10-Q 1 stc-20220630.htm 10-Q stc-20220630
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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 June 30, 2022
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 classTrading 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 filerSmaller 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 August 2, 2022, there were 27,108,912 outstanding shares of the issuer's Common Stock.



FORM 10-Q QUARTERLY REPORT
QUARTER ENDED JUNE 30, 2022
TABLE OF CONTENTS
 
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 
 June 30,
Six Months Ended 
 June 30,
 2022202120222021
 ($000 omitted, except per share)
Revenues
Title revenues:
Direct operations351,122 353,502 668,956 633,007 
Agency operations409,931 390,330 814,076 736,261 
Real estate solutions and other88,186 58,193 211,415 114,124 
Operating revenues849,239 802,025 1,694,447 1,483,392 
Investment income6,739 5,130 10,361 9,074 
Net realized and unrealized (losses) gains(11,905)11,654 (7,820)14,929 
844,073 818,809 1,696,988 1,507,395 
Expenses
Amounts retained by agencies339,847 322,020 671,039 605,955 
Employee costs210,246 188,467 415,228 357,864 
Other operating expenses162,008 137,796 351,756 263,279 
Title losses and related claims26,398 33,569 55,619 62,342 
Depreciation and amortization14,288 6,819 28,037 13,249 
Interest4,507 682 8,918 1,248 
757,294 689,353 1,530,597 1,303,937 
Income before taxes and noncontrolling interests86,779 129,456 166,391 203,458 
Income tax expense(19,894)(30,616)(37,594)(47,496)
Net income66,885 98,840 128,797 155,962 
Less net income attributable to noncontrolling interests5,225 4,021 9,240 6,907 
Net income attributable to Stewart61,660 94,819 119,557 149,055 
Net income66,885 98,840 128,797 155,962 
Other comprehensive loss, net of taxes:
Foreign currency translation adjustments(8,181)1,379 (7,561)3,246 
Change in net unrealized gains and losses on investments(12,694)1,009 (32,592)(8,147)
Reclassification adjustments for realized gains and losses on investments(117)(418)(302)(563)
Other comprehensive (loss) income, net of taxes:(20,992)1,970 (40,455)(5,464)
Comprehensive income45,893 100,810 88,342 150,498 
Less net income attributable to noncontrolling interests5,225 4,021 9,240 6,907 
Comprehensive income attributable to Stewart40,668 96,789 79,102 143,591 
Basic average shares outstanding (000)27,018 26,798 26,989 26,767 
Basic earnings per share attributable to Stewart2.28 3.54 4.43 5.57 
Diluted average shares outstanding (000)27,293 27,123 27,377 27,038 
Diluted earnings per share attributable to Stewart2.26 3.50 4.37 5.51 
See notes to condensed consolidated financial statements.
3


CONDENSED CONSOLIDATED BALANCE SHEETS
 
 June 30, 2022 (Unaudited)
 
 December 31, 2021
 ($000 omitted)
Assets
Cash and cash equivalents405,310 485,919 
Short-term investments17,282 17,650 
Investments, at fair value:
Debt securities (amortized cost of $623,614 and $578,165)
593,583 589,772 
Equity securities93,672 89,442 
687,255 679,214 
Receivables:
Premiums from agencies50,565 45,428 
Trade and other70,572 75,079 
Income taxes4,338 5,420 
Notes4,633 1,124 
Allowance for uncollectible amounts(7,028)(7,711)
123,080 119,340 
Property and equipment:
Land2,545 2,545 
Buildings18,692 19,303 
Furniture and equipment208,350 216,261 
Accumulated depreciation(156,087)(165,653)
73,500 72,456 
Operating lease assets137,275 134,578 
Title plants, at cost73,503 76,859 
Investments on equity method basis4,650 4,754 
Goodwill964,212 924,837 
Intangible assets, net of amortization187,494 229,804 
Deferred tax assets3,766 3,846 
Other assets78,015 64,105 
2,755,342 2,813,362 
Liabilities
Notes payable444,908 483,491 
Accounts payable and accrued liabilities200,294 287,326 
Operating lease liabilities150,472 149,417 
Estimated title losses562,681 549,614 
Deferred tax liabilities37,166 48,779 
1,395,521 1,518,627 
Contingent liabilities and commitments
Stockholders’ equity
Common Stock ($1 par value) and additional paid-in capital
316,224 309,622 
Retained earnings1,073,788 974,800 
Accumulated other comprehensive income (loss):
Foreign currency translation adjustments(16,478)(8,917)
Net unrealized (losses) gains on debt securities investments(23,724)9,170 
Treasury stock – 352,161 common shares, at cost
(2,666)(2,666)
Stockholders’ equity attributable to Stewart1,347,144 1,282,009 
Noncontrolling interests12,677 12,726 
Total stockholders’ equity (27,038,282 and 26,893,430 shares outstanding)
1,359,821 1,294,735 
2,755,342 2,813,362 
See notes to condensed consolidated financial statements.
4


