Washington, D.C. 20549
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.
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.
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.
Item 1. Financial Statements
See notes to condensed consolidated financial statements.
See notes to condensed consolidated financial statements.
See notes to condensed consolidated financial statements.
See notes to condensed consolidated financial statements.
The amortized costs and fair values of investments in debt securities are as follows:
Foreign debt securities consist of Canadian government and corporate bonds, United Kingdom treasury and corporate bonds, and Mexican government bonds.
Gross unrealized gains and losses on investments in debt securities are as follows:
Gross unrealized losses on investments in debt securities and the fair values of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2020,2021, were:
The number of specific debt investment holdings held in an unrealized loss position as of March 31, 20202021 was 86.47. Of these securities, 93 were in unrealized loss positions for more than 12 months. During 2020, the overall gross unrealized losses on debt securities increased from the prior year-end due to lower investment fair values primarily resulting from increased credit spreads, partially offset by the effect of lower interest rates. Since the Company does not intend to sell and will more likely than not maintain each investment security until its maturity or anticipated recovery, and no significant credit risk is deemed to exist, these investments are not considered as other-than-temporarily impaired. The Company believes its investment portfolio is diversified and expects no material loss to result from the failure to perform by issuers of the debt securities it holds. Investments made by the Company are not collateralized.
Gross unrealized losses on investments in debt securities and the fair values of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2019,2020, were:
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.
The Company does not provide asset information by reportable operating segment as it does not routinely evaluate the asset position by segment.
Revenues generated in the United States and all international operations are as follows:
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT’S OVERVIEW
COVID-19 pandemic. In March 2020, a global pandemic escalated relating to a novel strain of coronavirus (COVID-19), which resulted in a slowdown in the global economy and a U.S. declaration of a national emergency. In response to the pandemic, health and governmental bodies, including the state of Texas where we are headquartered, have issued travel restrictions, quarantine orders, temporary closures of non-essential businesses and other restrictive measures. In response to the pandemic, we deployed our business continuity plan during the second week of March and continue to take appropriate measures, along with health guidance from industry and governmental bodies, to ensure the safety of all our employees and customers. Within the U.S., our business has been designated as an essential business which allows us to continue underwriting and closing real estate transactions for our residential and commercial customers. We utilize our digital capabilities, including remote online notarization (RON), remote ink notarization (RIN), electronic signature platforms, virtual underwriting, and mobile earnest money transfer tools to aid our employees in keeping the real estate market open and operating in this very challenging time.
During the three months ended March 31, 2020, the COVID-19 pandemic did not have a significant impact on our operations as we delivered one of Stewart's strongest first quarter performances in its history. However, we expect the second and third quarters will be challenging for our residential and commercial businesses. While we continue to close transactions on a daily basis, as we work through a pipeline of business from the first quarter, new orders opened so far in the second quarter are lower than orders opened in March 2020. This volume decline is consistent with expectations for the industry as unemployment rates rise, lending standards tighten and capital is constrained. Orders we received during the first three weeks of April 2020 are slightly higher compared to the same period in 2019. However, there are wide-ranging projections of real estate transaction volumes over the next several quarters which is creating near-term uncertainty for our business and the real estate market.
We will continue to proactively manage our business through this crisis with the help of our exceptional employees and support of our customers. We have significant cash and investment balances in excess of statutory reserves, borrowing capability on our line of credit and a strong balance sheet. We are confident we have the financial strength to work through this challenging period.
First quarter 20202021 overview. We reported net income attributable to Stewart for the first quarter 2021 of $54.2 million ($2.01 per diluted share), compared to net income attributable to Stewart of $5.2 million ($0.22 per diluted share) for the first quarter 2020, compared to a2020. Excluding net loss attributable to Stewartrealized and unrealized gains and losses, Stewart’s first quarter 2021 net income of $6.8$51.7 million ($0.291.92 per diluted share) forincreased $38.4 million, or 289%, from $13.3 million ($0.56 per diluted share) in the first quarter 2019. Pretax2020. First quarter 2021 pretax income before noncontrolling interests for the first quarter 2020 was $9.3$74.0 million compared to a pretax lossincome before noncontrolling interests of $7.2$9.3 million for the first quarter 2019.2020.
First quarter 2021 results included $3.3 million of pretax net realized and unrealized gains, primarily related to net unrealized gains on fair value changes of equity securities investments recorded in the title segment. First quarter 2020 results included $11.1 million of pretax net realized and unrealized losses, which included $10.6 million of net unrealized losses on fair value changes of equity securities investments recorded in the title segment relating to changes in fair value of equity securities investments.
First quarter 2019 results included the following pretax items:
$3.5 million of net unrealized gains recorded in the title segment relating to changes in fair value of equity securities investments,
$2.0 million of third-party advisory expenses related to the terminated Fidelity National Financial (FNF) merger transaction included in other operating expenses within the ancillary services and corporate segment,
$0.8 million of litigation expense related to a 2013 lender services acquisition included in other operating expenses within the ancillary services and corporate segment, and
$0.7 million of office closure costs included in other operating expenses within the title segment.
