<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to
_______________
Commission file number 1-12688
STEWART INFORMATION SERVICES CORPORATION
-----------------------------------------------
- -------
(Exact name of registrant as specified in its
charter)
Delaware 74-
1677330
- ------------------------------- ---
- -------
(State or other jurisdiction of (I.R.S. Employer
Identification No.)
incorporation or organization)
1980 Post Oak Blvd., Houston, TX 77056
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(713) 625-8100
--------------
(Registrant's telephone number, including area
code)
- ------------------------------------------------------------
- --------------------
(Former name, former address and former fiscal year, if
changed since last
report)
Indicate by check mark whether the registrant (1) has filed
all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been
subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the
issuer's classes of
common stock, as of the latest practicable date.
Common 6,273,336
Class B Common 525,006
<PAGE> 2
FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No.
Page
- --------
- ----
<S> <C>
<C>
Part I
1. Financial Statements
1
2. Management's Discussion and Analysis of
Financial
Condition and Results of Operations
5
Part II
1. Legal Proceedings
8
6. Exhibits and Reports on Form 8-K
9
Signature
13
</TABLE>
<PAGE> 3
STEWART INFORMATION SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED
MARCH 31, 1997 and 1996
<TABLE>
<CAPTION>
=============================
THREE MONTHS
------
- -------------------
1997 1996
- -------------------------
($000 Omitted)
=============================
<S>
<C> <C>
Revenues
Title premiums, fees and other revenues
73,241 74,636
Investment income
3,727 3,446
Investment gains
156 374
Other income - net
(370) (452)
------
- -------------------
76,754 78,004
Expenses
Employee costs
43,294 40,747
Other operating expenses
23,507 22,914
Title losses and related claims
6,559 7,960
Depreciation and amortization
2,776 2,465
Interest
253 284
Minority interests
267 236
------
- -------------------
76,656 74,606
Earnings before taxes
98 3,398
Income taxes
34 1,223
------
- -------------------
Net earnings
64 2,175
=============================
Average number of shares outstanding (000)
6,787 6,666
Earnings per share
0.01 0.33
=============================
</TABLE>
-1-
<PAGE> 4
STEWART INFORMATION SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
============================
MAR 31 DEC 31
1997 1996
- ----------------------------
($000 Omitted)
============================
<S>
<C> <C>
Assets
Cash and cash equivalents
18,696 18,484
Short-term investments
27,771 31,946
Investments - statutory reserve funds
127,549 127,057
Investments - other
68,780 73,456
Receivables
30,875 31,616
Property and equipment
28,274 28,185
Title plants
20,983 21,096
Goodwill
16,515 16,535
Deferred income taxes
16,460 14,615
Other
20,737 20,382
- ----------------------------
376,640 383,372
============================
Liabilities
Notes payable
12,738 12,234
Accounts payable and accrued liabilities
20,799 25,452
Estimated title losses
149,810 150,331
Minority interests
4,383 4,275
Contingent liabilities and commitments
Stockholders' equity
Common and Class B Common Stock and
additional paid-in capital
58,404 57,574
Net unrealized investment gains (losses)
(677) 1,920
Retained earnings
131,183 131,496
- ----------------------------
Total stockholders' equity ($27.79 per share at
March 31, 1997)
188,910 190,990
- ----------------------------
376,640 383,372
============================
</TABLE>
-2-
<PAGE> 5
STEWART INFORMATION SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
1996
<TABLE>
<CAPTION>
=============================
1997 1996
- -----------------------------
($000 Omitted)
=============================
<S>
<C> <C>
Cash (used) provided by operating activities (Note)
(1,998) 7,201
Cash flow from investing activities:
Purchases of property and equipment and title
plants - net (2,189) (2,086)
Proceeds from investments matured and sold
26,286 30,732
Purchases of investments
(21,767) (35,995)
Increases in notes receivable
(506) (373)
Collections on notes receivable
174 706
Proceeds from issuance of stock
36 0
Cash received (paid) for the acquisitions of
subsidiaries - net 26 (231)
- -----------------------------
Cash provided (used) by investing activities
2,060 (7,247)
Financing activities:
Dividends paid
(377) (369)
Proceeds of notes payable
1,849 1,002
Payments on notes payable
(1,322) (548)
- -----------------------------
