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 JuneSeptember 30, 2000



[   ]    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, including 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            13,944,81013,997,677
                      Class B Common             1,050,012






                                    FORM 10-Q
                                QUARTERLY REPORT
                        Quarter Ended JuneSeptember 30, 2000





                                TABLE OF CONTENTS





Item No.                                                                  Page
- --------                                                                  ----

                                     Part I


  1.             Financial Statements                                       1

  2.             Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                        6

  3.             Quantitative and Qualitative Disclosures About
                 Market Risk                                                8





                                    Part II


  1.             Legal Proceedings                                         10

  5.             Other Information                                         10

  6.             Exhibits and Reports on Form 8-K                           9


                 Signature                                                 11







                    STEWART INFORMATION SERVICES CORPORATION

    CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS
                     FOR THE QUARTERS AND SIXNINE MONTHS ENDED
                           JUNESEPTEMBER 30, 2000 and 1999



SECONDTHIRD QUARTER SIXNINE MONTHS --------------------- -------------------- 2000 1999 2000 1999 ---------- --------- -------- -------- ($000 Omitted) ($000 Omitted) Revenues Title premiums, fees and other revenues 206,270 275,117 397,446 502,833219,459 246,460 616,905 749,293 Real estate information services 13,028 16,225 25,227 31,31614,019 14,507 39,246 45,823 Investment income 5,319 4,885 10,487 9,7925,519 5,394 16,006 15,186 Investment gains (losses) - net 53 (134) (287) 307 20 (280) 50 --------- -------- -------- ------ 224,670 296,093 432,873 543,971239,004 266,381 671,877 810,352 Expenses Amounts retained by agents 89,418 142,262 180,257 254,396100,514 124,186 280,771 378,582 Employee costs 73,136 73,964 141,810 143,46375,398 72,030 217,208 215,493 Other operating expenses 42,487 43,116 81,548 79,57743,465 43,321 125,013 122,898 Title losses and related claims 9,547 11,920 18,107 21,1869,340 9,937 27,447 31,123 Depreciation and amortization 5,135 4,318 10,226 8,1935,575 4,968 15,801 13,161 Interest 486 310 867 596497 314 1,364 910 Minority interests 1,501 1,436 2,445 2,4261,341 1,377 3,786 3,803 --------- -------- -------- ------- 221,710 277,326 435,260 509,837236,130 256,133 671,390 765,970 --------- -------- -------- ------- Earnings (loss) before taxes 2,960 18,767 (2,387) 34,1342,874 10,248 487 44,382 Income taxes (benefit) 1,086 7,041 (907) 12,8081,116 4,150 209 16,958 --------- -------- -------- ------- Net earnings (loss) 1,874 11,726 (1,480) 21,3261,758 6,098 278 27,424 ========= ======== ======== ======= Average number of shares outstanding - assuming dilution (000) 14,908 14,581 14,860 14,46115,018 14,762 14,913 14,562 Earnings (loss) per share - basic 0.13 0.81 (0.10) 1.490.12 0.42 0.02 1.90 Earnings (loss) per share - diluted 0.13 0.80 (0.10) 1.470.12 0.41 0.02 1.88 ========= ========= ======== ======= Comprehensive earnings: Net earnings (loss) 1,874 11,726 (1,480) 21,3261,758 6,098 278 27,424 Changes in unrealized investment gains (losses), net of taxes of $(80)$916, $(700), $(2,060), $213$1,129 and $(3,250)$(3,950), respectively (148) (3,825) 396 (6,035)1,701 (1,300) 2,097 (7,335) --------- -------- -------- ------- Comprehensive earnings (loss) 1,726 7,901 (1,084) 15,2913,459 4,798 2,375 20,089 ========= ========= ======== =======
-1- STEWART INFORMATION SERVICES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS JUNESEPTEMBER 30, 2000 AND DECEMBER 31, 1999
JUNSEP 30 DEC 31 2000 1999 ---------- ---------- ($000 Omitted) Assets Cash and cash equivalents 42,25734,359 36,803 Short-term investments 51,22864,221 65,583 Investments - statutory reserve funds 190,675194,955 186,917 Investments - other 51,66451,484 57,711 Receivables 47,41646,295 48,580 Property and equipment 47,60247,487 45,900 Title plants 27,24727,809 26,258 Goodwill 37,02437,515 31,641 Deferred income taxes 12,57612,535 12,378 Other 27,02129,177 23,970 ---------- ---------- 534,710545,837 535,741 ========== ========== Liabilities Notes payable 25,60528,954 19,054 Accounts payable and accrued liabilities 31,096 44,30334,056 41,303 Estimated title losses 186,302184,951 183,787 Minority interests 6,6476,625 6,673 Contingent liabilities and commitments Stockholders' equity Common and Class B Common Stock and additional paid-in capital 81,45084,590 79,126 Retained earnings 207,974209,732 209,454 Accumulated other comprehensive deficit (3,260)(1,559) (3,656) Treasury stock - 85,200116,900 shares (1,104)(1,512) - ---------- ----------- Total stockholders' equity ($19.2719.36 per share at JuneSeptember 30, 2000) 285,060291,251 284,924 ---------- ----------- 534,710545,837 535,741 ========== ===========
