Stewart Reports Financial Results for the Fourth Quarter and Year 2008

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HOUSTON, Feb. 19 -- Stewart Information Services Corporation (NYSE: STC - News) today reported the results of its operations for the fourth quarter and the year ended December 31, 2008 (dollar amounts are in millions, except for per share figures):


                                     Fourth    Fourth
                                     Quarter   Quarter    Year      Year
                                      2008      2007      2008      2007
    Total revenues                   $335.9    $499.7  $1,555.3  $2,106.7
    Pretax loss (A)                  (109.8)    (46.7)   (234.5)    (51.9)
    Net loss                         (158.0)    (31.3)   (241.9)    (40.2)
    Net loss per share                (8.72)    (1.74)   (13.37)    (2.21)

    (A) Before minority interests


    The fourth quarter and full year 2008 included pretax charges as follows:

                                      Fourth     Fourth
                                      Quarter    Quarter    Year      Year
                                       2008       2007      2008      2007
    Loss reserve strengthening,
     including large claims and
     defalcations                     $29.9     $20.0     $62.0     $39.5
    Provision for legal matters        19.3        .8      19.3       3.8
    Impairment write-downs of
      Investment securities and
      Other assets                     12.8                25.2
    Office closing and
      Restructuring costs               5.0       2.8      11.6       2.8
    Gains on sales of subsidiaries,
      real estate, and other assets              (2.3)              (11.1)
    Other, net                          1.7       0.3       1.0      (1.2)
       Total pre-tax charges           68.7      21.6     119.1      33.8

    After tax charge - deferred
      tax valuation allowance          85.9                85.9


The 2008 charge to income tax expense is to establish a valuation allowance against deferred tax assets in accordance with current accounting standards. As the Company expects a return to profitable operations in 2009, the valuation allowance will continue to be evaluated for reversal.

The Company recorded only its second full year loss since 1974. Existing home sales in 2008 fell to their lowest level since 1997, according to the National Association of Realtors®. New home sales were the lowest since 1963, the year recordkeeping began for this statistic.

The Company's title revenues, which are closely related to the volume and value of real estate transactions, declined by 24.0 percent and 28.1 percent for the year and fourth quarter 2008, respectively, compared with the same periods in 2007. Title order counts in 2008, based on orders per workday, were 22.2 percent and 22.6 percent lower than 2007 for the year and fourth quarter, respectively. However, open order counts for the month of December were up 45.9 percent compared with November driven by a surge of refinancing applications taking place due to record-low interest rates.

Overall, we reduced employee costs in 2008 by 19.6 percent when compared with the prior year, which reflects our aggressive efforts to reduce headcount. The benefit of reductions in employee counts during the fourth quarter 2008 are not fully reflected in the fourth quarter results due to the timing of the reductions. On an annualized basis, reduction in employee expenses in the fourth quarter of 2008 reflect a $226 million reduction compared to all of 2007. In addition, other operating costs declined by 11.4 percent in 2008 when compared with 2007, although reductions made in these expenses were partially offset by provisions made in the fourth quarter of 2008 for certain legal matters.

Our results were negatively impacted by strengthening of policy loss reserves by $32.0 million as a result of unusually large claims payments and incurred claims history for policy years 2005, 2006, and 2007. This brings the total strengthening for these policy years to $37.4 million. We do not currently anticipate future reserve strengthening for these policy years. Our policy loss reserves in 2008 also reflect charges of $41.7 million relating to large title losses and defalcations attributable to independent agencies. These charges were partially offset by insurance recoveries of $11.6 million received during the year.

In the fourth quarter of 2008, the Company established reserves aggregating $19.3 million for various pending legal matters as well as for disputes with certain state taxing authorities. Based on developments during the quarter, the Company determined that losses arising from these matters were probable and estimable and recorded its best estimate of its financial exposure.

The Company paid an annual cash dividend of 10 cents per share on December 23, 2008, to owners of record as of December 8, 2008. The 2007 annual dividend was 75 cents per share.

"We have taken dramatic steps to return to profitability in 2009," said Stewart Morris, Jr., president and co-chief executive officer. "In our direct title and real estate information operations in 2008, we closed 167 branches and offices, eliminated 2,120 staff (a reduction of 33.7 percent in those operations), completely restructured and compressed our management at all levels and reduced expenses throughout our operations. For example, where we had seven top-level operations managers a year ago in our direct and agency operations, there are just three today."

"Our underwriting and corporate office operations have also been the target of improved efficiencies and significant cost cutting," said Malcolm S. Morris, chairman and co-chief executive officer. "We have accelerated our consolidation of back office operations to further shrink expenses while providing high-quality customer service to the front office. In addition to the employee reductions at our title offices, we reduced our employee count throughout the remaining operations."

"This difficult economy placed significant financial pressures on owners of independent title agencies which resulted in increased escrow fund defalcations and, therefore, higher title losses for us," said Mr. Morris. "To address this, and to reduce the overhead costs associated with low-premium volume agents, we cancelled more than 2,500 agencies during 2008. This action, while lowering revenues an insignificant amount, results in an improved risk profile and profit potential for us in future periods."

International operations were a bright spot in the year. "International growth will remain a key focal point for Stewart," said Michael B. Skalka, head of Stewart Global Underwriting Operations. "The more we expand international business, the more opportunities we have to service customers and offer timely products and services. International growth and profitability will play a major role in our future."

Stewart Information Services Corporation (NYSE-STC), is a customer-driven, technology-enabled, strategically competitive, real estate information, title insurance and transaction management company. Stewart provides title insurance and related information services required for settlement by the real estate and mortgage industries throughout the United States and in international markets. Stewart also provides post-closing lender services, 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.

