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LandAmerica Reports Third Quarter 2006 Results; Declares Quarterly Dividend

October 25, 2006

LandAmerica Reports Third Quarter 2006 Results RICHMOND, Va., /PRNewswire-FirstCall/ -- LandAmerica Financial Group, Inc. (NYSE:LFG), a leading provider of real estate transaction services, announces preliminary operating results for the third quarter and the nine months ended September 30, 2006.



 

 

Third Quarter
2006 

Third Quarter 2005
(as restated*)

 

Operating revenue

$954.2 Million

$1,016.3 Million

 

Net income

$15.2 Million

$42.4 Million

 

Net income per diluted share 

$0.89

$2.35

 

 

Nine Months
2006

Nine Months
2005
(as restated*)

 

 

 

 

 

Operating revenue

$2,827.6 Million

$2,782.2 Million

 

Net income

$64.5 Million

$105.8 Million

 

Net income per diluted share

$3.69

$5.91

  * As previously announced, the Company restated certain historical results
  because of an error in the calculation of its claims provision. Prior to
  the correction, net income for third quarter 2005 and the first nine
  months of 2005 was understated by $0.8 million and $6.3 million,
  respectively. All information in this release regarding 2005 results
  includes the effect of such restatement.

FINANCIAL HIGHLIGHTS

  • Consolidated operating revenue decreased $62.1 million, or 6.1%, inthird quarter 2006 from third quarter 2005 due to a softening real estate market.  Total estimated mortgage originations as reported by the Mortgage Bankers Association declined 28.7% in third quarter 2006 from third quarter 2005.
  • Operating revenue for the Lender Services segment decreased from $62.9 million in third quarter 2005 to $59.6 million in third quarter 2006 primarily due to declines in the real estate market that impacted the  title and closing and credit services businesses.
  • Claims provision as a percentage of operating revenue for the Title Operations segment increased from 5.3% in third quarter 2005 to 8.0% in third quarter 2006 due to upward development in the 2001 through 2005 policy years. Absent any further unanticipated increases in claims payments on prior policy years, we expect that our claims provision ratio for 2006 will be more in line with recent claims provision ratios.
  • Net income decreased $27.2 million, or 64.2%, in third quarter 2006 from third quarter 2005 due to a softening real estate market and an adjustment to the claims provision.  Additionally, included in results for third quarter 2005 was the write-down of the customer relationship intangible in the Lender Services segment of $37.6 million, or $22.6 million after taxes.
  • The Company successfully completed the merger of Capital Title Group, Inc. ("CTG"), strengthening the Company's presence in the key markets of California, Nevada and Arizona as well as adding scale to the Lender Services platform.
  • Direct operating revenue per direct closed order was $2,022 in third quarter 2006 compared to $1,621 in third quarter 2005.
  • Direct orders opened were approximately 266,900 in third quarter 2006 compared to approximately 341,900 in third quarter 2005, or a decrease of 21.9%.
  • During the third quarter 2006, the Company repurchased approximately 54,000 of its shares for $3.5 million, at an average price of $65.79 per share, which brings the program-to-date share repurchases to 492,000 shares. At September 30, 2006, the Company had approximately 758,000 shares remaining in its authorized repurchase program.


Commenting on the Company's performance, President and Chief Executive Officer Theodore L. Chandler, Jr. said, "The softening of the real estate market combined with a claims reserve adjustment has negatively impacted the results for the quarter. Our leadership team is experienced at managing through the cycle and is actively and aggressively adjusting our costs to the softening market conditions. Our national market share position, which is reported on a quarter lag, improved from 17.9% in second quarter 2005 to 18.5% in second quarter 2006. We are pleased about the completion of our purchase of Capital Title Group which brings us a strong talent pool, a track record of profitability, and greater presence in Lender Services, especially in key western states."

