Stewart Reports Earnings for Third Quarter 2006

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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


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