10-Q 1 stc-20230930.htm Q3 2023 FORM 10-Q stc-20230930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
(Mark One)

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
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 November 1, 2023, there were 27,362,249 outstanding shares of the issuer's Common Stock.



FORM 10-Q QUARTERLY REPORT
QUARTER ENDED SEPTEMBER 30, 2023
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 
 September 30,
Nine Months Ended 
 September 30,
 2023202220232022
 ($000 omitted, except per share)
Revenues
Title revenues:
Direct operations256,377 307,408 722,242 976,364 
Agency operations265,700 340,470 723,476 1,154,546 
Real estate solutions and other68,190 69,737 202,169 281,152 
Operating revenues590,267 717,615 1,647,887 2,412,062 
Investment income13,393 5,158 32,114 15,519 
Net realized and unrealized losses(1,946)(6,374)(4,829)(14,194)
601,714 716,399 1,675,172 2,413,387 
Expenses
Amounts retained by agencies218,983 280,517 596,498 951,555 
Employee costs181,493 195,057 534,710 610,286 
Other operating expenses130,455 151,208 380,530 502,966 
Title losses and related claims22,251 25,486 59,727 81,105 
Depreciation and amortization16,414 14,067 46,848 42,103 
Interest5,054 4,553 14,777 13,471 
574,650 670,888 1,633,090 2,201,486 
Income before taxes and noncontrolling interests27,064 45,511 42,082 211,901 
Income tax expense(9,134)(10,783)(9,588)(48,376)
Net income17,930 34,728 32,494 163,525 
Less net income attributable to noncontrolling interests3,931 5,294 10,870 14,534 
Net income attributable to Stewart13,999 29,434 21,624 148,991 
Net income17,930 34,728 32,494 163,525 
Other comprehensive loss, net of taxes:
Foreign currency translation adjustments(5,847)(15,300)(995)(22,861)
Change in net unrealized gains and losses on investments(7,468)(8,921)(6,616)(41,513)
Reclassification adjustments for realized gains and losses on investments20 (385)333 (687)
Other comprehensive loss, net of taxes:(13,295)(24,606)(7,278)(65,061)
Comprehensive income4,635 10,122 25,216 98,464 
Less net income attributable to noncontrolling interests3,931 5,294 10,870 14,534 
Comprehensive income attributable to Stewart704 4,828 14,346 83,930 
Basic average shares outstanding (000)27,348 27,113 27,269 27,031 
Basic earnings per share attributable to Stewart0.51 1.09 0.79 5.51 
Diluted average shares outstanding (000)27,650 27,371 27,445 27,359 
Diluted earnings per share attributable to Stewart0.51 1.08 0.79 5.45 
See notes to condensed consolidated financial statements.
3


CONDENSED CONSOLIDATED BALANCE SHEETS
 
 September 30, 2023 (Unaudited)
 
 December 31, 2022
 ($000 omitted)
Assets
Cash and cash equivalents202,985 248,367 
Short-term investments37,238 24,318 
Investments, at fair value:
Debt securities (amortized cost of $628,153 and $646,728)
585,406 611,934 
Equity securities75,333 98,149 
660,739 710,083 
Receivables:
Premiums from agencies40,509 39,921 
Trade and other64,364 67,348 
Income taxes4,725 10,281 
Notes13,765 7,482 
Allowance for uncollectible amounts(8,652)(7,309)
114,711 117,723 
Property and equipment:
Land2,545 2,545 
Buildings19,049 18,761 
Furniture and equipment233,062 213,707 
Accumulated depreciation(171,230)(153,474)
83,426 81,539 
Operating lease assets123,698 127,830 
Title plants, at cost73,359 73,358 
Investments on equity method basis4,283 4,575 
Goodwill1,072,022 1,072,982 
Intangible assets, net of amortization201,539 199,084 
Deferred tax assets2,554 2,590 
Other assets92,516 75,430 
2,669,070 2,737,879 
Liabilities
Notes payable445,158 447,006 
Accounts payable and accrued liabilities177,180 196,541 
Operating lease liabilities142,044 148,003 
Estimated title losses521,395 549,448 
Deferred tax liabilities24,094 26,616 
1,309,871 1,367,614 
Contingent liabilities and commitments
Stockholders’ equity
Common Stock ($1 par value) and additional paid-in capital
337,924 324,344 
Retained earnings1,075,224 1,091,816 
Accumulated other comprehensive loss:
Foreign currency translation adjustments(24,851)(23,856)
Net unrealized losses on debt securities investments(33,770)(27,487)
Treasury stock – 352,161 common shares, at cost
(2,666)(2,666)
Stockholders’ equity attributable to Stewart1,351,861 1,362,151 
Noncontrolling interests7,338 8,114 
Total stockholders’ equity (27,355,427 and 27,130,412 shares outstanding)
1,359,199 1,370,265 
2,669,070 2,737,879 
See notes to condensed consolidated financial statements.
4


