10-Q 1 stc-20220331.htm Q1 2022 FORM 10-Q stc-20220331
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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, 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 April 29, 2022, there were 27,017,045 outstanding shares of the issuer's Common Stock.



FORM 10-Q QUARTERLY REPORT
QUARTER ENDED MARCH 31, 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 
 March 31,
 20222021
 ($000 omitted, except per share)
Revenues
Title revenues:
Direct operations317,834 279,504 
Agency operations404,145 345,932 
Real estate solutions and other123,230 55,931 
Operating revenues845,209 681,367 
Investment income3,622 3,945 
Net realized and unrealized gains4,085 3,274 
852,916 688,586 
Expenses
Amounts retained by agencies331,191 283,935 
Employee costs204,982 169,397 
Other operating expenses189,751 125,482 
Title losses and related claims29,221 28,773 
Depreciation and amortization13,748 6,430 
Interest4,412 567 
773,305 614,584 
Income before taxes and noncontrolling interests79,611 74,002 
Income tax expense(17,699)(16,880)
Net income61,912 57,122 
Less net income attributable to noncontrolling interests4,015 2,886 
Net income attributable to Stewart57,897 54,236 
Net income61,912 57,122 
Other comprehensive loss, net of taxes:
Foreign currency translation adjustments620 1,867 
Change in net unrealized gains and losses on investments(19,898)(9,156)
Reclassification adjustments for realized gains and losses on investments(185)(145)
Other comprehensive loss, net of taxes:(19,463)(7,434)
Comprehensive income42,449 49,688 
Less net income attributable to noncontrolling interests4,015 2,886 
Comprehensive income attributable to Stewart38,434 46,802 
Basic average shares outstanding (000)26,960 26,736 
Basic earnings per share attributable to Stewart2.15 2.03 
Diluted average shares outstanding (000)27,444 26,984 
Diluted earnings per share attributable to Stewart2.11 2.01 
See notes to condensed consolidated financial statements.
3


CONDENSED CONSOLIDATED BALANCE SHEETS
 
 March 31, 2022 (Unaudited)
 
 December 31, 2021
 ($000 omitted)
Assets
Cash and cash equivalents396,649 485,919 
Short-term investments18,054 17,650 
Investments in debt and equity securities, at fair value692,415 679,214 
Receivables:
Premiums from agencies44,608 45,428 
Trade and other72,994 75,079 
Income taxes2,074 5,420 
Notes3,544 1,124 
Allowance for uncollectible amounts(7,435)(7,711)
115,785 119,340 
Property and equipment:
Land2,545 2,545 
Buildings19,277 19,303 
Furniture and equipment218,244 216,261 
Accumulated depreciation(167,688)(165,653)
72,378 72,456 
Operating lease assets141,033 134,578 
Title plants, at cost76,859 76,859 
Investments on equity method basis4,525 4,754 
Goodwill932,556 924,837 
Intangible assets, net of amortization230,245 229,804 
Deferred tax assets3,732 3,846 
Other assets76,756 64,105 
2,760,987 2,813,362 
Liabilities
Notes payable445,936 483,491 
Accounts payable and accrued liabilities233,135 287,326 
Operating lease liabilities154,974 149,417 
Estimated title losses560,718 549,614 
Deferred tax liabilities41,436 48,779 
1,436,199 1,518,627 
Contingent liabilities and commitments
Stockholders’ equity
Common Stock ($1 par value) and additional paid-in capital
311,891 309,622 
Retained earnings1,022,456 974,800 
Accumulated other comprehensive income (loss):
Foreign currency translation adjustments(8,297)(8,917)
Net unrealized (losses) gains on debt securities investments(10,913)9,170 
Treasury stock – 352,161 common shares, at cost
(2,666)(2,666)
Stockholders’ equity attributable to Stewart1,312,471 1,282,009 
Noncontrolling interests12,317 12,726 
Total stockholders’ equity (27,015,078 and 26,893,430 shares outstanding)
1,324,788 1,294,735 
2,760,987 2,813,362 
See notes to condensed consolidated financial statements.
4


