Company Quick10K Filing
Stewart Information Services
Price38.50 EPS4
Shares24 P/E9
MCap916 P/FCF9
Net Debt-321 EBIT128
TEV595 TEV/EBIT5
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-04
10-K 2019-12-31 Filed 2020-02-27
10-Q 2019-09-30 Filed 2019-11-07
10-Q 2019-06-30 Filed 2019-08-07
10-Q 2019-03-31 Filed 2019-05-01
10-K 2018-12-31 Filed 2019-02-28
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-06
10-Q 2018-03-31 Filed 2018-05-03
10-K 2017-12-31 Filed 2018-02-28
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-07-28
10-Q 2017-03-31 Filed 2017-04-28
10-K 2016-12-31 Filed 2017-02-27
10-Q 2016-09-30 Filed 2016-11-01
10-Q 2016-06-30 Filed 2016-07-29
10-Q 2016-03-31 Filed 2016-04-29
10-K 2015-12-31 Filed 2016-02-26
10-Q 2015-09-30 Filed 2015-11-03
10-Q 2015-06-30 Filed 2015-07-31
10-Q 2015-03-31 Filed 2015-05-04
10-K 2014-12-31 Filed 2015-02-27
10-Q 2014-09-30 Filed 2014-10-31
10-Q 2014-06-30 Filed 2014-08-01
10-Q 2014-03-31 Filed 2014-05-01
10-K 2013-12-31 Filed 2014-02-28
10-Q 2013-09-30 Filed 2013-11-06
10-Q 2013-06-30 Filed 2013-08-02
10-Q 2013-03-31 Filed 2013-05-03
10-K 2012-12-31 Filed 2013-03-06
10-Q 2012-09-30 Filed 2012-11-02
10-Q 2012-06-30 Filed 2012-08-03
10-Q 2012-03-31 Filed 2012-05-03
10-K 2011-12-31 Filed 2012-03-12
10-Q 2011-09-30 Filed 2011-11-02
10-Q 2011-06-30 Filed 2011-08-03
10-Q 2011-03-31 Filed 2011-05-04
10-K 2010-12-31 Filed 2011-03-03
10-Q 2010-09-30 Filed 2010-11-03
10-Q 2010-06-30 Filed 2010-08-03
10-Q 2010-03-31 Filed 2010-05-05
10-K 2009-12-31 Filed 2010-03-05
8-K 2020-07-22
8-K 2020-06-04
8-K 2020-06-01
8-K 2020-05-07
8-K 2020-04-22
8-K 2020-02-07
8-K 2020-02-05
8-K 2020-01-15
8-K 2019-12-12
8-K 2019-12-09
8-K 2019-10-22
8-K 2019-10-01
8-K 2019-09-20
8-K 2019-09-09
8-K 2019-09-08
8-K 2019-09-06
8-K 2019-07-25
8-K 2019-06-19
8-K 2019-06-10
8-K 2019-04-25
8-K 2019-03-11
8-K 2019-02-14
8-K 2019-01-31
8-K 2019-01-31
8-K 2018-12-31
8-K 2018-12-31
8-K 2018-11-09
8-K 2018-11-02
8-K 2018-10-25
8-K 2018-09-05
8-K 2018-08-24
8-K 2018-08-22
8-K 2018-07-18
8-K 2018-06-18
8-K 2018-05-31
8-K 2018-05-22
8-K 2018-05-03
8-K 2018-03-18
8-K 2018-02-22
8-K 2018-02-08
8-K 2017-12-29

STC 10Q Quarterly Report

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
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 q1-20ex311.htm
EX-31.2 q1-20ex312.htm
EX-32.1 q1-20ex321.htm
EX-32.2 q1-20ex322.htm

Stewart Information Services Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
1.61.31.00.60.30.02012201420172020
Assets, Equity
0.60.50.30.20.0-0.12012201420172020
Rev, G Profit, Net Income
0.20.10.10.0-0.0-0.12012201420172020
Ops, Inv, Fin

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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 March 31, 2020
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 April 29, 2020, there were 23,682,911 outstanding shares of the issuer's Common Stock.




