RICHMOND, Va., April 29 /PRNewswire-FirstCall/ -- LandAmerica Financial Group, Inc. announces operating results for the first quarter ended March 31, 2008.
First Quarter First Quarter
2008 2007
(In millions, except per share data)
Total revenue $686.4 $948.6
Net (loss) income $(24.2) $4.7
Net (loss) income per diluted share $(1.60) $0.26
"Our first quarter results reflect the persistently challenging economic conditions and the measures we have taken during the latter half of 2007 to significantly reduce operating costs," said Chairman and Chief Executive Officer Theodore L. Chandler, Jr. "Tight mortgage lending conditions from reduced liquidity in the mortgage-backed securities market were factors in keeping transactional demand at bay. These conditions, coupled with a reduction in our commercial business and some increased severity in claims, compressed margins during first quarter 2008.
"On the competitive front, we improved our national market share, based on title premiums, by approximately 90 basis points for fourth quarter 2007 over fourth quarter 2006." Chandler added, "We will continue to reduce costs in our operating structure to provide a strong foundation for growth when the markets normalize."
First Quarter Highlights
-- Total revenue decreased by 27.6% in first quarter 2008 from first
quarter 2007. The decline in total revenue and earnings in first
quarter 2008 compared to first quarter 2007 reflects persistently lower
residential mortgage originations and a reduction in commercial revenue
during the quarter. As estimated by the Mortgage Bankers Association,
home sales volume declined by approximately 1.7 million, or 23.4%, in
first quarter 2008 from the comparable period in 2007.
-- Direct revenue from title and non-title commercial operations was
$90.7 million in first quarter 2008 compared to $111.6 million in first
quarter 2007, a decrease of 18.7%.
-- In first quarter 2008, the Company reduced full-time equivalents
("FTEs") by approximately 300 to 10,740 at March 31, 2008. This
represents a cumulative reduction in FTEs of approximately 3,600, or
25.4%, since January 1, 2007 before the effect of acquisitions.
-- General, administrative and other expenses decreased by $34.4 million,
or 18.4%, in first quarter 2008 from first quarter 2007.
-- The claims provision as a percentage of operating revenue for the Title
Operations segment was 9.7% in first quarter 2008, up from 8.6% in
fourth quarter 2007 and 6.5% in first quarter 2007. The increase in
the claims provision ratio in first quarter 2008 was primarily due to
approximately $12 million of increased individual claims over
$1 million ("large claims"). This large claims activity related
primarily to the 2004, 2006 and 2007 policy years. Excluding large
claims activity, the claims provision ratio would have been 7.5%.
SEGMENT RESULTS
Title Operations
First Quarter First Quarter Percent
2008 2007 Change
(Dollars in millions)
Total revenue $570.5 $814.1 (29.9)%
Pretax (losses) earnings $(27.9) $34.1 (181.8)%
Average full-time equivalents 8,100 11,500 (29.6)%
Claims ratio 9.7% 6.5% 320 bps
bps -- basis points
In the Title Operations segment, total revenue and pretax (losses) earnings for first quarter 2008 were negatively affected by the decline in buy/sell residential transactions, a decline in property values and a decrease in commercial revenue of 20.2% to $73.6 million compared to first quarter 2007.
Responding to significant reductions in mortgage origination volumes, the Company has aggressively cut operating costs in this segment. The Company's average FTEs in first quarter 2008 were down by approximately 3,400, or about a third of average FTEs in first quarter 2007, resulting in a reduction of salary and employee benefit costs of $76.4 million, or 30.0%. Additionally, general, administrative and other expenses decreased by $27.0 million, or 21.7%, in first quarter 2008 from first quarter 2007.
The increase in the claims provision ratio in first quarter 2008 was primarily due to large claims activity of approximately $12 million. The total claims provision for first quarter 2008 included $43.4 million for the 2008 policy year and $13.7 million for increases in claims rates for policies in prior years.