Summary results of the title segment are as follows ($ in millions, except pretax margin):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months
Ended March 31, | | |
| | 2021 | | 2020 | | % Change | | | | | | |
| | | | | | | | | | | |
| Operating revenues | 625.4 | | | 440.3 | | | 42 | % | | | | | | |
| Investment income | 3.9 | | | 5.2 | | | (24) | % | | | | | | |
| Net realized and unrealized gains (losses) | 3.2 | | | (11.1) | | | 129 | % | | | | | | |
| Pretax income | 77.1 | | | 14.8 | | | 420 | % | | | | | | |
| Pretax margin | 12.2 | % | | 3.4 | % | | | | | | | | |
|
| | | | | | | | |
| | For the Three Months
Ended March 31, |
| | 2020 | | 2019 | | % Change |
| | | | | | |
| Operating revenues | 440.3 |
| | 376.1 |
| | 17 | % |
| Investment income | 5.2 |
| | 4.7 |
| | 10 | % |
| Net realized and unrealized (losses) gains | (11.1 | ) | | 3.6 |
| | (408 | )% |
| Pretax income (loss) | 14.8 |
| | (0.4 | ) | |
|
|
| Pretax margin | 3.4 | % | | (0.1 | )% | |
|
|
Title operating revenuessegment pretax income improved by $62.3 million, or 420%, while pretax margin increased 880 basis points to 12.2% in the first quarter 2020 increased $64.22021 compared to the prior year quarter. Title operating revenues grew $185.1 million, or 17%42%, as a result of improvements in direct title revenues of $81.2 million, or 41%, and gross independent agency revenues of $103.9 million, or 43%. Consistent with the increased title revenues, overall segment operating expenses increased $135.9 million, or 32%, in the first quarter 2021, with agency retention expenses and combined title employee costs and other operating expenses increasing 42% and 21%, respectively, from the first quarter 2020. Average independent agency remittance rate improved to 17.9% in the first quarter 2021, compared to 17.6% in the prior year quarter, while combined title employee costs and other operating expenses, as a percentage of title revenues, improved to 38.1% in the first quarter 2021, from 44.9% in the first quarter 2020.
Title loss expense increased $10.1 million, or 54%, in the first quarter 2021 compared to the prior year quarter, directprimarily as a result of increased title revenues increased $37.0 million, or 23%, and gross independent agency revenues increased $27.2 million, or 13%. The higher investment income was due to increased interest income primarily resulting from the higher average cash and cash equivalents balances in the first quarter 2020 versus the prior year quarter. The title segment’s net realized and unrealized losses and gains were primarily due to $10.6 million of net unrealized losses and $3.5 million of net unrealized gains relating to changes to the fair value of equity securities investments during the first quarters 2020 and 2019, respectively.
With higher title operating revenues, the title segment’s overall operating expenses increased $34.8 million, or 9%, in the first quarter 2020 compared to the first quarter 2019, primarily driven by a 13% higher agency retention expense and a 5% increase in combined employee costs and other operating expenses. Our average independent agency remittance rate in the first quarter 2020 was slightly lower at 17.6%, compared to 17.9% in the first quarter 2019. Title loss expense increased 19% in the first quarter 2020; while asrevenues. As a percentage of title revenues, the title loss expense in the first quarter 20202021 was 4.6% compared to 4.2%, which was comparable to from the prior year quarter.
Excluding the net realizedThe segment’s investment income decreased $1.3 million, or 24%, primarily as a result of lower interest rates applicable to our short-term and unrealized losses and gains, and other non-operating expenses discussed above, the title segment’s first quarter 2020 pretax income would have been $25.9 million (5.8% margin), compared to a pretax loss of $3.3 million (negative 0.9% margin) in the first quarter 2019.
Direct title revenues increased primarily due to a large number of closed orderssecurities investments during the first quarter 20202021 compared to the prior yearfirst quarter 2020. Net realized and unrealized gains and losses for the first quarters 2021 and 2020 consisted primarily of net unrealized gains and losses related to fair value changes of equity securities investments, as mentioned above.
Direct title revenues (refer to schedule in Results of Operations - Title Revenues section). Firstsection) increased in the first quarter 20202021, primarily driven by the $92.9 million, or 61%, growth in non-commercial domestic revenues improved as totalresulting from increased transactions from both existing and recently-acquired title offices. Total residential purchase and refinancing closed orders increased from the prior year quarter, primarily influenced by the lower interest rate environment. Domestic commercial revenues also benefited from 4% higher commercial closed orders in the first quarter versus2021 increased 35% and 107%, respectively, compared to the prior year quarter. However, the non-commercial revenue increase was partially offset by lower commercial revenues in the first quarter 2019.2021, resulting from lower commercial transaction size and volume compared to the first quarter 2020. Domestic commercial fee per file in the first quarter 20202021 was approximately $8,700, compared to $11,400 an 18% increase versusfrom the first quarter 2019;2020; while domestic residential fee per file was approximately $2,000, an 11% decrease from last year’s quarter,$1,900, which is 5% lower than the prior year quarter’s average fee per file, primarily resulting from adue to the higher mix of refinancing compared to purchase transactions.transactions in the first quarter 2021. Total international title revenues increased $4.0$10.2 million, or 20%42%, primarily driven by increaseddue to higher volumes in our Canada and United KingdomCanadian operations.
Summary results of the ancillary services and corporate segment are as follows ($ in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months
Ended March 31, | | |
| | 2021 | | 2020 | | % Change | | | | | | |
| | | | | | | | | | | |
| Operating revenues | 55.9 | | | 5.5 | | | 924 | % | | | | | | |
| | | | | | | | | | | |
| Pretax loss | (3.1) | | | (5.6) | | | 45 | % | | | | | | |
|
| | | | | | | | |
| | For the Three Months
Ended March 31, |
| | 2020 | | 2019 | | % Change |
| | | | | | |
| Operating revenues | 5.5 |
| | 14.3 |
| | (62 | )% |
| Pretax loss | (5.6 | ) | | (6.8 | ) | | 19 | % |
SegmentThe segment’s operating revenues declinedincreased $50.5 million in the first quarter 2020 versus2021, compared to the prior year’syear quarter, primarily driven by lower revenues from the search services business due to significantly lower orders from several customers.revenues generated by recent acquisitions. The segment’s results forancillary services operations generated pretax income of $2.7 million (which included $1.7 million of purchased intangibles amortization) in the first quarter 2020 and 2019 included approximately $5.12021, compared to a pretax loss of $0.5 million and $5.5 million, respectively, of netin the prior year quarter. Net expenses attributable to parent company and corporate operations.operations for the first quarters 2021 and 2020 were approximately $5.7 million and $5.1 million, respectively.