SEGMENT RESULTS

Based on changes in the organizational structure and combination of service offerings in the Lender Services segment, the Company has reclassified its LandAmerica OneStop operation, which provides title and closing services to national lenders, from the Title Operations segment to the Lender Services segment. Amounts from 2005 have been reclassified to conform to the 2006 presentation.
On September 8, 2006, the Company completed the merger of CTG, a title insurance underwriter, agent, and settlement services provider based in Scottsdale, Arizona. Under the terms of the merger agreement, the Company acquired 100 percent of CTG's common stock for $252.3 million, which consisted of $202.6 million of cash, including direct transaction costs, and $49.7 million of the Company's common stock, which represented 775,576 shares. The merger is expected to be accretive to the Company's earnings in 2007 by 2 to 3 percent.
Title Operations

Operating revenue from direct title operations decreased $61.1 million, or 14.5%, in third quarter 2006 from third quarter 2005 and decreased $49.7 million, or 4.4%, in the first nine months of 2006 from the comparable period in 2005. Before the impact of the CTG merger, operating revenue from direct operations decreased $74.9 million, or 17.7%, in third quarter 2006 from third quarter 2005 and decreased $63.5 million, or 5.6%, in the first nine months of 2006 compared to the first nine months of 2005. Direct operating revenue during third quarter 2006 was negatively impacted by the decline in order volume from softening in the real estate market, partially offset by an increase in the average direct operating revenue per direct closed order. Direct operating revenue for the first nine months of 2006 was impacted by the decline in order volume, offset in part by an increase in the direct operating revenue per direct closed order and strong commercial activity.

Closed orders from the Company's direct title operations decreased 27.9% in third quarter 2006 from third quarter 2005 while the direct operating revenue per direct closed order increased approximately 18.6%. Closed orders decreased 20.5% in the first nine months of 2006 compared to the prior year period while the direct operating revenue per direct closed order increased 20.3%. Before the impact of the CTG merger, closed orders from direct title operations decreased 30.6% in third quarter 2006 from third quarter 2005 and 21.5% in the first nine months of 2006 from the comparable period in 2005.

Revenue from direct title commercial operations was $89.2 million in third quarter 2006 compared to $90.3 million in third quarter 2005, a decrease of 1.2%, and $274.7 million in the first nine months of 2006 compared to $246.7 million in the first nine months of 2005, an increase of 11.3%.

Operating revenue from agency title operations was $503.6 million in third quarter 2006 and third quarter 2005. Operating revenue from agency title operations increased $112.4 million, or 8.2%, in the first nine months of 2006 over the first nine months of 2005. Growth in agency business, particularly in certain southeastern markets, contributed to the increase in agency revenue year over year. Agents' commissions as a percent of agency revenue were approximately 80% in the third quarters of 2006 and 2005 and the first nine months of 2006 and 2005.

The claims provision as a percent of operating revenue for the Title Operations segment was 8.0% in third quarter 2006 compared to 5.3% in third quarter 2005 and 6.3% in the first nine months of 2006 compared to 5.3% in the first nine months of 2005. The increase in the claims provision ratio was primarily due to upward development in the 2001 through 2005 policy years.

Salary and employee benefit costs decreased $16.5 million, or 6.6%, in third quarter 2006 compared to third quarter 2005 and increased $2.4 million, or 0.3%, in the first nine months of 2006 compared to the first nine months of 2005. As a percent of operating revenue, salary and employee benefit costs were 27.1% for the third quarters of 2006 and 2005 and 27.4% for the first nine months of 2006 compared to 28.0% for the first nine months of 2005. Before the impact of the CTG merger, salary and employee benefit costs decreased $25.3 million, or 10.1%, in third quarter 2006 from third quarter 2005 and decreased $6.4 million, or 0.9%, in the first nine months of 2006 from the comparable period in 2005.

Other expenses increased $2.3 million, or 1.9%, in third quarter 2006 over third quarter 2005 due primarily to the CTG merger. Other expenses decreased $0.5 million in the first nine months of 2006 from the first nine months of 2005. Other expenses in the first nine months of 2005 included accrued legal costs related to captive reinsurance inquiries and other litigation settlements of $29.3 million.
Pretax earnings for the Title Operations segment were $48.4 million in third quarter 2006 compared to $112.4 million in third quarter 2005 and $171.8 million in the first nine months of 2006 compared to $220.6 million in the first nine months of 2005. Pretax earnings margin was 5.5% in third quarter 2006 compared to 11.9% in third quarter 2005 and 6.5% in the first nine months of 2006 compared to 8.7% in the first nine months of 2005. The pretax earnings margins quarter over quarter and year over year were negatively impacted by a softening real estate market, a shift in the mix of business from direct to agency, and a higher claims provision ratio.