Cash provided by financing activities
150 85
- -----------------------------
Increase in cash and cash equivalents
212 39
=============================
NOTE: Reconciliation of net income to above amounts:
Net income
64 2,175
Add (deduct):
Depreciation and amortization
2,796 2,484
Provision for title losses (less than) in excess
of payments (521) 3,972
Provision for uncollectible amounts - net
176 (110)
Decrease (increase) in accounts receivable - net
969 (1,355)
Decrease in accounts payable and accrued
liabilities - net
(5,005) (291)
Minority interest expense
267 236
Equity in net earnings of investees
11 404
Realized investment gains - net
(156) (374)
Other, net
(599) 60
- -----------------------------
Cash (used) provided by operating activities
(1,998) 7,201
=============================
</TABLE>
-3-
<PAGE> 6
STEWART INFORMATION SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
============================================================
====================
Note 1: Interim Financial Statements
The financial information contained in this report for the
three month
periods ended March 31, 1997 and 1996, and as at March 31,
1997,
is unaudited. In the opinion of management, all adjustments
necessary
for a fair presentation of this information for all
unaudited periods,
consisting only of normal recurring accruals, have been
made. The
results of operations for the interim periods are not
necessarily
indicative of results for a full year.
-4-
<PAGE> 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
- ------------------------------------------------------------
- --------------------
A comparison of the results of operations of the Company for
the first
three months of 1997 with the first three months of 1996
follows:
General
The Company's dominant segment of operations is the land
title business. In
general, the principal factors which contribute to increases
in title revenues
include declining mortgage interest rates (which usually
increase home sales),
increases in refinancing transactions, rising home prices,
higher
premium rates, increased market share, additional revenues
from new offices and
increased revenue from non-residential commercial
transactions. Although
relatively few in number, large commercial transactions
usually yield higher
premiums.
Revenues
Revenues from title premiums and fees decreased $1.4
million, or 1.9%, from
a year ago. Mortgage interest rates were higher in the early
part of 1997
than in the same period a year ago, reducing real estate
transactions. Refinancing
transactions, in particular, were higher a year ago. But
refi transactions fell
to lower, more normal levels beginning in the second quarter
of 1996. Refinancings
have remained at the lower levels since then.
The number of closings handled by the Company decreased
15.6%. Closings
decreased in California, Florida, Texas and most other
states. The average revenue
per closing increased in the first quarter of 1996. Fewer
refinancings, with their
lower premiums, resulted in higher revenues per closing in
1997. Industry sources
report an increase of 4-5% in home prices, and that has the
effect of raising title
fees and premiums. Increases in commercial transactions
handled, revenues from
agents and real estate information services offered by the
Company also contributed
to higher revenues in 1997.
Investment income increased 8.2% in 1997 due to an increase
in the average
balances invested and the increased yield on the balances.
Expenses
Employee expenses increased $2.5 million, or 6.3%, in 1997
primarily because
of a higher average number of employees, during the first
quarter of 1997 compared
to a year ago and increased average rates of compensation.
Staff reductions were
made in the first quarter of 1997 which lowered the quarter-
end number of
employees of the company to 4,064 or slightly below the
staff levels at March 31,
1996. The reductions were made primarily in title office
operations in California
and Florida
-5-
<PAGE> 8
The Company continued to maintain higher staff levels, in
comparison with a year
ago, in areas of automating services rendered to customers
and improving its own
processes, real estate information services that are being
developed and sold to
customers and the expansion of its national marketing
efforts
The Company believes the development and sale of new
products and
services is important to its future. Through automating
operating processes,
the Company expects to add customer revenues and reduce
operating expenses
and title losses in the future.