COVID-19 pandemic. We continue to operate under our business continuity plan that we deployed in March 2020 when the pandemic started. While the distribution of vaccines is ramping up and states and certain businesses have reopened, our employees have not fully transitioned back to the workplace. We continue to take appropriate measures to protect the safety of all our employees and customers in carrying out our business operations, which is generally considered as essential business in the U.S. We are proactively taking advantage of digital tools and innovative solutions in facilitating real estate transactions when possible during this challenging environment. Currently, we are gathering information and insight from our associates, monitoring the evolving effects of the COVID-19 pandemic and guidance from health and governmental bodies, and evaluating the next phase of our return to workplace approach.
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, 2020,2021, we made no material changes to our critical accounting estimates as previously disclosed in Management’s Discussion and Analysis in the Company’s Annual Report on2020 Form 10-K for the year ended December 31, 2019.10-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 ancillary services and corporate segment includes our parent holding company expenses and certain enterprise-wide overhead costs, along with our ancillary services operations, which are principally appraisal management services, online notarization and closing services, and search and valuation services.
Factors affecting revenues. The principal factors that contribute to changes in operating revenues for our title and ancillary services and corporate segments include:
•mortgage 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;
number of households;
•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 new integrated disclosure requirements;
•acquisitions or divestitures of businesses;
•volume of distressed property transactions;
•seasonality and/or weather; and
•outbreaks of disease, including COVID-19 pandemic,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, 20202021 with the three months ended March 31, 20192020 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. We also use information from our direct operations.
Operating environment. ActualExisting home sales (seasonally-adjusted basis) in March 2021 fell 4% from February 2021, marking two months of consecutive declines, but grew 12% compared to March 2020. According to NAR, consumers are facing much higher homes prices, rising mortgage rates, and falling affordability and inventory, which all contributed to the lower existing homes sales in March 2021 versus earlier months. On non-seasonally-adjusted basis, existing home sales in the first quarter 20202021 improved approximately 7%14% from the firstsame quarter 2019. On seasonally-adjusted basis, last year. March 2020 existing home sales totaled 415,000, which improved approximately 1% from a year ago, but declined 9% from February 2020. March 20202021 median and average home prices increased approximately 8%17% and 6%12%, respectively, compared to March 2019 prices.2020 prices, with March 20202021 being the 109th consecutive month of year-over-year median home price increase. In regard to new residential construction, U.S. housing starts increased 1%in March 2021 improved 37% from a year ago, but declined 22% compared toMarch 2020 and 19% sequentially from February 2020. Newly2021, while newly issued building permits in March 2020 were up 5%2021 also improved 30% and 3% from a year ago, but decreased 7% sequentially from February 2020. March 2020 declines fromand February 2020 are primarily attributed2021, respectively.
According to the effect of the COVID-19 pandemic.
As reported by Fannie Mae and MBA (averaged), one-to-four family mortgage originations improved 85%77% to $618approximately $1.2 trillion in the first quarter 2021 from $658 billion in the first quarter 2020, primarily driven by a 115% increase in refinancing originations resulting from $334 billionthe current lower mortgage interest rate environment. Purchase originations increased 24% in the first quarter 2019, primarily driven by a $251 billion, or 235%, increase in refinancing originations. Purchase originations also increased by $34 billion, or 15%,2021 compared to the first quarter 2020 as the real estate market continues to recover from the prior year quarter.
However, the housing market is expected to slow down for the resteffects of 2020 as a result of increased consumer caution and financial uncertainty stemming primarily from the COVID-19 pandemic.
For the second quarter 2021, Fannie Mae expects totaland MBA are forecasting that existing and new home sales will improve 43% and 28%, respectively, compared to last year's second quarter. Total mortgage originations for the second through fourth quarters 2020quarter 2021 are expected to decline by 22% and 3%, respectively, compared to the same period in 2019. For the rest of the year, total purchase originations are forecastedsecond quarter 2020, primarily due to decline by 20%, partially offset by a 16% improvementlast year's surge in refinancing originations. Thetransactions resulting from lower interest rates and expectations of lower refinancing transactions in 2021 as interest rates are beginning to gradually increase. However, purchase lending transactions are predicted to improve 41% in the second quarter 2021 compared to last year's second quarter, partially offsetting the impact of reduced refinancing lending volumes. Compared to 2.95% in 2020, the average 30-year fixed mortgage interest rate is expected to trend lowerincrease to 3.35% in 2020, averaging approximately 3.3% for the year, compared to the 2019 average of 3.9%.2021.
