Stewart reports earnings for second quarter

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HOUSTON, July 27, 2004 -- Stewart Information Services Corporation (NYSE: STC) reported net earnings of $30.0 million, or $1.65 per diluted share, for the three months ended June 30, 2004, versus net earnings of $41.0 million, or $2.29 per diluted share, for the second quarter of 2003. Revenues in the second quarter increased 1 percent to $565 million from $558 million for the same period last year.

Total revenues for the first half of 2004 were $1.0 billion, up 3 percent from the same period a year ago. Earnings for the first six months totaled $41.1 million, or $2.26 per diluted share, versus $60.9 million, or $3.40 per diluted share, for the first six months of 2003.

"We continue our strategies to grow stockholders' wealth--resulting in book value per share increasing from $34.47 at December 31, 2003 to $36.27 at June 30, 2004," said Malcolm S. Morris, chairman of the board and co-chief executive officer. "We have grown our balance sheet, added key personnel and strategic major-market offices for a nationwide push to expand significantly the higher-margin commercial business. Our prior investment of stockholders' capital into our commercial title operations is generating returns exceeding our expectations. Our year-to-date commercial revenues and profitability are the best in our history and key additions to this segment, such as Title Associates in New York, have continuing potential for growth."

"We continue to grow both organically and through targeted acquisitions in our lines of business - we focus on investments that we believe will be accretive to earnings and increase book value," added Morris.

Representative title agency acquisitions this past quarter included operations in Santa Cruz, California; Marin, California and Pullman, Washington, as well as other offices in Kentucky and Wisconsin. New startup offices included Stewart Insurance Solutions, a property and casualty insurance agent operating initially in five states and Stewart Default Solutions, offering an array of default management and technology to the mortgage and consumer services industry. We also opened a new title agency in Spokane, Washington.

"SureClose, our transaction management platform, is now available in more than 70 percent of our affiliate offices and branches in addition to more than 100 independent agents," said Stewart Morris, Jr., president and co-chief executive officer. "This on-line transaction folder provides access for customers to view the status and documents involving their real estate transactions. We continue investing in technology to reach our goals to increase revenues, productivity and future profit margins.

"Our new office in Istanbul, Turkey, which provides escrow, title guaranty and closing services to foreign buyers, continues Stewart's systematic international expansion," added Morris. "Stewart International's new Land Projects Division targets municipal and national governments with services and products including land registries, mapping and GIS services and property taxation systems. This division provides a one-stop shop and cross-selling group in offering our expanding array of services and products."

Title orders per working day for the second quarter of 2004 were down 29 percent from the same period in 2003. For the month of June 2004, orders per working day declined 42 percent compared with the same period in 2003. The decrease in orders was primarily attributable to a decline in refinancing transactions beginning in the third quarter of 2003, when mortgage interest rates increased. Rates rose above prior-year levels in May 2004. While current rates have retreated to the 6 percent level, in June rates were more than 100 basis points higher than a year ago.

Total revenues increased slightly in the second quarter of this year primarily because of increased acquisitions, commercial business and home prices. Revenues from direct operations also increased slightly while order counts declined primarily because refinancing transactions represented a larger portion of orders in 2003. However, the company generally earns less revenue on a refinancing transaction.

The pretax profit margin for the quarter declined from 11.8 percent to 8.4 percent. Periods of record order volumes, such as those that occurred in 2003, resulted in higher margins given the fixed-cost nature of the title business. In addition, technology costs, an increase in policy losses and litigation reserves, opening new offices and rising occupancy costs contributed to lower margins.

Stewart Information Services Corporation is a technology driven, strategically competitive, real estate information and transaction management company. Stewart provides title insurance and related information services through more than 7,700 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 geographic information systems 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 June 30


2004    2003

Revenues

$565,456,000

$ 558,075,000

Net earnings

$29,961,000

$ 41,030,000

Average shares - diluted

18,192,000

17,951,000

Earnings per share:

Basic

$1.66

$2.30

Diluted

$1.65

$2.29


 

Six months


ended June 30


2004    2003

Revenues

$1,030,348,000

$998,999,000

Net earnings

$41,101,000

$60,905,000

Average shares - diluted

18,187,000

17,895,000

Earnings per share:

Basic

$2.27

$3.42

Diluted

$2.26

$3.40

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

Three months

Six Months

ended June 30

ended June 30

2004 2003 2004 2003

Revenues

Title Insurance:

Direct operations
241,578

240,145

424,112

431,875

Agency operations

300,595

292,019

558,482

517,584

Real estate information services

17,711

20,834

35,326

39,884

Investment income
5,170
4,535
10,322
9,318
Investment gains - net
402
542
2,106
338

565,456

558,075

1,030,348

998,999

Expenses

Amounts retained by agencies

245,403

239,035

455,455

423,784

Employee costs

152,453

147,178

286,803

279,180

Other operating expenses

81,747

72,599

155,728

139,447

Title losses and related claims

25,807

22,711

45,087

40,667

Depreciation

8,282

6,168

15,258

12,077

Interest

272

146

490

361

Minority interests

3,860

4,144

6,008

6,482

517,824

491,981

964,829

901,998


Earnings before taxes

47,632

66,094

65,519

97,001

Income taxes

17,671

25,064

24,418

36,096

Net earnings

29,961

41,030

41,101

60,905


Average number shares
outstanding (000)

18,192

17,951

18,187

17,895

Earnings per share - diluted

1.65

2.29

2.26

3.40

Segment information:

Title revenues

547,745

537,241

995,022

959,115

Title pretax earnings

46,417

61,520

63,070

89,416


REI revenues

17,711

20,834

35,326

39,884

REI pretax earnings

1,215

4,574

2,449

7,585

Selected financial information (000):

Cash flow from operations

58,273

62,373

83,524

84,911

Title loss payments - net
of recoveries

20,039

12,186

32,979

23,776

Other comprehensive earnings (loss)
- net of taxes

(10,046)

5,770

(8,373)

6,642

Average number of basic shares

18,101

17,833

18,086

17,788

Number of title orders opened

222

314

445

577


June 30

December 31

2004

2003

 
Stockholders' equity 656,538 621,389
Number of shares outstanding (000) 18,102 18,026
Book value per share 36.27 34.47

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

June 30

December 31

2004

2003

Assets

Cash and cash equivalents

119,824

114,202

Short-term investments

171,307

153,322

Investments - statutory reserve funds

375,379

375,421

Investments-other

59,995

59,035

Receivables

69,625

79,025

Property and equipment

78,363

74,174

Title plants

49,798

43,216

Goodwill

109,187

79,084

Other assets

63,336

54,388

 

1,096,814

1,031,867

Liabilities

Notes payable

41,501

24,583

Accounts payable and accrued liabilities

82,673

82,147

Estimated title losses
280,197
268,089

Deferred income taxes

22,061

22,440

Minority interests

13,844

13,219


Contingent liabilities and commitments

Stockholders' equity

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

143,589

141,168

Retained earnings

510.208

469,107

Accumulated other comprehensive
earnings

6,646

15,019

Treasury stock

(3,905)

(3,905)


Total stockholders' equity

656,538

621,389

 

1,096,814

1,031,867

July 27, 2004


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