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Nine Months Ended 
 September 30,
 20232022
 ($000 omitted)
Reconciliation of net income to cash provided by operating activities:
Net income32,494 163,525 
Add (deduct):
Depreciation and amortization46,848 42,103 
Adjustments for bad debt provisions2,425 812 
Net realized and unrealized losses4,829 14,194 
Amortization of net premium on debt securities investments448 1,870 
Payments for title losses (in excess of) less than provisions(26,417)10,950 
Adjustments for insurance recoveries of title losses 220 
Decrease in receivables – net7,007 9,521 
Increase in other assets – net(9,581)(4,343)
Decrease in accounts payable and other liabilities – net(24,766)(81,987)
Change in net deferred income taxes(692)25 
Net income from equity method investments(847)(2,536)
Dividends received from equity method investments1,121 3,135 
Stock-based compensation expense10,310 9,239 
Other – net399 312 
Cash provided by operating activities43,578 167,040 
Investing activities:
Proceeds from sales of investments in securities53,630 47,954 
Proceeds from matured investments in debt securities58,005 28,754 
Purchases of investments in securities(72,857)(165,130)
Net purchases of short-term investments(14,005)(1,632)
Purchases of property and equipment, and real estate(29,487)(35,274)
Proceeds from sale of property and equipment and other assets369 977 
Cash paid for acquisition of businesses(25,100)(102,864)
Increase in notes receivable(6,960)(69)
Other – net(348)1,941 
Cash used by investing activities(36,753)(225,343)
Financing activities:
Proceeds from notes payable3,538 38,012 
Payments on notes payable(5,776)(75,505)
Distributions to noncontrolling interests(11,646)(14,863)
Repurchases of Common Stock(1,576)(3,168)
Proceeds from stock option and employee stock purchase plan exercises4,846 5,799 
Cash dividends paid(37,524)(32,464)
Payment of contingent consideration related to acquisitions(3,025)(15,997)
Purchase of remaining interest in consolidated subsidiaries (72)
Other - net 115 
Cash used by financing activities(51,163)(98,143)
Effects of changes in foreign currency exchange rates(1,044)(8,540)
Change in cash and cash equivalents(45,382)(164,986)
Cash and cash equivalents at beginning of period248,367 485,919 
Cash and cash equivalents at end of period202,985 320,933 
See notes to condensed consolidated financial statements.
5


CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

Common Stock
Additional paid-in capitalRetained earningsAccumulated other comprehensive (loss) incomeTreasury stockNoncontrolling interestsTotal
($000 omitted)
Nine Months Ended September 30, 2023
Balance at December 31, 202227,483 296,861 1,091,816 (51,343)(2,666)8,114 1,370,265 
Net income attributable to Stewart— — 21,624 — — — 21,624 
Dividends on Common Stock ($1.38 per share)
— — (38,216)— — — (38,216)
Stock-based compensation134 10,176 — — — — 10,310 
Stock repurchases(37)(1,539)— — — — (1,576)
Stock option and employee stock purchase plan exercises129 4,717 — — — — 4,846 
Change in net unrealized gains and losses on investments, net of taxes— — — (6,616)— — (6,616)
Reclassification adjustment for realized gains and losses on investments, net of taxes— — — 333 — — 333 
Foreign currency translation adjustments, net of taxes— — — (995)— — (995)
Net income attributable to noncontrolling interests— — — — — 10,870 10,870 
Distributions to noncontrolling interests— — — — — (11,646)(11,646)
Balance at September 30, 202327,709 310,215 1,075,224 (58,621)(2,666)7,338 1,359,199 
Nine Months Ended September 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— — 148,991 — — — 148,991 
Dividends on Common Stock ($1.20 per share)
— — (32,853)— — — (32,853)
Stock-based compensation155 9,084 — — — — 9,239 
Stock repurchases(49)(3,119)— — — — (3,168)
Stock option and employee stock purchase plan exercises124 5,675 — — — — 5,799 
Purchase of remaining interest in consolidated subsidiary— — — — — (72)(72)
Change in net unrealized gains and losses on investments, net of taxes— — — (41,513)— — (41,513)
Reclassification adjustment for realized gains and losses on investments, net of taxes, net of taxes— — — (687)— — (687)
Foreign currency translation adjustments, net of taxes— — — (22,861)— — (22,861)
Net income attributable to noncontrolling interests— — — — — 14,534 14,534 
Distributions to noncontrolling interests— — — — — (14,863)(14,863)
Net effect of other changes in ownership— — — — — 220 220 
Balance at September 30, 202227,476 294,016 1,090,938 (64,808)(2,666)12,545 1,357,501 
See notes to condensed consolidated financial statements.