Title revenues. Direct title revenue information is presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | | | | 2021 | | 2020 | | Change | % Change |
| | | | | ($ in millions) | |
| Non-commercial | | | | | | | | | | | | | |
| Domestic | | | | | | | | 216.0 | | | 132.8 | | | 83.2 | | 63 | % |
| International | | | | | | | | 28.8 | | | 19.1 | | | 9.7 | | 51 | % |
| | | | | | | | 244.8 | | | 151.9 | | | 92.9 | | 61 | % |
| Commercial: | | | | | | | | | | | | | |
| Domestic | | | | | | | | 29.2 | | | 41.4 | | | (12.2) | | (29) | % |
| International | | | | | | | | 5.5 | | | 5.0 | | | 0.5 | | 10 | % |
| | | | | | | | 34.7 | | | 46.4 | | | (11.7) | | (25) | % |
| Total direct title revenues | | | | | | | | 279.5 | | | 198.3 | | | 81.2 | | 41 | % |
|
| | | | | | | | | |
| | | Three Months Ended
March 31, |
| | | 2020 | | 2019 | | % Change |
| | | ($ in millions) | | |
| Non-commercial | | | | | | |
| Domestic | | 132.8 |
| | 107.4 |
| | 24 | % |
| International | | 19.1 |
| | 15.6 |
| | 22 | % |
| | | 151.9 |
| | 123.0 |
| | 23 | % |
| Commercial: | | | | | | |
| Domestic | | 41.4 |
| | 33.7 |
| | 23 | % |
| International | | 5.0 |
| | 4.5 |
| | 11 | % |
| | | 46.4 |
| | 38.2 |
| | 21 | % |
| Total direct title revenues | | 198.3 |
| | 161.2 |
| | 23 | % |
| % of direct title revenues over total title revenues | | 45 | % | | 43 | % | | |
Revenues from directDirect title operations, which include residential, commercial, international and centralized title services transactions, increased $37.0 million, or 23%,revenues improved in the first quarter 2020, primarily due to improved closed orders2021, compared to thelast year's first quarter, 2019. Residential revenues increased $19.9primarily driven by the $92.9 million, or 19%61%, whileincrease in non-commercial revenues resulting from centralizedincreased transactions from both existing and recently-acquired title operations (which primarily processoffices. Total residential purchase and refinancing orders) increased $5.5 million, or 115%,closed orders in the first quarter 2020 compared to the same period in 2019. The2021 increased orders were largely influenced by the rise in refinancing transactions during the first quarter 202035% and 107%, respectively, compared to the prior year quarter. However, the non-commercial revenue increase was partially offset by lower commercial revenues in the first quarter 2021, resulting from lower commercial transaction size and volume compared to the first quarter 2020. Domestic commercial fee per file in the first quarter 2021 was approximately $8,700, compared to $11,400 from the first quarter 2020; while domestic residential fee per file for the first quarter 2020 was approximately $2,000,$1,900, which was an 11% decrease fromis 5 percent lower than the prior year quarterquarter’s average fee per file, primarily resulting from adue to the higher mix of refinancing compared to purchase transactions in the first quarter 2020.
Our direct operations include local offices and2021. Total international operations, and we generate commercial revenues both domestically and internationally. U.S. commercial revenues improved $7.7increased $10.2 million, or 42%, primarily due to a 4% increase in commercial transactions and 18% higher domestic commercial fee per file in the first quarter 2020 compared to the first quarter 2019. First quarter 2020 domestic commercial fee per file was approximately $11,400 compared to $9,600 in the prior year quarter. Total international revenues increased $4.0 million, or 20%, in the first quarter 2020 compared to last year's quarter, primarily as a result of higher volumes fromin our Canada and United KingdomCanadian operations.
Orders information for the three months ended March 31 is as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | | 2021 | 2020 | Change | % Change |
| Opened Orders: | | | | | | | | | |
| Commercial | | | | | | 3,569 | | 4,153 | | (584) | | (14) | % |
| Purchase | | | | | | 70,789 | | 53,636 | | 17,153 | | 32 | % |
| Refinance | | | | | | 81,750 | | 64,189 | | 17,561 | | 27 | % |
| Other | | | | | | 1,810 | | 730 | | 1,080 | | 148 | % |
| Total | | | | | | 157,918 | | 122,708 | | 35,210 | | 29 | % |
| | | | | | | | | |
| Closed Orders: | | | | | | | | | |
| Commercial | | | | | | 3,377 | | 3,628 | | (251) | | (7) | % |
| Purchase | | | | | | 45,483 | | 33,715 | | 11,768 | | 35 | % |
| Refinance | | | | | | 65,666 | | 31,746 | | 33,920 | | 107 | % |
| Other | | | | | | 1,175 | | 444 | | 731 | | 165 | % |
| Total | | | | | | 115,701 | | 69,533 | | 46,168 | | 66 | % |
|
| | | | | | | | |
| | 2020 | 2019 | Change | % Change |
| Opened Orders: | | | | |
| Commercial | 4,153 |
| 4,298 |
| (145 | ) | (3 | )% |
| Purchase | 53,636 |
| 53,547 |
| 89 |
| — | % |
| Refinance | 64,189 |
| 23,184 |
| 41,005 |
| 177 | % |
| Other | 730 |
| 1,591 |
| (861 | ) | (54 | )% |
| Total | 122,708 |
| 82,620 |
| 40,088 |
| 49 | % |
| | | | | |
| Closed Orders: | | | | |
| Commercial | 3,628 |
| 3,504 |
| 124 |
| 4 | % |
| Purchase | 33,715 |
| 33,318 |
| 397 |
| 1 | % |
| Refinance | 31,746 |
| 13,243 |
| 18,503 |
| 140 | % |
| Other | 444 |
| 996 |
| (552 | ) | (55 | )% |
| Total | 69,533 |
| 51,061 |
| 18,472 |
| 36 | % |
Gross revenues from independent agency operations increased $27.2$103.9 million, or 13%43%, in the first quarter 20202021 compared to last year’syear's first quarter, which was consistent with the improved real estate market trends in the first quarter 2021 and the continued return of agents after the FNFtermination of the proposed merger termination.in the third quarter 2019. Agency revenues, net of retention, increased $4.3$19.3 million, or 11%45%, in the first quarter 2021 compared to the same period in 2020, versus the first quarter 2019,generally in line with the gross agency revenue improvement accompanied by comparable average agency remittance rates.change. Refer further to the "Retention by agencies" discussion under Expenses below.