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Six Months Ended 
 June 30,
 20222021
 ($000 omitted)
Reconciliation of net income to cash provided by operating activities:
Net income128,797 155,962 
Add (deduct):
Depreciation and amortization28,037 13,249 
Adjustments for bad debt provisions(157)846 
Net realized and unrealized losses (gains)7,820 (14,929)
Amortization of net premium on debt securities investments1,382 1,904 
Payments for title losses less than provisions16,902 26,222 
Adjustments for insurance recoveries of title losses220  
Decrease (increase) in receivables – net2,907 (22,366)
Increase in other assets – net(6,720)(3,327)
Decrease in accounts payable and other liabilities – net(68,475)(15,390)
Change in net deferred income taxes515 4,122 
Net income from equity method investments(1,860)(3,412)
Dividends received from equity method investments2,150 1,739 
Stock-based compensation expense6,440 5,879 
Other – net229 (47)
Cash provided by operating activities118,187 150,452 
Investing activities:
Proceeds from sales of investments in securities28,769 14,744 
Proceeds from matured investments in debt securities23,521 51,034 
Purchases of investments in securities(117,913)(89,198)
Net (purchases) sales of short-term investments(189)2,747 
Purchases of property and equipment, and real estate(26,226)(16,430)
Proceeds from sale of property and equipment and other assets1,033 10,583 
Cash paid for acquisition of businesses(23,310)(131,906)
Cash paid for acquisition of equity method investment(69)(16,080)
Other – net3,242 855 
Cash used by investing activities(111,142)(173,651)
Financing activities:
Proceeds from notes payable5,721 181,755 
Payments on notes payable(44,553)(157,662)
Distributions to noncontrolling interests(9,483)(7,253)
Repurchases of Common Stock(2,551)(2,002)
Proceeds from stock option and employee stock purchase plan exercises2,713 181 
Cash dividends paid(20,258)(17,688)
Payment of contingent consideration related to acquisitions(15,997)(75)
Purchase of remaining interest in consolidated subsidiaries (5,616)
Other - net94 (777)
Cash used by financing activities(84,314)(9,137)
Effects of changes in foreign currency exchange rates(3,340)195 
Change in cash and cash equivalents(80,609)(32,141)
Cash and cash equivalents at beginning of period485,919 432,683 
Cash and cash equivalents at end of period405,310 400,542 
See notes to condensed consolidated financial statements.
5


CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

Common Stock
Additional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Treasury stockNoncontrolling interestsTotal
($000 omitted)
Six Months Ended June 30, 2022
Balance at December 31, 202127,246 282,376 974,800 253 (2,666)12,726 1,294,735 
Net income attributable to Stewart— — 119,557 — — — 119,557 
Dividends on Common Stock ($0.75 per share)
— — (20,569)— — — (20,569)
Stock-based compensation126 6,314 — — — — 6,440 
Stock repurchases(37)(2,514)— — — — (2,551)
Stock option and employee stock purchase plan exercises55 2,658 — — — — 2,713 
Change in net unrealized gains and losses on investments, net of taxes— — — (32,592)— — (32,592)
Reclassification adjustment for realized gains and losses on investments, net of taxes— — — (302)— — (302)
Foreign currency translation adjustments, net of taxes— — — (7,561)— — (7,561)
Net income attributable to noncontrolling interests— — — — — 9,240 9,240 
Distributions to noncontrolling interests— — — — — (9,483)(9,483)
Net effect of other changes in ownership— — — — — 194 194 
Balance at June 30, 202227,390 288,834 1,073,788 (40,202)(2,666)12,677 1,359,821 
Six Months Ended June 30, 2021
Balance at December 31, 202027,080 274,857 688,819 17,022 (2,666)7,294 1,012,406 
Net income attributable to Stewart— — 149,055 — — — 149,055 
Dividends on Common Stock ($0.66 per share)
— — (18,040)— — — (18,040)
Stock-based compensation131 5,748 — — — — 5,879 
Stock repurchases(39)(1,963)— — — — (2,002)
Stock option and employee stock purchase plan exercises5 176 — — — — 181 
Purchase of remaining interest in consolidated subsidiary— (4,744)— — — (872)(5,616)
Change in net unrealized gains and losses on investments, net of taxes— — — (8,147)— — (8,147)
Reclassification adjustment for realized gains and losses on investments, net of taxes, net of taxes— — — (563)— — (563)
Foreign currency translation adjustments, net of taxes— — — 3,246 — — 3,246 
Net income attributable to noncontrolling interests— — — — — 6,907 6,907 
Distributions to noncontrolling interests— — — — — (7,253)(7,253)
Balance at June 30, 202127,177 274,074 819,834 11,558 (2,666)6,096 1,136,073 
See notes to condensed consolidated financial statements.