Lender Services
First Quarter First Quarter Percent
2008 2007 Change
(Dollars in millions)
Total revenue $71.7 $83.4 (14.0)%
Pretax earnings (losses) $10.1 $(8.7) 216.1%
Average full-time equivalents 1,500 1,800 (16.7)%
In spite of the challenging market conditions, the Lender Services segment generated pretax earnings during first quarter 2008. Pretax losses for first quarter 2007 included the impairment of a customer relationship intangible asset of $20.8 million. Total revenue and pretax earnings were negatively affected by lower volume in certain product lines of the loan servicing business and the mortgage origination businesses in first quarter 2008 compared to first quarter 2007 before the effect of the impairment charge in the prior year. The default management services business experienced higher volume in first quarter 2008 due to increased demand for lien monitoring, broker price opinions and appraisals, foreclosure, reconveyance and other related services as a result of the continuing downturn in the residential real estate market.
Responding to significant reductions in mortgage origination volumes, the Company reduced average FTEs in first quarter 2008 by approximately 300 compared to first quarter 2007, resulting in salary and employee benefit cost reductions of $4.6 million, or 16.4% quarter over quarter. Additionally, general, administrative and other expenses decreased by $3.2 million, or 8.5%, in first quarter 2008 from first quarter 2007.
Financial Services
First Quarter First Quarter Percent
2008 2007 Change
(Dollars in millions)
Net revenue $6.1 $6.3 (3.2)%
Pretax earnings $4.7 $5.1 (7.8)%
Average full-time equivalents 30 20 50.0%
In the Financial Services segment, revenue and pretax earnings decreased in first quarter 2008 compared to first quarter 2007 primarily due to a net increase in interest expense from certificate of deposit liabilities. This was offset in part by a net increase in investment income from the loan portfolio and an increase in 1031 exchange business previously serviced in the Title Operations segment. Average FTEs increased in first quarter 2008 compared to first quarter 2007 primarily to support the increase in 1031 exchange business.
Corporate and Other
First Quarter First Quarter Percent
2008 2007 Change
(Dollars in millions)
Total revenue $32.1 $40.1 (20.0)%
Pretax losses $(26.9) $(23.2) (15.9)%
Average full-time equivalents 1,090 1,030 5.8%
Corporate and Other includes unallocated corporate expenses, residential home warranty and inspection businesses and commercial property appraisal and assessment businesses. Total revenue and pretax losses were affected by declines in the commercial operations and in home warranty and property inspection businesses in first quarter 2008 from the comparable period in 2007. Revenue from commercial operations within Corporate and Other was $17.1 million in first quarter 2008 compared to $19.4 million in first quarter 2007, a decrease of 11.9%. The home warranty and property inspection businesses are dependent on existing home sale volumes.
Salary and employee benefit costs and average FTEs increased in first quarter 2008 compared to first quarter 2007 primarily as the result of an international acquisition that closed during third quarter 2007.
The effective income tax rate was 39.5% for first quarter 2008 compared to 36.1% for first quarter 2007. The change in the effective tax rate was due primarily to favorable permanent differences relative to the pretax loss and an increase in the state tax rate.
CONFERENCE CALL
The Company will sponsor a conference call on Wednesday, April 30, 2008, at 10:00 AM ET to discuss the results. Those wishing to participate in the live call should dial 1-877-407-0782 and request to be connected to the LandAmerica conference. Additionally, the call will be simultaneously broadcast over the internet via LandAmerica's website (http://www.landam.com/). Click Investor Information > Calendar of Events. The event will be archived and available for replay starting two hours after the completion of the live call through May 30, 2008.
About LandAmerica Financial Group, Inc.
LandAmerica Financial Group, Inc. is a leading provider of real estate transaction services with over 700 offices and a network of more than 8,500 active agents. LandAmerica serves agent, residential, commercial and lender customers throughout the United States and in Mexico, Canada, the Caribbean, Latin America, Europe and Asia. LandAmerica is recognized as number one in the mortgage services industry on Fortune's 2007 and 2008 lists of America's Most Admired Companies.
