Stewart Reports Earnings for 2006

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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, 2006. (Dollar amounts in the table below are in millions, except per share figures.)

 
Year 2006
Year 2005
Total revenues
$ 2,471.5
$ 2,430.6
Pretax earnings before minority interests
84.5
165.0
Net earnings
43.3
88.8
Net earnings per diluted share
2.36
4.86
  
 
Fourth Quarter
 
2006
2005
Total revenues
$645.8
$629.1
Pretax earnings before minority interests
19.7
21.2(a)
Net earnings
10.7
9.1(a)
Net earnings per diluted share
0.59
0.50(a)

(a) Includes additions to title loss reserves aggregating $10.5 million
($6.8 million after taxes, or $0.37 per diluted share).

Financial Highlights

  • Revenues for the year 2006 set a record high at $2.5 billion. This represented an increase of 1.7 percent compared with the year 2005. Net earnings for 2006 were $43.3 million versus $88.8 million for 2005.

  • The increase in revenues for the year 2006 compared to the year 2005 was due primarily to acquisitions, revenues from new agencies, continued growth in revenues from commercial transactions and an increase in international operations. The increase in revenues was substantially offset by a decline in transaction volume handled by the Company's direct operations in certain major markets of the country. The decline was due to a softening real estate market resulting primarily from a higher interest rate environment. Mortgage interest rates averaged 6.4 percent for 2006 compared with 5.9 percent for 2005. Acquisitions increased revenues and pretax earnings by $51.7 million and $2.0 million, respectively, for 2006.

  • Pretax earnings (calculated before minority interests) for the year 2006 were $84.5 million compared with $165.0 million in 2005. Based on pretax earnings, the Company's profit margin was 3.4 percent for 2006 compared with 6.8 percent for 2005. In comparing 2006 with 2005, the pretax profit margin was negatively impacted by a softening real estate environment resulting primarily from the higher interest rate environment, a higher complement of lower-margin agency business compared to direct operations and a higher provision for policy losses due to an increase in the Company's loss experience for recent policy years. The decrease in pretax profit margin was somewhat offset by the higher level of commercial transactions, which typically earn higher premiums.

  • The Company continues to incur significant other operating expenses and employee costs related to its technology advancements and compliance with both privacy laws and Sarbanes-Oxley. Although employee costs increased in 2006 compared with 2005 primarily due to acquisitions and costs associated with developing technology initiatives, the Company reduced employee costs in markets where direct operations experienced revenue declines. In response to overall decreases in transaction volumes, the Company's workforce in its title offices was reduced by approximately 920 employees, or 11.6 percent, during 2006. Giving effect to the increase in staff primarily for advancing technology, the Company reduced its total workforce by approximately 720 employees, or 7.1 percent. Right-sizing extended into January 2007 with the reduction of an additional 180 employees. These amounts exclude increases from new offices.

  • For the fourth quarter of 2006, revenues increased 2.6 percent to $645.8 million compared with the fourth quarter of 2005. The increase was due primarily to continued growth in revenues from commercial transactions and revenues from new agencies, partially offset by a decline in the Company's direct operations in certain major markets of the country as noted in the yearly analysis above.

  • Pretax earnings were $19.7 million and $21.2 million for the fourth quarters of 2006 and 2005, respectively. Earnings for the fourth quarter of 2006 compared with the fourth quarter of 2005 were impacted by a higher complement of lower-margin agency business compared to direct operations, partially offset by a decrease in title loss reserves. The fourth quarter of 2006 included additions to title loss reserves of $4.3 million, or $6.2 million less than the fourth quarter of 2005. These provisions related to large losses attributed primarily to agency defalcations. The fourth quarter of 2005 also included charges related to the Company's accounting for leases and employee vacations of $2.8 million and $2.1 million, respectively.

  • Stewart's book value per share increased by 4.2 percent to $44.00 at December 31, 2006 compared with $42.21 at December 31, 2005.

  • Stewart paid a $0.75 per share annual cash dividend in 2006, the same rate paid in 2005.

Title orders declined in the fourth quarter of 2006 by 13.4 percent from the same period a year ago. Orders were 12.7 percent less in December 2006 than December 2005. A softening national housing market was the major reason for the decline in order counts.

"Our growing commercial and international operations significantly contributed to our results in 2006 and we're very proud of our accomplishments in these areas," said Malcolm S. Morris, chairman and co-chief executive officer. "Commercial revenues have more than tripled since the beginning of the decade when we began a major push in this area. Our international operations enjoyed strong increases in profits in 2006. Although our international business represents a small percentage of total title revenues today, the growth potential is exciting."