Ancillary services revenues. Ancillary services operating revenues decreased $8.8increased to $55.9 million or 62%, in the first quarter 20202021, compared to $5.5 million in the prior yearfirst quarter 2020. The revenue growth was primarily drivendue to revenues generated by recent acquisitions of appraisal management and online notarization and closing services companies, partially offset by lower revenues from the searchvaluation services businessrevenues due to significantly lower orders from several customers.reduced capital market customer orders.
Investment income. Investment income for the first quarter 2021 decreased $1.3 million, or 24%, primarily as a result of lower interest rates applicable to our short-term and securities investments during the first quarter 2020 increased $0.5 million, or 10%, due to increased interest income primarily resulting from the higher average cash and cash equivalents balances2021 compared to the first quarter 2019.2020.
Net realized and unrealized gains (losses) gains.. Net realized and unrealized (losses) gains for the first quarters 2020 and 2019, were primarily driven by $10.6 million of net unrealized losses and $3.5 million of net unrealized gains, respectively, relatedRefer to Note 5 to the fair value changes of equity securities investments.condensed consolidated financial statements.
Expenses. An analysis of expenses is shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | | | | 2021 | | 2020 | | Change | % Change |
| | | | | ($ in millions) | |
| | | | | | | | | | | | | |
| Amounts retained by agencies | | | | | | | | 283.9 | | | 199.4 | | | 84.6 | | 42 | % |
| As a % of agency revenues | | | | | | | | 82.1 | % | | 82.4 | % | | | |
| Employee costs | | | | | | | | 169.4 | | | 135.7 | | | 33.7 | | 25 | % |
| As a % of operating revenues | | | | | | | | 24.9 | % | | 30.4 | % | | | |
| Other operating expenses | | | | | | | | 125.5 | | | 71.9 | | | 53.6 | | 75 | % |
| As a % of operating revenues | | | | | | | | 18.4 | % | | 16.1 | % | | | |
| Title losses and related claims | | | | | | | | 28.8 | | | 18.6 | | | 10.1 | | 54 | % |
| As a % of title revenues | | | | | | | | 4.6 | % | | 4.2 | % | | | |
|
| | | | | | | | |
| | Three Months Ended
March 31, |
| | 2020 | | 2019 | | % Change |
| | ($ in millions) | | |
| | | | | | |
| Amounts retained by agencies | 199.4 |
| | 176.5 |
| | 13 | % |
| As a % of agency revenues | 82.4 | % | | 82.1 | % | | |
| Employee costs | 135.7 |
| | 129.3 |
| | 5 | % |
| As a % of operating revenues | 30.4 | % | | 33.1 | % | | |
| Other operating expenses | 71.9 |
| | 77.2 |
| | (7 | )% |
| As a % of operating revenues | 16.1 | % | | 19.8 | % | | |
| Title losses and related claims | 18.6 |
| | 15.7 |
| | 18 | % |
| As a % of title revenues | 4.2 | % | | 4.2 | % | | |
Retention by agencies. Amounts retained by title agencies are based on agreements between agencies and our title underwriters. Amounts retained by independent agencies, as a percentage of revenues generated by them, averaged 82.1% for the first quarter 2021, as compared to 82.4% and 82.1% in the first quarters 2020 and 2019, respectively.quarter 2020. The average retention percentage may vary from period to period due to the geographical mix of agency operations, the volume of title revenues and, in some states, laws or regulations. Due to the variety of such laws or regulations, as well as competitive factors, the average retention rate can differ significantly from state to state. In addition, a high proportion of our independent agencies are in states with retention rates greater than 80%. We continue to focus on increasing profit margins in every state, increasing premium revenue in states where remittance rates are above 20%, and maintaining the quality of our agency network, which we believe to be the industry’s best, in order to mitigate claims risk and drive consistent future performance. While market share is important in our agency operations channel, it is not as important as margins, risk mitigation and profitability.
Employee costs. Consolidated employee costs increased $6.4$33.7 million, or 5%25%, in the first quarter 20202021, compared to the first quarter 2019. Employee costssame period in the title segment increased $7.6 million, or 6%,2020, primarily due to higher salaries expense driven by a 12% higher average employee count, increased incentive compensation on improved overall operating results, and additional employee costs related to increased transaction volumes, while employee costs in the ancillary services and corporate segments decreased $1.2 million, or 19%, primarily due to lower average employee counts.higher order volumes. As a percentage of total operating revenues, consolidated employee costs improved to 30.4%24.9% in the first quarter 2020, compared to 33.1%2021 from 30.4% in the firstprior year quarter, 2019, which was primarily influenced by our continued focus on managing operating costs.
Employee costs in the title segment increased $28.8 million, or 22%, the first quarter 2021 compared to the first quarter 2020, primarily due to increased salaries expense driven by a higher average employee count, mostly from recent title office acquisitions, increased incentive compensation on improved title operating results, and additional employee costs related to higher order volumes. Employee costs in the ancillary services and corporate segment increased $4.9 million, or 98%, in the first quarter 2021 compared to the first quarter 2020, primarily due to increased average employee count driven by recent acquisitions in the ancillary services operations.
Other operating expenses. Other operating expenses include costs that are fixed in nature, costs that follow, to varying degrees, changes in transaction volumes and revenues (variable costs) and costs that fluctuate independently of revenues.revenues (independent costs). Costs that are fixed in nature include attorney and professional fees, third-party outsourcing provider fees, equipment rental, insurance, rent and other occupancy expenses, repairs and maintenance, technology costs, telecommunications and title plant expenses. Costs that follow, to varying degrees, changes in transaction volumesVariable costs include appraiser and revenues includenotary expenses, outside search and valuation fees, attorney fee splits, bad debt expenses, ancillary services cost of sales expenses, copy supplies, delivery fees, outside search fees, postage, premium taxes and title plant maintenance expenses. Costs that fluctuate independently of revenuesIndependent costs include general supplies, litigation defense, business promotion and marketing and travel.