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Three Months Ended 
 March 31,
 20222021
 ($000 omitted)
Reconciliation of net income to cash provided by operating activities:
Net income61,912 57,122 
Add (deduct):
Depreciation and amortization13,748 6,430 
Provision for bad debt14 708 
Net realized and unrealized gains(4,085)(3,274)
Amortization of net premium on debt securities investments690 938 
Payments for title losses less than provisions8,959 12,234 
Adjustments for insurance recoveries of title losses220 (205)
Decrease (increase) in receivables – net6,226 (3,513)
Increase in other assets – net(5,046)(7,869)
Decrease in accounts payable and other liabilities – net(50,808)(20,116)
Change in net deferred income taxes265 2,007 
Net income from equity method investments(736)(924)
Dividends received from equity method investments1,167 764 
Stock-based compensation expense2,239 3,174 
Other – net110 (34)
Cash provided by operating activities34,875 47,442 
Investing activities:
Proceeds from sales of investments in securities17,650 3,051 
Proceeds from matured investments in debt securities15,923 42,836 
Purchases of investments in securities(66,882)(47,881)
Net (purchases) sales of short-term investments(60)2,648 
Purchases of property and equipment, and real estate(12,291)(5,721)
Proceeds from sale of property and equipment and other assets829  
Cash paid for acquisition of businesses(17,904)(52,575)
Cash paid for acquisition of equity method investment(69)(16,080)
Other – net(2,412)131 
Cash used by investing activities(65,216)(73,591)
Financing activities:
Proceeds from notes payable140 178,975 
Payments on notes payable(37,819)(154,910)
Distributions to noncontrolling interests(4,568)(3,844)
Repurchases of Common Stock(2,462)(1,935)
Proceeds from stock option and employee stock purchase plan exercises2,492 61 
Cash dividends paid(10,119)(8,840)
Payment of contingent consideration related to acquisitions(6,262) 
Purchase of remaining interest in consolidated subsidiaries (2,570)
Other - net36 (777)
Cash (used) provided by financing activities(58,562)6,160 
Effects of changes in foreign currency exchange rates(367)69 
Change in cash and cash equivalents(89,270)(19,920)
Cash and cash equivalents at beginning of period485,919 432,683 
Cash and cash equivalents at end of period396,649 412,763 
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)
Three Months Ended March 31, 2022
Balance at December 31, 202127,246 282,376 974,800 253 (2,666)12,726 1,294,735 
Net income attributable to Stewart— — 57,897 — — — 57,897 
Dividends on Common Stock ($0.38 per share)
— — (10,241)— — — (10,241)
Stock-based compensation108 2,131 — — — — 2,239 
Stock repurchases(36)(2,426)— — — — (2,462)
Stock option and employee stock purchase plan exercises49 2,443 — — — — 2,492 
Change in net unrealized gains and losses on investments, net of taxes— — — (19,898)— — (19,898)
Reclassification adjustment for realized gains and losses on investments, net of taxes— — — (185)— — (185)
Foreign currency translation adjustments, net of taxes— — — 620 — — 620 
Net income attributable to noncontrolling interests— — — — — 4,015 4,015 
Distributions to noncontrolling interests— — — — — (4,568)(4,568)
Net effect of other changes in ownership— — — — — 144 144 
Balance at March 31, 202227,367 284,524 1,022,456 (19,210)(2,666)12,317 1,324,788 
Three Months Ended March 31, 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— — 54,236 — — — 54,236 
Dividends on Common Stock ($0.33 per share)
— — (9,082)— — — (9,082)
Stock-based compensation113 3,061 — — — — 3,174 
Stock repurchases(37)(1,898)— — — — (1,935)
Stock option and employee stock purchase plan exercises2 59 — — — — 61 
Purchase of remaining interest in consolidated subsidiary— (2,259)— — — (311)(2,570)
Change in net unrealized gains and losses on investments, net of taxes— — — (9,156)— — (9,156)
Reclassification adjustment for realized gains and losses on investments, net of taxes, net of taxes— — — (145)— — (145)
Foreign currency translation adjustments, net of taxes— — — 1,867 — — 1,867 
Net income attributable to noncontrolling interests— — — — — 2,886 2,886 
Distributions to noncontrolling interests— — — — — (3,844)(3,844)
Balance at March 31, 202127,158 273,820 733,973 9,588 (2,666)6,025 1,047,898 
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, 2022 and 2021, and as of March 31, 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 $530.0 million and $523.5 million at March 31, 2022 and December 31, 2021, respectively. In addition, included within cash and cash equivalents are statutory reserve funds of approximately $20.3 million and $41.4 million at March 31, 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 
 March 31,
 20222021
($000 omitted)
Title insurance premiums:
Direct205,562 194,993 
Agency404,145 345,932 
Escrow fees55,792 56,649 
Real estate solutions and abstract fees108,802 68,620 
Other revenues70,908 15,173 
845,209 681,367 



7


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, 2022December 31, 2021
($000 omitted)
Investments in:
Debt securities589,396 589,772 
Equity securities103,019 89,442 
692,415 679,214 

As of March 31, 2022 and December 31, 2021, the net unrealized investment gains relating to investments in equity securities held were $23.9 million and $21.1 million, respectively (refer to Note 5).

