Stewart announces record year 2003

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HOUSTON -- Stewart Information Services Corporation (NYSE-STC) today reported results for the fourth quarter and year end 2003. For the second year in a row, annual revenues, net earnings, orders and earnings per share were the largest in the company's history.

Revenues for the year 2003 were $2.2 billion, a 26 percent increase from 2002. Net earnings for the year 2003 were $123.8 million, or $6.88 per diluted share, compared with net earnings of $94.5 million, or $5.30 per diluted share, for 2002. Stewart's assets now exceed $1 billion for the first time in the company's history.

Stewart earned $20.8 million, or $1.15 per diluted share, for the fourth quarter of 2003, compared with earnings of $43.8 million, or $2.46 per diluted share, for the fourth quarter of 2002. Revenues for the fourth quarter increased to $614.9 million compared with $551.3 million a year ago.

Although revenues for the fourth quarter increased by 12 percent over the fourth quarter of 2002, earnings declined by 53 percent. The fourth quarter included a significantly higher proportion of revenues from agency operations in 2003 (66 percent) compared with the 2002 period (59 percent). In high- volume years like 2003, agency operations generate a lower percentage of earnings to revenues than do direct operations. Employee costs for the rollout of SureClose® to more than 400 company locations in 2003 also affected the full year and the fourth quarter. Additionally, reserves taken on litigation in progress and a loss on a mapping/automation contract reduced earnings per share by approximately $0.13 in the fourth quarter.

Refinancing transactions declined in the second half of 2003 as a result of an overall increase in mortgage interest rates. Most industry experts project current interest rates to continue or move slightly higher and are forecasting significantly fewer refinancing transactions for 2004.

Stewart's incoming orders in the fourth quarter of 2003 were down 29 percent from the same quarter a year ago. Fourth quarter orders were off 26 percent from the third quarter. Stewart Morris, Jr., president and co- chief executive officer, said, "We monitor our incoming orders daily and weekly. Our employee counts at the end of the year had been reduced by approximately 10 percent from the peak month of July 2003. Our employee costs for the fourth quarter were approximately 13 percent less than the employee costs for the third quarter. We are continuing to lower staff levels and expenses to allow for reduced revenues, while maintaining superior core service to our customers.

"We continued our systematic analyses and acquisitions of title agencies and real estate information companies, concentrating on transactions that will be accretive to earnings and shareholder wealth," said Morris. "By completing process flow analyses and installing our integrated technology, we create further gains for our shareholders.

"Our investment in technology allows us to attract top quality personnel and support their effectiveness in serving our customers. The installation of our SureClose® transaction management system will allow us to increase the volume of delivery of bundled packages of services for lenders and title agencies," added Morris. "The implementation of our SureClose system is transforming our company to a real estate transaction management business. It also facilitates a shift from paper-based transactions to electronic processing improving both internal efficiency and service to our customers. By year-end we increased the number of SureClose installations to over 400 company locations with more than 140,000 files in the system. Extra startup expenses are incurred in implementation; however, when fully implemented we believe this will provide us a competitive advantage and help the company better manage its costs through all types of market conditions."

"The resumption of a payment of an annual cash dividend in the fourth quarter of 2003 of $0.46 per share, the continuing emphasis on growth in book value to $34.47 and all-time record earnings per share in 2003 illustrate our focus on being a value-creating entity," said Malcolm S. Morris, chairman and co-chief executive officer. Indicative of this focus on growing shareholder return, Stewart has been included on the prestigious Forbes Platinum 400 list of the best performing big companies in America for the third consecutive year.

"The challenge going forward is to right-size in an ever-changing economic landscape, but doing so with the expectation of long run increases in revenues and profitability regardless of short term hurdles," said Morris. Fannie Mae estimates that one-to-four family lending will drop by more than 50 percent in 2004 when compared with 2003 -- with substantially all of the decline coming from reduced refinance transactions. They project 2004 existing and new home sales to be the second best year in history. Industry expectations are for commercial transactions to continue to gain volume. Stewart's recent acquisition of Title Associates, Inc. demonstrates its ongoing emphasis on expansion in the higher premium commercial sector.

Stewart Information Services Corporation is a technology driven, strategically competitive, global real estate information company. Stewart provides title insurance and related information services through more than 7,200 issuing locations in the United States and several international markets. Stewart meets the needs of the real estate and mortgage industries through the delivery of information services required for settlement using e-commerce. These services include title reports, flood determinations, document preparation, property reports and background checks. Stewart also supplies post-closing services to lenders, automated county clerk land records, property ownership mapping, and GIS for governmental entities. Stewart provides expertise in tax-deferred exchanges. More information about Stewart can be found at www.stewart.com .

