Company Quick10K Filing
Stewart Information Services
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 24 $944
10-Q 2019-11-07 Quarter: 2019-09-30
10-Q 2019-08-07 Quarter: 2019-06-30
10-Q 2019-05-01 Quarter: 2019-03-31
10-K 2019-02-28 Annual: 2018-12-31
10-Q 2018-11-08 Quarter: 2018-09-30
10-Q 2018-08-06 Quarter: 2018-06-30
10-Q 2018-05-03 Quarter: 2018-03-31
10-K 2018-02-28 Annual: 2017-12-31
10-Q 2017-11-07 Quarter: 2017-09-30
10-Q 2017-07-28 Quarter: 2017-06-30
10-Q 2017-04-28 Quarter: 2017-03-31
10-K 2017-02-27 Annual: 2016-12-31
10-Q 2016-11-01 Quarter: 2016-09-30
10-Q 2016-07-29 Quarter: 2016-06-30
10-Q 2016-04-29 Quarter: 2016-03-31
10-K 2016-02-26 Annual: 2015-12-31
10-Q 2015-11-03 Quarter: 2015-09-30
10-Q 2015-07-31 Quarter: 2015-06-30
10-Q 2015-05-04 Quarter: 2015-03-31
10-K 2015-02-27 Annual: 2014-12-31
10-Q 2014-10-31 Quarter: 2014-09-30
10-Q 2014-08-01 Quarter: 2014-06-30
10-Q 2014-05-01 Quarter: 2014-03-31
10-K 2014-02-28 Annual: 2013-12-31
10-Q 2013-11-06 Quarter: 2013-09-30
10-Q 2013-08-02 Quarter: 2013-06-30
10-Q 2013-05-03 Quarter: 2013-03-31
10-K 2013-03-06 Annual: 2012-12-31
10-Q 2012-11-02 Quarter: 2012-09-30
10-Q 2012-08-03 Quarter: 2012-06-30
10-Q 2012-05-03 Quarter: 2012-03-31
10-K 2012-03-12 Annual: 2011-12-31
10-Q 2011-11-02 Quarter: 2011-09-30
10-Q 2011-08-03 Quarter: 2011-06-30
10-Q 2011-05-04 Quarter: 2011-03-31
10-K 2011-03-03 Annual: 2010-12-31
10-Q 2010-11-03 Quarter: 2010-09-30
10-Q 2010-08-03 Quarter: 2010-06-30
10-Q 2010-05-05 Quarter: 2010-03-31
10-K 2010-03-05 Annual: 2009-12-31
8-K 2020-01-15 Officers, Exhibits
8-K 2019-12-12 Officers, Exhibits
8-K 2019-12-09 Officers
8-K 2019-10-01 Officers
8-K 2019-09-20 Exhibits
8-K 2019-09-09 Enter Agreement, Leave Agreement, Regulation FD, Exhibits
8-K 2019-09-08
8-K 2019-09-06 Other Events, Exhibits
8-K 2019-07-25 Earnings, Exhibits
8-K 2019-06-19 Shareholder Vote
8-K 2019-06-10 Other Events
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-03-11 Other Events
8-K 2019-02-14 Earnings, Exhibits
8-K 2019-01-31 Officers
8-K 2019-01-31 Other Events
8-K 2018-12-31 Officers
8-K 2018-12-31
8-K 2018-11-09 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-11-02 Officers, Exhibits
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-09-05 Shareholder Vote, Other Events, Exhibits
8-K 2018-08-24 Other Events
8-K 2018-08-22 Other Events, Exhibits
8-K 2018-07-18 Earnings, Exhibits
8-K 2018-06-18 Officers
8-K 2018-05-31 Other Events
8-K 2018-05-22 Shareholder Vote
8-K 2018-05-03 Earnings, Exhibits
8-K 2018-03-18 Enter Agreement, Other Events, Exhibits
8-K 2018-02-22 Officers, Exhibits
8-K 2018-02-08 Earnings, Exhibits
8-K 2017-12-29 Officers
STC 2019-09-30
Part I - Financial Information
Item 1. Financial Statements
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EX-31.1 q3-19ex311.htm
EX-31.2 q3-19ex312.htm
EX-32.1 q3-19ex321.htm
EX-32.2 q3-19ex322.htm

