Stewart Reports Updated Operating Results for the Second Quarter 2008

HOUSTON, Aug. 6 /PRNewswire-FirstCall/ -- Stewart Information Services Corporation (NYSE: STC - News) today reported updated results of operations for the second quarter and six months ended June 30, 2008. The update to the second quarter's and six months' earnings is related to the discovery of additional information subsequent to the Company's original earnings release on July 30, 2008 and prior to filing its quarterly report on Form 10-Q with the Securities and Exchange Commission. This additional information connected several independent claims to the same series of fraudulent transactions which resulted in the reclassification of the claims as a single large title claim. The impact of this title policy claim resulted in a pretax charge of $3.0 million ($2.0 million after taxes, or $0.11 per share) to the second quarter and six months ended June 30, 2008. The information presented herein has been updated, as necessary, to reflect the impact of this matter to the second quarter and six months ended June 30, 2008. There are no other updates to previously reported amounts. (Dollar amounts in the table below are in millions, except for per share figures.)

                                                         Second Quarter
                                                      2008(a)         2007

    Total revenues                                    $428.5         $573.4
    Pretax (loss) earnings before minority interests   (44.2)          19.2
    Net (loss) earnings                                (28.6)          10.1
    Net (loss) earnings per
    diluted share                                      (1.58)          0.55

                                                            Six Months
                                                      2008(a)        2007(b)

    Total revenues                                    $822.7       $1,105.1
    Pretax (loss) earnings before minority interests   (85.0)          14.6
    Net (loss) earnings                                (53.9)           5.4
    Net (loss) earnings per diluted share              (2.98)          0.29

    (a)  The second quarter of 2008 includes pretax charges totaling $27.2
         million ($17.7 million after taxes, or $0.98 per share) relating to a
         reserve adjustment of $10.0 million for prior policy years, $11.2
         million relating to large claims and two agency defalcations, and a
         software impairment charge of $6.0 million.  The first three months
         of 2008 includes an additional charge of $4.6 million ($3.0 million
         after taxes, or $0.17 per share) relating to an agency defalcation.

    (b)  The first six months of 2007 includes a $3.2 million gain ($2.1
         million after taxes, or $0.11 per diluted share) from the sale of two
         subsidiaries and a charge of $7.4 million ($4.8 million after taxes,
         or $0.26 per diluted share) relating to large claims.

Financial Results

The continuing decline in our orders resulting from the decrease in new and existing home sales, home prices, construction and lending in the second quarter of 2008, coupled with worsening policy claims payment experience and a software impairment charge, resulted in a pretax (and before minority interests) loss of $44.2 million compared with earnings of $19.2 million in the same quarter last year. The software impairment charge of $6.0 million relates to software developed, and now abandoned, in our REI segment for one of its subsidiaries.

Revenues in the second quarter of 2008 fell to $428.5 million, a decline of 25.3 percent from the $573.4 million in the same period last year. This reduction in revenues reflects the second quarter 2008 decline in our order volume resulting from decreases in existing home sales (down 16.7 percent), new home sales (down 33.2 percent) and existing home prices (down 15.8 percent) compared with the second quarter of 2007. Our international operations remained profitable, offsetting, in part, our loss in the second quarter of 2008 for U.S. operations.

Total revenues for the first half of 2008 were $822.7 million, down 25.6 percent from the same period in 2007. Overall, the Company reported a loss of $85.0 million before taxes and minority interests in the first half of 2008 compared with a profit of $14.6 million in the same period in 2007.

"We are responding strategically to this downturn by implementing cost reductions throughout the Company. We remain committed to our long-term strategies and restructuring efforts even in this extremely difficult real estate environment," said Malcolm S. Morris, co-chief executive officer and chairman. "We are progressing in our shared-services initiatives and have contracted several national relationships for savings in procurement. These initiatives and relationships, which range from accounting and information technology to procurement and human resources, have significant potential for process improvements and cost reductions. We are also consolidating many of our separate corporate entities to better serve our customers, streamline our administrative functions and reduce fixed costs.

"We are experiencing higher than expected payments of policy claims, which resulted in our taking a $10.0 million charge this quarter relating to prior policy years," added Morris. "However, we are continuing to make progress in reducing our risk exposure through the review and cancellation of higher-risk title agencies and by auditing potential title agencies prior to adding them to our agency network."

"We continue to respond to declining market conditions by aggressively reducing variable and fixed expenses," said Stewart Morris, Jr., co-chief executive officer and president. "In the second quarter of 2008, our employee count was reduced by 350, which brings our year-to-date reduction to 810, or 9.6 percent. Our total reduction in employee count is 2,400, or 24.6 percent, since December 31, 2006. We have also closed 68 unprofitable branch and office locations since the beginning of 2008.