FORM 10-Q QUARTERLY REPORT
QUARTER ENDED MARCH 31, 2020
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 OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
 
 
Three Months Ended 
 March 31,
 
 
2020
 
2019
 
($000 omitted, except per share)
Revenues
 
 
 
 
Title revenues:
 
 
 
 
Direct operations
 
198,283

 
161,247

Agency operations
 
242,030

 
214,863

Ancillary services
 
5,461

 
14,282

Operating revenues
 
445,774

 
390,392

Investment income
 
5,218

 
4,724

Net realized and unrealized (losses) gains
 
(11,091
)
 
3,403

 
 
439,901

 
398,519

Expenses
 
 
 
 
Amounts retained by agencies
 
199,366

 
176,494

Employee costs
 
135,652

 
129,256

Other operating expenses
 
71,858

 
77,155

Title losses and related claims
 
18,632

 
15,686

Depreciation and amortization
 
4,231

 
5,990

Interest
 
892

 
1,164

 
 
430,631

 
405,745

Income (loss) before taxes and noncontrolling interests
 
9,270

 
(7,226
)
Income tax (expense) benefit
 
(1,896
)
 
2,442

Net income (loss)
 
7,374

 
(4,784
)
Less net income attributable to noncontrolling interests
 
2,197

 
1,982

Net income (loss) attributable to Stewart
 
5,177

 
(6,766
)
 
 
 
 
 
Net income (loss)
 
7,374

 
(4,784
)
Other comprehensive (loss) income, net of taxes:
 
 
 
 
Foreign currency translation adjustments
 
(11,442
)
 
4,588

Change in net unrealized gains and losses on investments
 
(2,580
)
 
9,011

Reclassification adjustment for realized gains and losses on investments
 
(80
)
 
162

Other comprehensive (loss) income, net of taxes:
 
(14,102
)
 
13,761

Comprehensive (loss) income
 
(6,728
)
 
8,977

Less net income attributable to noncontrolling interests
 
2,197

 
1,982

Comprehensive (loss) income attributable to Stewart
 
(8,925
)
 
6,995

 
 
 
 
 
Basic average shares outstanding (000)
 
23,638

 
23,595

Basic earnings (loss) per share attributable to Stewart
 
0.22

 
(0.29
)
Diluted average shares outstanding (000)
 
23,749

 
23,595

Diluted earnings (loss) per share attributable to Stewart
 
0.22

 
(0.29
)
See notes to condensed consolidated financial statements.

3


CONDENSED CONSOLIDATED BALANCE SHEETS
 
As of 
 March 31, 2020 (Unaudited)
 
As of 
 December 31, 2019
 
($000 omitted)
Assets
 
 
 
Cash and cash equivalents
293,599

 
330,609

Short-term investments
19,233

 
23,527

Investments in debt and equity securities, at fair value
612,403

 
645,039

Receivables:
 
 
 
Premiums from agencies
24,591

 
26,405

Trade and other
34,515

 
45,962

Income taxes
3,131

 
1,641

Notes
2,425

 
2,464

Allowance for uncollectible amounts
(4,567
)
 
(4,469
)
 
60,095

 
72,003

Property and equipment:
 
 
 
Land
3,009

 
3,009

Buildings
22,193

 
20,519

Furniture and equipment
168,391

 
178,416

Accumulated depreciation
(142,301
)
 
(151,483
)
 
51,292

 
50,461

Operating lease assets
94,922

 
99,028

Title plants, at cost
72,627

 
72,627

Investments on equity method basis
5,579

 
6,169

Goodwill
249,946

 
248,890

Intangible assets, net of amortization
4,495

 
4,623

Deferred tax assets
4,407

 
4,407

Other assets
39,268

 
35,402

 
1,507,866

 
1,592,785

Liabilities
 
 
 
Notes payable
102,613

 
110,632

Accounts payable and accrued liabilities
84,974

 
126,779

Operating lease liabilities
108,333

 
113,843

Estimated title losses
447,582

 
459,053

Deferred tax liabilities
27,289

 
28,719

 
770,791

 
839,026

Contingent liabilities and commitments

 

Stockholders’ equity
 
 
 
Common Stock ($1 par value) and additional paid-in capital
188,773

 
188,279

Retained earnings
562,445

 
564,392

Accumulated other comprehensive income (loss):
 
 
 
Net unrealized gains on debt securities investments
7,668

 
10,328

Foreign currency translation adjustments
(24,469
)
 
(13,027
)
Treasury stock – 352,161 common shares, at cost
(2,666
)
 
(2,666
)
Stockholders’ equity attributable to Stewart
731,751

 
747,306

Noncontrolling interests
5,324

 
6,453

Total stockholders’ equity (23,679,888 and 23,709,407 shares outstanding)
737,075

 
753,759

 
1,507,866

 
1,592,785

See notes to condensed consolidated financial statements.

