Stewart Reports Earnings for 2005

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HOUSTON, Feb. 16 / -- Stewart Information Services Corporation (NYSE-STC) today reported the results of its operations for the year and fourth quarter ended December 31, 2005. (Dollar amounts in the table below are in millions, except for per share figures.)

  Year 2005 Year 2004
     

Total Revenues

$2,424.1

$2,176.3

Pretax earnings before minority interests

165.0

146.7

Net earnings

88.8

82.5

Net earnings per diluted share

4.86 4.53

 

 
Fourth
Quarter 2005
Fourth
Quarter 2004
     

Total revenues

$622.6

$612.3

Pretax earnings before minority interests

21.2 (A)

37.4 (B)

Net earnings

9.1 (A)

20.3 (B)

Net earnings per diluted share

0.50 (A) 1.11 (B)

(A) Includes an addition to large title loss reserves aggregating
$10.5 million ($6.8 million after taxes, or $0.37 per diluted
share).

(B) Includes charge relating to litigation of $4.4 million ($2.9 million
after taxes, or $0.16 per diluted share).

Financial Highlights

* Revenues for the year 2005 set an all-time record high at $2.4 billion. This represented an increase of 11.4 percent over the year 2004. Pretax earnings (calculated before minority interests) for the year 2005 were $165.0 million, as compared with $146.7 million for 2004.

* The Company's pretax profit margin was 6.8 percent for the year 2005 compared with 6.7 percent for 2004. In comparing 2005 with 2004, pretax earnings were increased by a higher level of commercial transactions and a higher mix of revenues from direct operations compared with lower-margin agency business. Acquisitions increased revenues by $37.3 million and pretax earnings by $8.0 million in 2005.

* Profits for the year 2005 versus 2004 were impacted by higher employee costs and other operating expenses because the Company continues to incur the costs of investment in technology advancements. The Company's goal is to increase productivity, gain market share and provide superior service to its customers. Profits in 2005 were also impacted by an addition to title loss reserves of $10.5 million in the fourth quarter for large losses relating to a mortgage fraud and a defalcation.

* For the fourth quarter of 2005, revenues increased 1.7 percent to $622.6 million compared with the fourth quarter of 2004. Pretax earnings and margins were $21.2 million and 3.4 percent, respectively, for the fourth quarter of 2005 and $37.4 million and 6.1 percent, respectively, for the same quarter in 2004. As noted in the yearly analysis above, earnings for the fourth quarter of 2005 were decreased by the increase to large title loss reserves and by higher employee costs and other operating expenses.

* The fourth quarter of 2005 also includes charges relating to corrections of the Company's accounting for leases and employee vacations of $2.8 million and $2.1 million, respectively. The combined total of $3.2 million after taxes, or $0.17 per diluted share, is immaterial for the year as to net earnings, cash flows and stockholders' equity.

* Stewart's book value per share increased by 9.7 percent to $42.21 per share at December 31, 2005 as compared with $38.48 at December 31, 2004.

* Stewart paid $0.75 per share as its annual cash dividend for 2005, a 63 percent increase from $0.46 per share in 2004.

Title orders declined in the fourth quarter of 2005 by 2.2 percent from the same period a year ago. Although orders were higher in October 2005 than October 2004, there was a decline in each of the months of November and December from the same month a year earlier. A rise in mortgage interest rates was the major reason for the decline.

"The year resulted in all-time record revenues," stated Stewart Morris, Jr., co-chief executive officer. "We seek to improve our profit margins and are taking actions to improve future performance. We monitor employee levels and other costs with a goal of maintaining a minimum staff necessary to provide the customer service needed to continue growing market share. Our technology is facilitating increased productivity and customer responsiveness and service. We will continue to invest heavily in 2006 in enhancements to our production and transaction management system, as well as the development of new technology products that serve real estate information and lender markets. We believe these strategies will position us for strong gains in market share. Accretive acquisitions continue to help our earnings."

"We continued to grow our higher-profit commercial business in 2005," added Malcolm S. Morris, co-chief executive officer. "Our expansion in international markets is even more promising than before. Accordingly, we have evaluated our resources and reorganized our management, putting forward our most talented and experienced staff. We are building business on our sound financial position. We believe all of our strategies, when put together, will position us for future growth."

On February 3, 2006 Stewart completed its acquisition of Monroe Title Insurance Corporation, expanding its presence in upstate New York and improving its ability to meet the needs of Stewart's national customer base. The acquisition is expected to further enhance Monroe's market position while opening markets to Stewart's real estate products and services.

Stewart Information Services Corporation is a technology-driven, strategically competitive, real estate information and transaction management company providing title insurance and related information services through more than 8,500 policy-issuing offices and agencies in the United States and international markets. Stewart also provides post-closing lender services, 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 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

Year

ended December 31

ended December 31

2005
(A)
2004
(B)
2005 2004

Revenues

Title Insurance:

Direct operations
262,555

231,784

1,041,977

880,697

Agency operations

329,765

355,600

1,265,495

1,201,075

Real estate information services

21,420

17,567

82,495

68,907

Investment income
7,654
6,272
29,127
22,514
Investment and other gains - net
1,183
1,053
4,966
3,099

622,577

612,276

2,424,060

2,176,292

Expenses

Amounts retained by agencies

263,148

291,472

1,025,929

980,457

Employee costs

181,246

154,747

694,599

591,092

Other operating expenses

102,234

89,569

373,161

324,897

Title losses and related claims

44,324

30,560

128,102

100,841

Depreciation and amortization

9,312

8,044

33,954

31,025

Interest

1,073

449

3,351

1,248

601,337

574,841

2,259,096

2,029,560


Earnings before taxes and minority interests

21,240

37,435

164,964

146,732

Income taxes

6,727

13,353

56,768

50,696

Minority interests 5,412 3,803 19,431 13,518

Net earnings

9,101

20,279

88,765

82,518

Average number of diluted shares outstanding (000)

18,279

18,224

18,246

18,199

Earnings per share - diluted

0.50

1.11

4.86

4.53

Segment information:

Title revenues

601,157

594,709

2,341,565

2,107,385

Title pretax earnings before minority interests

20,558

36,640

154,391

143,154


REI revenues

21,420

17,567

82,495

68,907

REI pretax earnings before minority interests

682

795

10,573

3,578

Selected financial information:

Cash flow from operations

40,236

26,713

173,508

170,410

Title loss payments - net of recoveries

22,385

22,192

82,162

68,408

Changes in other comprehensive earnings - net of taxes

(2,916)

1,262

(8,160)

(1,231)

Number of title orders opened (000):









October
November
December
Quarter

69.6
62.2
55.2
187.0

66.7
64.3
60.1
191.1






December 31

December 31

2005

2004

Stockholders' equity 766,313 697,313
Number of shares outstanding (000) 18,154 18,121
Book value per share 42.21 38.48

(A) Includes an addition to large title loss reserves aggregating
$10.5 million ($6.8 million after taxes, or $0.37 per diluted
share).

(B) Includes charge relating to litigation of $4.4 million ($2.9 million
after taxes, or $0.16 per diluted share).

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

December 31

December 31

2005

2004

Assets

Cash and cash equivalents

134,734

121,383

Short-term investments

206,717

181,195

Investments - statutory reserve funds

449,475

401,814

Investments-other

85,802

68,793

Receivables - premiums from agencies

49,397

42,618

Receivables - other 39,265 37.659

Property and equipment

85,762

83,391

Title plants

58,930

52,679

Goodwill

155,624

124,636

Intangible assets
15,268
16,988

Other assets

80,177

62,197

1,361,151

1,193,353

Liabilities

Notes payable

88,413

49,930

Accounts payable and accrued liabilities

125,255

101,544

Estimated title losses
346,704
300,749

Deferred income taxes

15,784

29,335

Minority interests

18,682

14,482

594,838
496,040

Contingent liabilities and commitments

Stockholders' equity

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

145,367

144,135

Retained earnings

619,232

543,295

Accumulated other comprehensive earnings

5,628

13,788

Treasury stock

(3,914)

(3,905)

Total stockholders' equity

766,313

697,313

1,361,151

1,193,353

February 16, 2006


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