Stewart Reports Earnings for Second Quarter 2007

HOUSTON, July 27 2007-- Stewart Information Services Corporation NYSE-STC today reported the results of its operations for the second quarter and six months ended June 30, 2007. (Dollar amounts in the table below are in millions, except per share figures.)

  Second Quarter
  2007 2006
Total revenues
$573.4
$644.7
Pretax earnings before minority interests
19.2
29.6
Net earnings
10.1
15.7
Net earnings per diluted share
0.55
0.86
  Six Months
  2007 2006
Total revenues
$1,105.1
$1,184.2
Pretax earnings before minority interests
14.6
37.9
Net earnings
5.4
18.4
Net earnings per diluted share
0.29
1.00

Financial Highlights

  • Revenues decreased 11.1 percent to $573.4 million in the second quarter of 2007 compared with $644.7 million for the second quarter of 2006. The Company reported earnings before taxes and minority interests of $19.2 million for the second quarter of 2007 compared with earnings of $29.6 million for the same period in 2006.

  • Revenues decreased 6.7 percent to $1.1 billion in the first six months of 2007 compared with $1.2 billion in the first six months of 2006. Earnings before taxes and minority interests for the first six months of 2007 were $14.6 million compared with $37.9 million for the same period in 2006.

  • The revenue decline in the second quarter of 2007 from the same period in 2006 was primarily due to a decrease in the number of home sales, a decline in home prices, a drop in new home construction and reduced financing activity related in part to the subprime lending market. This revenue decline was partially offset by an increase in commercial and international transactions. In addition, revenues increased by $6.2 million and pretax earnings increased by $0.8 million for the quarter due to acquisitions made since the same period in the prior year.

  • "We have responded aggressively to reduce our title office staff and expenses in response to real estate market declines while maintaining staffing to provide superior customer service and gain market share," said Stewart Morris, Jr., president and co-chief executive officer. The current conversion and roll-out phases of the Company's web-based technology will continue to require the current level of investment in technology staff. Excluding the effect of new offices and divestitures, the Company reduced its company-wide employee headcount by approximately 540, or 5.5 percent, from December 31, 2006 to June 30, 2007 (of which a reduction of approximately 240 occurred in the second quarter). Since December 31, 2005, the employee headcount reduction has been approximately 1,280, or 12.7 percent.

  • Employee costs were also lower in the second quarter and year-to-date periods of 2007 due to the decline to a more normal level in both the number and dollar amounts of major medical claims. Partially offsetting the decreases in headcounts and medical claims, employee costs in 2007 increased due to salary increases in response to highly competitive marketplaces in which the Company operates. In addition, employee costs increased in the areas of technology development and commercial business. Other operating expenses did not decline at the same rate as revenues primarily due to the fixed nature of most of the Company's other operating costs.

  • Stewart's book value per share increased to $44.31 at June 30, 2007 compared with $44.00 at December 31, 2006.

The Company's development efforts for AIM+, a title production and escrow technology, have reached the Beta phase for initial deployment. "This is a major move to a web-based production platform that began three years ago," said Stewart Morris, Jr. "The migration of installations to our state-of-the-art data center remains on target. This will allow us to shut down multiple older data centers by the end of the third quarter, yielding more savings due to centralization."

The Company began a shared-services initiative this quarter that is designed to produce significant savings and efficiencies within the next 24 months. "We are focusing on back-office services, including accounting, employee services, finance, marketing and technology," said Malcolm S. Morris, chairman and co-chief executive officer. "We believe this initiative will produce efficiencies that will enhance service to our associates and empower them to focus on customers to generate revenues."

Title orders declined in the second quarter of 2007 by 11.1 percent from the same period a year ago. Orders were 13.6 percent lower in June 2007 than in June 2006. "The continued softening of the housing market and the major decline of the subprime lending market were the primary reasons for declines in title orders," said Malcolm S. Morris.