"In addition, we are responding to the consumer in these tough markets," said Morris. "We announced a simplification of our rate structure in California to better serve our customers. Also in this quarter, we formed a new multi-state foreclosure trustee company that will allow us to offer nationwide default services. We remain on track for site conversions of legacy production systems to our new, but proven, web-based production systems this year. A recent fire in an office where we have implemented our paperless technology reinforced our commitment to long-term investment in our web-based production system and SureClose®, our transaction management technology. Within hours of the fire, the office was up and running remotely via the internet and closings continued with no loss of service or files," said Morris.

Stewart Information Services Corporation is a customer-driven, technology-enabled, strategically competitive, real estate information, title insurance and transaction management company. Stewart provides title insurance and related information services required for settlement by the real estate and mortgage industries throughout the United States and in international markets. Stewart also provides post-closing lender services, automated county clerk land records, property ownership mapping, geographic information systems, property information reports, document preparation, background checks and expertise in tax-deferred exchanges. More information can be found at

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 since Stewart cannot predict the number of orders that will result in closings.

    (In thousands of dollars, except per share amounts)

                            Three months ended         Six months ended
                                 June 30                   June 30
                             2008        2007         2008         2007
    Title insurance:
      Direct operations    200,688      270,428      381,275      500,042
      Agency operations    213,513      276,434      404,566      548,688
    Real estate
     information            11,302       16,497       26,018       33,030
    Investment income        7,456        9,168       15,534       18,219
    Investment and
     other (losses)
     gains - net            (4,412)         902       (4,709)       5,124
                           428,547      573,429      822,684    1,105,103


    Amounts retained by
     agencies              174,562      222,752      330,124      445,142
    Employee costs         146,076      179,096      298,039      355,888
    Other operating
     expenses               86,412      105,241      173,248      198,884
    Title losses and
     related claims         49,595       35,117       79,316       66,976
    Depreciation and
     amortization            8,950       10,149       18,041       20,034
    Impairment of other
     assets.                 6,011            -        6,011            -
    Interest                 1,121        1,874        2,936        3,542
                           472,727      554,229      907,715    1,090,466

     before taxes and
     minority interests    (44,180)      19,200      (85,031)      14,637
    Income tax (benefit)
     expense               (17,526)       5,541      (34,288)       2,921
    Minority interests       1,934        3,535        3,137        6,354
    Net (loss) earnings    (28,588)      10,124      (53,880)       5,362

    (Loss) earnings per
     diluted share           (1.58)        0.55        (2.98)        0.29
    Average number of
     diluted shares (000)   18,092       18,351       18,069       18,340

    Segment information:

      Title revenues       417,245      556,932      795,787    1,068,873
      Title pretax (loss)
       earnings before
        minority interests (35,763)      19,862      (77,308)      11,807

      REI revenues          11,302       16,497       26,897       36,230
      REI pretax (loss)
       earnings before
        minority interests  (8,417)        (662)      (7,723)       2,830

    Selected financial

      Cash (used) provided
        by operations      (15,862)      31,922      (47,309)      16,806
      Title loss payments -
       net of recoveries    38,981       22,424       69,463       47,877
      Changes in other
       earnings - net
       of taxes             (7,654)        (286)      (7,496)         547

    Number of title orders
     opened (000):
      April                   48.4         59.0
      May                     43.1         60.7
      June                    38.9         58.1
        Quarter              130.4        177.8

    Number of title orders
     closed (000):
        Quarter               93.5        125.1

                                                  June 30             Dec 31
                                                    2008               2007

    Stockholders' equity                          694,959            754,059
    Number of shares outstanding (000)             18,146             18,031
    Book value per share                            38.30              41.82

    BALANCE SHEETS (condensed)
    (In thousands of dollars)

                                                     June 30        Dec 31
                                                       2008          2007

    Cash and cash equivalents                        102,900        109,239
    Short-term investments                            57,212         79,780
    Investments - statutory reserve funds            503,152        518,586
    Investments - other                               83,721         98,511
    Receivables - premiums from agencies              37,968         48,040
    Receivables - other                              105,373         93,335
    Allowance for uncollectible amounts             (12,352)       (11,613)
    Property and equipment                            86,411         96,457
    Title plants                                      79,027         78,245
    Goodwill                                         209,879        208,824
    Intangible assets                                 12,986         17,157
    Other assets                                     103,986        105,413

                                                   1,370,263      1,441,974

    Notes payable                                    116,799        108,714
    Accounts payable and accrued liabilities          93,501        122,167
    Estimated title losses                           450,229        441,324
    Minority interests                                14,775         15,710

                                                     675,304        687,915

    Contingent liabilities and commitments

    Stockholders' equity
    Common and Class B Common Stock and
     additional paid-in capital                      143,472        141,196
    Retained earnings                                543,238        597,118
    Accumulated other comprehensive earnings          12,346         19,842
    Treasury stock                                    (4,097)        (4,097)

        Total stockholders' equity                   694,959        754,059

                                                   1,370,263      1,441,974