-2- STEWART INFORMATION SERVICES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2000 AND 1999
2000 1999 -------- -------- ($000 Omitted) Cash provided by operating activities (Note) 6,544 31,27417,272 42,114 Investing activities: Purchases of property and equipment and title plants - net (11,684) (12,756)(16,446) (19,794) Proceeds from investments matured and sold 41,187 15,42651,360 32,839 Purchases of investments (24,222) (37,783)(48,863) (57,269) Increases in notes receivable (2,389) (5,850)(2,795) (5,838) Collections on notes receivable 526 5,114860 5,315 Proceeds from sale of equity investment - 8,1405,840 Cash paid for the acquisition of subsidiaries - net (7,718) (3,050)(8,537) (5,166) ---------- --------- Cash used by investing activities (4,300) (30,759)(24,421) (44,073) Financing activities: Dividends paid - (1,069)(1,612) Repurchases of common stock (1,104)(1,512) - Distribution to minority interests (2,234) (1,696)(3,568) (2,871) Proceeds from issuance of stock - 6439 Proceeds of notes payable 9,519 4,12913,842 8,470 Payments on notes payable (2,971) (4,585)(4,057) (5,745) ---------- --------- Cash provided (used) by financing activities 3,210 (3,157)4,705 (1,719) ---------- --------- Increase (decrease)Decrease in cash and cash equivalents 5,454 (2,642)(2,444) (3,678) ========== ==========
NOTE: Reconciliation of net earnings (loss) to the above amounts - Net earnings (loss) (1,480) 21,326278 27,424 Add (deduct): Depreciation and amortization 10,226 8,19315,801 13,161 Provision for title losses in excess of payments 2,515 4,6181,164 7,206 Provision for uncollectible amounts - net (54) (300)38 (465) Decrease in accounts receivable - net 3,149 3,8334,218 5,477 Decrease in accounts payable and accrued liabilities - net (10,432) (6,603)(7,450) (12,918) Minority interest expense 2,445 2,4263,786 3,803 Equity in net losses (earnings)earnings of investees 110 (559)(166) (750) Realized investment losses (gains) - net 287 (30)280 (50) Gain on sale of equity investment - (1,145) Stock bonuses 541 588598 Increase in other assets (1,428) (1,743)(2,228) (846) Other - net 665 6701,010 619 ---------- --------- Cash provided by operating activities 6,544 31,27417,272 42,114 ========== =========
-3- STEWART INFORMATION SERVICES CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 Note 1: Interim Financial Statements The financial information contained in this report for the three and sixnine month periods ended JuneSeptember 30, 2000 and 1999, and as of JuneSeptember 30, 2000, 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. Certain amounts in the 1999 condensed consolidated financial statements have been reclassified for comparative purposes. Net earnings, as previously reported, were not affected. Note 2: Segment Information The Company's two reportable segments are title and real estate information. Selected financial information related to these segments follows:
Real Estate Title Information Total ----- ----------- ----- ($000 Omitted) Revenues: - --------- Three months ended 6/9/30/00 211,642 13,028 224,670 6/224,985 14,019 239,004 9/30/99 279,868 16,225 296,093 Six251,874 14,507 266,381 Nine months ended 6/9/30/00 407,646 25,227 432,873 6/632,631 39,246 671,877 9/30/99 512,655 31,316 543,971764,529 45,823 810,352 Pretax Earnings (Losses): - ------------------------- Three months ended 6/9/30/00 4,103 (1,143) 2,960 6/3,945 (1,071) 2,874 9/30/99 18,071 696 18,767 Six9,675 573 10,248 Nine months ended 6/9/30/00 447 (2,834) (2,387) 6/4,392 (3,905) 487 9/30/99 31,876 2,258 34,13441,551 2,831 44,382 Identifiable Assets: - -------------------- 6/9/30/00 494,701 40,009 534,710505,717 40,120 545,837 12/31/99 496,191 39,550 535,741
Note 3: Earnings Per Share The Company's basic earnings (loss) per share figures were calculated by dividing net earnings (losses) by the weighted average number of shares of Common Stock and Class B Common Stock outstanding during the reporting period. The only potentially dilutive effect on earnings per share for the Company related to its stock option plans. In calculating the effect of the options and determining a figure for diluted earnings per share, the average number of shares used in calculating basic earnings per share was increased by 102,00097,000 and 124,000138,000 for the three month periods ending JuneSeptember 30, 2000 and 1999, respectively and 98,000 and 138,000 for the sixnine month periods ending JuneSeptember 30, 2000 and 1999, respectively. -4- Note 4: Contingent Liabilities and Commitments The Company is presently named in a private class action brought under California's Unfair Business Practices Act: Soriano v. Stewart Title. In a related