The amortized costs and fair values of investments in debt securities are as follows:
 March 31, 2022December 31, 2021
 
Amortized
costs
Fair
values
Amortized
costs
Fair
values
 ($000 omitted)
Municipal32,934 33,182 34,739 36,323 
Corporate252,113 248,050 249,757 258,102 
Foreign311,239 301,284 287,240 288,883 
U.S. Treasury Bonds6,925 6,880 6,429 6,464 
603,211 589,396 578,165 589,772 

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:
 March 31, 2022December 31, 2021
 GainsLossesGainsLosses
 ($000 omitted)
Municipal278 30 1,585 1 
Corporate1,778 5,841 9,389 1,044 
Foreign534 10,489 3,285 1,642 
U.S. Treasury Bonds21 66 60 25 
2,611 16,426 14,319 2,712 

Debt securities as of March 31, 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 less89,611 90,044 
After one year through five years318,078 310,887 
After five years through ten years166,600 159,971 
After ten years28,922 28,494 
603,211 589,396 

8


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, 2022, were:
 Less than 12 monthsMore than 12 monthsTotal
 LossesFair valuesLossesFair valuesLossesFair values
 ($000 omitted)
Municipal30 6,033   30 6,033 
Corporate4,614 114,478 1,227 11,631 5,841 126,109 
Foreign8,749 236,540 1,740 30,281 10,489 266,821 
U.S. Treasury Bonds42 1,203 24 612 66 1,815 
13,435 358,254 2,991 42,524 16,426 400,778 

The number of specific debt investment holdings held in an unrealized loss position as of March 31, 2022 was 197. Of these securities, 19 were in unrealized loss positions for more than 12 months. Gross unrealized investment losses at March 31, 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.

9


As of March 31, 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 33,182 33,182 
Corporate 248,050 248,050 
Foreign 301,284 301,284 
U.S. Treasury Bonds 6,880 6,880 
Equity securities103,019  103,019 
103,019 589,396 692,415 

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 March 31, 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 
 March 31,
 20222021
 ($000 omitted)
Realized gains1,594 170 
Realized losses(168)(2,469)
Net unrealized investment gains recognized on equity securities still held at end of period2,659 5,573 
4,085 3,274 

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Net realized gains during the first quarter 2022 included a $1.0 million realized gain related to sale of a title plant copy. Net realized losses during the first quarter 2021 included a $2.5 million loss related to a disposal of an equity method investment.

Investment gains and losses recognized related to investments in equity securities are as follows:
Three Months Ended 
 March 31,
20222021
($000 omitted)
Net investment gains recognized on equity securities during the period2,785 5,582 
Less: Net realized gains on equity securities sold during the period126 9 
Net unrealized investment gains recognized on equity securities still held at end of period2,659 5,573 

Proceeds from sales of investments in securities are as follows: 
 Three Months Ended 
 March 31,
 20222021
 ($000 omitted)
Proceeds from sales of debt securities17,280 2,936 
Proceeds from sales of equity securities370 115 
Total proceeds from sales of investments in securities17,650 3,051 


NOTE 6

Goodwill. The summary of changes in goodwill is as follows.
TitleReal Estate SolutionsCorporate and OtherConsolidated Total
($000 omitted)
Balances at December 31, 2021583,944 325,543 15,350 924,837 
Acquisitions19,947   19,947 
Purchase accounting adjustments(782)(910)(10,536)(12,228)
Balances at March 31, 2022603,109 324,633 4,814 932,556 

During the first quarter 2022, goodwill recorded in the title segment was related to an acquisition of a title search and support services provider, while purchase accounting adjustments were primarily related to measurements of intangible assets and deferred taxes within one year of the related acquisitions.
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NOTE 7

Estimated title losses. A summary of estimated title losses for the three months ended March 31 is as follows:
20222021
 ($000 omitted)
Balances at January 1549,614 496,275 
Provisions:
Current year28,882 28,407 
Previous policy years339 366 
Total provisions29,221 28,773 
Payments, net of recoveries:
Current year(3,192)(3,606)
Previous policy years(17,070)(12,933)
Total payments, net of recoveries(20,262)(16,539)
Effects of changes in foreign currency exchange rates2,145 1,032 
Balances at September 30560,718 509,541 
Loss ratios as a percentage of title operating revenues:
Current year provisions4.0 %4.5 %
Total provisions4.0 %4.6 %