Other operating expenses increased by $0.6 million, or 2.6%,
in primarily
because of increased bad debt provisions, rent and premium
taxes. Other operating
expenses also include business promotion, supplies, policy
forms, delivery costs,
title plant expenses, telephone and travel
Provisions for title losses and related claims were down
$1.4 million or 17.6%
in 1997. The Company's experience in claims continues to
improve significantly.
As a percentage of title premiums, fees and related
revenues, the provision for the
first quarter of 1997 decreased to 9.0 percent versus 10.7
percent in the first
quarter of 1996. The provision for the year 1996 was 10.3
percent.
The provision for income taxes represented a 35.0% effective
tax rate in 1997
and a 36.0% effective tax rate in 1996.
Liquidity and capital resources
Operating earnings represent the primary source of
financing, for the Company,
but this may be supplemented by bank borrowings. The capital
resources of the
Company, and the present debt-to-equity relationship, are
considered satisfactory.
-6-
<PAGE> 9
PART II
<TABLE>
<CAPTION>
- ---------
Page
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- ---------- -------------------------------------------------
- ----------
<S> <C>
<C>
Item 1. Legal Proceedings
8
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4. - Rights of Common and Class B Common
9
Stockholders
27.0 - Financial data schedule
10
28.2 - Details of Investments as reported in
the 12
Quarterly Report to Shareholders
(b) There were no reports on Form 8-K filed during
the
quarter ended March 31, 1997
- ---------- -------------------------------------------------
- ---------- ---------
</TABLE>
-7-
<PAGE> 10
ITEM 3. LEGAL PROCEEDINGS
Guaranty and 18 other title insurers are defendants
in a consolidated
class action proceeding originating from complaints first
filed in April 1990.
The suit is currently pending in the United States District
Court for the
District of Arizona. The plaintiffs allege that the
defendants violated federal
antitrust law by participating in title insurance rating
bureaus in Arizona and
Wisconsin in the early 1980s through which they allegedly
agreed upon the
prices and other terms and conditions of sale for title
search and examination
services. The plaintiffs request treble damages in an
unspecified amount, costs
and attorneys' fees.
The Court has certified the proceeding as a class
action and approved
a settlement pursuant to which members of the class would
receive cash
(not to exceed approximately $4.1 million from all
defendants) and additional
coverage under, and discounts on, title insurance policies.
In addition, the
Court has awarded counsel for certain plaintiffs the
negotiated sum of $1.3
million in fees and expenses. The Court has awarded counsel
for the remaining
plaintiffs fees and expenses totaling $0.5 million. The
Court has under
advisement the motions of such plaintiff's counsel to amend
and to reconsider
that award.
James C. O'Brien and Ingrid K. O'Brien vs. Stewart
Title Guaranty
Company, filed September 25, 1996, in the United States
District Court, Southern
District of Florida. This purported class action is one of
eight similar suits filed
against various underwriters in Florida, including Guaranty.
The alleged class
would include all purchasers of title insurance or evidence
of title in Florida
since 1990. Plaintiffs allege that Guaranty's premium and
cost sharing agreements
with its Florida agents, which are governed by and set in
accordance with rates
promulgated by the Florida Department of Insurance,
constitute violations of the
Real Estate Settlement Procedures Act and Florida law,
including fraudulent and
negligent misrepresentation. Plaintiffs seek injunctive
relief and treble damages
of at least $60 million based upon the title insurance
premiums paid by the purported
class. Guaranty has filed a motion to dismiss the complaint
on various grounds,
including the filed rate doctrine. The Court has deferred
any action on the
plaintiff's motion to certify the proceedings as a class
action pending disposition
of Guaranty's motion to dismiss. Guaranty believes that the
plaintiff's allegations
are without merit and intends to vigorously defend this
suit.
The Registrant is a party to routine lawsuits
incidental to its
business most of which involve disputed policy claims. In
many of these suits,
the plaintiff seeks exemplary or treble damages in excess of
policy limits
based on the alleged malfeasance of an issuing agent of the
Registrant.