matter, The Company is an unnamed and unserved defendant in a large class action filed by the California Attorney General against a class of all title companies in the State of California. The lawsuit seeks restitution and injunctive relief against an unidentified defendant class of all title companies in the state, based on alleged title company practices concerning escheatment, fees and banking services credits. The Company is in settlement discussion with the California Attorney General. Although the ultimate disposition of these lawsuits cannot be predicted with certainty, it is the opinion of the Company's management, based on its analysis and discussions with its outside counsel, that the outcome of any claim, whether individually or on a combined basis, will not have a materially adverse effect on the consolidated financial condition of the Company. Note 5: Changes in Accounting Principles Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," requires companies to recognize all derivatives as either assets or liabilities in the statement of financial condition and to measure all derivatives at fair value. SFAS No. 133 requires that changes in fair value of a derivative be recognized currently in earnings unless specific hedge accounting criteria are met. Upon implementation of SFAS No. 133, hedging relationships may be redesignated, and securities held to maturity may be transferred to available for sale or trading. SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133", deferred the effective date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" amended the accounting and reporting standards of SFAS No. 133 for certain derivative instruments, hedging activities, and decisions made by the Derivatives Implementation Group. The Company does not invest in hedging or derivative instruments nor does it intend to do so in the future. Accordingly, SFAS 133, SFAS 137 and SFAS 138 will have no impact on the consolidated financial statements. -5- Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL The Company's two segments of operations are title insurance ("Title") and real estate information ("REI"). In general, the principal factors that contribute to increases in the Company's operating revenues for both segments include declining mortgage interest rates (which usually increase home sales and refinancing transactions), rising home prices, higher premium rates, increased market share, additional revenues from new offices and increased revenues from commercial transactions. Although relatively few in number, large commercial transactions typically yield higher premiums. Mortgage interest rates, which averaged 7.0% in the first quarter of 1999, rose over the rest of the year to about 7.9% at the end of the year. Rates in early 2000 increased again to an average of 8.3% forduring the first six months, of 2000. Existing and newbut dropped to about 7.9% in September. According to the most recent industry sources available, existing home sales declined about 5.8%4.4% in the first sixnine months of 2000 compared with the first sixnine months of 1999. Refinancing transactions decreased duringsignificantly beginning in the second half of 1999 and the first six months ofcontinued at much lower levels in 2000. Refinance activity dropped from representing 33.934.4 percent of total applications in the first sixnine months of 1999 to 14.216.6 percent in the same period of 2000, as reported by industry experts.in 2000. A comparison of the results of operations of the Company for the first sixnine months of 2000 with the first sixnine months of 1999 follows. REVENUES RevenuesFor the first nine months of 2000, revenues from title premiums and fees decreased $105.4$132.4 million, or 21.0%17.7%, from a year ago. Mortgage interest rates were significantly higher in the first six months of 2000 than in the same period a year ago, decreasingwhich reduced real estate sales and refinancing transactions. The number of direct closings handled by the Company decreased 18.1%12.3%. Closings decreased in California, Texas, Arizona, Colorado and most other states. The average revenue per closing increased in 2000 due to higher home prices and a smaller number of refinancings, which generate lower premiums. Increases in revenues from commercial transactions also contributed to higher revenues per closing in 2000. Premiums from agents were $347.9 million in 2000 and $467.2 million in 1999. While nearly all states declined, the largest decreases were in California and Florida. The decrease in premiums from agents was primarily attributable to the reduced number of refinancing and other transactions resulting from a higher interest rate environment. Other revenues in the first sixnine months of 1999 included a $1.1 million pretax gain resulting from a settlement of a lawsuit and a related sale of an equity ownership in a title agency. Real estate information revenues were $25.2$39.2 million in 2000 and $31.3$45.8 million in 1999. The 