Stewart Information Services Earnings 2019-09-30

STC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
ARGO 2,388 10,167 8,238 1,497 0 117 209 2,785 0% 13.3 1%
EHTH 1,788 583 140 310 309 6 11 1,670 100% 151.4 1%
CRVL 1,543 428 224 595 127 48 91 1,439 21% 15.7 11%
STC 944 1,477 776 1,848 0 49 92 743 0% 8.1 3%
GSHD 757 38 69 73 0 12 20 786 0% 40.2 30%
ITIC 305 256 68 135 0 23 31 269 0% 8.7 9%
HIIQ 296 508 411 220 0 12 34 404 0% 12.0 2%
ARGD
BRP
ERIE 1,890 826 2,430 0 306 405 -239 0% -0.6 16%

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-02658
 STEWART INFORMATION SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
74-1677330
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1360 Post Oak Blvd.,
Suite 100
 

Houston,
Texas
 
77056
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (713625-8100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $1 par value per share
STC
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
Yes   No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Non-accelerated filer
 
Emerging growth company
 
 
 
 
 
 
 
 
Accelerated filer
 
Smaller reporting company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   No
On October 31, 2019, there were 23,706,719 outstanding shares of the issuer's Common Stock.




FORM 10-Q QUARTERLY REPORT
QUARTER ENDED SEPTEMBER 30, 2019
TABLE OF CONTENTS
 
Item
 
Page
 
PART I – FINANCIAL INFORMATION
 
 
 
 
1.
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
PART II – OTHER INFORMATION
 
1.
 
 
 
1A.
 
 
 
2.
 
 
 
5.
 
 
 
6.
 
 
 
 
As used in this report, “we,” “us,” “our,” "Registrant," the “Company” and “Stewart” mean Stewart Information Services Corporation and our subsidiaries, unless the context indicates otherwise.





















2


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2019
 
2018
 
2019
 
2018
 
($000 omitted, except per share)
Revenues
 
 
 
 
 
 
 
Title revenues:
 
 
 
 
 
 
 
Direct operations
245,068

 
213,134

 
634,198

 
622,886

Agency operations
254,155

 
272,875

 
699,835

 
756,986

Ancillary services
8,628

 
13,227

 
30,708

 
38,790

Operating revenues
507,851

 
499,236

 
1,364,741

 
1,418,662

Investment income
4,752

 
4,781

 
14,631

 
14,732

Investment and other gains – net
46,905

 
3,623

 
50,730

 
4,345

 
559,508

 
507,640

 
1,430,102

 
1,437,739

Expenses
 
 
 
 
 
 
 
Amounts retained by agencies
208,973

 
224,966

 
576,559

 
623,967

Employee costs
143,815

 
138,288

 
412,967

 
423,389

Other operating expenses
87,826

 
90,811

 
251,030

 
257,029

Title losses and related claims
21,059

 
21,503

 
55,532

 
59,181

Depreciation and amortization
5,694

 
6,221

 
17,458

 
18,609

Interest
1,080

 
1,076

 
3,369

 
2,722

 
468,447

 
482,865

 
1,316,915

 
1,384,897

Income before taxes and noncontrolling interests
91,061

 
24,775

 
113,187

 
52,842

Income tax expense
(21,393
)
 
(4,371
)
 
(25,978
)
 
(8,679
)
Net income
69,668

 
20,404

 
87,209

 
44,163

Less net income attributable to noncontrolling interests
3,560

 
2,851

 
8,561

 
8,012

Net income attributable to Stewart
66,108

 
17,553

 
78,648

 
36,151

 
 
 
 
 
 
 
 
Net income
69,668

 
20,404

 
87,209

 
44,163

Other comprehensive (loss) income, net of taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(5,135
)
 
1,140

 
1,928

 
(4,490
)
Change in net unrealized gains and losses on investments
3,603

 
(1,910
)
 
17,985

 
(12,344
)
Reclassification adjustment for net losses (gains) included in net income
(92
)
 
(137
)
 
120

 
(617
)
Other comprehensive (loss) income, net of taxes:
(1,624
)
 
(907
)
 