-8-
<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the
registrant has duly caused this report to be signed on its
behalf by the
undersigned thereunto duly authorized.
Stewart Information Services Corporation
----------------------------------------
(Registrant)
May 13, 1997
- --------------
Date
/s/ MAX CRISP
-------------------------------------
Max Crisp
(Vice President - Finance, Secretary-
Treasurer,
Director and Principal Financial
and Accounting Officer)
-13-
<PAGE> 12
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4 - Rights of Common and Class B Common
Stockholders
27 - Financial data schedule
28.2 - Details of Investments as reported in the
Quarterly Report to Shareholders
<PAGE> 1
EXHIBIT 4
STEWART INFORMATION SERVICES CORPORATION
RIGHTS OF COMMON AND CLASS B COMMON
STOCKHOLDERS
March 31, 1997
============================================================
====================
Common and Class B Common stockholders have the
same rights, except
(1) no cash dividends may be paid on Class B Common Stock
and (2) the two
classes of stock are voted separately in electing directors.
A provision in the
by-laws requires an affirmative vote of at least two-thirds
of the directors to
approve any proposal which may come before the directors.
This by-law provision
cannot be changed without majority vote of each class of
stock.
Common stockholders, with cumulative voting rights,
may elect five or
more of the nine directors. Class B Common stockholders may,
with no cumulative
voting rights, elect four directors, if 350,000 or more
shares of Class B
Common stock are outstanding; three directors, if between
200,000 and 350,000
shares of Class B Common Stock are outstanding; if less than
200,000 shares of
Class B Commons Stock are outstanding, the Common Stock and
the Class B Common
Stock shall be voted as a single class upon all matters,
with the right to
cumulate votes for the election of directors.
No change in the Certificate of Incorporation which
would affect the
Common Stock and the Class B Common Stock unequally shall be
made without the
affirmative vote of at least a majority of the outstanding
shares of each
class, voting as a class.
Class B Common Stock may, at any time, be converted
by its holders
into Common Stock on a share-for-share basis. Such
conversion is mandatory on
any transfer to a person not a lineal descendant (or spouse,
trustee, etc. of
such descendant) of William H. Stewart.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1997 AND THE RELATED STATEMENT OF
EARNINGS FOR THE THREE
MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 195,565
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 224,100<F1>
<CASH> 18,696
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 376,640
<POLICY-LOSSES> 149,810
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 12,738
<COMMON> 6,798
0
0
<OTHER-SE> 182,112
<TOTAL-LIABILITY-AND-EQUITY> 376,640
73,241
<INVESTMENT-INCOME> 3,727
<INVESTMENT-GAINS> 156
<OTHER-INCOME> (370)
<BENEFITS> 6,559
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 98
<INCOME-TAX> 34
<INCOME-CONTINUING> 64
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
<RESERVE-OPEN> 150,331
<PROVISION-CURRENT> 6,317
<PROVISION-PRIOR> 242
<PAYMENTS-CURRENT> 795
<PAYMENTS-PRIOR> 6,285
<RESERVE-CLOSE> 149,810
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Includes short-term investments.
</FN>
</TABLE>
<PAGE> 1
Exhibit 28.2
STEWART INFORMATION SERVICES CORPORATION
DETAILS OF INVESTMENTS
MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
=============================
MAR 31 DEC 31
1997 1996
- -----------------------------
($000 Omitted)
=============================
<S>
<C> <C>
Investments, at market, partially restricted:
Short-term investments
$27,771 $31,946
U.S. Treasury and agency obligations
27,223 27,958
Municipal bonds
105,645 106,934
Mortgage-backed securities
29,469 30,595
Corporate bonds
33,992 35,026
- -----------------------------
TOTAL INVESTMENTS
$224,100 $232,459
=============================
</TABLE>
NOTE: The total appears as the sum of three amounts under
short-term
investments, investments - statutory reserve funds
and investments -
other in the balance sheet presented on page 2.