6


CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

Common Stock
Additional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Treasury stockNoncontrolling interestsTotal
($000 omitted)
Three Months Ended June 30, 2022
Balances at June 30, 202127,367 284,524 1,022,456 (19,210)(2,666)12,317 1,324,788 
Net income attributable to Stewart— — 61,660 — — — 61,660 
Dividends on Common Stock ($0.38 per share)
— — (10,328)— — — (10,328)
Stock-based compensation18 4,183 — — — — 4,201 
Stock repurchases(1)(88)— — — — (89)
Stock option and employee stock purchase plan exercises6 215 — — — 221 
Purchase of remaining interest in consolidated subsidiaries— — — —  
Change in net unrealized gains and losses on investments, net of taxes— — — (12,694)— — (12,694)
Reclassification adjustment for realized gains and losses on investments, net of taxes— — — (117)— — (117)
Foreign currency translation adjustments, net of taxes— — — (8,181)— — (8,181)
Net income attributable to noncontrolling interests— — — — — 5,225 5,225 
Distributions to noncontrolling interests— — — — — (4,915)(4,915)
Net effect of other changes in ownership— — — — — 50 50 
Balance at June 30, 202227,390 288,834 1,073,788 (40,202)(2,666)12,677 1,359,821 
Three Months Ended June 30, 2021
Balances at June 30, 202027,158 273,820 733,973 9,588 (2,666)6,025 1,047,898 
Net income attributable to Stewart— — 94,819 — — — 94,819 
Dividends on Common Stock ($0.33 per share)
— — (8,958)— — — (8,958)
Stock-based compensation18 2,687 — — — — 2,705 
Stock repurchases(2)(65)— — — — (67)
Stock option exercises3 117 120 
Purchase of remaining interest in consolidated subsidiary— (2,485)— — — (561)(3,046)
Change in net unrealized gains and losses on investments, net of taxes— — — 1,009 — — 1,009 
Reclassification adjustment for realized gains and losses on investments, net of taxes, net of taxes— — — (418)— — (418)
Foreign currency translation adjustments, net of taxes— — — 1,379 — — 1,379 
Net income attributable to noncontrolling interests— — — — — 4,021 4,021 
Distributions to noncontrolling interests— — — — — (3,409)(3,409)
Net effect of other changes in ownership— — — — — 20 20 
Balance at June 30, 202127,177 274,074 819,834 11,558 (2,666)6,096 1,136,073 
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 six months ended June 30, 2022 and 2021, and as of June 30, 2022, 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, 2021 filed with the Securities and Exchange Commission on February 28, 2022 (2021 Form 10-K).

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 the United States (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% to 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 $538.1 million and $523.5 million at June 30, 2022 and December 31, 2021, respectively. In addition, included within cash and cash equivalents are statutory reserve funds of approximately $14.9 million and $41.4 million at June 30, 2022 and December 31, 2021, 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.


NOTE 2

Revenues. The Company's operating revenues, summarized by type, are as follows:
 Three Months Ended 
 June 30,
Six Months Ended 
 June 30,
 2022202120222021
($000 omitted)
Title insurance premiums:
Direct231,721 243,638 437,283 438,631 
Agency409,931 390,330 814,076 736,261 
Escrow fees61,497 63,534 117,289 120,183 
Real estate solutions and abstract fees104,213 80,712 213,015 149,332 
Other revenues41,877 23,811 112,784 38,985 
849,239 802,025 1,694,447 1,483,392 



8


NOTE 3

Investments in debt and equity securities. As of June 30, 2022 and December 31, 2021, the net unrealized investment gains relating to investments in equity securities held were $14.5 million and $21.1 million, respectively (refer to Note 5).

The amortized costs and fair values of investments in debt securities are as follows:
 June 30, 2022December 31, 2021
 
Amortized
costs
Fair
values
Amortized
costs
Fair
values
 ($000 omitted)
Municipal32,555 32,525 34,739 36,323 
Corporate268,626 255,437 249,757 258,102 
Foreign311,894 295,134 287,240 288,883 
U.S. Treasury Bonds10,539 10,487 6,429 6,464 
623,614 593,583 578,165 589,772 

Foreign debt securities consist of Canadian government, provincial 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:
 June 30, 2022December 31, 2021
 GainsLossesGainsLosses
 ($000 omitted)
Municipal114 144 1,585 1 
Corporate435 13,624 9,389 1,044 
Foreign319 17,079 3,285 1,642 
U.S. Treasury Bonds33 85 60 25 
901 30,932 14,319 2,712 