20,033

 
(17,451
)
Comprehensive income
68,044

 
19,497

 
107,242

 
26,712

Less net income attributable to noncontrolling interests
3,560

 
2,851

 
8,561

 
8,012

Comprehensive income attributable to Stewart
64,484

 
16,646

 
98,681

 
18,700

 
 
 
 
 
 
 
 
Basic average shares outstanding (000)
23,616

 
23,556

 
23,608

 
23,537

Basic earnings per share attributable to Stewart
2.80

 
0.75

 
3.33

 
1.54

Diluted average shares outstanding (000)
23,773

 
23,699

 
23,780

 
23,677

Diluted earnings per share attributable to Stewart
2.78

 
0.74

 
3.31

 
1.53

See notes to condensed consolidated financial statements.

3


CONDENSED CONSOLIDATED BALANCE SHEETS
 
As of 
 September 30, 2019 (Unaudited)
 
As of 
 December 31, 2018
 
($000 omitted)
Assets
 
 
 
Cash and cash equivalents
320,960

 
192,067

Short-term investments
22,692

 
22,950

Investments in debt and equity securities, at fair value
599,193

 
636,017

Receivables:
 
 
 
Premiums from agencies
31,869

 
29,032

Trade and other
46,990

 
43,568

Income taxes
1,791

 
489

Notes
3,109

 
2,987

Allowance for uncollectible amounts
(4,401
)
 
(4,614
)
 
79,358

 
71,462

Property and equipment:
 
 
 
Land
3,512

 
3,991

Buildings
21,440

 
22,968

Furniture and equipment
209,488

 
216,498

Accumulated depreciation
(178,577
)
 
(182,663
)
 
55,863

 
60,794

Operating lease assets
100,671

 

Title plants, at cost
74,737

 
74,737

Investments on equity method basis
5,965

 
8,590

Goodwill
248,890

 
248,890

Intangible assets, net of amortization
6,303

 
9,727

Deferred tax assets
4,592

 
4,575

Other assets
39,967

 
43,121

 
1,559,191

 
1,372,930

Liabilities
 
 
 
Notes payable
105,371

 
108,036

Accounts payable and accrued liabilities
103,886

 
109,283

Operating lease liabilities
112,260

 

Estimated title losses
452,361

 
461,560

Deferred tax liabilities
25,429

 
14,214

 
799,307

 
693,093

Contingent liabilities and commitments

 

Stockholders’ equity
 
 
 
Common Stock ($1 par value) and additional paid-in capital
189,613

 
186,714

Retained earnings
571,390

 
514,248

Accumulated other comprehensive income (loss):
 
 
 
Net unrealized investment gains (losses) on debt securities investments
12,839

 
(5,266
)
Foreign currency translation adjustments
(17,577
)
 
(19,505
)
Treasury stock – 352,161 common shares, at cost
(2,666
)
 
(2,666
)
Stockholders’ equity attributable to Stewart
753,599

 
673,525

Noncontrolling interests
6,285

 
6,312

Total stockholders’ equity (23,711,652 and 23,719,347 shares outstanding)
759,884

 
679,837

 
1,559,191

 
1,372,930

See notes to condensed consolidated financial statements.

4


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
Nine Months Ended 
 September 30,
 
2019
 
2018
 
($000 omitted)
Reconciliation of net income to cash provided by operating activities:
 
 
 
Net income
87,209

 
44,163

Add (deduct):
 
 
 
Depreciation and amortization
17,458

 
18,609

Provision for bad debt
889

 
510

Investment and other gains – net
(730
)
 
(4,345
)
Amortization of net premium on debt securities investments
3,790

 
4,617

Payments for title losses in excess of provisions
(11,266
)
 
(1,106
)
Adjustment for insurance recoveries of title losses
175

 
1,023

(Increase) decrease in receivables – net
(8,838
)
 
2,020

Decrease (increase) in other assets – net
2,910

 
(406
)
Increase (decrease) in accounts payable and other liabilities – net
6,753

 
(23,480
)
Change in net deferred income taxes
5,563

 
(1,693
)
Net income from equity investees
(1,996
)
 
