HOUSTON, July 30 /PRNewswire-FirstCall/ -- Stewart Information Services Corporation (NYSE: STC) today reported the results of its operations for the quarter and six months ended June 30, 2009 (dollar amounts are in millions, except for per share figures):
Second Quarter Six Months
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2009(a) 2008(b) 2009(a) 2008(b)
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Total revenues $430.8 $428.5 $744.2 $822.7
Pretax loss before
noncontrolling interests (16.1) (44.2) (50.5) (85.0)
Income tax expense
(benefit)(c) 1.7 (17.5) 3.5 (34.3)
Net loss attributable
to Stewart (20.6) (28.6) (58.2) (53.9)
Net loss per share
attributable to Stewart (1.14) (1.58) (3.21) (2.98)
(a) The second quarter of 2009 includes pretax charges of $19.2 million
relating to reserve strengthening adjustments for prior policy years
and $22.4 million relating to several agency defalcations and large
title losses offset by $6.6 million relating to recoveries of
previously recognized title losses. Also included in the second
quarter of 2009 is a $2.9 million credit relating to a change in the
estimate of a previously recorded reserve for a legal matter. The
first three months of 2009 include a pretax credit of $2.6 million
relating to a recovery on a previously recognized agency defalcation,
a pretax credit of $3.0 million for the settlement of a legal matter
in the Company's favor and a pretax charge of $8.9 million relating
to the impairment of investment securities and other assets.
(b) The second quarter of 2008 includes a reserve adjustment of $10.0
million relating to prior policy years, $8.2 million relating to
large claims and agency defalcations and a software impairment charge
of $6.0 million. The first three months of 2008 included a charge of
$4.6 million relating to an agency defalcation.
(c) Income tax expense in 2009 is related to certain goodwill book/tax
differences and taxes in foreign jurisdictions for our international
operations. The Company did not recognize an income tax benefit
during the first half of 2009 relating to its pretax loss due to the
recording of a valuation allowance against deferred tax assets at
year-end 2008.
Our pretax operating results for the second quarter of 2009, before consideration of the $19.2 million reserve strengthening charge, improved significantly compared with the same quarter in the prior year as a result of the extensive cost reduction efforts undertaken in 2008 and 2009. A significant reduction was achieved in both employee costs and other operating costs for the second quarter and first half of 2009 when compared to the same periods in 2008. Revenues benefitted from an increase in market share and refinance orders closed, as well as a substantial increase in profit margins for our real estate information business.
We continue to aggressively reduce costs and improve productivity in our core title operations. In addition to workforce reductions described below, we are pursuing the implementation of title search and production efficiencies company-wide through our regional production center initiative. As a result, significant savings per order processed are being achieved in operationally mature centers.
Separately, our back-office centralization initiatives also remain on target and began generating benefits during 2009 in the areas of human resources, finance and accounting, procurement and information technology by reducing employee and operating expenses. Significant future savings will be achieved once we complete implementation of our enterprise systems in 2010.
In addition to the substantial improvements in our field title operations, we are also working diligently to improve our agency operations. We have canceled more than 3,200 underperforming agencies since the beginning of 2007. As discussed below, we have enhanced our agency qualification process to further improve our agency operations. Of particular significance to future operating results, agencies canceled since 2007 accounted for approximately 40 percent and 33 percent of our incurred claims losses and claims payments, respectively, thus far in 2009.
For the second quarter of 2009, we reported a pretax loss, before noncontrolling interests, of $16.1 million compared with a pretax loss of $44.2 million in 2008. On a pretax basis, we reported an operating loss, before noncontrolling interests, of $50.5 million in the first half of 2009 compared with a loss of $85.0 million in 2008. For the second quarter of 2009, we reported a net loss attributable to Stewart of $20.6 million compared with a net loss of $28.6 million in the second quarter of 2008. For the first half of 2009, we reported a net loss attributable to Stewart of $58.2 million compared with a net loss $53.9 million in 2008. In 2008, we recorded an income tax benefit of $34.3 million for which there is no corresponding amount recorded in 2009 due to the valuation allowance on deferred taxes. This negatively impacts our net loss in 2009 when compared to the same period in 2008.
During the second quarter, we recorded a title loss reserve strengthening charge of $19.2 million relating to adverse policy loss development primarily for policy years 2005-2007. In total, we recorded title losses associated with large claims, agency defalcations and reserve strengthening of $41.4 million for the six months ended June 30, 2009 as compared with $29.6 million for the six months ended June 30, 2008.
Title losses for the first half of 2009 were somewhat offset by recoveries of $9.2 million under our fidelity bond, while no such recoveries were recorded in 2008. As a result, our title loss ratio for the six months ended June 30, 2009 and 2008 was 12.1 percent and 10.1 percent of title revenues, respectively. In addition to the agency defalcations, all of the large claims, excepting one, are related to prior year policies issued by canceled agencies. We believe the actions taken to restructure our agency network will reduce future losses considerably and bring overall losses more in line with a normal, historical range.
Total revenues for the second quarter of 2009 increased slightly from the comparable period in 2008, while declining 9.5 percent for the first half of 2009 compared with the first half of 2008. Total revenues for the second quarter of 2009 were positively impacted by a substantial increase in our real estate information services business, with revenues from our loan modification services almost doubling from the same period in 2008. Title revenues, which are closely related to the volume and value of real estate transactions, declined by 3.2 percent and 9.6 percent for the second quarter and first half of 2009, respectively, compared with the same periods in 2008. Existing home sales declined approximately 3 percent in the second quarter of 2009 compared to the same period in 2008. Of greater impact to revenues, however, was the significant decline in the median sales price-down almost 16 percent in the second quarter of 2009 compared with 2008 and down more than 23 percent from the high in the second quarter of 2006. Generally, a 5 percent decline in home selling prices reduces title revenues by 3 to 4 percent (however, this varies significantly from state-to-state and within price levels). In the second quarter of 2009, new home sales fell to the lowest level since 1963 when these statistics were first recorded.