Lender Services

Operating revenue decreased $3.3 million, or 5.2%, in third quarter 2006 compared to third quarter 2005. Results for third quarter 2006 were impacted by declines in the title and closing business and credit services business, offset in part by growth in the default and loan subservicing businesses and the impact of acquisitions. Before the impact of acquisitions, operating revenue decreased $7.6 million, or 12.1%, in third quarter 2006 compared to third quarter 2005.

Operating revenue decreased $28.9 million, or 14.0%, in the first nine months of 2006 compared to the first nine months of 2005. Excluding the impact of acquisitions, operating revenue decreased $33.4 million, or 16.2%, in the first nine months of 2006 compared to the first nine months of 2005. Results for the first nine months of 2005 included accelerated deferred revenue related to the Company's tax and flood business of $32.7 million. Before the impact of the recognition of accelerated revenue in 2005 and the impact of acquisitions in 2006, the decrease in the first nine months of 2006 as compared to the first nine months of 2005 was primarily due to a decline in the credit services business, partially offset by growth in the default and loan subservicing businesses.

Pretax earnings for the Lenders Services segment were approximately $3.4 million in third quarter 2006 compared to a pretax loss of $(34.0) million in third quarter 2005 and pretax earnings of $12.2 million in the first nine months of 2006 compared to $0.3 million in the first nine months of 2005. Included in the results for the third quarter 2005 was the write-off of a portion of the customer relationship intangible asset of $37.6 million related to the 2003 acquisition of the tax and flood business.

Financial Services

The Financial Services segment had pretax earnings of $4.1 million in third quarter 2006 compared to $3.7 million in third quarter 2005 and pretax earnings of $12.5 million in the first nine months of 2006 compared to $9.4 million in the first nine months of 2005. These increases were primarily due to growth in the segment's loan and investment portfolio which exceeded the increase in its interest-bearing deposits.

Corporate and Other

The Corporate and Other segment includes unallocated corporate expenses, residential home warranty and inspection businesses, and commercial appraisals and assessments businesses. Operating revenue for the Corporate and Other segment increased by approximately $2.5 million, or 9.4%, in third quarter 2006 over third quarter 2005 and increased by $11.7 million, or 16.3%, in the first nine months of 2006 over the same period in 2005. The increase in operating revenue in third quarter 2006 over third quarter 2005 was due in part to strong commercial business. The increase in operating revenue for the first nine months of 2006 over the comparable period in 2005 was due primarily to strong commercial business and increased revenue in the home warranty business.

Direct non-title commercial revenue was $15.3 million in third quarter 2006 compared to $14.0 million in third quarter 2005. Direct non-title commercial revenue was $41.8 million in the first nine months of 2006 compared to $36.3 million in the first nine months of 2005.

Pretax losses were $(31.3) million in third quarter 2006 compared to $(18.3) million in third quarter 2005 and $(96.0) million in the first nine months of 2006 compared to $(61.1) million in the first nine months of 2005. The increase in pretax losses in third quarter 2006 from third quarter 2005 was due in part to higher personnel costs, increased investments in technology resources and relocation and related exit costs of our corporate offices of $3.8 million. The increase in pretax losses in the first nine months of 2006 from the prior year period was due in part to the write-down of the corporate offices building of $10.2 million, and relocation and related exit costs of our corporate offices of $5.2 million. In addition, the Company incurred higher personnel costs from investment in technology resources due in part to the implementation of an initiative to achieve a unified technology platform, which the Company refers to as "Project Fusion."

The change in the effective tax rate in the first nine months of 2006 of 35.8%, compared to the effective tax rate in the first nine months of 2005 of 37.5%, was due to the mix of state income tax expenses (benefits).

LandAmerica Financial Group, Inc.



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