(1,344
)
Dividends received from equity investees
1,964

 
2,187

Stock-based compensation expense
3,380

 
3,039

Other – net
28

 
(61
)
Cash provided by operating activities
107,289

 
43,733

Investing activities:
 
 
 
Proceeds from sales of investments in securities
20,899

 
32,500

Proceeds from matured investments in debt securities
44,685

 
25,258

Purchases of investments in securities
(2,187
)
 
(35,683
)
Net purchases of short-term investments
(193
)
 
(366
)
Purchases of property and equipment, and real estate – net
(11,957
)
 
(8,478
)
Cash paid for acquisition of businesses

 
(17,639
)
Other – net
2,111

 
327

Cash provided (used) by investing activities
53,358

 
(4,081
)
Financing activities:
 
 
 
Payments on notes payable
(26,179
)
 
(16,767
)
Proceeds from notes payable
23,514

 
9,583

Distributions to noncontrolling interests
(8,578
)
 
(8,665
)
Contributions from noncontrolling interests
25

 

Repurchases of common stock
(481
)
 
(687
)
Cash dividends paid
(21,257
)
 
(21,195
)
Purchase of remaining interest in consolidated subsidiary


(1,102
)
Cash used by financing activities
(32,956
)
 
(38,833
)
Effects of changes in foreign currency exchange rates
1,202

 
(1,229
)
Increase (decrease) in cash and cash equivalents
128,893

 
(410
)
Cash and cash equivalents at beginning of period
192,067

 
150,079

Cash and cash equivalents at end of period
320,960

 
149,669

 
 
 
 

See notes to condensed consolidated financial statements.

5


CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

 
Common Stock
 
Additional paid-in capital
 
Retained earnings
 
Accumulated other comprehensive loss
 
Treasury stock
 
Noncontrolling interests
 
Total
 
($000 omitted)
Nine Months Ended September 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2018
24,072

 
162,642

 
514,248

 
(24,771
)
 
(2,666
)
 
6,312

 
679,837

Net income attributable to Stewart

 

 
78,648

 

 

 

 
78,648

Dividends on Common Stock ($0.90 per share)

 

 
(21,506
)
 

 

 

 
(21,506
)
Stock-based compensation
4

 
3,376

 

 

 

 

 
3,380

Stock repurchases
(11
)
 
(470
)
 

 

 

 

 
(481
)
Net change in unrealized gains and losses on investments, net of taxes

 

 

 
17,985

 

 

 
17,985

Net investment realized loss reclassification, net of taxes

 

 

 
120

 

 

 
120

Foreign currency translation adjustments, net of taxes

 

 

 
1,928

 

 

 
1,928

Net income attributable to noncontrolling interests

 

 

 

 

 
8,561

 
8,561

Distributions to noncontrolling interests

 

 

 

 

 
(8,578
)
 
(8,578
)
Net effect of other changes in ownership

 

 

 

 

 
(10
)
 
(10
)
Balances at September 30, 2019
24,065

 
165,548

 
571,390

 
(4,738
)
 
(2,666
)
 
6,285

 
759,884

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2017
24,072

 
159,954

 
491,698

 
(847
)
 
(2,666
)
 
6,599

 
678,810

Cumulative effect adjustments on adoption of new accounting standards

 

 
3,592

 
(3,592
)
 

 

 

Net income attributable to Stewart

 

 
36,151

 

 

 

 
36,151

Dividends on Common Stock ($0.90 per share)

 

 
(21,373
)
 

 

 

 
(21,373
)
Stock-based compensation
38

 
3,001

 

 

 

 

 
3,039

Stock repurchases
(17
)
 
(670
)
 

 

 

 

 
(687
)
Purchase of remaining interest in consolidated subsidiary

 
(946
)
 

 

 

 
(156
)
 
(1,102
)
Net change in unrealized gains and losses on investments, net of taxes

 

 

 
(12,344
)
 

 

 
(12,344
)
Net investment realized gain reclassification, net of taxes

 

 

 
(617
)
 

 

 
(617
)
Foreign currency translation adjustments, net of taxes

 

 

 
(4,490
)
 

 

 
(4,490
)
Net income attributable to noncontrolling interests

 

 

 

 

 
8,012

 
8,012

Distributions to noncontrolling interests

 

 

 

 

 
(8,665
)
 