4


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
Three Months Ended 
 March 31,
 
2020
 
2019
 
($000 omitted)
Reconciliation of net income (loss) to cash used by operating activities:
 
 
 
Net income (loss)
7,374

 
(4,784
)
Add (deduct):
 
 
 
Depreciation and amortization
4,231

 
5,990

Provision for bad debt
154

 
446

Net realized and unrealized losses (gains)
11,091

 
(3,403
)
Amortization of net premium on debt securities investments
1,144

 
1,353

Payments for title losses in excess of provisions
(2,809
)
 
(7,781
)
Adjustment for insurance recoveries of title losses
173

 
380

Decrease (increase) in receivables – net
11,542

 
(5,686
)
Increase in other assets – net
(3,813
)
 
(815
)
Decrease in accounts payable and other liabilities – net
(43,165
)
 
(26,212
)
Change in net deferred income taxes
1,495

 
(252
)
Net income from equity investees
(645
)
 
(374
)
Dividends received from equity investees
1,235

 
353

Stock-based compensation expense
887

 
804

Other – net
(254
)
 
98

Cash used by operating activities
(11,360
)
 
(39,883
)
Investing activities:
 
 
 
Proceeds from sales of investments in securities
11,796

 
6,958

Proceeds from matured investments in debt securities
18,814

 
20,094

Purchases of investments in securities
(30,703
)
 
(561
)
Net sales (purchases) of short-term investments
2,982

 
(456
)
Purchases of property and equipment, and real estate – net
(4,781
)
 
(2,735
)
Cash paid for acquisition of businesses
(1,449
)
 

Other – net
38

 
1,287

Cash (used) provided by investing activities
(3,303
)
 
24,587

Financing activities:
 
 
 
Payments on notes payable
(8,223
)
 
(7,446
)
Proceeds from notes payable
204

 
4,454

Distributions to noncontrolling interests
(3,326
)
 
(3,177
)
Repurchases of common stock
(393
)
 
(379
)
Cash dividends paid
(7,099
)
 
(7,083
)
Cash used by financing activities
(18,837
)
 
(13,631
)
Effects of changes in foreign currency exchange rates
(3,510
)
 
1,367

Decrease in cash and cash equivalents
(37,010
)
 
(27,560
)
Cash and cash equivalents at beginning of period
330,609

 
192,067

Cash and cash equivalents at end of period
293,599

 
164,507

 
 
 
 

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)
Three Months Ended March 31, 2020:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2019
24,062

 
164,217

 
564,392

 
(2,699
)
 
(2,666
)
 
6,453

 
753,759

Net income attributable to Stewart

 

 
5,177

 

 

 

 
5,177

Dividends on Common Stock ($0.30 per share)

 

 
(7,124
)
 

 

 

 
(7,124
)
Stock-based compensation
(20
)
 
907

 

 

 

 

 
887

Stock repurchases
(10
)
 
(383
)
 

 

 

 

 
(393
)
Change in net unrealized gains and losses on investments, net of taxes

 

 

 
(2,580
)
 

 

 
(2,580
)
Reclassification adjustment for realized gains and losses on investments, net of taxes

 

 

 
(80
)
 

 

 
(80
)
Foreign currency translation adjustments, net of taxes

 

 

 
(11,442
)
 

 

 
(11,442
)
Net income attributable to noncontrolling interests

 

 

 

 

 
2,197

 
2,197

Distributions to noncontrolling interests

 

 

 

 

 
(3,326
)
 
(3,326
)
Balances at March 31, 2020
24,032

 
164,741

 
562,445

 
(16,801
)
 