Consolidated other operating expenses decreased $5.3increased $53.6 million, or 7%75%, in the first quarter 20202021 compared to last year's first quarter. This increase was primarily due to increased appraisal and notary expenses by recently-acquired ancillary services businesses, higher outside title search and premium tax expenses on higher title revenues, and increased professional fees and rent expenses, partially offset by lower travel and marketing expenses. As a percentage of total operating revenues, consolidated other operating expenses for the first quarter 2019. During the first quarter 2019, we incurred $2.0 million of third-party advisory expenses recorded in the ancillary services and corporate segment related2021 increased to the terminated FNF merger transaction, $0.8 million of litigation expense related18.4% compared to a prior year lender services acquisition recorded in the ancillary services and corporate segment, and $0.7 million of office closure costs included within the title segment. Excluding these non-operating expenses, other operating expenses, as a percentage of operating revenues, were 16.1% in the first quarter 2020, comparedprimarily due to 18.9% in the prior year quarter.appraisal and notary costs related to our recently acquired ancillary services businesses.
Costs that follow, to varying degrees, changes in transaction volumes and revenues decreased $0.8Total variable costs increased $45.3 million, or 3%142%, in the first quarter 20202021 compared to the first quarter 2019, primarilysame period in 2020, mainly due to reduced outside title search fees resulting from lower volumes in thehigher appraisal and notary expenses by recently-acquired ancillary services business. Excluding the non-operating expenses above,businesses and increased outside search and premium taxes, consistent with higher operating revenues. Total costs that are fixed in nature in the first quarter 2020 were comparable to the prior year quarter, while costs that fluctuate independently of revenues decreased $0.7increased $6.3 million, or 8%20%, in the first quarter 20202021 compared to the prior year quarter,same period in 2020, primarily due to decreasedincreased professional fees, rent expense and technology costs. Independent costs increased $2.0 million, or 25%, in the first quarter 2021 compared to the same period in 2020, primarily due to higher office closures expenses, litigation-related accruals and bank fees, partially offset by lower travel and marketing and general supplies expenses.
Title losses. Provisions for title losses, as a percentage of title operating revenues, were 4.2% for both4.6% in the first quarters 2020 and 2019.quarter 2021, compared to 4.2% in the first quarter 2020. Title lossesloss expense increased $2.9$10.1 million, or 19%54%, in the first quarter 20202021 compared to the firstprior year quarter, 2020, consistent withprimarily as a result of increased title revenues. The title loss ratio in any given quarter can be significantly influenced by changes in new large claims incurred, escrow losses and adjustments to reserves for existing large claims. Cash claim payments decreased $2.0 million, or 9%, in the first quarter 2020 compared to the prior year quarter, primarily due to lower payments on large claims relating to prior policy years. We continue to manage and resolve large claims prudently and in keeping with our commitments to our policyholders.
The composition of title policy loss expense is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | | | 2021 | | 2020 | Change | % Change |
| | | | | ($ in millions) | |
| Provisions – known claims: | | | | | | | | | | | |
| Current year | | | | | | | 2.2 | | | 1.3 | | 0.9 | | 69 | % |
| Prior policy years | | | | | | | 13.3 | | | 12.6 | | 0.7 | | 6 | % |
| | | | | | | 15.5 | | | 13.9 | | 1.6 | | 12 | % |
| Provisions – IBNR | | | | | | | | | | | |
| Current year | | | | | | | 26.2 | | | 17.2 | | 9.0 | | 52 | % |
| Prior policy years | | | | | | | 0.4 | | | 0.1 | | 0.3 | | 300 | % |
| | | | | | | 26.6 | | | 17.3 | | 9.3 | | 54 | % |
| Transferred from IBNR to known claims | | | | | | | (13.3) | | | (12.6) | | (0.7) | | 6 | % |
| Total provisions | | | | | | | 28.8 | | | 18.6 | | 10.2 | | 55 | % |
|
| | | | | | |
| | | Three Months Ended March 31, |
| | | 2020 | | 2019 |
| | | ($ in millions) |
| Provisions – known claims: | | | | |
| Current year | | 1.3 |
| | 1.9 |
|
| Prior policy years | | 12.6 |
| | 17.3 |
|
| | | 13.9 |
| | 19.2 |
|
| Provisions – IBNR | | | | |
| Current year | | 17.2 |
| | 13.6 |
|
| Prior policy years | | 0.1 |
| | 0.2 |
|
| | | 17.3 |
| | 13.8 |
|
| Transferred from IBNR to known claims | | (12.6 | ) | | (17.3 | ) |
| Total provisions | | 18.6 |
| | 15.7 |
|
Provisions for known claims arise primarily from prior policy years as claims are not typically reported until several years after policies are issued. Provisions - Incurred But Not Reported (IBNR) are estimates of claims expected to be incurred over the next 20 years; therefore, it is not unusual or unexpected to experience changes to those estimated provisions in both current and prior policy years as additional loss experience on policy years is obtained. This loss experience may result in changes to our estimate of total ultimate losses expected (i.e., the IBNR policy loss reserve). Current year provisions - IBNR are recorded on policies issued in the current year as a percentage of premiums earned (provisioning rate). As claims become known, provisions are reclassified from IBNR to known claims. Adjustments relating to large losses (those individually in excess of $1.0 million) may impact provisions either for known claims or for IBNR.
KnownTotal known claims provisions decreased $5.3increased $1.6 million, or 28%12%, in the first quarter 20202021 compared to the same period last year's quarter,year, primarily as a result of decreased dollar amounts ofhigher reported claims reported relating to current and prior policy years.year policies. Current year IBNR provisions in the first quarter 20202021 increased $3.6$9.0 million, or 27%52%, compared to the first quarter 2019, primarily2020, primarily due to increased title premiums. premiums in 2021.As a percentage of title operating revenues, provisions - IBNR for the current policy year were 3.9% and 3.6%4.2% in the first quarters 2020quarter 2021, compared to with 3.9% in the first quarter 2020.