Debt securities as of June 30, 2022 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 less98,843 98,429 
After one year through five years333,202 318,895 
After five years through ten years158,609 145,799 
After ten years32,960 30,460 
623,614 593,583 

9


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 June 30, 2022, were:
 Less than 12 monthsMore than 12 monthsTotal
 LossesFair valuesLossesFair valuesLossesFair values
 ($000 omitted)
Municipal144 11,631   144 11,631 
Corporate12,033 218,982 1,591 11,268 13,624 230,250 
Foreign14,322 249,533 2,757 37,154 17,079 286,687 
U.S. Treasury Bonds61 1,410 24 611 85 2,021 
26,560 481,556 4,372 49,033 30,932 530,589 

The number of specific debt investment holdings held in an unrealized loss position as of June 30, 2022 was 303. Of these securities, 23 were in unrealized loss positions for more than 12 months. Gross unrealized investment losses at June 30, 2022 increased compared to December 31, 2021, primarily due to the market volatility influenced by higher interest rates and credit spreads during 2022. Since the Company does not intend to sell and will more likely than not maintain each investment security until its maturity or anticipated recovery in value, and no significant credit risk is deemed to exist, these investments are not considered as credit-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, 2021, were:
 Less than 12 monthsMore than 12 monthsTotal
 LossesFair valuesLossesFair valuesLossesFair values
 ($000 omitted)
Municipal1 130   1 130 
Corporate588 42,231 456 12,014 1,044 54,245 
Foreign1,502 118,943 140 3,394 1,642 122,337 
U.S. Treasury Bonds8 477 17 508 25 985 
2,099 161,781 613 15,916 2,712 177,697 


NOTE 4

Fair value measurements. Fair value is defined 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. Under U.S. GAAP, there is 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;
Level 2 – observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and
Level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

10


As of June 30, 2022, financial instruments measured at fair value on a recurring basis are summarized below:
Level 1Level 2
Fair value
measurements
 ($000 omitted)
Investments in securities:
Debt securities:
Municipal 32,525 32,525 
Corporate 255,437 255,437 
Foreign 295,134 295,134 
U.S. Treasury Bonds 10,487 10,487 
Equity securities93,672  93,672 
93,672 593,583 687,255 

As of December 31, 2021, financial instruments measured at fair value on a recurring basis are summarized below:
Level 1Level 2
Fair value
measurements
 ($000 omitted)
Investments in securities:
Debt securities:
Municipal 36,323 36,323 
Corporate 258,102 258,102 
Foreign 288,883 288,883 
U.S. Treasury Bonds 6,464 6,464 
Equity securities89,442  89,442 
89,442 589,772 679,214 

As of June 30, 2022 and December 31, 2021, Level 1 financial instruments consist of equity securities. Level 2 financial instruments consist of municipal, governmental, and corporate bonds, both U.S. and foreign. In accordance with the Company’s policies and guidelines which incorporate relevant statutory requirements, the Company’s third-party registered investment manager invests only in securities rated as investment grade or higher by the major rating services, where observable valuation inputs are significant. The fair value of the Company's investments in debt and equity securities is primarily determined using a third-party pricing service provider. The third-party pricing service provider calculates the fair values using both market approach and model valuation methods, as well as pricing information obtained from brokers, dealers and custodians. Management ensures the reasonableness of the third-party service valuations by comparing them with pricing information from the Company's investment manager.


NOTE 5

Net realized and unrealized gains. Realized and unrealized gains and losses are detailed as follows:
 Three Months Ended 
 June 30,
Six Months Ended 
 June 30,
 2022202120222021
 ($000 omitted)
Realized gains1,683 7,909 3,277 8,080 
Realized losses(3,671) (3,839)(2,469)
Net unrealized investment (losses) gains recognized on equity securities still held at end of period(9,917)3,745 (7,258)9,318 
(11,905)11,654 (7,820)14,929 

11


Realized gains and losses during the second quarter 2022 included realized losses of $3.6 million from disposals of businesses and a $1.0 million gain from an acquisition contingent liability adjustment. Realized gains and losses during the second quarter 2021 included $7.3 million of gains on sales of buildings. Additionally, realized gains and losses for the first six months of 2022 and 2021 included a $1.0 million realized gain related to sale of a title plant copy, and a $2.5 million loss related to a disposal of an equity method investment, respectively.

Investment gains and losses recognized related to investments in equity securities are as follows:
Three Months Ended 
 June 30,
Six Months Ended 
 June 30,
2022202120222021
($000 omitted)
Net investment (losses) gains recognized on equity securities during the period(9,366)3,780 (6,795)