(8,665
)
Balances at September 30, 2018
24,093

 
161,339

 
510,068

 
(21,890
)
 
(2,666
)
 
5,790

 
676,734



6


CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

 
Common Stock
 
Additional paid-in capital
 
Retained earnings
 
Accumulated other comprehensive loss
 
Treasury stock
 
Noncontrolling interests
 
Total
 
($000 omitted)
Three Months Ended September 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at June 30, 2019
24,065

 
164,235

 
512,467

 
(3,114
)
 
(2,666
)
 
5,840

 
700,827

Net income attributable to Stewart

 

 
66,108

 

 

 

 
66,108

Dividends on Common Stock ($0.30 per share)

 

 
(7,185
)
 

 

 

 
(7,185
)
Stock-based compensation

 
1,323

 

 

 

 

 
1,323

Stock repurchases

 
(10
)
 

 

 

 

 
(10
)
Net change in unrealized gains and losses on investments, net of taxes

 

 

 
3,603

 

 

 
3,603

Net investment realized gain reclassification, net of taxes

 

 

 
(92
)
 

 

 
(92
)
Foreign currency translation adjustments, net of taxes

 

 

 
(5,135
)
 

 

 
(5,135
)
Net income attributable to noncontrolling interests

 

 

 

 

 
3,560

 
3,560

Distributions to noncontrolling interests

 

 

 

 

 
(3,091
)
 
(3,091
)
Net effect of other changes in ownership

 

 

 

 

 
(24
)
 
(24
)
Balances at September 30, 2019
24,065

 
165,548

 
571,390

 
(4,738
)
 
(2,666
)
 
6,285

 
759,884

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at June 30, 2018
24,097

 
160,204

 
499,656

 
(20,983
)
 
(2,666
)
 
5,929

 
666,237

Net income attributable to Stewart

 

 
17,553

 

 

 

 
17,553

Dividends on Common Stock ($0.30 per share)

 

 
(7,141
)
 

 

 

 
(7,141
)
Stock-based compensation
(4
)
 
1,064

 

 

 

 

 
1,060

Stock repurchases

 
(15
)
 

 

 

 

 
(15
)
Purchase of remaining interest in consolidated subsidiary

 
86

 

 

 

 
(76
)
 
10

Net change in unrealized gains and losses on investments, net of taxes

 

 

 
(1,910
)
 

 

 
(1,910
)
Net investment realized gain reclassification, net of taxes

 

 

 
(137
)
 

 

 
(137
)
Foreign currency translation adjustments, net of taxes

 

 

 
1,140

 

 

 
1,140

Net income attributable to noncontrolling interests

 

 

 

 

 
2,851

 
2,851

Distributions to noncontrolling interests

 

 

 

 

 
(2,914
)
 
(2,914
)
Balances at September 30, 2018
24,093

 
161,339

 
510,068

 
(21,890
)
 
(2,666
)
 
5,790

 
676,734

See notes to condensed consolidated financial statements.


7


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

Interim financial statements. The financial information contained in this report for the three and nine months ended September 30, 2019 and 2018, and as of September 30, 2019, is unaudited. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

A. Management’s responsibility. The accompanying interim financial statements were prepared by management, who is responsible for their integrity and objectivity. These financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP), including management’s best judgments and estimates. In the opinion of management, all adjustments necessary for a fair presentation of this information for all interim periods, consisting only of normal recurring accruals, have been made. The Company’s results of operations for interim periods are not necessarily indicative of results for a full year and actual results could differ.

B. Consolidation. The condensed consolidated financial statements include all subsidiaries in which the Company owns more than 50% voting rights in electing directors. All significant intercompany amounts and transactions have been eliminated and provisions have been made for noncontrolling interests. Unconsolidated investees, in which the Company typically owns from 20% through 50% of the voting stock, are accounted for using the equity method.