14.4% decrease was primarily due to the decline in real estate activity. REI profits were reduced in the first nine months of 1999 by a $1.3 million pretax charge resulting from the settlement of a lawsuit. Investment income increased 7.1%5.4% in 2000 over 1999 primarily due to an increase in the average balances invested. EXPENSES Premiums earned from agents were $223.3 million in 2000 and $314.0 in 1999. The amounts retained by agents, as a percentage of premiums, were 80.7% and 81.0% for the six months ended June 30,in 2000 and June 30, 1999, respectively. Amounts retained by title agents are based on contracts between agents and the title underwriters of the Company. The percentage that amounts retained by agents bears to agent revenues may vary from year to year because of the geographical mix of agent operations and the volume of title revenues. Employee expenses for the combined business segments decreasedincreased $1.7 million, or 1.2%0.8%, in 2000 primarily because of a lower average number of employees during the first six months of 2000 compared to a year ago.2000. Employee costs for both the title segment decreased slightly, while employee costs for theand REI segment showed a small increase.segments increased. The number of employees in existing title offices at the end of the first sixnine months of 2000 was reduced approximately 7.7%10.7% from a year ago. The reduction in the number of employees was offset, however, by significant increases in newly acquired and startup offices, expansion of national marketing operations to gain market share and continued expansion in technology. -6- Other operating expenses increased by $2.0$2.1 million, or 2.5%1.7%, in 2000. The decreases in other operatingIncreased expenses due to the reduction in Title and REI business volume were more than offset by expenses that increased which include expenses of new offices, rent and search fees. Other significant components of other operating expenses are title plant expenses, supplies, computer costs, business promotion, telephone, travel, premium taxes, policy forms, delivery costs and cost of resale services and products policy forms bad debts and delivery costs.purchased. Provisions for title losses and related claims were down $3.1$3.7 million, or 14.5%11.8%, in 2000. As a percentage of title premiums, fees and related revenues, the provision in the first six months of 2000 was 4.6%4.4% versus 4.2% in 1999. The provision (benefit)for income taxes represented effective tax rates of 38.0%42.9% and 37.5%38.2% in 2000 and 1999, respectively. A comparison of the results of operations of the Company for the secondthird quarter of 2000 with the secondthird quarter of 1999 follows. REVENUES RevenuesFor the third quarter of 2000, revenues from title premiums and fees decreased $68.8$27.0 million, or 25.0%11.0%, from a year ago. Mortgage interest rates were significantly higher in the secondthird quarter of 2000 than in the same period a year ago, decreasingwhich reduced real estate sales and refinancing transactions. The number of direct closings handled by the Company decreased 11.9%.increased slightly. Closings decreased in new offices offset the decreases in Arizona, Texas, California Texas, Arizona and mostmany other states. The average revenue per closing increased in 2000 due to higher home prices and a smaller number of refinancings, which generate lower premiums. Increases in revenues from commercial transactions also contributed to higher average revenues per closing in 2000. Premiums from agents decreased $28.7 million from $153.3 million in the third quarter of 1999 to $124.6 million in the third quarter of 2000. While nearly all states declined, the largest decreases were in California and Florida. The decrease in premiums from agents was primarily attributable to the reduced number of refinancing and other transactions resulting from a higher interest rate environment. Real estate information revenues were $13.0$14.0 million in 2000 and $16.2$14.5 million in 1999. The decrease was primarilywasprimarily due to the decline in real estate activity. Investment income increased 8.9%2.3% in 2000 over 1999 primarily due to an increase in the average balances invested and higher yields.yield. EXPENSES Premiums earned from agents were $110.3 million in 2000 and $175.8 in 1999. The amounts retained by agents, as a percentage of premiums, were 81.1%80.7% and 80.9% for the second quarter of81.0% in 2000 and 1999, respectively. Amounts retained by title agents are based on contracts between agents and the title underwriters of the Company. The percentage that amounts retained by agents bears to agent revenues may vary from year to year because of the geographical mix of agent operations and the volume of title revenues. Employee expenses for the combined business segments decreased $0.8increased $3.4 million, or 1.1%4.7%, in 2000 primarily because of a lower average number of employees during the second quarter of 2000 compared