HOUSTON, Oct. 28 /PRNewswire-FirstCall/ -- Stewart Information Services Corporation (NYSE: STC) reported a third quarter 2010 loss per diluted share of $0.17 compared to a loss of $1.30 per diluted share in the third quarter of 2009, an improvement of 87 percent over the prior year quarter. Year-to-date the loss per diluted share was $1.23 in 2010 compared to a loss per diluted share of $4.51 in the first nine months of 2009, an improvement of 73 percent over the comparable 2009 period.
Our combined direct title operations and real estate information (REI) operations were profitable again for the quarter and are profitable year-to-date. Our employee and other operating costs continue to show significant improvement, declining a combined 8.9 percent from the third quarter of 2009. Title losses, although declining 29.6 percent for the third quarter of 2010 from the prior year third quarter, remain elevated as described more fully below. We generated operating cash flow of $8.7 million for the quarter ended September 30, 2010, doubling the prior year quarter's $4.3 million.
Pretax loss before noncontrolling interests
Income tax expense (c)
Net loss attributable to Stewart
Net loss per diluted share attributable to Stewart
The third quarter of 2010 includes a pretax charge of $4.9 million resulting from changes in the estimated legal costs for several existing large title claims that we are working to resolve. The first nine months of 2010 include pretax gains of $6.3 million primarily relating to the monetization of internally developed software, $1.2 million relating to the buyout of a royalty agreement and $1.2 million on the sale of an interest in a subsidiary; a pretax credit of $2.3 million relating to a change in the estimate of a previously recorded reserve for a legal matter; and a $10.2 million pretax charge relating to adjustments to previously recorded large title losses.
The third quarter of 2009 includes pretax charges of $12.5 million relating to title loss reserve strengthening adjustments for prior policy years, $3.8 million relating to an increase in the 2009 title loss provision rate, $6.1 million relating to large title losses and $2.2 million relating to the impairment of other assets. The first nine months of 2009 includes pretax charges of $31.7 million relating to title loss reserve strengthening adjustments for prior policy years and $27.2 million relating to several agency defalcations and large title losses offset by $10.5 million relating to recoveries of previously recognized title losses, credits of $5.9 million for the settlements of legal matters in the Company's favor and a pretax charge of $11.1 million relating to the impairment of investment securities and other assets.
Income tax expense in 2010 and 2009 is related primarily to taxes in foreign jurisdictions for our international operations and on entities not included in our consolidated tax returns. The Company did not recognize an income tax benefit during the first nine months of 2010 or 2009 relating to its pretax loss due to the recording of a valuation allowance against deferred tax assets.
Total revenues declined 6.5 percent in the third quarter of 2010 compared to the same period in 2009, and operating revenues decreased 6.9 percent. Revenues from direct title operations decreased 8.4 percent in the third quarter of 2010 compared to the same period in the prior year. Although total orders closed for the quarter declined 15.5 percent, revenue per closing increased 3.2 percent to $1,845. This increase in overall revenue per order is due to the current quarter's closings being less heavily weighted to refinancing transactions than in the prior year's quarter. Revenues from agency operations decreased 7.9 percent in the third quarter of 2010 compared to the third quarter of 2009. Our lender services operations in the REI segment reported an increase in revenues of 27.8 percent for the third quarter of 2010 compared to the third quarter of 2009, but down 26.2 percent sequentially from the second quarter of 2010. Demand for loan modification services, a product introduced in the second quarter of 2009, retreated somewhat in the third quarter relative to the second quarter of 2010 as demand for this product is dependent on the number and scale of government programs and lender projects and can fluctuate significantly from quarter to quarter.
Year-to-date total revenues for 2010 increased 1.6 percent compared to the same period in 2009. Revenues from direct title operations decreased 8.0 percent, agency title revenues improved 4.3 percent and REI revenues increased 30.0 percent.
Third quarter title revenues were not impacted by the temporary suspension of foreclosures announced by certain lenders. Although a disruption in the foreclosure process by lenders could negatively impact revenues and, ultimately, earnings in the short term, the anticipated volume of REO properties for sale indicates that a number of properties will soon be placed on the market. Distressed properties (including REO and short sales) that will be marketed are generally offered at some discount and combined with historically low interest rates creates a positive environment for home sales. Stewart Title Guaranty Company issued a bulletin to title agencies and its owned offices providing underwriting guidelines and standards to enable them to insure REO sale transactions. The American Land Title Association has also completed work on a standardized agreement to be issued by lenders to title insurers to indemnify title insurers against acts of lenders in the foreclosure process. Stewart stands ready to issue its title insurance to purchasers of foreclosed properties from institutional lenders representing that they have followed all applicable legal processes.
Commercial title revenues grew 26.4 percent in the third quarter of 2010 to $22.6 million compared to the same quarter in the prior year, and declined 1.9 percent from the second quarter of 2010. International operations remain profitable and are experiencing continued growth in total revenues and profits.