"In the second quarter of 2007, we expect to deliver our next generation web-enabled production system built on Microsoft's net development platform and will begin the process of conversion and roll-out," said Stewart Morris, Jr., president and co-chief executive officer. "As we convert to this full featured title and escrow system, we anticipate gains in productivity and enhanced customer service.

"Consistent with our goal of making acquisitions that are accretive to shareholder interests, we recently acquired Border Title Group in Laredo, Texas, one of the top growth markets in the country.

"Our vendor-management company E-Title®, a subsidiary in the real estate information segment of Stewart, is gaining traction as a nationwide participant in this growing industry segment," said Stewart Morris, Jr.

The Company sold GlobeXplorer® and AirPhotoUSA® in January 2007 to DigitalGlobe® and entered into agreements with these companies to continue to provide spatial and digital imagery through our real estate information portal http://www.PropertyInfo.com .

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, 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
December 31
Year ended
December 31
 
2006
2005
(1)
2006
2005
Revenues    
Title insurance:    
Direct operations
262,647
262,555
1,028,688
1,041,977
Agency operations
351,309
336,332
1,321,994
1,272,062
 
Real estate information services
21,244
21,420
81,159
82,495
Investment income
9,229
7,654
34,913
29,127
Investment and other gains - net
1,379
1,183
4,727
4,966
 
645,808
629,144
2,471,481
2,430,627
 
Expenses
Amounts retained by agencies
282,668
269,715
1,067,071
1,032,496
Employee costs
182,311
181,246
728,529
694,599
Other operating expenses
106,948
102,234
405,951
373,161
Title losses and related claims
41,708
44,324
141,557
128,102
Depreciation and amortization
10,842
9,312
37,747
33,954
Interest
1,666
1,073
6,090
3,351
 
626,143
607,904
2,386,945
2,265,663
 
Earnings before taxes and minority interests
19,665
21,240
84,536
164,964
Income taxes
4,614
6,727
23,045
56,768
Minority interests
4,306
5,412
18,239
19,431
Net earnings
10,745
9,101
43,252
88,765
 
Average number of diluted shares (000)
18,308
18,279
18,304
18,246
Earnings per share - diluted
0.59
0.50
2.36
4.86
 
Segment information:
Title revenues
624,564
607,724
2,390,322
2,348,132
Title pretax earnings before minority interests
19,852
20,558
83,234
154,391
REI revenues
21,244
21,420
81,159
82,495
REI pretax earnings (loss) before minority interests
(187)
682
1,302
10,573
 
Selected financial information:
Cash provided by operations
44,275
40,236
99,397
173,508
Title loss payments - net of recoveries
26,739
22,385
106,589
82,162
Changes in other comprehensive earnings - net of taxes
318
(2,916)
2,433
(8,160)
 
Number of title orders opened (000):
October
59.3
69.6
November
54.6
62.2
December
48.1
55.2
Quarter
162.0
187.0
     
 
December 31
 
December 31
 
 
2006
 
2005
 
     
Stockholders' equity
802,262
766,313
 
Number of shares outstanding (000)
18,231
18,154
 
Book value per share
44.00
42.21
 
     

(1) Includes additions to title loss reserves aggregating $10.5 million
($6.8 million after taxes, or $0.37 per diluted share).

        
STEWART INFORMATION SERVICES CORPORATION BALANCE SHEETS (condensed)
(In thousands of dollars)
 
September 30
 
December 31
 
 
2006
 
2005
 
Assets    
Cash and cash equivalents
136,137
134,734
 
Short-term investments
161,711
206,717
 
Investments - statutory reserve funds
490,540
449,475
 
Investments - other
78,249
85,802
 
Receivables - premiums from agencies
58,023
49,397
 
Receivables - other
61,556
47,791
 
Allowance for uncollectible amounts
(9,112)
(8,526)
 
Property and equipment
99,325
85,762
 
Title plants
70,324
58,930
 
Goodwill
204,302
155,624
 
Intangible assets
15,444
15,268
 
Other assets
91,708
80,177
 
  
 
1,458,207
1,361,151
 
  
Liabilities 
Notes payable
109,549
88,413
 
Accounts payable and accrued liabilities
130,589
125,255
 
Estimated title losses
384,396
346,704
 
Deferred income taxes
14,139
15,784
 
Minority interests
17,272
18,682
 
 
655,945
594,838
 
  
Contingent liabilities and commitments 
  
Stockholders' equity 
Common and Class B Common Stock and
additional paid-in capital
148,517
145,367
 
Retained earnings
649,598
619,232
 
Accumulated other comprehensive earnings
8,061
5,628
 
Treasury stock
(3,914)
(3,914)
 
  
Total stockholders' equity
802,262
766,313
 
  
February 16, 2007
1,458,207
1,361,151
 

Source: Stewart Information Services Corporation


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