LEGISLATION / ECONOMICS SPUR INDUSTRY CHANGES

On July 13, 1999, Valley National Bank, a wholly- owned subsidiary of Valley National Bancorp, reported that it had acquired the assets of Commonwealth Land Title insurance Company's Totowa, New Jersey office and will immediately begin selling title insurance through Valley's Branch office located in Riverdale, NJ. The new title agency is a separate subsidiary of VNB known as Wayne Title, Inc. and will conduct business under the trade name of Commonwealth All Service Title Agency.

You might have thought that Banks were prohibited from selling title insurance. They were underNJSA 17: 46B-30.1, which prohibits lenders from owning or controlling title insurance companies. Valley National Bank applied for a title producer's license for Wayne Title, Inc. based on an interpretation of 12 U.S.C. Sec. 92, permitting national banks to sell insurance in towns having a population of 5,000 or less. In Barnet Bank vs. Nelson, 517 U.S. 25 ( 1996), the United States Supreme Court used this section to permit national banks to sell title insurance even though it was prohibited by Florida State law.

After the initial denial of their license, VNB instituted an action to compel the issuance of same by the NJ Department of Insurance. In Valley National Bank v. LaVecchia, the New Jersey Courts agreed and issued an order prohibiting the Commissioner of Banking and Insurance from denying the license application because Wayne Title is a subsidiary of VNB. This ruling applies only to national banks and not to state banks or mortgage companies.

Economics and the downturn in the refinancing market have led to other changes as well. LandAmerica Financial Group, Inc., parent company of Commowealth Land Title Insurance Company and Lawyers Title Insurance Corporation announced on July 14th in a press release that "earnings for the second quarter are expected to be less than analysts are currently projecting." Chairman and CEO Charles H. Foster, Jr. stated, " We have seen a shift in our revenue mix toward a higher percentage of agency business and our direct operations have experienced a fall-off in refinance transactions ..."

Foster went on to say that "We have already implemented action plans to reduce staffing to levels necessary to service our current business volumes, and to be flexible enough to adjust to further changes in our business mix, economic conditions, or interest rate fluctuations, while maintaining quality standards and upholding our reputation for superior customer service." *

Better news was disclosed by Stewart Information Services Corporation (NYSE-STC) which reported the highest first quarter earnings and revenues in its history. Net earnings for the three months ended March 31, 1999 were $9.6 million, compared to $8.6 million for the first quarter of 1998. On a diluted per share basis, net earnings were $1.34 for the first quarter of 1999 compared to $1.23 for the first quarter of 1998. Revenues in the first quarter increased 26 percent to $248 million from $197 million in the same period last year.

"Strong order counts in the last few months of 1998 and a healthy real estate market in the first months of 1999 translated to impressive first quarter earnings," said Stewart Morris, president and co-chief executive officer. "Order counts in the last quarter of 1998 were 56 percent greater than in the same period of 1997. Orders typically generate revenues for our offices in the following 10 to 60 days."

A good housing market continues. According to published data, sales of existing and new homes, along with housing starts, were up in the first two months of 1999 when compared to the same period last year.

"Although interest rates continue to be very affordable, they have not declined enough to support the number of refinance transactions last year," said Morris. "Interest rates hover around 7 percent." Refinance activity has dropped from representing 54 percent of total applications in the first three months of 1998 to 50 percent in the same period of 1999, as reported by the National Mortgage Banker's Association. Refinance activity now represents approximately 40 percent of application volume in the first two weeks of April 1999. "Our refinance business, a less profitable sector of our operations, decreased causing our order counts to dip by approximately 5 percent in the first quarter of 1999 compared to the same period last year," added Morris.

Exciting news in April was the announcement of an agreement with Fannie Mae, the nation's largest source of financing for home mortgages. The agreement provides lenders using Fannie Mae's MORNETPlus network electronic access to title services and flood hazard certificates via RealEC(tm)." Formed by Stewart and another national underwriter, RealEC is the first open multi-vendor electronic commerce network with the products and services required to underwrite and close a loan in one convenient online location. Fannie Mae's Desktop Underwriter on the MORNETPlus network currently services 850 lenders and 3,800 mortgage brokers nationwide with 31,000 loan submissions a day.

In addition, Chicago Title Insurance Company announced it's current excellent financial ratings.

Chicago Title's principal title insurance subsidiaries carry a claims-paying ability rating of "A" from Standard & Poor's Corp. and Duff & Phelps Credit Rating Co. In addition, Moody's Investors Service has assigned an insurance financial strength rating of "A2" to Chicago Title Insurance Co. and "A3" to Ticor Title Insurance Co. According to Moody's, these ratings consider Chicago Title's market-leading franchise in title insurance and related services - in particular, commercial real estate transactions - as well as its geographic breadth and extensive branch network; its good underwriting controls; its better-than-average operating profitability; its liquidity and cash flow position; and its overall sound balance sheet fundamentals.

Demotech Inc. has given Chicago Title Insurance Co.- a claims-paying ability rating of "A"" (A double prime)Ticor Title Insurance Co. a rating of "A'" (A prime) and commercial real estate recommendations of "Highly Recommended." Demotech's "A"" rating is awarded to title insurers that possess unsurpassed financial stability related to their payment of loss and loss-adjustment expenses.

LACE Financial Corp. rated Chicago Title Insurance Co. and Ticor Title Insurance Co. an "A'" and "A+" respectively, for their claims-paying abilities. According to LACE, "A rating of "A+,' 'A' or "B" indicates that a title insurance company has a strong overall financial condition that will allow it to meet its future claims. As a rule, these companies have good operating earnings, are well capitalized and have adequate reserves."