(2,666
)
 
5,324

 
737,075

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2018
24,072

 
162,642

 
514,248

 
(24,771
)
 
(2,666
)
 
6,312

 
679,837

Net loss attributable to Stewart

 

 
(6,766
)
 

 

 

 
(6,766
)
Dividends on Common Stock ($0.30 per share)

 

 
(7,147
)
 

 

 

 
(7,147
)
Stock-based compensation
(11
)
 
815

 

 

 

 

 
804

Stock repurchases
(9
)
 
(370
)
 

 

 

 

 
(379
)
Change in net unrealized gains and losses on investments, net of taxes

 

 

 
9,011

 

 

 
9,011

Reclassification adjustment for realized gains and losses on investments, net of taxes, net of taxes

 

 

 
162

 

 

 
162

Foreign currency translation adjustments, net of taxes

 

 

 
4,588

 

 

 
4,588

Net income attributable to noncontrolling interests

 

 

 

 

 
1,982

 
1,982

Distributions to noncontrolling interests

 

 

 

 

 
(3,177
)
 
(3,177
)
Net effect of other changes in ownership

 

 

 

 

 
(11
)
 
(11
)
Balances at March 31, 2019
24,052

 
163,087

 
500,335

 
(11,010
)
 
(2,666
)
 
5,106

 
678,904

See notes to condensed consolidated financial statements.


6


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

Interim financial statements. The financial information contained in this report for the three months ended March 31, 2020 and 2019, and as of March 31, 2020, 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, 2019.

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% 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 $497.5 million and $483.4 million at March 31, 2020 and December 31, 2019, respectively. In addition, included within cash and cash equivalents are statutory reserve funds of approximately $18.3 million and $39.7 million at March 31, 2020 and December 31, 2019, 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 June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (Topic 326). Topic 326 significantly changed 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. The previous GAAP generally required the recognition of credit losses when incurred. Topic 326 also amended certain accounting treatments for available-for-sale debt securities. Effective January 1, 2020, the Company adopted Topic 326 which did not result in any material impact on its consolidated financial statements.



7


E. Impact of the COVID-19 pandemic. In March 2020, a global pandemic escalated relating to a novel strain of coronavirus (COVID-19), which resulted in a slowdown in the global economy and a U.S. declaration of a national emergency. In response to the pandemic, health and governmental bodies, including the state of Texas where the Company is headquartered, have issued travel restrictions, quarantine orders, temporary closures of non-essential businesses and other restrictive measures. Although the title insurance industry has been deemed essential in the U.S., the pandemic and measures to contain it have caused disruptions in the real estate market and in the Company's business operations. While the Company continues to close transactions on a daily basis, as it works through a pipeline of business from the first quarter, orders opened in the second quarter are expected to be lower. There is near-term uncertainty regarding future real estate market transaction volumes and the impacts to the Company's results of operations. To the extent that the COVID-19 pandemic continues or worsens, it could adversely impact the Company's future operational and financial performance, which may include impairments of the Company's goodwill, investments and other long-lived assets. The Company is currently unable to determine the effects the COVID-19 pandemic will have on the Company's financial statements or results of operations.


NOTE 2

Revenues. The Company's operating revenues, summarized by type, are as follows:
 
 
Three Months Ended 
 March 31,
 
 
2020
 
2019
 
($000 omitted)
Title insurance premiums:
 
 
 
 
Direct
 
138,283

 
111,918

Agency
 
242,030

 
214,863

Escrow fees
 
33,086

 
25,293

Search, abstract and valuation services
 
16,077

 
22,939

Other revenues
 
16,298

 
15,379

 
 
445,774

 
390,392




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:
 
March 31, 2020
 
December 31, 2019
 
($000 omitted)
Investments in:
 
 
 
Debt securities
584,153

 
605,721

Equity securities
28,250

 
39,318

 
612,403

 
645,039




8


As of March 31, 2020 and December 31, 2019, the net unrealized investment (losses) gains relating to investments in equity securities held were $(3.8) million and $6.9 million, respectively (refer to Note 5).