Cash claim payments decreased $4.9 million, or 23%, in the first quarter 2021 compared to the last year's first quarter, primarily due to lower payments on large and 2019, respectively.non-large claims relating to prior policy years. We continue to manage and resolve large claims prudently and in keeping with our commitments to our policyholders.
In addition to title policy claims, we incur losses in our direct operations from escrow, closing and disbursement functions. These escrow losses typically relate to errors or other miscalculations of amounts to be paid at closing, including timing or amount of a mortgage payoff, payment of property or other taxes and payment of homeowners’ association fees. Escrow losses also arise in cases of fraud, and in those cases, the title insurer incurs the loss under its obligation to ensure that an unencumbered title is conveyed. Escrow losses are recognized as expenseexpenses when discovered or when contingencies associated with them (such as litigation) are resolved and are typically paid less than 12 months after the loss is recognized. During both the first quarters 2020 and 2019, we recorded approximately $0.6 million of policy loss reserves relating to escrow losses arising from fraud.
Total title policy loss reserve balances are as follows:
| | | | | | | | | | | |
| March 31, 2021 | | December 31,
2020 |
| | ($ in millions) |
| Known claims | 67.8 | | | 68.9 | |
| IBNR | 441.7 | | | 427.4 | |
| Total estimated title losses | 509.5 | | | 496.3 | |
|
| | | | | |
| | March 31, 2020 | | December 31, 2019 |
| | ($ in millions) |
| Known claims | 60.2 |
| | 67.8 |
|
| IBNR | 387.4 |
| | 391.3 |
|
| Total estimated title losses | 447.6 |
| | 459.1 |
|
Title claims are generally incurred within the first six years after policy issuance and theThe actual timing of estimated title loss payments on these claims can significantly impact the balance of known claims,may vary since claims, in many cases, may be open for several years before resolutionby their nature, are complex and paid over long periods of time. Based on historical payment occur.patterns, the outstanding loss reserves are paid out within six years. As a result, the estimate of the ultimate amount to be paid on any claim may be modified over that time period. Due to the inherent uncertainty in predicting future title policy losses, significant judgment is required by both our management and our third party actuaries in estimating reserves. As a consequence, our ultimate liability may be materially greater or less than current reserves and/or our third party actuary’s calculated estimates.
Depreciation and amortization. Depreciation and amortization expenses duringincreased $2.2 million, or 52%, in the first quarter 2021 compared to the first quarter 2020, decreased $1.8 million, or 29%, compared to the prior year quarter, primarily due to certain information technology assets which became fully depreciated or were written off during 2019.incremental intangible asset amortization and fixed asset depreciation expenses related to recent acquisitions.
Income taxes. Our effective tax rates for both the first quarters 2020 and 2019,rate, based on income (loss) before taxes and after deducting income attributable to noncontrolling interests, werefor the first quarter 2021 was 24% compared to 27%. Additionally, on March 27, 2020, for the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic.first quarter 2020. The CARES Act, among other things, allows additional carryback opportunities for net operating losses and modifies the depreciable life forlower effective tax purposes of qualified improvement property (QIP) from 39 years to 15 years, making QIP eligible for bonus depreciation that can be retroactively applied to the 2018 tax year. We arerate in the process of evaluating the impact of these changesfirst quarter 2021 was primarily due to the consolidated financial statements but do not expect a material impactincreased year over year annualized pretax income and reductions in expected nondeductible expenses relative to the consolidatedpretax income statement.in 2021.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity and capital resources reflect our ability to generate cash flow to meet our obligations to shareholders,stockholders, customers (payments to satisfy claims on title policies), vendors, employees, lenders and others. As of March 31, 2020,2021, our cash and investments, including amounts reserved pursuant to statutory requirements, aggregated $925.2 million$1.1 billion ($409.5596.5 million, net of statutory reserves on cash and investments). Of our total cash and investments at March 31, 2020, $653.52021, $782.2 million ($342.2518.7 million, net of statutory reserves) was held in the United States (U.S.) and the rest internationally, principally in Canada.
Cash held at the parent company totaled $54.2$32.5 million at March 31, 2020.2021. As a holding company, the parent company is funded principally by cash from its subsidiaries in the form of dividends, operating and other administrative expense reimbursements and pursuant to intercompany tax sharing agreements. The expense reimbursements are paid in accordance with management agreements, approved by the Texas Department of Insurance (TDI), among us and our subsidiaries. In addition to funding operating expenses, cash held at the parent company is used for dividend payments to common stockholders and for stock repurchases, if any. To the extent such uses exceed cash available, the parent company is dependent on distributions from its regulated title insurance underwriter, Stewart Title Guaranty Company (Guaranty).
A substantial majority of our consolidated cash and investments as of March 31, 20202021 was held by Guaranty and its subsidiaries. The use and investment of these funds, dividends to the parent company, and cash transfers between Guaranty and its subsidiaries and the parent company are subject to certain legal and regulatory restrictions. In general, Guaranty may use its cash and investments in excess of its legally-mandated statutory premium reserve (established in accordance with requirements under Texas law) to fund its insurance operations, including claimsclaim payments. Guaranty may also, subject to certain limitations, provide funds to its subsidiaries (whose operations consist principally of field title offices and ancillary services operations) for their operating and debt service needs.