6


CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

Common Stock
Additional paid-in capitalRetained earningsAccumulated other comprehensive lossTreasury stockNoncontrolling interestsTotal
($000 omitted)
Three Months Ended September 30, 2023
Balance at June 30, 202327,620 304,405 1,074,458 (45,326)(2,666)7,504 1,365,995 
Net income attributable to Stewart— — 13,999 — — — 13,999 
Dividends on Common Stock ($0.48 per share)
— — (13,233)— — — (13,233)
Stock-based compensation17 3,250 — — — — 3,267 
Stock repurchases(5)(218)— — — — (223)
Stock option and employee stock purchase plan exercises77 2,778 — — — 2,855 
Change in net unrealized gains and losses on investments, net of taxes— — — (7,468)— — (7,468)
Reclassification adjustment for realized gains and losses on investments, net of taxes— — — 20 — — 20 
Foreign currency translation adjustments, net of taxes— — — (5,847)— — (5,847)
Net income attributable to noncontrolling interests— — — — — 3,931 3,931 
Distributions to noncontrolling interests— — — — — (4,097)(4,097)
Balance at September 30, 202327,709 310,215 1,075,224 (58,621)(2,666)7,338 1,359,199 
Three Months Ended September 30, 2022
Balance at June 30, 202227,390 288,834 1,073,788 (40,202)(2,666)12,677 1,359,821 
Net income attributable to Stewart— — 29,434 — — — 29,434 
Dividends on Common Stock ($0.45 per share)
— — (12,284)— — — (12,284)
Stock-based compensation29 2,770 — — — — 2,799 
Stock repurchases(12)(605)— — — — (617)
Stock option exercises69 3,017 3,086 
Purchase of remaining interest in consolidated subsidiary— — — — — (72)(72)
Change in net unrealized gains and losses on investments, net of taxes— — — (8,921)— — (8,921)
Reclassification adjustment for realized gains and losses on investments, net of taxes, net of taxes— — — (385)— — (385)
Foreign currency translation adjustments, net of taxes— — — (15,300)— — (15,300)
Net income attributable to noncontrolling interests— — — — — 5,294 5,294 
Distributions to noncontrolling interests— — — — — (5,380)(5,380)
Net effect of other changes in ownership— — — — — 26 26 
Balance at September 30, 202227,476 294,016 1,090,938 (64,808)(2,666)12,545 1,357,501 
See notes to condensed consolidated financial statements.

7


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

Interim financial statements. The financial information contained in this report for the three and nine months ended September 30, 2023 and 2022, and as of September 30, 2023, 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, 2022 filed with the Securities and Exchange Commission on February 28, 2023 (2022 Form 10-K).

A. Management’s responsibility. The accompanying interim financial statements were prepared by management, which 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 $510.8 million and $544.0 million at September 30, 2023 and December 31, 2022, respectively. In addition, included within cash and cash equivalents are statutory reserve funds of approximately $11.0 million and $8.6 million at September 30, 2023 and December 31, 2022, 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 
 September 30,
Nine Months Ended 
 September 30,
 2023202220232022
($000 omitted)
Title insurance premiums:
Direct169,285 209,477 470,779 646,760 
Agency265,700 340,470 723,476 1,154,546 
Escrow fees41,973 49,407 117,223 166,696 
Real estate solutions and abstract fees86,451 89,519 253,422 302,534 
Other revenues26,858 28,742 82,987 141,526 
590,267 717,615 1,647,887 2,412,062 



8


NOTE 3

Investments in debt and equity securities. As of September 30, 2023 and December 31, 2022, the net unrealized investment gains relating to investments in equity securities held were $11.0 million and $19.2 million, respectively (refer to Note 5).