C. Restrictions on cash and investments. The Company maintains investments in accordance with certain statutory requirements for the funding of statutory premium reserves. Statutory reserve funds are required to be fully funded and invested in high-quality securities and short-term investments. Statutory reserve funds are not available for current claim payments, which must be funded from current operating cash flow. Included in investments in debt and equity securities are statutory reserve funds of approximately $439.9 million and $462.2 million at September 30, 2019 and December 31, 2018, respectively, In addition, included within cash and cash equivalents are statutory reserve funds of approximately $77.4 million and $37.7 million at September 30, 2019 and December 31, 2018, respectively. Although these cash statutory reserve funds are not restricted or segregated in depository accounts, they are required to be held pursuant to state statutes. If the Company fails to maintain minimum investments or cash and cash equivalents sufficient to meet statutory requirements, the Company may be subject to fines or other penalties, including potential revocation of its business license. These funds are not available for any other purpose. In the event that insurance regulators adjust the determination of the statutory premium reserves of the Company’s title insurers, these restricted funds as well as statutory surplus would correspondingly increase or decrease.

D. Recently adopted accounting standard. In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Topic 842: Leases (Topic 842) which updates the current guidance related to leases to increase transparency and comparability among organizations. Most prominent among the changes in the standard is the recognition of right-of-use lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases. Additional financial statement disclosures are required to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. Topic 842 is effective for annual and interim periods beginning after December 15, 2018. Topic 842 permits adoption using either a modified retrospective approach or an optional transition method. The optional transition method allows the application of the recognition and measurement requirements of the standard in the period of adoption and annual disclosures using the legacy lease guidance in Topic 840 for comparative periods.

The Company adopted Topic 842 effective January 1, 2019 using the optional transition method of adoption. In addition, the Company elected practical expedients permitted under the transition guidance of the standard, which among other things, allowed the carry forward of the historical lease classifications for existing leases. The adoption resulted in the recognition on the Company's January 1, 2019 consolidated balance sheet of approximately $99.8 million of operating lease assets and lease liabilities, and the reclassification of approximately $10.7 million of existing deferred rent liabilities from accounts payable and accrued liabilities to operating lease assets. There was no impact on the Company's 2019 consolidated statements of income and comprehensive income and cash flows. The accounting treatment for finance leases remained substantially unchanged.



8


E. Recent accounting standard not yet adopted. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (Topic 326). Topic 326 significantly changes the impairment model for financial instruments by introducing the current expected credit loss (CECL) model, which requires the immediate recognition of estimated credit losses expected to occur over the remaining life of the financial instrument. Current practice generally requires the recognition of credit losses when incurred. Topic 326 also amends certain accounting treatments for available-for-sale debt securities. Topic 326 is effective for the Company's fiscal year beginning January 1, 2020 and subsequent interim periods. The Company is currently evaluating the impact of this new standard on the Company's consolidated financial statements.

F. Merger Agreement Termination. During March 2018, the Company entered into an agreement and plan of merger (Merger Agreement) with Fidelity National Financial, Inc. (FNF) (the Mergers), as disclosed in detail in Note 1-S of the Company’s 2018 Annual Report on Form 10-K and in Exhibit 2.1 to the Company's Current Report on Form 8-K filed on March 19, 2018 with the Securities and Exchange Commission. On September 9, 2019, the Company and FNF mutually terminated the Merger Agreement. In connection with the termination and as stipulated in the Merger Agreement, FNF paid the Company a reverse merger termination fee of $50 million, which is presented as part of Investment and other gains - net in the 2019 condensed consolidated statement of income and comprehensive income (refer to Notes 5 and 12).


NOTE 2

Revenues. The Company's operating revenues, summarized by type, are as follows:
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2019
 
2018
 
2019
 
2018
 
($000 omitted)
Title insurance premiums:
 
 
 
 
 
 
 
Direct
174,635

 
152,739

 
448,920

 
444,447

Agency
254,155

 
272,875

 
699,835

 
756,986

Escrow fees
38,666

 
32,649

 
100,570

 
95,984

Search, abstract and valuation services
20,922

 
24,105

 
63,109

 
71,006

Other revenues
19,473

 
16,868

 
52,307

 
50,239

 
507,851

 
499,236

 
1,364,741

 
1,418,662




NOTE 3

Investments in debt and equity securities. The total fair values of the Company's investments in debt and equity securities are as follows:
 
September 30, 2019
 
December 31, 2018
 
($000 omitted)
Investments in:
 
 
 
Debt securities
561,986

 
602,020

Equity securities
37,207

 
33,997

 
599,193

 
636,017




9


As of September 30, 2019 and December 31, 2018, the net unrealized investment gains relating to investments in equity securities held were $6.3 million and $2.9 million, respectively.