This press release may contain forward-looking statements, which include all statements other than statements of historical facts. Forward-looking statements are not guarantees of performance and no assurance can be given that Stewart's expectations will be achieved. In particular, historical order counts do not necessarily indicate future revenues because Stewart cannot predict the number of orders that will result in closings.

Stewart Information Services Corporation

 

Three months


ended December 31


2003    2002

Revenues

$614,875,000

$551,269,000

Net earnings

$20,782,000

$43,828,000

Average shares - diluted

18,095,000

17,800,000

Earnings per share:

   

Basic

$1.16

$2.47

Diluted

$1.15

$2.46


 

Year Ended


December 31


  2003  2002

Revenues

$2,243,262,000

$1,779,716,000

Net earnings

$123,755,000

$94,480,000

Average shares - diluted

17,980,000

17,826,000

Earnings per share:

   

Basic

$6.93

$5.33

Diluted

$6.88

$5.30

STEWART INFORMATION SERVICES CORPORATION
STATEMENTS OF EARNINGS
(In thousands of dollars, except per share amounts)

 

Three months ended

Year ended

 

December 31

December 31

  2003 2002 2003 2002
 

 (A)

 

Revenues

Title Insurance:

       
Direct operations
199,748

214,965

892,686

689,588

Agency operations

391,255

307,342

1,249,800

995,283

 

 

 

 

 

Real estate information services

17,099

19,495

78,666

71,119

Investment income
5,220
5,747
19,800
20,694
Investment gains - net
1,553
3,720
2,310
3,032
 

614,875

551,269

2,243,262

1,779,716

Expenses

Amounts retained by agencies

320,820

249,418

1,024,282

814,651

Employee costs

137,114

127,862

573,486

453,304

Other operating expenses

85,567

70,697

311,741

250,933

Title losses and related claims

28,266

23,970

94,827

75,920

Depreciation

6,741

5,559

25,240

21,383

Goodwill --- --- --- ---

Interest

158

32

721

725

Minority interests

2,225

2,431

13,462

8,940

 

580,891

479,969

2,043,759

1,625,856


Earnings before taxes

33,984

71,300

199,503

153,860

Income taxes

13,202

27,472

75,748

59,380

Net earnings

20,782

43,828

123,755

94,480


Average number shares
outstanding (000)

18,095

17,800

17,980

17,826

Earnings per share - diluted

1.15

2.46

6.88

5.30

Segment information:

Title revenues

597,776

531,774

2,164,596

1,708,597

Title pretax earnings

34,050

68,892

187,377

145,059


REI revenues

17,099

19,495

78,666

71,119

REI pretax earnings (A)

(66)

2,408

12,126

8,801


 

Three months ended

Year ended

 

December 31

December 31

  2003 2002 2003 2002
 

 (A)

 

Selected financial information (000):

Cash flow from operations

35,556

70,133

193,540

162,551

Title loss payments - net
of recoveries

18,656

15,270

57,996

48,406

Other comprehensive earnings-net of taxes

1,349

(2,016)

5,675

5,195

Average number of basic shares

17,975

17,722

17,862

17,736

Number of title orders opened

171.4

240.6

986.9

833.3


 

December 31

December 31

 

2003

2002

     
Stockholder's equity 621,389 493,592
Number of shares outstanding 18,026 17,731
Book value per share 34.47 27.84

(A) The fourth quarter of 2003 includes expenses of $3.5 million relating to litigation and a REI mapping/computer system project. Net earnings were reduced by $2.3 million, or $.13 per share.

STEWART INFORMATION SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS (condensed)
(In thousands of dollars)

 

December 31

December 31

 

2003

2002

Assets

Cash and cash equivalents

114,202

139,156

Short-term investments

153,322

50,673

Investments-statutory reserve funds

375,421

306,501

Investments-other

59,035

69,260

Receivables

79,025

69,041

Property and equipment

74,174

61,158

Title plants

43,216

40,307

Goodwill

79,084

66,885

Other

54,388

41,005

 

1,031,867

843,986

Liabilities

Notes payable

24,583

14,195

Accounts payable and accrued liabilities

82,147

83,961

Estimated title losses
268,089
230,058

Deferred income taxes

22,440

11,284

Minority interests

13,219

10,896

Contingent liabilities and commitments

Stockholders' equity

Common and Class B Common Stock and
additional paid-in capital

141,168

134,927

Retained earnings

469,107

353,226

Accumulated other comprehensive
earnings

15,019

9,344

Treasury stock

(3,905)

(3,905)


Total stockholders' equity

621,389

493,592

 

1,031,867

843,986

February 17, 2004


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