The amortized costs and fair values of investments in debt securities are as follows:
 September 30, 2023December 31, 2022
 
Amortized
costs
Fair
values
Amortized
costs
Fair
values
 ($000 omitted)
Municipal23,941 23,278 30,104 29,835 
Corporate250,552 231,038 272,362 254,316 
Foreign321,046 299,748 315,184 299,137 
U.S. Treasury Bonds32,614 31,342 29,078 28,646 
628,153 585,406 646,728 611,934 

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:
 September 30, 2023December 31, 2022
 GainsLossesGainsLosses
 ($000 omitted)
Municipal1 664 3 272 
Corporate136 19,650 489 18,535 
Foreign152 21,450 165 16,212 
U.S. Treasury Bonds 1,272 21 453 
289 43,036 678 35,472 

Debt securities as of September 30, 2023 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 less105,848 103,828 
After one year through five years329,317 306,479 
After five years through ten years180,634 164,702 
After ten years12,354 10,397 
628,153 585,406 

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 September 30, 2023, were:
 Less than 12 monthsMore than 12 monthsTotal
 LossesFair valuesLossesFair valuesLossesFair values
 ($000 omitted)
Municipal292 13,477 372 9,800 664 23,277 
Corporate284 18,194 19,366 209,437 19,650 227,631 
Foreign4,594 93,809 16,856 200,359 21,450 294,168 
U.S. Treasury Bonds1,007 26,639 265 4,703 1,272 31,342 
6,177 152,119 36,859 424,299 43,036 576,418 

The number of specific debt investment holdings held in an unrealized loss position as of September 30, 2023 was 374. Of these securities, 267 were in unrealized loss positions for more than 12 months. Total gross unrealized investment losses at September 30, 2023 were essentially unchanged compared to December 31, 2022; however, gross unrealized losses over 12 months increased in 2023 primarily due to the passage of time and the continuing high interest rate environment which started in late 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, 2022, were:
 Less than 12 monthsMore than 12 monthsTotal
 LossesFair valuesLossesFair valuesLossesFair values
 ($000 omitted)
Municipal262 27,491 10 67 272 27,558 
Corporate12,935 193,239 5,600 44,342 18,535 237,581 
Foreign7,608 186,221 8,604 101,294 16,212 287,515 
U.S. Treasury Bonds413 25,102 40 445 453 25,547 
21,218 432,053 14,254 146,148 35,472 578,201 


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 September 30, 2023, 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 23,278 23,278 
Corporate 231,038 231,038 
Foreign 299,748 299,748 
U.S. Treasury Bonds 31,342 31,342 
Equity securities75,333  75,333 
75,333 585,406 660,739 

As of December 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 29,835 29,835 
Corporate 254,316 254,316 
Foreign 299,137 299,137 
U.S. Treasury Bonds 28,646 28,646 
Equity securities98,149  98,149 
98,149 611,934 710,083 

As of September 30, 2023 and December 31, 2022, 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 
 September 30,
Nine Months Ended 
 September 30,
 2023202220232022
 ($000 omitted)
Realized gains900 183 1,239 3,460 
Realized losses(307)(65)(4,484)(3,904)
Net unrealized investment losses recognized on equity securities still held at end of period(2,539)(6,492)(1,584)(13,750)
(1,946)(6,374)(4,829)(14,194)

11


Realized gains and losses during the first nine months of 2023 included a $3.2 million contingent receivable loss adjustment resulting from a previous disposition of a business, while realized gains and losses during the first nine months of 2022 included a loss of $3.6 million from the disposition of the same business, partially offset by $2.0 million of gains from an acquisition contingent liability adjustment and a sale of a title plant copy.

