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Stewart Reports Earnings for Third Quarter 2006

Stewart Reports Earnings for Third Quarter 2006

HOUSTON, Oct. 26 - Stewart Information Services Corporation (NYSE-STC) today reported the results of its operations for the third quarter and nine months ended September 30, 2006. (Dollar amounts in the table below are in millions, except per share figures.)

 

Third Quarter

 

2006

2005

Total revenues

$641.5

$639.4

Pretax earnings before minority interests

27.0

57.2

Net earnings

14.2

31.8

Net earnings per diluted share

0.77

1.74

   
 

Nine Months

 

2006

2005

Total revenues

$ 1,825.7

$ 1,801.5

Pretax earnings before minority interests

64.9

143.7

Net earnings

32.5

79.7

Net earnings per diluted share

1.78

4.37

Financial Highlights

  • Revenues increased 0.3 percent to $641.5 million in the third quarter of 2006 compared with $639.4 million for the third quarter of 2005. Pretax earnings (calculated before minority interests) for the third quarter of 2006 were $27.0 million compared with $57.2 million for the same period of 2005.

  • Revenues increased 1.3 percent to $1.83 billion in the first nine months of 2006 compared with $1.80 billion for the first nine months of 2005. Pretax earnings (calculated before minority interests) for the first nine months of 2006 were $64.9 million compared with $143.7 million for the same period of 2005.

  • The increase in revenue in the third quarter of 2006 from the same period in 2005 was due primarily to revenues from new agencies, the impact of acquisitions and strong growth in commercial transactions, offset by a decline in revenues and transactions handled by our direct operations. The decrease in revenues from direct operations resulted from a reduction in residential closings due to a higher interest rate environment that has significantly impacted certain major markets of the country. Mortgage interest rates averaged 6.6 percent in the third quarter of 2006 compared with 5.8 percent in the third quarter of 2005.Acquisitions increased revenues by $12.1 million for the quarter.

  • Profits for the third quarter of 2006 versus 2005 were reduced primarily due to a higher complement of lower-margin agency business compared to direct operations and higher other operating costs. Other operating costs increased primarily due to expenses associated with new offices, increased technology development for higher productivity and security costs to comply with both privacy laws and Sarbanes-Oxley. The Company is continually monitoring changes in transaction volumes and has now reduced staff levels accordingly while continuing with its goal to provide superior customer service and gain market share. Excluding the effect of increases from new locations, the Company's workforce was reduced by approximately 650 employees, or 6.4 percent, since September 30, 2005. A significant number of these staff reductions occurred during the third quarter and, as such, the corresponding reduction in employee costs will be realized in the fourth quarter of 2006.

  • Stewart's book value per share increased to $44.11 at September 30, 2006 compared with $42.21 at December 31, 2005.

  • Title orders from direct operations declined in the third quarter of 2006 by 23.2 percent from the same period a year ago. September orders were 25.0 percent lower than the same month a year ago. The increase in mortgage interest rates and a reduction in home sales were the major reasons for the decline in title orders.

"Within our REI portal group, PropertyInfo.com, we changed leadership and consolidated our web-based title services for agencies to provide a one-stop order and delivery point for our agency network," said Stewart Morris, Jr., president and co-chief executive officer. "We also have consolidated and rebranded the lender services division of Stewart Mortgage Information, which is now known as Stewart Lender Services. Products and services, spanning from loan origination to post-closing services, are available at http://www.stewartlenderservices.com .

"Homebuyers have evolved rapidly from print-based media to online searching," added Stewart Morris, Jr. "Our SureClose® transaction management platform, patent-pending eClosingRoom(TM), e-signature, e-notarization, e- recording and e-vault technologies position Stewart to continue to exceed consumer expectations for lower costs and more efficient closings. Our investment in technology has resulted in a key marketing and productivity tool. We are moving our primary title production and transaction management systems to an integrated web-based platform."

"Our rapidly growing commercial title business is a bright spot on the financial side," said Malcolm S. Morris, chairman and co-chief executive officer. "We have tripled our commercial business since 2000. Commercial customers are serviced by Stewart's National Title Services (NTS), which has 20 offices across the country plus more than 900 Stewart Title offices and branches. In addition, the 2004 acquisition of Title Associates in New York has also contributed greatly to this growth. Our commercial closers, underwriters, marketing specialists and escrow officers deliver stellar service. Stewart Title Guaranty Company's balance sheet, with an industry- record 31 years of growth in surplus and reserves, provides the confidence level that commercial policyholders demand.