Forward-looking statements. Certain statements in this news release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to future, not past, events and often address our expected future business and financial performance. These statements often contain words such as "expect", "anticipate", "intend", "plan", "believe", "seek", "will" or other similar words. Forward-looking statements by their nature are subject to various risks and uncertainties that could cause our actual results to be materially different than those expressed in the forward-looking statements. These risks and uncertainties include, among other things, the severity and duration of current financial and economic conditions, the impact of recent significant decreases in the level of real estate activity, continued weakness or further adverse changes in the level of real estate activity, our ability to respond to and implement technology changes, the impact of unanticipated title losses on the need to further strengthen our policy loss reserves and any effect of title losses on our cash flows and financial condition, the impact of changes in governmental regulations, our dependence on our operating subsidiaries as a source of cash flow, the realization of expected expense savings resulting from our expense reduction steps taken in 2008, our ability to grow our international operations, and our ability to respond to the actions of our competitors. These risks and uncertainties, as well as others, are discussed in more detail in our documents filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2007, our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008, June 30, 2008 and September 30, 2008, and our Current Reports on Form 8-K. We expressly disclaim any obligation to update any forward-looking statements contained in this news release to reflect events or circumstances that may arise after the date hereof, except as may be required by applicable law.


    STEWART INFORMATION SERVICES CORPORATION
    STATEMENTS OF OPERATIONS
    (In thousands of dollars,
     except per share amounts)

                                   Three months ended      Year ended
                                       December 31         December 31
                                      2008      2007      2008      2007
                                      -----     ----      ----      ----
    Revenues
    Title insurance:
      Direct operations              147,657   213,138   706,745   947,342
      Agency operations              190,065   256,410   803,189 1,040,719
    Real estate information            9,345    16,497    44,473    66,037
    Investment income                  6,584     9,055    29,134    36,073
    Investment and other (losses)
     gains-net                       (17,706)    4,570   (28,247)   16,520
                                     335,945   499,670 1,555,294 2,106,691

    Expenses
    Amounts retained by agencies     158,314   208,300   657,771   843,038
    Employee costs                   115,747   162,797   553,792   689,107
    Other operating expenses         102,668   107,868   363,455   409,999
    Title losses and related
     claims                           58,868    54,884   167,828   168,501
    Depreciation and amortization      8,547    10,688    40,959    41,125
    Interest                           1,625     1,788     5,995     6,842
                                     445,769   546,325 1,789,800 2,158,612


    Loss before taxes
     and minority interests         (109,824)  (46,655) (234,506)  (51,921)
    Income tax expense (benefit)      47,685   (17,685)    2,128   (23,926)
    Minority interests                   497     2,342     5,226    12,225
    Net loss                        (158,006)  (31,312) (241,860)  (40,220)

    Loss per share                    (8.72)    (1.74)   (13.37)    (2.21)


    Average number of shares (000)    18,122    18,030    18,092    18,162

    Segment information:
      Title revenues                 326,600   483,173 1,510,821 2,040,654
      Title pretax loss
       before minority interests    (106,916)  (45,867) (219,341)  (54,037)

      REI revenues                     9,345    16,497    44,473    66,037
      REI pretax (loss) earnings
       before minority interests      (2,908)     (788)  (15,165)    2,116


    Selected financial information:
      Cash (used) provided by
       Operations                    (34,946)  (10,232) (106,652)    4,578
      Title loss payments -
       net of recoveries              36,479    35,317   136,751   117,550
      Changes in other
       comprehensive earnings -
        net of taxes                  (1,434)    3,874   (19,261)   11,781
      Number of title orders
       opened (000):
        October                           31        48
        November                          26        42
        December                          44        38
           Quarter                       101       128
      Number of title orders
       closed (000):
            Quarter                       66        93


                                                      December 31 December 31
                                                          2008        2007

      Stockholders' equity                               493,842   754,059
      Number of shares outstanding (000)                  18,142    18,031
      Book value per share                                 27.22     41.82



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

                                                      December 31,
                                                 ----------------------
                                                 2008              2007
                                                 ----              ----

    Assets
      Cash and cash equivalents                  72,361            78,797
      Cash and cash equivalents -
       statutory reserve funds                   13,885            30,442
        Total cash and cash equivalents          86,246           109,239
    Short-term investments                       37,120            79,780
      Investments - statutory reserve funds     452,368           518,586
      Investments - other                        78,407            98,511
      Receivables - premiums from agencies       35,707            48,040
      Receivables - other                        89,365            93,335
      Allowance for uncollectible amounts       (17,504)          (11,613)
      Property and equipment                     83,533            96,457
      Title plants                               78,363            78,245
      Goodwill                                  210,901           208,824
      Intangible assets                           8,448            17,157
      Investments - pledged                     222,684                 -
      Other assets                               83,588           105,413

                                              1,449,226         1,441,974

    Liabilities
      Notes payable                             135,276           108,714
      Line of credit (secured by
       pledged investments)                     222,684                 -
      Accounts payable and accrued
       liabilities                              110,769           108,658
      Estimated title losses                    461,532           441,324
      Deferred income taxes                      11,896            13,509
                                                942,157           672,205

    Minority interests                           13,227            15,710


    Contingent liabilities and commitments

    Stockholders' equity

      Common and Class B Common Stock and
       additional paid-in capital               143,811           141,196
      Retained earnings                         353,547           597,118
      Accumulated other comprehensive earnings      581            19,842
      Treasury stock                             (4,097)           (4,097)
         Total stockholders' equity             493,842           754,059

                                              1,449,226         1,441,974



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