Agency retention was unchanged during the third quarter of 2010 relative to the second quarter at 83.2 percent of agency revenues, but increased 100 basis points from the third quarter of 2009. We are making progress on increasing remittance rates in those states that have not met our profitability goals, and have targeted a 20 percent aggregate remittance rate within the next 12 months.
Employee costs totaled 26.7 percent of operating revenues for the third quarter of 2010, as compared to 27.4 percent in the third quarter of 2009. We continued to lower headcount in the quarter, even while total orders opened increased 6.7 percent compared to the third quarter of 2009, including increased refinance orders. Implementation of our enterprise resource planning system remains on schedule to be substantially complete by the end of 2010, which will result in further improvement in operating and employee costs.
Other operating costs declined 8.0 percent compared to the third quarter of 2009. The third quarter of 2010 included approximately $3.5 million of accruals related to adjustments for several legal matters described in our filings with the Securities and Exchange Commission.
Title losses in the third quarter of 2010 were 9.6 percent of title revenues, declining from 12.6 percent in the third quarter of 2009, and slightly higher than the 9.3 percent recorded in the second quarter of 2010. Included in the current quarter's title losses are accruals aggregating $4.9 million resulting from changes in the estimated legal costs for several existing large title claims that we are working to resolve. Included in the third quarter of 2009 were accruals totaling $18.6 million relating to a reserve strengthening charge and large title claims. Losses incurred on known claims year-to-date have decreased 14.6 percent compared to the prior year period. Nevertheless, cash claims payments remain elevated, and consequently we have maintained a relatively high provisioning rate for title losses. We have had no reserve strengthening charges for the last four quarters, and agency defalcation losses greater than $1 million have been greatly reduced. Five such losses were reported in the last five quarters (averaging less than $1.5 million each), and none were reported in the current quarter. Previously canceled agents accounted for approximately 45 percent of cash claim payments in the third quarter of 2010.
"The comparatively high level of claims paid in the third quarter is based predominantly on claims recognized in prior quarters, which in some cases called for increasing reserves due to additional legal expenses of discovery in the ongoing legal process," said Malcolm S. Morris, chairman and co-chief executive officer. "The good news is that fewer new claims are being reported and claim amounts are smaller," added Morris.
"Over the past year we have transformed our title operations into a sales oriented organization yielding a growth in market share and a higher order count than we would otherwise enjoy," said Stewart Morris, Jr., president and co-chief executive officer. "Driven by record low interest rates, the increased level of refinance activity has stressed lender capacity resulting in lengthened closings times," added Morris. "We are proud of the financial performance of Stewart Lender Services as well as the cost cutting efforts throughout the entire company which have improved performance of the operations this year-to-date over last year."
Stewart Information Services Corporation (NYSE-STC) 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; continued weakness or further adverse changes in the level of real estate activity; changes in mortgage interest rates, existing and new home sales, and availability of mortgage financing; our ability to respond to and implement technology changes, including the completion of the implementation of our enterprise systems; 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 our increased diligence and inspections in our agency operations; changes to the participants in the secondary mortgage market and the rate of refinancings that affect the demand for title insurance products; regulatory non-compliance, fraud or defalcations by our title insurance agents or employees; our ability to timely and cost-effectively respond to significant industry changes and introduce new products and services; the impact of changes in governmental and insurance regulations, including any future reductions in the pricing of title insurance products and services; our dependence on our operating subsidiaries as a source of cash flow; the continued realization of expected expense savings resulting from our expense reduction steps; our ability to access the equity and debt financing markets when and if needed; 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, 2009, our quarter reports on Form 10-Q, 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 (condensed)
(In thousands of dollars, except per share amounts and except where noted)
Three months ended
Nine months ended
Real estate information
Investment and other gains (losses) – net
Amounts retained by agencies
Other operating expenses
Title losses and related claims
Depreciation and amortization
Loss before taxes and noncontrolling interests
Income tax (benefit) expense
Less net earnings attributable to noncontrolling interests
Net loss attributable to Stewart
Net loss per diluted share attributable to Stewart
Average number of dilutive shares (000)
Title pretax loss before noncontrolling interests
REI pretax earnings before noncontrolling interests
Selected financial information:
Cash provided (used) by operations
Title loss payments - net of recoveries
Other comprehensive earnings
Number of title orders opened (000):
Number of title orders closed (000): Quarter
Number of shares outstanding (000)
Book value per share
STEWART INFORMATION SERVICES CORPORATION
BALANCE SHEETS (condensed)
(In thousands of dollars)
Cash and cash equivalents
Cash and cash equivalents – statutory reserve funds
Total cash and cash equivalents
Investments – statutory reserve funds
Investments – other
Receivables – premiums from agencies
Receivables – other
Allowance for uncollectible amounts
Property and equipment
Investments – pledged, at fair value
Convertible senior notes payable
Line of credit, secured by pledged investments
Accounts payable and accrued liabilities
Estimated title losses
Deferred income taxes
Contingent liabilities and commitments
Common and Class B Common stock and additional paid-in capital
Accumulated other comprehensive earnings
Stockholders' equity attributable to Stewart
Total stockholders' equity
SOURCE Stewart Information Services Corporation