Stewart Reports Results for Third Quarter and Nine Months of 2007

HOUSTON, Oct. 25, 2007 -- Stewart Information Services Corporation (NYSE-STC) today reported the results of its operations for the third quarter and nine months ended September 30, 2007. (Dollar amounts in the table below are in millions, except per share figures.)

 Third Quarter
 2007 (a)2006
Total revenues
$501.9
$641.5
Pretax (loss) earnings before minority interests
(19.9)
27.0
Net (loss) earnings
(14.3)
14.2
Net (loss) earnings per diluted share
(0.79)
0.77
 Nine Months
 2007 (a)2006
Total revenues
$ 1,607.0
$ 1,825.7
Pretax (loss) earnings before minority interests
(5.3)
64.9
Net (loss) earnings
(8.9)
32.5
Net (loss) earnings per diluted share
(0.49)
1.78

(a) The third quarter of 2007 includes pretax charges of $17.1 million ($11.1 million after taxes, or $0.61 per share) related to two large title claims totaling $6.0 million, a reserve adjustment of $7.5 million related to prior policy years and a $3.6 million reserve adjustment for the current policy year.  This quarter also includes a pretax gain on the sale of property of $5.6 million ($2.0 million after minority interests and taxes, or $0.11 per share).

Operating results for the third quarter of 2007 were negatively impacted by the substantial decline in business nationwide related to real estate market conditions. This was particularly true in California and Florida. New and existing home sales declined sharply in August and September. A substantial reduction in both subprime and prime financing activity occurred as a result of the uncertainty in the subprime lending market. However, despite the declines in the domestic residential market, the Company continued to grow in its commercial and international markets. Acquisitions made since the same period in the prior year increased revenues by $6.7 million and contributed pretax earnings of $0.7 million for the quarter.

In the four months preceding August, based on orders per work day, the Company's title order counts ranged from 10 percent to 14 percent lower than the same months in 2006. In August, orders fell below year-ago levels by 20.9 percent, and September orders were 19.1 percent below September 2006. Overall, for the third quarter of 2007, title orders declined by 17.3 percent from the comparable period in 2006.

"The sudden drop in orders in August and September made it more difficult to control expenses quickly to meet our desired results," said Malcolm S. Morris, chairman and co-chief executive officer. "The relatively fixed-cost component of our ongoing operations and our increased policy losses contributed to the operating loss for the third quarter of 2007. In a number of markets in California and elsewhere, we also experienced a large number of cancellations or delays in closings. This means the expenses of substantially completing the work had already been incurred on the transactions. When the loans failed to fund and the closings did not happen, the anticipated revenues were not received."

"We are working aggressively to align revenues and expenses and have closed or consolidated approximately 60 unprofitable branch offices year-to-date and additional closings are planned this year," said Stewart Morris, Jr., president and co-chief executive officer. "With little probability of a short term improvement in market conditions, closing a number of unprofitable branch offices is the best decision to improve our operating results," added Morris. "In addition to closing offices, we are implementing further cost control measures including salary reductions and freezes in specific markets, elimination of overtime, renegotiation of office leases, subleasing of vacated office space and overall expense controls. Sales efforts have also been heightened and focused."

When markets decline, claims have historically risen and, as a result, the Company's provision for title losses has increased in the third quarter of 2007 compared with the same period in 2006. The increase in the provision for title losses was a result of a $6.0 million charge related to two large title claims and a $7.5 million reserve adjustment related to higher than expected loss payment experience in policy years 2004 through 2006. As a result of this policy loss experience, the Company also recorded an additional reserve adjustment of $3.6 million for the current policy year.

The Company reduced employee counts company-wide by approximately 270 in the third quarter of 2007, for a total of 810 since the beginning of the year and 1,550, or 15.3 percent, since December 31, 2005, when the downturn in the real estate market began. Significant staff reductions have been made in October 2007 and are continuing.

Employee costs for the third quarter of 2007 decreased 7.1 percent compared with the same period in 2006 as the Company began to realize the benefits from its efforts to reduce staffing. Employee costs in the current quarter and year-to-date periods were also positively impacted by continued reductions in both the number and cost of major medical claims. Partially offsetting the decreases in staffing and medical claims were increases in employee costs in the areas of technology development, commercial business and in certain highly competitive geographic markets. Other operating costs did not change at the same rate as revenues primarily due to the relatively fixed nature of most of these costs.

During the third quarter of 2007, Stewart completed its stock purchase plan by purchasing 258,234 shares, or 1.5 percent, of its outstanding Common Stock.