"The current growing commercial real estate market is benefiting not only our title business but also our subsidiary, Asset Preservation, Inc., which is a national leader in tax-deferred exchanges under Section 1031 of the Internal Revenue Code."

Stewart Information Services Corporation is a customer-oriented, technology-driven, strategically competitive, real estate information 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, mortgage default management solutions, 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 http://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

 

2006

2005

2006

2005

Revenues        
Title insurance:        
Direct operations

262,610

287,607

766,041

779,422

Agency operations

348,842

320,545

970,685

935,730

 

 

 

 

 

Real estate information services

20,161

22,760

59,915

61,075

Investment income

8,750

8,016

25,683

21,473

Investment and other gains - net

1,158

514

3,349

3,783

 

641,521

639,442

1,825,673

1,801,483

 

 

 

 

 

Expenses

 

 

 

 

Amounts retained by agencies

282,592

259,557

784,403

762,781

Employee costs

183,447

183,863

546,218

513,353

Other operating expenses

101,758

97,963

299,003

270,927

Title losses and related claims

35,374

31,434

99,849

83,778

Depreciation and amortization

9,791

8,592

26,905

24,642

Interest

1,577

883

4,424

2,278

 

614,539

582,292

1,760,802

1,657,759

 

 

 

 

 

Earnings before taxes and minority interests

26,982

57,150

64,871

143,724

Income taxes

7,942

19,880

18,431

50,041

Minority interests

4,890

5,499

13,933

14,019

Net earnings

14,150

31,771

32,507

79,664

 

 

 

 

 

Average number of diluted shares (000)

18,297

18,259

18,302

18,236

Earnings per share - diluted

0.77

1.74

1.78

4.37

 

 

 

 

 

Segment information:

 

 

 

 

Title revenues

621,360

616,682

1,765,758

1,740,408

Title pretax earnings before minority interests

26,973

51,748

63,382

133,833

REI revenues

20,161

22,760

59,915

61,075

REI pretax earnings before minority interests

9

5,402

1,489

9,891

 

 

 

 

 

Selected financial information:

 

 

 

 

Cash provided by operations

42,333

45,903

55,122

133,272

Title loss payments - net of recoveries

24,694

26,336

79,850

59,777

Changes in other comprehensive earnings - net of taxes

7,455

(4,099)

2,115

(5,244)

 

 

 

 

 

Number of title orders opened (000):

 

 

 

 

July

59

77

 

 

August

68

86

 

 

September

56

75

 

 

Quarter

183

238

 

 

         
 

September 30

 

December 31

 
 

2006

 

2005

 
         
Stockholders' equity

803,783

 

766,313

 
Number of shares outstanding (000)

18,223

 

18,154

 
Book value per share

44.11

 

42.21

 
         
STEWART INFORMATION SERVICES CORPORATION BALANCE SHEETS (condensed)
(In thousands of dollars)
 

September 30

 

December 31

 
 

2006

 

2005

 
Assets        
Cash and cash equivalents

127,582

 

134,734

 
Short-term investments

168,628

 

206,717

 
Investments - statutory reserve funds

476,609

 

449,475

 
Investments - other

89,283

 

85,802

 
Receivables - premiums from agencies

47,800

 

49,397

 
Receivables - other

48,136

 

47,791

 
Allowance for uncollectible amounts

(8,952)

 

(8,526)

 
Property and equipment

91,286

 

85,762

 
Title plants

68,777

 

58,930

 
Goodwill

188,435

 

155,624

 
Intangible assets

14,593

 

15,268

 
Other assets

94,356

 

80,177

 
 

 

 

 

 
 

1,406,533

 

1,361,151

 
 

 

 

 

 
Liabilities

 

 

 

 
Notes payable

94,626

 

88,413

 
Accounts payable and accrued liabilities

109,848

 

125,255

 
Estimated title losses

369,427

 

346,704

 
Deferred income taxes

11,196

 

15,784

 
Minority interests

17,653

 

18,682

 
 

602,750

 

594,838

 
 

 

 

 

 
Contingent liabilities and commitments

 

 

 

 
 

 

 

 

 
Stockholders' equity

 

 

 

 
Common and Class B Common Stock and
additional paid-in capital

148,215

 

145,367

 
Retained earnings

651,739

 

619,232

 
Accumulated other comprehensive earnings

7,743

 

5,628

 
Treasury stock

(3,914)

 

(3,914)

 
 

 

 

 

 
Total stockholders' equity

803,783

 

766,313

 
 

 

 

 

 
October 26, 2006

1,406,533

 

1,361,151

 

Source: Stewart Information Services Corporation