The amortized costs and fair values of investments in debt securities are as follows:
 
September 30, 2019
 
December 31, 2018
 
Amortized
costs
 
Fair
values
 
Amortized
costs
 
Fair
values
 
($000 omitted)
Municipal
53,315

 
54,964

 
61,779

 
61,934

Corporate
299,355

 
311,148

 
333,289

 
328,495

Foreign
186,523

 
189,308

 
200,667

 
198,938

U.S. Treasury Bonds
6,541

 
6,566

 
12,951

 
12,653

 
545,734

 
561,986

 
608,686

 
602,020



Foreign debt securities consist of Canadian government and corporate bonds, United Kingdom treasury and corporate bonds, and Mexican government bonds.

Gross unrealized gains and losses on investments in debt securities are as follows:
 
September 30, 2019
 
December 31, 2018
 
Gains
 
Losses
 
Gains
 
Losses
 
($000 omitted)
Municipal
1,650

 
1

 
482

 
327

Corporate
11,794

 
1

 
1,894

 
6,688

Foreign
3,325

 
540

 
1,402

 
3,131

U.S. Treasury Bonds
65

 
40

 
2

 
300

 
16,834

 
582

 
3,780

 
10,446



Debt securities as of September 30, 2019 mature, according to their contractual terms, as follows (actual maturities may differ due to call or prepayment rights):
 
Amortized
costs
 
Fair
values
 
($000 omitted)
In one year or less
53,152

 
53,176

After one year through five years
323,901

 
330,147

After five years through ten years
144,476

 
152,707

After ten years
24,205

 
25,956

 
545,734

 
561,986



Gross unrealized losses on investments in debt securities and the fair values of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2019, were:
 
Less than 12 months
 
More than 12 months
 
Total
 
Losses
 
Fair values
 
Losses
 
Fair values
 
Losses
 
Fair values
 
($000 omitted)
Municipal

 

 
1

 
560

 
1

 
560

Corporate
1

 
992

 

 

 
1

 
992

Foreign
457

 
53,913

 
83

 
25,008

 
540

 
78,921

U.S. Treasury Bonds
40

 
2,334

 

 

 
40

 
2,334

 
498

 
57,239

 
84

 
25,568

 
582

 
82,807




10


The number of specific debt investment holdings held in an unrealized loss position as of September 30, 2019 was 44. Of these securities, 17 were in unrealized loss positions for more than 12 months. During 2019, the overall gross unrealized losses on debt securities improved compared to the prior year-end, primarily due to reduced interest rates and credit spreads which increased investment fair values. Since the Company does not intend to sell and will more likely than not maintain each investment security until its maturity or anticipated recovery, and no significant credit risk is deemed to exist, these investments are not considered as other-than-temporarily impaired. The Company believes its investment portfolio is diversified and expects no material loss to result from the failure to perform by issuers of the debt securities it holds. Investments made by the Company are not collateralized.

Gross unrealized losses on investments in debt securities and the fair values of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2018, were:
 
Less than 12 months
 
More than 12 months
 
Total
 
Losses
 
Fair values
 
Losses
 
Fair values
 
Losses
 
Fair values
 
($000 omitted)
Municipal
91

 
13,366

 
236

 
11,645

 
327

 
25,011

Corporate
4,416

 
201,965

 
2,272

 
71,044

 
6,688

 
273,009

Foreign
158

 
11,424

 
2,973

 
137,793

 
3,131

 
149,217

U.S. Treasury Bonds

 

 
300

 
12,544

 
300

 
12,544

 
4,665

 
226,755

 
5,781

 
233,026

 
10,446

 
459,781




NOTE 4

Fair value measurements. The Fair Value Measurements and Disclosures Topic (Topic 820) of the FASB Accounting Standards Codification (ASC) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal, or most advantageous, market for the asset or liability in an orderly transaction between market participants at the measurement date. Topic 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs when possible.

The three levels of inputs used to measure fair value are as follows:
 
Level 1 – quoted prices in active markets for identical assets or liabilities;