The amortized costs and fair values of investments in debt securities are as follows:
 
March 31, 2020
 
December 31, 2019
 
Amortized
costs
 
Fair
values
 
Amortized
costs
 
Fair
values
 
($000 omitted)
Municipal
48,780

 
50,348

 
52,176

 
53,823

Corporate
300,203

 
302,527

 
299,074

 
309,142

Foreign
218,918

 
224,681

 
234,734

 
236,073

U.S. Treasury Bonds
6,547

 
6,597

 
6,664

 
6,683

 
574,448

 
584,153

 
592,648

 
605,721



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:
 
March 31, 2020
 
December 31, 2019
 
Gains
 
Losses
 
Gains
 
Losses
 
($000 omitted)
Municipal
1,570

 
2

 
1,649

 
2

Corporate
6,203

 
3,879

 
10,091

 
23

Foreign
6,407

 
644

 
2,362

 
1,023

U.S. Treasury Bonds
91

 
41

 
60

 
41

 
14,271

 
4,566

 
14,162

 
1,089



Debt securities as of March 31, 2020 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
77,995

 
78,047

After one year through five years
303,007

 
307,426

After five years through ten years
160,301

 
166,107

After ten years
33,145

 
32,573

 
574,448

 
584,153



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 March 31, 2020, were:
 
Less than 12 months
 
More than 12 months
 
Total
 
Losses
 
Fair values
 
Losses
 
Fair values
 
Losses
 
Fair values
 
($000 omitted)
Municipal
2

 
52

 

 

 
2

 
52

Corporate
3,879

 
103,187

 

 

 
3,879

 
103,187

Foreign
584

 
31,671

 
60

 
4,224

 
644

 
35,895

U.S. Treasury Bonds

 

 
41

 
2,105

 
41

 
2,105

 
4,465

 
134,910

 
101

 
6,329

 
4,566

 
141,239




9


The number of specific debt investment holdings held in an unrealized loss position as of March 31, 2020 was 86. Of these securities, 9 were in unrealized loss positions for more than 12 months. During 2020, the overall gross unrealized losses on debt securities increased from the prior year-end due to lower investment fair values primarily resulting from increased credit spreads, partially offset by the effect of lower interest rates. 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, 2019, were:
 
Less than 12 months
 
More than 12 months
 
Total
 
Losses
 
Fair values
 
Losses
 
Fair values
 
Losses
 
Fair values
 
($000 omitted)
Municipal
2

 
53

 

 

 
2

 
53

Corporate
23

 
7,420

 

 

 
23

 
7,420

Foreign
318

 
92,108

 
705

 
55,875

 
1,023

 
147,983

U.S. Treasury Bonds

 

 
41

 
2,215

 
41

 
2,215

 
343

 
99,581

 
746

 
58,090

 
1,089

 
157,671




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;
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 March 31, 2020, financial instruments measured at fair value on a recurring basis are summarized below:
 
Level 1
 
Level 2
 
Fair value
measurements
 
($000 omitted)
Investments in securities:
 
 
 
 
 
Debt securities:
 
 
 
 
 
Municipal

 
50,348

 
50,348

Corporate

 
302,527

 
302,527

Foreign

 
224,681

 
224,681

U.S. Treasury Bonds

 
6,597

 
6,597

Equity securities
28,250

 

 
28,250

 
28,250

 
584,153

 
612,403


As of December 31, 2019, financial instruments measured at fair value on a recurring basis are summarized below:
 
Level 1
 
Level 2
 
Fair value
measurements
 
($000 omitted)
Investments in securities:
 
 
 
 
 
Debt securities:
 
 
 
 
 
Municipal

 
53,823

 
53,823

Corporate

 
309,142

 
309,142

Foreign

 
236,073

 
236,073

U.S. Treasury Bonds

 
6,683

 
6,683

Equity securities
39,318

 

 
39,318

 
39,318

 
605,721

 
645,039



As of March 31, 2020, 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 (losses) gains. Realized and unrealized gains and losses are detailed as follows:
 
 
Three Months Ended 
 March 31,
 
 
2020
 
2019
 
($000 omitted)
Investment and other gains
 
153

 
162

Investment and other losses
 
(690
)
 
(305
)
Net unrealized investment (losses) gains recognized on equity securities still held at March 31
 
(10,554
)
 