NOTE 8

Share-based payments. As part of its incentive compensation program for executives and senior management employees, the Company provides share-based awards, which usually include a combination of time-based restricted stock units, performance-based restricted stock units and stock options. Each restricted stock unit represents a contractual right to receive a share of the Company's common stock. The time-based units generally vest on each of the first three anniversaries of the grant date, while the performance-based units vest upon achievement of certain financial objectives and an employee service requirement over a period of approximately three years. The stock options vest 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. Each vested stock option can be exercised to purchase a share of the Company's common stock at the strike price set by the Company at the grant date. The compensation expense associated with the share-based awards is calculated based on the fair value of the related award and recognized over the corresponding vesting period.

During the first quarter 2022, the Company granted time-based and performance-based restricted stock units with an aggregate grant-date fair value $10.5 million (163,000 units with an average grant price per unit of $64.43). During the first quarter 2021, the aggregate grant-date fair values of restricted stock unit and stock option awards, respectively, were $8.3 million (155,000 units with an average grant price per unit of $53.24) and $1.3 million (139,000 options with an average grant price per option of $9.24 and exercise strike price of $53.24).


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NOTE 9

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 units and shares 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,
 20222021
($000 omitted, except per share)
Numerator:
Net income attributable to Stewart57,897 54,236 
Denominator (000):
Basic average shares outstanding26,960 26,736 
Average number of dilutive shares relating to options265 103 
Average number of dilutive shares relating to grants of restricted units and shares219 145 
Diluted average shares outstanding27,444 26,984 
Basic earnings per share attributable to Stewart2.15 2.03 
Diluted earnings per share attributable to Stewart2.11 2.01 


NOTE 10

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, 2022, 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, 2022, the Company also had unused letters of credit aggregating $4.9 million related to workers’ compensation and other insurance. The Company does not expect to make any payments on these guarantees.


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NOTE 11

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 plaintiffs seek 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 referred to in this paragraph and that the likely resolution of these matters will not materially affect its consolidated financial condition or results of operations.

The Company is subject to non-ordinary course of business claims or lawsuits from time to time. To the extent the Company is currently the subject of these types of lawsuits, the Company has determined either that a loss is not reasonably possible or that the estimated loss or range of loss, if any, will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Additionally, the Company occasionally receives 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, where appropriate, 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 12

Segment information. Prior to 2022, the Company reported two operating segments: the title insurance and related services (title) segment, and the ancillary services and corporate segment. Effective in the first quarter 2022, the Company began reporting three operating segments: the title segment, the real estate solutions segment, and the corporate and other segment. The new segment presentation is primarily due to the increased size of the real estate solutions operations (formerly, ancillary services operations) resulting from strategic acquisitions. Previously, the real estate solutions operations were combined in one segment with the Company's corporate operations, which consist of expenses of the parent holding company and other centralized administrative services departments.

Under the revised segment presentation, the composition of each of the title and real estate solutions segments is substantially unchanged, while the corporate and other segment primarily includes corporate operations. The title segment provides services needed to transfer title to property in a real estate transaction and includes services such as searching, abstracting, examining, closing and insuring the condition of the title to the property. In addition, the title segment includes home and personal insurance services, Internal Revenue Code Section 1031 tax-deferred exchanges, and digital customer engagement platform services. The real estate solutions segment primarily include appraisal management services, online notarization and closing services, credit and real estate information services, and search and valuation services. Also, 2021 amounts were recast in the following table to conform with the new segment presentation.
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Selected statement of income information related to these segments is as follows:
 Three Months Ended 
 March 31,
 20222021
 ($000 omitted)
Title segment:
Revenues729,359 632,585 
Depreciation and amortization6,141 4,314 
Income before taxes and noncontrolling interest82,783 77,089 
Real estate solutions segment:
Revenues89,391 55,931 
Depreciation and amortization6,796 1,894 
Income before taxes6,791 2,657 
Corporate and other segment:
Revenues34,166 70 
Depreciation and amortization811 222 
Loss before taxes(9,963)(5,744)
Consolidated Stewart:
Revenues852,916 688,586 
Depreciation and amortization13,748 6,430 
Income before taxes and noncontrolling interest79,611 74,002 