Investment gains and losses recognized related to investments in equity securities are as follows:
Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
2023202220232022
($000 omitted)
Net investment losses recognized on equity securities during the period(1,738)(6,489)(1,505)(13,284)
Less: Net realized gains on equity securities sold during the period801 3 79 466 
Net unrealized investment losses recognized on equity securities still held at end of period(2,539)(6,492)(1,584)(13,750)

Proceeds from sales of investments in securities are as follows: 
 Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
 2023202220232022
 ($000 omitted)
Proceeds from sales of debt securities10,255 19,123 25,134 47,405 
Proceeds from sales of equity securities3,887 62 28,496 549 
Total proceeds from sales of investments in securities14,142 19,185 53,630 47,954 


NOTE 6

Goodwill. The summary of changes in goodwill is as follows:
TitleReal Estate SolutionsCorporate and OtherConsolidated Total
($000 omitted)
Balances at December 31, 2022720,478 352,504  1,072,982 
Acquisitions8,328 11,690  20,018 
Purchase accounting adjustments(20,978)  (20,978)
Balances at September 30, 2023707,828 364,194  1,072,022 

During the first nine months of 2023, goodwill recorded in the real estate solutions and title segments was related to acquisitions of a financial and personal information online verification services provider and several title offices, respectively, while title purchase accounting adjustments were primarily related to recognition of intangible assets (customer relationships) related to recent acquisitions.
12


NOTE 7

Estimated title losses. A summary of estimated title losses for the nine months ended September 30 is as follows:
20232022
 ($000 omitted)
Balances at January 1549,448 549,614 
Provisions:
Current year59,036 81,108 
Previous policy years691 (3)
Total provisions59,727 81,105 
Payments, net of recoveries:
Current year(12,911)(14,191)
Previous policy years(73,233)(55,964)
Total payments, net of recoveries(86,144)(70,155)
Effects of changes in foreign currency exchange rates(1,636)(13,350)
Balances at September 30521,395 547,214 
Loss ratios as a percentage of title operating revenues:
Current year provisions4.1 %3.8 %
Total provisions4.1 %3.8 %


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 nine months of 2023 and 2022, the Company granted time-based and performance-based restricted stock units with aggregate grant-date fair values of $12.1 million (296,000 units with an average grant price per unit of $41.03) and $11.7 million (183,000 units with an average grant price per unit of $63.68).


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.
13



The calculation of the basic and diluted EPS is as follows:
 Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
 2023202220232022
($000 omitted, except per share)
Numerator:
Net income attributable to Stewart13,999 29,434 21,624 148,991 
Denominator (000):
Basic average shares outstanding27,348 27,113 27,269 27,031 
Average number of dilutive shares relating to options69 124 52 181 
Average number of dilutive shares relating to grants of restricted units and shares233 134 124 147 
Diluted average shares outstanding27,650 27,371 27,445 27,359 
Basic earnings per share attributable to Stewart0.51 1.09 0.79 5.51 
Diluted earnings per share attributable to Stewart0.51 1.08 0.79 5.45 


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 September 30, 2023, 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 September 30, 2023, 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.


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.

14


The Company is subject to various other administrative actions, investigations 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. The Company has three reportable operating segments: the title segment, the real estate solutions segment, and the corporate and other segment. 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 supports the real estate industry and primarily includes credit and real estate information services, valuation management services, online notarization and closing services, and search services. The corporate and other segment is primarily comprised of the parent holding company and centralized support services departments.

Selected statement of income information related to these segments is as follows:
 Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
 2023202220232022
 ($000 omitted)
Title segment:
Revenues533,624 646,607 1,476,093 2,135,000 
Depreciation and amortization9,196 7,467 26,182 21,098 
Income before taxes and noncontrolling interest35,385 51,837 70,181 228,212 
Real estate solutions segment:
Revenues68,215 69,738 202,250 241,993 
Depreciation and amortization6,820 6,204 19,401 19,381 
Income before taxes2,626 3,364 7,273 16,249 
Corporate and other segment:
Revenues (net realized losses)(125)54 (3,171)36,394 
Depreciation and amortization398 396 1,265 1,624 
Loss before taxes(10,947)(9,690)(35,372)(32,560)
Consolidated Stewart:
Revenues601,714 716,399 1,675,172 2,413,387 
Depreciation and amortization16,414 14,067 46,848 42,103 
Income before taxes and noncontrolling interest27,064 45,511 42,082 211,901 

The Company does not provide asset information by reportable operating segment as it does not routinely evaluate the asset position by segment. During 2022, the corporate and other segment included results of a real estate brokerage company that was sold during the second quarter 2022.