3,546

 
 
(11,091
)
 
3,403




11


Investment gains and losses recognized during the periods ended March 31, 2020 and 2019 related to investments in equity securities are as follows:
 
 
Three Months Ended 
 March 31,
 
 
2020
 
2019
 
($000 omitted)
Net investment (losses) gains recognized on equity securities during the period
 
(11,061
)
 
3,657

Less: Net realized (losses) gains on equity securities sold during the period
 
(507
)
 
111

Net unrealized investment (losses) gains recognized on equity securities still held at March 31
 
(10,554
)
 
3,546



Proceeds from sales of investments in securities are as follows: 
 
 
Three Months Ended 
 March 31,
 
 
2020
 
2019
 
($000 omitted)
Proceeds from sales of debt securities
 
11,503

 
6,318

Proceeds from sales of equity securities
 
293

 
640

Total proceeds from sales of investments in securities
 
11,796

 
6,958




NOTE 6

Estimated title losses. A summary of estimated title losses for the three months ended March 31 is as follows:
 
2020
 
2019
 
($000 omitted)
Balances at January 1
459,053

 
461,560

Provisions:
 
 
 
Current year
18,521

 
15,526

Previous policy years
111

 
160

Total provisions
18,632

 
15,686

Payments, net of recoveries:
 
 
 
Current year
(2,214
)
 
(2,695
)
Previous policy years
(19,227
)
 
(20,772
)
Total payments, net of recoveries
(21,441
)
 
(23,467
)
Effects of changes in foreign currency exchange rates
(8,662
)
 
296

Balances at March 31
447,582

 
454,075

Loss ratios as a percentage of title operating revenues:
 
 
 
Current year provisions
4.2
%
 
4.1
%
Total provisions
4.2
%
 
4.2
%


Provisions in 2020 increased compared to 2019 primarily as a result of increased title revenues. Claim payments in 2020 decreased primarily due to lower payments of large claims compared to 2019, while the 2020 reduction effect relating to foreign currency exchange rate changes were primarily influenced by the depreciation of the Canadian dollar against the U.S. dollar during the three months ended March 31, 2020.



12


NOTE 7

Share-based payments. Prior to 2020, the Company granted time-based and performance-based restricted stock units to executives and senior management employees. Each restricted stock unit represents a contractual right to receive a share of the Company's common stock. The time-based units vest on each of the first three anniversaries of the grant date, while the performance-based units vest upon achievement of certain financial objectives over a period of approximately three years. During the first quarter 2020, the Company granted time-based restricted stock units and nonqualified stock options, in lieu of performance-based restricted stock units. The stock options vest and may be exercised at a strike price of $39.76 on each of the first three anniversaries of the grant date at a rate of 20%, 30% and 50%, chronologically, and expire 10 years after the grant date.

Awards are made pursuant to the Company’s employee incentive compensation plans and the compensation expense associated with the awards is recognized over the corresponding vesting period. The aggregate grant-date fair values of restricted stock unit and stock option awards during the first three months of 2020 were $2.4 million (60,000 units with an average grant price per unit of $39.76) and $3.4 million (650,000 options with an average grant price per option of $5.32), respectively. During the first three months of 2019, the aggregate grant-date fair value of restricted stock unit awards was $3.7 million (87,000 units with an average grant price per unit of $43.06).


NOTE 8

Earnings per share. Basic earnings per share (EPS) attributable to Stewart is calculated by dividing net income attributable to Stewart by the weighted-average number of shares of Common Stock outstanding during the reporting periods. Outstanding shares of Common Stock granted to employees that are not yet vested (restricted shares) are excluded from the calculation of the weighted-average number of shares outstanding for calculating basic EPS. To calculate diluted EPS, the number of shares is adjusted to include the number of additional shares that would have been outstanding if restricted shares and units were vested and stock options were exercised. In periods of loss, dilutive shares are excluded from the calculation of the diluted EPS and diluted EPS is computed in the same manner as basic EPS.