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

Total revenues generated in the United States and all international operations are as follows:
 Three Months Ended 
 March 31,
 20222021
 ($000 omitted)
United States809,204 652,582 
International43,712 36,004 
852,916 688,586 


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NOTE 13
Other comprehensive loss. Changes in the balances of each component of other comprehensive loss and the related tax effects are as follows:
Three Months Ended 
 March 31, 2022
Three Months Ended 
 March 31, 2021
Before-Tax AmountTax Expense (Benefit)Net-of-Tax AmountBefore-Tax AmountTax Expense (Benefit)Net-of-Tax Amount
($000 omitted)
Net unrealized gains and losses on investments:
Change in net unrealized gains and losses on investments(25,188)(5,290)(19,898)(11,589)(2,433)(9,156)
Reclassification adjustments for realized gains and losses on investments(234)(49)(185)(184)(39)(145)
(25,422)(5,339)(20,083)(11,773)(2,472)(9,301)
Foreign currency translation adjustments976 356 620 2,351 484 1,867 
Other comprehensive loss(24,446)(4,983)(19,463)(9,422)(1,988)(7,434)
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S OVERVIEW

First quarter 2022 overview. We reported net income attributable to Stewart of $57.9 million ($2.11 per diluted share) for the first quarter 2022, compared to net income attributable to Stewart of $54.2 million ($2.01 per diluted share) for the first quarter 2021, while first quarter 2022 pretax income before noncontrolling interests was $79.6 million compared to pretax income before noncontrolling interests of $74.0 million for the first quarter 2021. The first quarter 2022 and 2021 results included $4.1 million and $3.3 million, respectively, of pretax net realized and unrealized gains, both of which were primarily related to net unrealized gains on fair value changes of equity securities investments.

As disclosed in Note 12 to the condensed unaudited financial statements, we revised our segment presentation beginning with the first quarter 2022 using three reportable segments namely, title, real estate solutions, and corporate and other. This new segment presentation allows us to report distinct financial information relating to our real estate solutions operations (formerly, ancillary services operations). Under the revised segment presentation, the composition of each of the title and real estate solutions segments is substantially unchanged, while the corporate and other segment includes primarily our corporate operations, which consist of expenses of the parent holding company and other centralized administrative services departments. Accordingly, we recast the segments results for 2021 to conform to our new presentation.

Summary results of the title segment are as follows ($ in millions, except pretax margin):
For the Three Months
Ended March 31
 20222021% Change
Operating revenues722.0 625.4 15 %
Investment income3.6 3.9 (9)%
Net realized and unrealized gains3.8 3.2 18 %
Pretax income82.8 77.1 %
Pretax margin11.4 %12.2 %

Title segment’s pretax income in the first quarter 2022 increased by $5.7 million compared to the first quarter 2021, while pretax margin was 11.4% in the first quarter 2022 compared to 12.2% in the prior year quarter. Title operating revenues in the first quarter 2022 improved $96.5 million, or 15%, as a result of revenue increases in direct title operations of $38.3 million, or 14%, and agency operations of $58.2 million, or 17%. Overall segment operating expenses in the first quarter 2022 increased $91.1 million, or 16%, primarily driven by 17% increases in both agency retention expenses and combined title employee costs and other operating expenses, compared to the prior year quarter. Average independent agency remittance rate in the first quarter 2022 was 18.1%, compared to 17.9% in the prior year quarter. As a percentage of title revenues, combined title employee costs and other operating expenses was 38.8% in the first quarter 2022 compared to 38.1% in the first quarter 2021.

Title loss expense in the first quarter 2022 was $29.2 million, which was slightly higher than $28.8 million in the first quarter 2021, primarily due to higher title revenues which was partially offset by favorable claims experience. As a percentage of title revenues, the title loss expense in the first quarter 2022 was 4.0% compared to 4.6% in the prior year quarter.

The segment’s net realized and unrealized gains in the first quarter 2022 primarily included $2.7 million of net unrealized gains on fair value changes of equity securities investments, while net realized and unrealized gains in the first quarter 2021 were also primarily related to net unrealized gains on fair value changes of equity securities investments. Investment income in the first quarter 2022 was slightly lower compared to the prior year quarter, primarily due to the higher mix of lower interest rate investments in the first quarter 2022.