15


Total revenues generated in the United States and all international operations are as follows:
 Three Months Ended 
 September 30,
Nine Months Ended 
 September 30,
 2023202220232022
 ($000 omitted)
United States562,045 670,846 1,574,275 2,271,497 
International39,669 45,553 100,897 141,890 
601,714 716,399 1,675,172 2,413,387 

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 
 September 30, 2023
Three Months Ended 
 September 30, 2022
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(9,452)(1,984)(7,468)(11,292)(2,371)(8,921)
Reclassification adjustments for realized gains and losses on investments25 5 20 (488)(103)(385)
(9,427)(1,979)(7,448)(11,780)(2,474)(9,306)
Foreign currency translation adjustments(6,931)(1,084)(5,847)(18,315)(3,015)(15,300)
Other comprehensive loss(16,358)(3,063)(13,295)(30,095)(5,489)(24,606)

Nine Months Ended 
 September 30, 2023
Nine Months Ended 
 September 30, 2022
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(8,374)(1,758)(6,616)(52,548)(11,035)(41,513)
Reclassification adjustment for realized gains and losses on investments421 88 333 (870)(183)(687)
(7,953)(1,670)(6,283)(53,418)(11,218)(42,200)
Foreign currency translation adjustments(1,119)(124)(995)(26,668)(3,807)(22,861)
Other comprehensive loss(9,072)(1,794)(7,278)(80,086)(15,025)(65,061)


16


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S OVERVIEW

Third quarter 2023 overview. We reported net income attributable to Stewart of $14.0 million ($0.51 per diluted share) for the third quarter 2023, compared to net income attributable to Stewart of $29.4 million ($1.08 per diluted share) for the third quarter 2022. Pretax income before noncontrolling interests for the third quarter 2023 was $27.1 million compared to pretax income before noncontrolling interests of $45.5 million for the prior year quarter. The third quarter 2023 and 2022 results included $1.9 million and $6.4 million, respectively, of pretax net realized and unrealized losses primarily driven by net unrealized losses on fair value changes of equity securities investments in the title segment.

Summary results of the title segment are as follows ($ in millions, except pretax margin):
For the Three Months
Ended September 30
 20232022% Change
Operating revenues522.1 647.9 (19)%
Investment income13.4 5.2 159 %
Net realized and unrealized losses(1.8)(6.4)72 %
Pretax income35.4 51.8 (32)%
Pretax margin6.6 %8.0 %

Title segment operating revenues in the third quarter 2023 decreased $125.8 million, or 19%, compared to the third quarter 2022, due to transaction volume declines in our direct and agency title businesses. Total segment operating expenses in the third quarter 2023 decreased $96.5 million, or 16%, primarily driven by lower operating revenues. Agency retention expenses in the third quarter 2023 decreased $61.5 million, or 22%, in line with lower gross agency revenues of $74.8 million, or 22%, while the average independent agency remittance rate in the third quarter 2023 was comparable to the prior year quarter.

Total employee costs and other operating expenses in the third quarter 2023 decreased $33.8 million, or 12%, compared to the prior year quarter, while as a percentage of operating revenues, these expenses were 47.4% in the third quarter 2023 compared to 43.4% in the third quarter 2022. Title loss expense in the third quarter 2023 decreased $3.2 million, or 13%, compared to the prior year quarter, primarily as a result of lower title revenues. As a percentage of title revenues, title loss expense was 4.3% in the third quarter 2023 compared to 3.9% in the third quarter 2022, which benefited from last year’s favorable claims experience.

Investment income in the third quarter 2023 increased $8.2 million compared to the third quarter 2022, primarily due to higher interest income resulting from earned interest from eligible escrow balances and increased interest rates and higher short-term investment balances in the third quarter 2023. Acquisition intangible asset amortization expenses in the third quarters 2023 and 2022 amounted to $3.4 million and $2.0 million, respectively.

Summary results of the real estate solutions segment are as follows ($ in millions):
For the Three Months
Ended September 30
 20232022% Change
Operating revenues68.2 69.7 (2)%
Pretax income2.6 3.4 (22)%
Pretax margin3.8 %4.8 %

17


The segment’s operating revenues in the third quarter 2023 decreased $1.5 million, or 2%, compared to the third quarter 2022, primarily as a result of lower valuation services revenues resulting from lower transaction volumes tied to the continuing elevated interest rate environment, partially offset by higher credit information services revenues. In line with the revenue decline, combined employee costs and other operating expenses in the third quarter 2023 decreased $1.6 million, or 3%. Acquisition intangible asset amortization expenses in the third quarters 2023 and 2022 amounted to $6.3 million and $5.8 million, respectively.