The calculation of the basic and diluted EPS is as follows:
 
 
Three Months Ended 
 March 31,
 
 
2020
 
2019
 
($000 omitted, except per share)
Numerator:
 
 
 
 
Net income (loss) attributable to Stewart
 
5,177

 
(6,766
)
 
 
 
 
 
Denominator (000):
 
 
 
 
Basic average shares outstanding
 
23,638

 
23,595

Average number of dilutive shares relating to grants of restricted shares and units
 
111

 

Diluted average shares outstanding
 
23,749

 
23,595

 
 
 
 
 
Basic earnings (loss) per share attributable to Stewart
 
0.22

 
(0.29
)
 
 
 
 
 
Diluted earnings (loss) per share attributable to Stewart
 
0.22

 
(0.29
)




13


NOTE 9

Contingent liabilities and commitments. In the ordinary course of business, the Company guarantees the third-party indebtedness of certain of its consolidated subsidiaries. As of March 31, 2020, the maximum potential future payments on the guarantees are not more than the related notes payable recorded in the condensed consolidated balance sheets. The Company also guarantees the indebtedness related to lease obligations of certain of its consolidated subsidiaries. The maximum future obligations arising from these lease-related guarantees are not more than the Company’s future lease obligations, as presented on the condensed consolidated balance sheets, plus lease operating expenses. As of March 31, 2020, the Company also had unused letters of credit aggregating $5.2 million related to workers’ compensation and other insurance. The Company does not expect to make any payments on these guarantees.


NOTE 10

Regulatory and legal developments. The Company is subject to claims and lawsuits arising in the ordinary course of its business, most of which involve disputed policy claims. In some of these lawsuits, the plaintiff seeks exemplary or treble damages in excess of policy limits. The Company does not expect that any of these ordinary course proceedings will have a material adverse effect on its consolidated financial condition or results of operations. The Company believes that it has adequate reserves for the various litigation matters and contingencies discussed in this paragraph and that the likely resolution of these matters will not materially affect its consolidated financial condition or results of operations.

Additionally, the Company receives from time to time various inquiries from governmental regulators concerning practices in the insurance industry. Many of these practices do not concern title insurance. To the extent the Company is in receipt of such inquiries, it believes that it has adequately reserved for these matters and does not anticipate that the outcome of these inquiries will materially affect its consolidated financial condition or results of operations.

The Company is subject to various other administrative actions and inquiries into its business conduct in certain of the states in which it operates. While the Company cannot predict the outcome of the various regulatory and administrative matters, it believes that it has adequately reserved for these matters and does not anticipate that the outcome of any of these matters will materially affect its consolidated financial condition or results of operations.
 

NOTE 11

Segment information. The Company reports two operating segments: title and ancillary services and corporate. The title segment provides services needed to transfer title to property in a real estate transaction and includes services such as searching, examining, closing and insuring the condition of the title to the property. In addition, the title segment includes home and personal insurance services and Internal Revenue Code Section 1031 tax-deferred exchanges. The ancillary services and corporate segment includes search and valuation services, which are the principal offerings of ancillary services, and expenses of the parent holding company and certain other enterprise-wide overhead costs (net of centralized administrative services costs allocated to respective operating businesses).


14


Selected statement of operations information related to these segments is as follows:
 
 
Three Months Ended 
 March 31,
 
 
2020
 
2019
 
($000 omitted)
Title segment:
 
 
 
 
Revenues
 
434,440

 
384,437

Depreciation and amortization
 
3,821

 
5,153

Income (loss) before taxes and noncontrolling interest
 
14,836

 
(379
)
 
 
 
 
 
Ancillary services and corporate segment:
 
 
 
 
Revenues
 
5,461

 
14,082

Depreciation and amortization
 
410

 
837

Loss before taxes and noncontrolling interest
 
(5,566
)
 
(6,847
)
 
 
 
 
 
Consolidated Stewart:
 
 
 
 
Revenues
 
439,901

 
398,519

Depreciation and amortization
 
4,231

 
5,990

Income (loss) before taxes and noncontrolling interest
 
9,270

 
(7,226
)


The Company does not provide asset information by reportable operating segment as it does not routinely evaluate the asset position by segment.

Revenues generated in the United States and all international operations are as follows:
 
 
Three Months Ended 
 March 31,
 
 
2020
 
2019
 
($000 omitted)
United States
 
414,128

 
376,482

International
 
25,773