The Company continues to make significant progress in its technological goals. The migration of AIM+ installations, a fourth generation title production and escrow technology, to the Company's state-of-the-art data center remains on target and is substantially underway. This is allowing the Company to shut down multiple distributed data centers by the end of the first quarter of 2008, adding more security and savings due to centralization.

The Company is on schedule with its implementation of a shared-services initiative that is designed to produce significant savings and efficiencies within the next 21 months. The focus is on back-office services, including accounting, finance, employee services, marketing and technology, that can be shared across the Company, thus reducing duplicative expenses.

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 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
September 30
Nine months ended
September 30
 
2007
2006
2007
2006
Revenues    
Title insurance:    
Direct operations
234,161
262,610
734,203
766,041
Agency operations
235,621
348,842
784,309
970,685
 
Real estate information services
16,510
20,161
49,540
59,915
Investment income
8,800
8,750
27,018

25,683

Investment and other gains - net
6,826
1,158
11,950
3,349
 
501,918
641,521
1,607,020
1,825,673
 
Expenses
Amounts retained by agencies
189,596
282,592
634,738
784,403
Employee costs
170,422
183,447
526,310
546,218
Other operating expenses
103,245
101,758
302,129
299,003
Title losses and related claims
46,642
35,374
113,618
99,849
Depreciation and amortization
10,403
9,791
30,437
26,905
Interest
1,512
1,577
5,054
4,424
 
521,820
614,539
1,612,286
1,760,802
 
(Loss) Earnings before taxes and minority interests
(19,902)
26,982
(5,266)
64,871
Income taxes (benefit) expense
(9,162)
7,942
(6,241)
18,431
Minority interests
3,530
4,890
9,883
13,933
Net (loss) earnings
(14,270)
14,150
(8,908)
32,507
 
Average number of diluted shares (000)
18,114
18,297
18,206
18,302
Diluted (loss) earnings per share
(0.79)
0.77
(0.49)
1.78
 
Segment information:
Title revenues
485,408
621,360
1,557,480
1,765,758
Title pretax (loss) earnings before minority interests
(19,976)
26,973
(8,170)
63,382
REI revenues
16,510
20,161
49,540
59,915
REI pretax earnings before minority interests
74
9
2,904
1,489
 
Selected financial information:
Cash (used) provided by operations
(4,622)
42,333
14,810
55,122
Title loss payments - net of recoveries
31,674
24,694
76,925
79,850
Changes in other comprehensive earnings - net of taxes
7,360
7,455
7,907
2,115
 
Number of title orders opened (000):
July
55
59
August
53
68
September
43
56
Quarter
151
183
Number of title orders closd (000): Quarter107136  
     
 
September 30
 
December 31
 
 
2007
 
2006
 
     
Stockholders' equity
793,963
802,262
 
Number of shares outstanding (000)
18,029
18,231
 
Book value per share
44.04
44.00
 
     
        
STEWART INFORMATION SERVICES CORPORATION BALANCE SHEETS (condensed)
(In thousands of dollars)
 
September 30
 
December 31
 
 
2007
 

2006

 
Assets    
Cash and cash equivalents
112,099
136,137
 
Short-term investments
105,530
161,711
 
Investments - statutory reserve funds
505,998
490,540
 
Investments - other
101,508
78,249
 
Receivables - premiums from agencies
48,940
58,023
 
Receivables - other
72,746
61,556
 
Allowance for uncollectable amounts
(10,204)
(9,112)
 
Property and equipment
103,096
99,325
 
Title plants
76,867
70,324
 
Goodwill
207,883
204,302
 
Intangible assets
18,107
15,444
 
Other assets
106,024
91,708
 
  
 
1,448,594
1,458,207
 
  
Liabilities 
Notes payable
110,269
109,549
 
Accounts payable and accrued liabilities
98,972
130,589
 
Estimated title losses
421,089
384,396
 
Deferred income taxes
8,008
14,139
 
Minority interests
16,293
17,272
 
 
654,631
655,945
 
  
Contingent liabilities and commitments 
  
Stockholders' equity 
Common and Class B Common Stock and
additional paid-in capital
140,924
148,517
 
Retained earnings
641,168
649,598
 
Accumulated other comprehensive earnings
15,968
8,061
 
Treasury stock
(4,097)
(3,914)
 
  
Total stockholders' equity
793,963

802,262

 
  
October 25, 2007
1,448,594
1,458,207
 

Source: Stewart Information Services Corporation