Segment Results
(In millions)
Quarter Ended March 31, 2008
Title Lender Financial Corporate
Operations Services Services & Other Consolidated
Revenue:
Direct operations $235.6 $71.4 $0.7 $28.1 $335.8
Agency operations 320.4 - - - 320.4
Investment income 14.5 0.3 11.4 4.0 30.2
Total revenue 570.5 71.7 12.1 32.1 686.4
Agents' commissions 259.8 - - - 259.8
Interest expense on
bank deposits and
FHLB borrowings - - 6.0 - 6.0
Net revenue 310.7 71.7 6.1 32.1 420.6
Salaries and employee
benefits 178.4 23.4 1.0 26.0 228.8
General, administrative
and other 97.3 34.3 0.3 20.5 152.4
Claims provision 53.7 0.8 - 2.6 57.1
Depreciation and
amortization 9.0 3.1 0.1 3.8 16.0
Interest expense on
notes payable 0.2 - - 6.1 6.3
Earnings (loss) before
income taxes $(27.9) $10.1 $4.7 $(26.9) $(40.0)
Pretax margin (4.9)% 14.1% 38.8% (83.8)% (5.8)%
Quarter Ended March 31, 2007
Title Lender Financial Corporate
Operations Services Services & Other Consolidated
Revenue:
Direct operations $369.3 $82.9 $0.2 $36.8 $489.2
Agency operations 422.1 - - - 422.1
Investment income 22.7 0.5 10.8 3.3 37.3
Total revenue 814.1 83.4 11.0 40.1 948.6
Agents' commissions 340.4 - - - 340.4
Interest expense on
bank deposits and
FHLB borrowings - - 4.7 - 4.7
Net revenue 473.7 83.4 6.3 40.1 603.5
Salaries and employee
benefits 254.8 28.0 0.9 24.1 307.8
General, administrative
and other 124.3 37.5 0.3 24.7 186.8
Claims provision 51.1 2.2 - 2.7 56.0
Depreciation and
amortization 9.2 3.6 - 4.0 16.8
Interest expense on
notes payable 0.2 - - 7.8 8.0
Impairment of intangible
and long-lived assets - 20.8 - - 20.8
Earnings (loss) before
income taxes $34.1 $(8.7) $5.1 $(23.2) $7.3
Pretax margin 4.2% (10.4)% 46.4% (57.9)% 0.8%
Summary of Operations
(In millions, except per share data and order information)
(Unaudited)
Quarter Ended March 31,
2008 2007
Operating revenue $656.2 $911.3
Investment and other income 30.3 30.3
Net realized investment (losses) gains (0.1) 7.0
TOTAL REVENUE 686.4 948.6
Agents' commissions 259.8 340.4
Salaries and employee benefits 228.8 307.8
General, administrative and other 152.4 186.8
Provision for policy and contract claims 57.1 56.0
Depreciation and amortization 16.0 16.8
Interest expense 12.3 12.7
Impairment of intangible and long-lived assets - 20.8
TOTAL EXPENSES 726.4 941.3
(Loss) income before income taxes (40.0) 7.3
Income tax (benefit) expense (15.8) 2.6
Net (loss) income $(24.2) $4.7
Net (loss) income per share $(1.60) $0.27
Weighted average number of shares outstanding 15.1 17.2
Net (loss) income per share assuming dilution $(1.60) $0.26
Weighted average number of shares outstanding
assuming dilution 15.1 18.0
Other selected information:
Cash flow (used in) provided by operations $(75.4) $119.2
Title claims paid $43.6 $40.9
Direct revenue per direct order closed $1,900 $2,100
Direct orders opened (in thousands):
January 89.8 97.6
February 90.8 92.3
March 77.5 106.2
Total direct orders opened 258.1 296.1
Total direct orders closed 144.9 188.4
Condensed Balance Sheets
(In millions, except share amounts)
March 31, December 31,
2008 2007
(Unaudited)
ASSETS
Investments $1,335.4 $1,444.6
Cash 71.2 98.2
Loans receivable 645.7 638.4
Accrued interest receivable 15.8 16.8
Notes and accounts receivable 156.6 150.6
Income taxes receivable 46.9 22.7
Property and equipment, net 125.1 133.4
Title plants 102.3 102.4
Goodwill and intangible assets, net 897.0 904.3
Deferred income taxes 117.0 120.1
Other assets 235.7 222.2
Total assets $3,748.7 $3,853.7
LIABILITIES
Policy and contract claims $887.0 $876.5
Deposits 521.8 564.5
Accounts payable and accrued liabilities 307.2 365.3
Notes payable 584.0 579.5
Deferred service arrangements 196.5 199.9
Other liabilities 81.8 67.3
Total liabilities 2,578.3 2,653.0
SHAREHOLDERS' EQUITY
Common stock, no par value, 45,000,000 shares
authorized, shares issued and outstanding:
2008 - 15,478,019; 2007 - 15,351,550 337.1 335.4
Accumulated other comprehensive loss (29.4) (26.2)
Retained earnings 862.7 891.5
Total shareholders' equity 1,170.4 1,200.7
Total liabilities and shareholders'
equity $3,748.7 $3,853.7
Risk Factors
The Company cautions readers that the statements contained herein regarding the Company's future financial condition, results of operations, future business plans, operations, opportunities or prospects, including any factors which may affect future earnings, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon management's current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results, performance or achievements to be materially different from any anticipated results, performance or achievements, expressed or implied by such forward-looking statements. Such risks and uncertainties include:
-- the Company's results of operations and financial condition are
susceptible to changes in mortgage interest rates, the availability of
mortgage financing and general economic conditions;
-- changes to the participants in the secondary mortgage market could
affect the demand for title insurance products;
-- the Company is subject to government regulation;
-- heightened regulatory scrutiny of the Company and the title insurance
industry, including any future resulting reductions in the pricing of
title insurance products and services, could materially and adversely
affect the Company's business, operating results and financial
condition;
-- the Company may not be able to fuel its growth through acquisitions;
-- the Company's inability to integrate and manage successfully its
acquired businesses could adversely affect its business, operating
results and financial condition;
-- regulatory non-compliance, fraud or defalcations by the Company's title
insurance agents or employees could adversely affect its business,
operating results and financial condition;
-- competition in the Company's industry affects its revenue;
-- significant industry changes and new product and service introductions
require timely and cost-effective responses;
-- the Company's litigation risks include substantial claims by large
classes of claimants;
-- the Company's claims experience may require it to increase its
provision for title losses or to record additional reserves, either of
which may adversely affect its earnings;
-- key accounting and essential product delivery systems are concentrated
in a few locations;
-- provisions of the Company's articles of incorporation and bylaws and
applicable state corporation, insurance and banking laws could limit
another party's ability to acquire the Company and could deprive
shareholders of the opportunity to obtain a takeover premium for shares
of common stock owned by them;
-- the Company's future success depends on its ability to continue to
attract and retain qualified employees;
-- the Company's conduct of business in foreign markets creates financial
and operational risks and uncertainties that may materially and
adversely affect its business, operating results and financial
condition; and
-- various external factors including general market conditions,
governmental actions, economic reports and shareholder activism may
affect the trading volatility and price of the Company's common stock.
For a description of factors that may cause actual results to differ materially from such forward-looking statements, see the Company's Annual Report on Form 10-K for the full year 2007 and other reports from time to time filed with or furnished to the Securities and Exchange Commission. The Company cautions investors not to place undue reliance on any forward-looking statements as these statements speak only as of the date when made. The Company undertakes no obligation to update any forward-looking statements made in this release.
LandAmerica Financial Group, Inc.