In regard to the corporate and other segment, pretax results in the third quarter 2023 and 2022 were driven by net expenses attributable to corporate operations which were $10.8 million and $9.7 million, respectively.


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 nine months ended September 30, 2023, we made no material changes to our critical accounting estimates as previously disclosed in Management’s Discussion and Analysis in the 2022 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 credit and real estate information services, valuation management services, online notarization and closing services, and search 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:
interest rates;
availability of mortgage loans;
number and average value of mortgage loan originations;
ability of potential purchasers to qualify for loans;
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;
independent agency remittance rates;
opening and integration 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.

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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. 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 typically 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 the 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 and nine months ended September 30, 2023 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 September 30, 2023. We also use information from our direct operations.

Operating environment. According to NAR, existing home sales (seasonally-adjusted basis) in September 2023 totaled 4.0 million units, which were 15% and 2% lower from a year ago and August 2023, respectively, primarily due to the current increasing mortgage interest rate environment. Limited inventory and low housing affordability continue to hamper home sales, with total housing inventory in September 2023 being 8% lower compared to a year ago and the September 2023 existing home median price at $394,300, or 3% higher than September 2022. Regarding new residential construction, U.S. housing starts (seasonally-adjusted) in September 2023 were 7% lower compared to September 2022, but 7% higher than August 2023, while September 2023 newly-issued building permits were 7% and 4% lower compared to a year ago and August 2023, respectively.

In relation to lending activity, total single family mortgage originations during the third quarter 2023 decreased 17% to $427 billion compared to the prior year quarter, with purchase and refinancing originations declining 13% and 31%, respectively, according to Fannie Mae and MBA (averaged). During the third quarter 2023, the average 30-year fixed interest rate reached 7.0%, compared to 5.7% from the third quarter 2022 and 6.5% in the second quarter 2023. For the year 2023, Fannie Mae and MBA expect the interest rate to average 6.5%, higher than the 5.4% average observed in 2022, while total originations for the year 2023 are expected to be 31% lower compared to 2022.

Title revenues. Direct title revenue information is presented below:
 Three Months Ended September 30,Nine Months Ended September 30,
 20232022 Change% Chg20232022 Change% Chg
 ($ in millions)($ in millions)
Non-commercial
Domestic167.6 204.4 (36.8)(18)%502.4 659.1 (156.7)(24)%
International29.1 33.8 (4.7)(14)%74.1 106.6 (32.5)(30)%
196.7 238.2 (41.5)(17)%576.5 765.7 (189.2)(25)%
Commercial:
Domestic51.9 61.0 (9.1)(15)%126.1 184.5 (58.4)(32)%
International7.8 8.2 (0.4)(5)%19.6 26.2 (6.6)(25)%
59.7 69.2 (9.5)(14)%145.7 210.7 (65.0)(31)%
Total direct title revenues256.4 307.4 (51.0)(17)%722.2 976.4 (254.2)(26)%

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Non-commercial revenues decreased in the third quarter and first nine months of 2023, compared to the same periods in 2022, primarily driven by lower residential purchase and refinancing transactions resulting from the rising mortgage interest rates in 2023. Combined purchase and refinancing orders closed declined 17% and 35% in the third quarter and first nine months of 2023, respectively, compared to the same periods in 2022. Average residential fee per file in the third quarter and first nine months of 2023 was $3,000 and $3,200, respectively, compared to $3,300 and $3,000 in the third quarter and first nine months of 2022, respectively, primarily as a result of changes in the mix of purchase transactions.

Commercial revenues declined in the third quarter and first nine months of 2023, compared to the same periods in 2022, primarily as a result of lower transaction volume. Domestic commercial orders closed decreased 17% and 20% in the third quarter and first nine months of 2023, respectively, while average domestic commercial fee per file was $14,200 and $11,300 in the third quarter and first nine months of 2023, respectively, compared to $13,700 and $13,200, respectively, from the same periods in 2022. Total international revenues in the third quarter and first nine months of 2023 decreased $5.1 million, or 12%, and $39.1 million, or 29%, respectively, primarily due to lower transaction volumes in our Canadian operations compared to the same periods in 2022.

Orders information for the three and nine months ended September 30 is as follows: