Stewart Reports Earnings for Second Quarter 2006

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HOUSTON, July 27, 2006 -- Stewart Information Services Corporation (NYSE-STC) today reported the results of its operations for the second quarter and six months ended June 30, 2006. (Dollar amounts in the table below are in millions, except per share figures.)

  Second Quarter
  2006 2005

Total Revenues

$644.7

$651.1

Pretax earnings before minority interests

29.6

66.4

Net earnings

15.7

37.2

Net earnings per diluted share

0.86 2.04

Financial Highlights

* Revenues decreased 1.0 percent to $644.7 million in the second quarter of 2006 compared with $651.1 million for the second quarter of 2005. Pretax earnings (calculated before minority interests) for the second quarter of 2006 were $29.6 million compared with $66.4 million for the same period of 2005.

* Revenues increased 1.9 percent to $1,184.2 million in the first six months of 2006 compared with $1,162.0 million for the first six months of 2005. Pretax earnings (calculated before minority interests) for the first six months of 2006 were $37.9 million compared with $86.6 million for the same period of 2005.

* The decrease in revenues and transactions handled in the second quarter of 2006 from the same period in 2005 resulted primarily from a reduction in residential closings due to a higher interest rate environment. Mortgage interest rates averaged 6.6% in the second quarter of 2006 compared with 5.7% in the second quarter of 2005. Acquisitions and strong growth in commercial transactions positively impacted revenues in the second quarter of 2006, partially offsetting the decrease in residential activity. Acquisitions increased revenues by $12.1 million for the quarter.

* Profits for the second quarter of 2006 versus 2005 were reduced primarily by higher employee costs and other operating costs. Other operating costs increased primarily due to expenses associated with new offices, increased technology development and related security costs and litigation expenses. Employee costs were higher compared with the same period a year ago due to newly opened locations and increased technology-related services. The Company has taken steps to maintain staffing levels sufficient to continue to provide superior customer service and gain market share through a reasonably stable, dedicated employee work force. The Company is continually monitoring changes in transaction volume and cyclical developments in the marketplace to manage its current level of business and respond to opportunities with regard to both people and technology.

* The Company's provisions for title losses as a percentage of title operating revenues increased to 6.4% in the second quarter of 2006 compared with 4.9% for the same period of 2005. This was the result of an increase in our loss payment experience and an addition to title loss reserves of $4.9 million related to defalcations by two independent title agencies.

* Stewart's book value per share increased to $42.92 at June 30, 2006 compared with $42.21 at December 31, 2005.

* Title orders declined in the second quarter of 2006 by 17.0 percent from the same period a year ago. Orders were 22.7 percent lower in June 2006 than in June 2005. Steady increases in mortgage interest rates were the major reason for the decline in title orders.

As previously announced, the Company recently added Catherine A. Allen and Thomas G. Apel as advisory directors to its board. "Cathy is chief executive officer of BITS, the technology group for the Financial Services Roundtable, with an impressive resume of extensive banking experience and deep knowledge of technology," said Malcolm S. Morris, chairman and co-chief executive officer. "Tom was formerly president and chief executive officer of Centex Title and Ancillary Services and currently consults on product development, technology and business strategy for financial services and real estate finance companies. Each of these individuals is uniquely qualified as a board member to provide us valuable insight as we improve the real estate transaction process."

"We continue to make technology advancements," said Stewart Morris, Jr., president and co-chief executive officer. "Our recent electronic closings in Indiana were significant, involving strong regional mortgage originators and lenders. We are confident that the paperless real estate transaction is moving beyond tests and into production for early adopters. Our SureClose® transaction management platform, patent-pending eClosingRoom(TM), e-signature, e-notarization, e-recording and e-vault technologies position Stewart to offer a fully-electronic real estate transaction. These tools will make closings easier for consumers and result in cost savings and competitive advantages for mortgage lenders.

"We continue to push these Web-based electronic solutions out to the real estate and mortgage lending industries and have recently added Tim Anderson to lead our business development within the lender channel," said Stewart Morris, Jr. "Tim has worked with companies that support a paperless origination process and currently serves as a member of the Mortgage Bankers Association's Mortgage Industry Standards Maintenance Organization (MISMO) governance committee. He will represent our existing expertise within the lender market segment, and we are proud to have him join us."

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 9,000 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, aerial and satellite imagery, geographic information systems, property information reports, flood certificates, document preparation, background checks and expertise in tax-deferred property 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

Six months

ended June 30

ended June 30

2006 2005 2006 2005

Title Insurance:

     
Direct operations
276,391

278,941

504,209

491,815

Agency operations

340,189

341,500

621,843

615,185

Real estate information services

18,957

20,688

38,976

38,315

Investment income
8,396
7,149
16,933
13,457
Investment and other gains - net
796
2,801
2,191
3,269
 

644,729

651,079

1,184,152

1,162,041

Expenses

Amounts retained by agencies

274,935

279,637

501,811

503,224

Employee costs

183,669

173,873

362,771

329,490

Other operating expenses

107,441

91,967

197,245

172,964

Title losses and related claims

39,217

30,213

64,475

52,344

Depreciation and amortization

8,426

8,244

17,114

16,050

Interest

1,417

778

2,847

1,395

 

615,105

584,712

1,146,263

1,075,467


Earnings before taxes and
minority interests

29,624

66,367

37,889

86,574

Income taxes

8,739

23,543

10,489

30,161

Minnority interests 5,175 5,597 9,043 8,520

Net earnings

15,710

37,227

18,357

47,893

Average number of
diluted shares (000)

18,310

18,227

18,306

18,226

Earnings per share - diluted

0.86

2.04

1.00

2.63

Segment information:

Title revenues

625,772

630,391

1,145,176

1,123,726

Title pretax earnings before
minority interests

29,645

63,217

36,409

82,085


REI revenues

18,957

20,688

38,976

38,315

REI pretax (loss) earnings
before minority interests

(21)

3,150

1,480

4,489

Selected financial information:

Cash provided by operations

26,804

73,082

12,789

87,369

Title loss payments - net
of recoveries

27,666

16,908

55,156

33,441

Changes in other comprehensive
earnings - net of taxes

(2,339)

3,982

(5,340)

(1,145)

Number of title orders opened (000):

 

 

 

 

April
May
June
Quarter

62.9
71.9
68.6
203.4

76.3
80.0
88.8
245.1

 

 


June 30

December 31

2006

2005

Stockholders' equity 782,232 766,313
Number of shares outstanding (000) 18,224 18,154
Book value per share 42.92 42.21

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

June 30

December 31

2006

2005

Assets

Cash and cash equivalents

137,880

134,734

Short-term investments

147,324

206,717

Investments - statutory reserve funds

459,072

449,475

Investments-other

85,058

85,802

Receivables - premiums from agencies

46,300

49,397

Receivables - other 53,635 47,791
Allowance for uncollectable amounts (8,537) (8,526)

Property and equipment

93,001

85,762

Title plants

67,926

58,930

Goodwill

178,844

155,624

Intangible assets
14,683
15,268

Other assets

85,729

80,177

1,360,915

1,361,151

Liabilities

Notes payable

91,274

88,413

Accounts payable and accrued liabilities

99,772

125,255

Estimated title losses
358,748
346,704

Deferred income taxes

9,882

15,784

Minority interests

19,007

18,682

578,683
594,838

Contingent liabilities and commitments

Stockholders' equity

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

148,269

145,367

Retained earnings

637,589

619,232

Accumulated other comprehensive earnings

288

5,628

Treasury stock

(3,914)

(3,914)

Total stockholders' equity

782,232

766,313

1,360,915

1,361,151

July 27, 2006


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