to a year ago. The decrease was partly offset by higher average rates of compensation.2000. Employee costs for both the title segment decreased slightly, while employee costs for theand REI segment showed a small increase.segments increased. The number of employees in existing title offices at the end of the first six monthsthird quarter of 2000 was reduced approximately 7.7%10.7% from a year ago. The reduction in the number of employees was offset, however, by significant increases in newly acquired and startup offices, expansion of national marketing operations to gain market share and continued expansion in technology. Other operating expenses decreasedincreased by $0.6$0.1 million, or 1.5%0.3%, in 2000. Other operatingIncreased expenses decreased due to the decrease in Title and REI business volume offset by expenses that increased which include expenses of new offices and rent.search fees. Other significant components of other operating expenses are rent, title plant expenses, supplies, computer costs, business promotion, telephone, travel, premium taxes, policy forms, delivery costs and cost of resale services and products policy forms, bad debts, search fees and delivery costs.purchased. Provisions for title losses and related claims were down $2.4$0.6 million, or 19.9%6.0% in 2000. As a percentage of title premiums, fees and related revenues, the provision in the secondthird quarter of 2000 increased to 4.6%4.3% versus 4.3%4.0% in 1999. The provision for income taxes represented effective tax rates of 36.7%38.8% and 37.5%40.5% in 2000 and 1999, respectively. -7- YEAR 2000 ISSUE Information technology is a crucial part of the Company's business. Accordingly, the Company completed a comprehensive Year 2000 ("Y2K") readiness program that addressed challenges associated with the Y2K issue. As a result of this program, the Company encountered no major automation or business disruption due to Y2K issues. The Company continues to operate normally across all business units and geographies and will continue to monitor operations through 2000. The total costs incurred for the Y2K readiness program were $3.6 million. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations represents 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. During the first sixnine months of 2000, the Company financed a portion of various acquisitions through the issuance of Common Stock totaling $1.8$4.9 million. Acquisitions during the first sixnine months of 2000 have resulted in an increase in goodwill of $6.3$7.3 million. FORWARD LOOKING STATEMENTS All statements included in this report, other than statements of historical facts, which address activities, events or developments that the Company expects or anticipates will or may occur in the future are forward-looking statements. Such forward-looking statements are subject to risks and uncertainties including, among other things, changes in mortgage interest rates, employment levels, actions of competitors, changes in real estate markets, general economic conditions and legislation (primarily legislation related to insurance) and other risks and uncertainties discussed in the Company's filings with the Securities and Exchange Commission. Item 3: Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the Company's investment strategies, types of financial instruments held or the risks associated with such instruments which would materially alter the market risk disclosures made in the Company's Annual Statement on Form 10-K for the year ended December 31, 1999. -8- PART II Page ---------- Item 1. Legal Proceedings 10 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K (a) Index to exhibits (b) There were no reports on Form 8-K filed during the quarter ended JuneSeptember 30, 2000. -9- ITEM 1. LEGAL PROCEEDINGS 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. The Registrant does not expect that any of these proceedings will have a material adverse effect on its financial condition. ITEM 5. OTHER INFORMATION The Board of Directors has approved a plan to repurchase up to 5 percent (680,000 shares) of the Company's currently issued and outstanding Common Stock. The Board also determined that the Company's regular quarterly dividend should be discontinued in favor of returning those and additional funds to stockholders through the stock purchase plan. As of JuneSeptember 30, 2000, the Company had repurchased a total of 85,200116,900 shares under this plan. -10- 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) August 10,November 9, 2000 - ---------------- Date /S/ MAX CRISP ----------------------------------------------- Max Crisp (Vice President-Finance, Secretary-Treasurer, Director and Principal Financial and Accounting Officer) -11- INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------- ----------- 4. - Rights of Common and Class B Common Stockholders 27.0 - Financial data schedule 28.2 - Details of investments as reported in the Quarterly Report to Shareholders