Stewart Reports Earnings for Second Quarter

July 28, 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.

Source: Stewart Information Services Corporation

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