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Summary results of the real estate solutions segment are as follows ($ in millions):
For the Three Months
Ended March 31
 20222021% Change
Operating revenues89.4 55.9 60 %
Pretax income6.8 2.7 156 %
Pretax margin7.6 %4.8 %

The segment’s pretax income improved to $6.8 million in the first quarter 2022 compared to $2.7 million in the prior year quarter, primarily due to higher operating revenues resulting from recent acquisitions. Total segment operating expenses increased $29.3 million, or 55%, primarily due to acquisitions and higher purchased intangible amortization expenses in the first quarter 2022 compared to the prior year quarter. Total intangible amortization expenses in the first quarters 2022 and 2021 were $6.4 million and $1.7 million, respectively.

Summary results of the corporate and other segment are as follows ($ in millions):
For the Three Months
Ended March 31
 20222021% Change
Operating revenues33.9 — 100 %
Realized gains0.3 0.1 347 %
Pretax loss(10.0)(5.7)(73)%

Segment operating revenues in the first quarter 2022 were related to a recently acquired real estate brokerage company, which was subsequently sold in the second quarter 2022. Net expenses attributable to corporate operations in the first quarter 2022 increased to $8.9 million compared to $5.8 million in the prior year quarter, primarily due to increased interest expense resulting from our recently issued debt. Excluding the impact of the recently sold real estate brokerage company, the segment’s pretax loss this quarter would have been $8.6 million.


CRITICAL ACCOUNTING ESTIMATES

The preparation of the Company’s condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures surrounding contingencies and commitments.

Actual results can differ from our accounting estimates. While we do not anticipate significant changes in our estimates, there is a risk that such changes could have a material impact on our consolidated financial condition or results of operations for future periods. During the three months ended March 31, 2022, we made no material changes to our critical accounting estimates as previously disclosed in Management’s Discussion and Analysis in the 2021 Form 10-K.

Operations. Our primary business is title insurance and settlement-related services. We close transactions and issue title policies on homes, commercial and other real properties located in all 50 states, the District of Columbia and international markets through policy-issuing offices, agencies and centralized title services centers. Our real estate solutions operations include appraisal management services, online notarization and closing services, credit and real estate information services, and search and valuation services. The corporate and other segment includes our parent holding company expenses and certain enterprise-wide overhead costs, along with other businesses not related to title or real estate solutions operations.

Factors affecting revenues. The principal factors that contribute to changes in our operating revenues include:
mortgage interest rates;
availability of mortgage loans;
number and average value of mortgage loan originations;
ability of potential purchasers to qualify for loans;
18


inventory of existing homes available for sale;
ratio of purchase transactions compared with refinance transactions;
ratio of closed orders to open orders;
home prices;
consumer confidence, including employment trends;
demand by buyers;
premium rates;
foreign currency exchange rates;
market share;
ability to attract and retain highly productive sales associates;
departure of revenue-attached employees;
independent agency remittance rates;
opening of new offices and acquisitions;
office closures;
number and value of commercial transactions, which typically yield higher premiums;
government or regulatory initiatives, including tax incentives and the implementation of the integrated disclosure requirements;
acquisitions or divestitures of businesses;
volume of distressed property transactions;
seasonality and/or weather; and
outbreaks of diseases and related quarantine orders and restrictions on travel, trade and business operations.

Premiums are determined in part by the values of the transactions we handle. To the extent inflation or market conditions cause increases in the prices of homes and other real estate, premium revenues are also increased. Conversely, falling home prices cause premium revenues to decline. As an overall guideline, a 5% change in median home prices results in an approximately 3.7% change in title premiums. Home price changes may override the seasonal nature of the title insurance business. Historically, our first quarter is the least active in terms of title insurance revenues as home buying is generally depressed during winter months. Our second and third quarters are the most active as the summer is the traditional home buying season, and while commercial transaction closings are skewed to the end of the year, individually large commercial transactions can occur any time of year. On average, refinance title premium rates are 60% of the premium rates for a similarly priced sale transaction.


RESULTS OF OPERATIONS

Comparisons of our results of operations for the three months ended March 31, 2022 with the corresponding periods in the prior year are set forth below. Factors contributing to fluctuations in the results of operations are presented in the order of their monetary significance, and we have quantified, when necessary, significant changes. Segment results are included in the discussions and, when relevant, are discussed separately.

Our statements on home sales and loan activity are based on published U.S. industry data from sources including Fannie Mae, the Mortgage Bankers Association (MBA), the National Association of Realtors® (NAR) and the U.S. Census Bureau as of March 31, 2022. We also use information from our direct operations.

Operating environment.