chief executive officer. "The current surge in refinancing activity has resulted in longer interest rate-lock periods, which in turn delay the closing of the transactions. As a result, we incurred expenses related to these orders opened during the first quarter of 2009 for which we have not yet recognized the related revenues, although these orders did begin to close in the latter half of March and continued into April. Our aggressive actions to reduce expenses and move production to regional production centers have aligned our costs with changing market conditions and positioned us to take advantage of revenue opportunities as they occur."
"In our underwriting operations, we see positive trends on claims as the number of new claims being filed has finally leveled off," said Malcolm S. Morris, chairman and co-chief executive officer. "While the cancellation of more than 3,000 underperforming agents in the past six months is reducing our risk with little reduction in remitted premiums, we continue to sign high-quality agents as a result of changes in the industry. We are also evaluating our rate structure in each state and increasing rates where appropriate to better match the cost of doing business in those states. Furthermore, even in this challenging global economic climate, our international operations remained profitable," said Morris.
Stewart Information Services Corporation (NYSE: STC - News) 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, flood certificates, document preparation, background checks and expertise in tax-deferred exchanges. More information can be found at www.stewart.com.
Forward-looking statements. Certain statements in this news release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to future, not past, events and often address our expected future business and financial performance. These statements often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "will" or other similar words. Forward-looking statements by their nature are subject to various risks and uncertainties that could cause our actual results to be materially different than those expressed in the forward-looking statements. These risks and uncertainties include, among other things, the severity and duration of current financial and economic conditions, the impact of recent significant decreases in the level of real estate activity, continued weakness or further adverse changes in the level of real estate activity, our ability to respond to and implement technology changes, the impact of unanticipated title losses on the need to further strengthen our policy loss reserves, any effect of title losses on our cash flows and financial condition, the impact of changes in governmental and insurance regulations, our dependence on our operating subsidiaries as a source of cash flow, the realization of expected expense savings resulting from our expense reduction steps taken in 2008, our ability to access the equity and debt financing markets, our ability to grow our international operations, and our ability to respond to the actions of our competitors. These risks and uncertainties, as well as others, are discussed in more detail in our documents filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2008 and our Current Reports on Form 8-K. We expressly disclaim any obligation to update any forward-looking statements contained in this news release to reflect events or circumstances that may arise after the date hereof, except as may be required by applicable law.
STEWART INFORMATION SERVICES CORPORATION STATEMENTS OF OPERATIONS (In thousands of dollars, except per share amounts) Three months ended March 31 -------- 2009 2008 Revenues Title insurance: Direct operations 142,538 180,587 Agency operations 166,770 191,053 Real estate information 7,365 14,716 Investment income 5,598 8,078 Investment and other losses - net (8,812) (297) ------- ----- 313,459 394,137 Expenses Amounts retained by agencies 137,416 155,562 Employee costs 114,706 151,962 Other operating expenses 68,047 86,836 Title losses and related claims 21,572 29,721 Depreciation and amortization 7,864 9,091 Interest 1,179 1,815 ----- ----- 350,784 434,987 Loss before taxes and noncontrolling interests (37,325) (40,850) Income tax expense (benefit) 3,223 (16,761) ----- -------- Net loss (40,548) (24,089) Less net earnings attributable to noncontrolling interests 1,471 1,203 ----- ----- Net loss attributable to Stewart (42,019) (25,292) ======== ======== Net loss per share attributable to Stewart (2.31) (1.40) ====== ====== Average number of shares (000) 18,153 18,046 ====== ====== Segment information: Title revenues 306,094 379,421 Title pretax loss before noncontrolling interests (36,153) (41,544) REI revenues 7,365 14,716 REI pretax (loss) earnings before noncontrolling interests (1,172) 694 Selected financial information: Cash used by operations (27,796) (31,447) Title loss payments - net of recoveries 36,529 30,482 Other comprehensive (loss) earnings (4,069) 159 Number of title orders opened (000): January 52.2 52.7 February 40.4 50.9 March 48.6 47.0 ---- ---- Quarter 141.2 150.6 ===== ===== Number of title orders closed (000): Quarter 83.9 89.5 ==== ==== March 31 December 31 2009 2008 ---- ---- Stockholders' equity 461,322 507,069 Number of shares outstanding (000) 18,210 18,142 Book value per share 25.33 27.95 STEWART INFORMATION SERVICES CORPORATION BALANCE SHEETS (condensed) (In thousands of dollars) March 31 December 31 2009 2008 ---- ---- Assets Cash and cash equivalents 58,353 76,558 Cash and cash equivalents - statutory reserve funds 9,912 9,688 ----- ----- Total cash and cash equivalents 68,265 86,246 Short-term investments 28,096 37,120 Investments - statutory reserve funds 365,085 374,508 Investments - other 124,571 156,267 Receivables - premiums from agencies 28,712 35,707 Receivables - other 73,154 89,365 Allowance for uncollectible amounts (19,018) (17,504) Property and equipment 77,823 83,533 Title plants 78,184 78,363 Goodwill 212,651 210,901 Intangible assets 7,720 8,448 Other assets 75,177 83,588 Investments - pledged, at fair value 221,794 222,684 ------- ------- 1,342,214 1,449,226 ========= ========= Liabilities Notes payable 108,147 135,276 Line of credit, secured by pledged investments 221,794 222,684 Accounts payable and accrued liabilities 92,376 110,769 Estimated title losses 445,619 461,532 Deferred income taxes 12,956 11,896 ------ ------ 880,892 942,157 Contingent liabilities and commitments Stockholders' equity Common and Class B Common Stock and additional paid-in capital 144,545 143,811 Retained earnings 311,528 353,547 Accumulated other comprehensive (loss) earnings (3,488) 581 Treasury stock (4,330) (4,097) ------- ------- Stockholders' equity attributable to Stewart 448,255 493,842 Noncontrolling interests 13,067 13,227 ------ ------ Total stockholders' equity 461,322 507,069 ------- ------- 1,342,214 1,449,226 ========= =========