Stewart Information Services Corporation is a customer-driven, technology-enabled, strategically competitive, real estate information and transaction management company. Stewart provides title insurance and related information services required for settlement by the real estate and mortgage industries through more than 9,500 policy-issuing offices and agencies in the United States and international markets. Stewart also provides post-closing lender services, automated county clerk land records, property ownership mapping, geographic information systems, property information reports, flood certificates, document preparation, background checks and expertise in tax-deferred exchanges. More information 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
STATEMENTS OF EARNINGS
(In thousands of dollars, except per share amounts)

 
Three months ended
June 30
Six months ended
June 30
 
2007
2006
2007
2006
Revenues        
Title insurance:        
Direct operations
270,428
275,613
500,042
503,431
Agency operations
276,434
340,189
548,688
621,843
         
Real estate information services
16,497
19,735
33,030
39,754
Investment income
9,168
8,396 
18,219 

16,933

Investment and other gains - net
902
796
5,124
2,191
 
573,429
644,729
1,105,103
1,184,152
         
Expenses        
Amounts retained by agencies
222,752
274,935
445,142
501,811
Employee costs
179,096
183,669
355,888
362,771
Other operating expenses
105,241
107,441
198,884
197,245
Title losses and related claims
35,117
39,217
66,976
64,475
Depreciation and amortization
10,149
8,426
20,034
17,114
Interest
1,874
1,417
3,542
2,847
 
554,229
615,105
1,090,466
1,146,263
         
Earnings before taxes and minority interests
19,200
29,624
14,637
37,889
Income taxes
5,541
8,739
2,921
10,489
Minority interests
3,535
5,175
6,354
9,043
Net earnings
10,124
15,710
5,362
18,357
         
Average number of diluted shares (000)
18,351
18,310
18,340
18,306
Earnings per share - diluted
0.55
0.86
0.29
1.00
         
Segment information:        
Title revenues
556,932
624,994
1,072,073
1,144,398
Title pretax earnings before minority interests
19,862
29,645
11,807
36,409
REI revenues
16,497
19,735
33,030
39,754
REI pretax earnings (loss) before minority interests
(662)
(21)
2,830
1,480
         
Selected financial information:        
Cash provided by operations
34,548
27,637
19,432
14,413
Title loss payments - net of recoveries
19,798
27,666
45,251
55,156
Changes in other comprehensive earnings - net of taxes
(286)
(2,339)
547
(5,340)
         
Number of title orders opened (000):        
April
59.4
62.55
   
May
61.4
71.55
   
June
58.9
68.1
   
Quarter
179.7
202.1
   
         
 
June 30
 
December 31
 
 
2007
 
2006
 
         
Stockholders' equity
810,076
 
802,262
 
Number of shares outstanding (000)
18,280
 
18,231
 
Book value per share
44.31
 
44.00
 
         

 

        
STEWART INFORMATION SERVICES CORPORATION BALANCE SHEETS (condensed)
(In thousands of dollars)
 
June 30
 
December 31
 
 
2007
 

2006

 
Assets        
Cash and cash equivalents
126,170
 
136,137
 
Short-term investments
133,270
 
161,711
 
Investments - statutory reserve funds
520,531
 
490,540
 
Investments - other
61,503
 
78,249
 
Receivables - premiums from agencies
53,818
 
58,023
 
Receivables - other
62,911
 
61,556
 
Less allowance for uncollectible amounts
(8,980)
 
(9,112)
 
Property and equipment
103,399
 
99,325
 
Title plants
75,581
 
70,324
 
Goodwill
207,035
 
204,302
 
Intangible assets
19,627
 
15,444
 
Other assets
105,378
 
91,708
 
         
 
1,460,243
 
1,458,207
 
         
Liabilities        
Notes payable
112,686
 
109,549
 
Accounts payable and accrued liabilities
104,666
 
130,589
 
Estimated title losses
406,121
 
384,396
 
Deferred income taxes
9,063
 
14,139
 
Minority interests
17,631
 
17,272
 
 
650,167
 
655,945
 
         
Contingent liabilities and commitments        
         
Stockholders' equity        
Common and Class B Common Stock and
additional paid-in capital
150,127
 
148,517
 
Retained earnings
655,438
 
649,598
 
Accumulated other comprehensive earnings
8,608
 
8,061
 
Treasury stock
(4,097)
 
(3,914)
 
         
Total stockholders' equity
810,076
 

802,262

 
         
July 27 , 2007
1,460,243
 
1,458,207
 


Source: Stewart Information Services Corporation