We maintain investments in accordance with certain statutory requirements for the funding of statutory premium reserves. Statutory reserve funds are required to be fully funded and invested in high-quality securities and short-term investments. Statutory reserve funds are not available for current claim payments, which must be funded from current operating cash flow. Included in investments in debt and equity securities are statutory reserve funds of approximately $497.5$491.3 million and $483.4$496.6 million at March 31, 20202021 and December 31, 2019,2020, respectively. In addition, included within cash and cash equivalents are statutory reserve funds of approximately $18.3$25.6 million and $39.7$20.0 million at March 31, 20202021 and December 31, 2019,2020, respectively. As of March 31, 2020,2021, our known claims reserve totaled $60.2$67.8 million and our estimate of claims that may be reported in the future, under generally accepted accounting principles, totaled $387.4$441.7 million. In addition to this, we had cash and investments (excluding equity method investments) of $269.6$421.3 million, which are available for underwriter operations, including claims payments.payments, and acquisitions.
The ability of Guaranty to pay dividends to its parent is governed by Texas insurance law. The TDI must be notified of any dividend declared, and any dividend in excess of the statutory maximum of 20% of surplus (approximately $115.0$158.9 million as of December 31, 2019)2020) would be, by regulation, considered extraordinary and subject to pre-approval by the TDI. Also, the Texas Insurance Commissioner may raise an objection to a planned distribution during the notification period. Guaranty’s actual ability or intent to pay dividends to its parent may be constrained by business and regulatory considerations, such as the impact of dividends on surplus and liquidity, which could affect its ratings and competitive position, the amount of insurance it can write and its ability to pay future dividends. During the three months ended March 31, 2021 and 2020, Guaranty paid a dividenddividends of $40.0 million and $30.0 million, respectively, to its parent.
As the parent company conducts no operations apart from its wholly-owned subsidiaries, the discussion below focuses on consolidated cash flows.
| | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2021 | | 2020 |
| | ($ in millions) |
| Net cash provided (used) by operating activities | 47.4 | | | (11.4) | |
| Net cash used by investing activities | (73.6) | | | (3.3) | |
| Net cash provided (used) by financing activities | 6.2 | | | (18.8) | |
|
| | | | | |
| | Three Months Ended March 31, |
| | 2020 | | 2019 |
| | ($ in millions) |
| Net cash used by operating activities | (11.4 | ) | | (39.9 | ) |
| Net cash (used) provided by investing activities | (3.3 | ) | | 24.6 |
|
| Net cash used by financing activities | (18.8 | ) | | (13.6 | ) |
Operating activities. Our principal sources of cash from operations are premiums on title policies and revenue from title service-related transactions, ancillary services and other operations. Our independent agencies remit cash to us net of their contractual retention. Our principal cash expenditures for operations are employee costs, operating costs and title claims payments.
Net cash usedprovided by operations in the first three months of 2020 improved to $11.4quarter 2021 was $47.4 million, compared to net cash used by operations of $39.9$11.4 million in the first three months of 2019,prior year quarter. The improvement in cash from operations was primarily due todriven by the higher net income generated in 2020 compared to the net loss results in 2019, higher collections on accounts receivables, and lower claim payments partially offset by higher payments on accrued liabilities.of claims and accounts payables. Although our business is labor intensive, we are focused on a cost-effective, scalable business model which includes utilization of technology, centralized back and middle office functions and business process outsourcing. We are continuing our emphasis on cost management, especially in light of the current economic environment due to the COVID-19 pandemic, specifically focusing on lowering unit costs of production and improving operating margins in our direct title and ancillary services businesses. Our plans to improve margins include additional automation of manual processes, and further consolidation of our various systems and production operations. We are currently investingcontinue to invest in the technology necessary to accomplish these goals.
Investing activities. CashNet cash used and provided by investing activities is primarily driven by proceeds from matured and sold investments, purchases of investments, capital expenditures and acquisition of title offices.offices and other businesses. During the first three months of 2020,quarter 2021, total proceeds from securities investments sold and matured were $30.6$45.9 million, compared to $27.1$30.6 million during the same period in 2019.2020. Cash used for purchases of securities investments was $47.9 million during the first quarter 2021, compared to $30.7 million during the first three monthsquarter 2020.
We used $52.6 million and $1.4 million of 2020, compared to $0.6 millioncash for several acquisitions of businesses during the same periodfirst quarter 2021 and 2020, respectively, and also used $16.0 million of cash during the first quarter 2021 in 2019.
acquiring an equity method investment in a title company. During the first three months ofquarters 2021 and 2020, and 2019, we used $4.8$5.7 million and $2.7$4.8 million, respectively, of cash for purchases of property and equipment, while we used $1.4 million of cash for acquisitions of title offices during the first three months of 2020.equipment. We maintain investment in capital expenditures at a level that enables us to implement technologies for increasing our operational and back-office efficiencies and to pursue growth in key markets.
Financing activities and capital resources. Total debt and stockholders’ equity were $102.6$125.6 million and $737.1$1,047.9 million, respectively, as of March 31, 2020.2021. Payments on notes payable during the first three monthsquarters 2021 and 2020 of 2020 and 2019 of $7.7$154.7 million and $6.6$7.7 million, respectively, and notes payable additions of $0.2$154.0 million and $4.5$0.2 million, respectively, were related to short-term loan agreements in connection with our Section 1031 tax-deferred property exchange (Section 1031) business. During the first quarter 2021, we amended our line of credit agreement, resulting in an increase in the total line of credit commitment from our lenders from $200 million to $350 million (refer to Note 1-D for additional details on the amendment). At March 31, 2020,2021, the outstanding balance of our line of credit facility was $98.9$125.6 million, which included the $25.0 million we drew from the facility during the first quarter 2021; while the available balance of the line of credit was $48.6$223.6 million, net of an unused $2.5 million letter of credit. At March 31, 2020,2021, our debt-to-equity ratio, excluding our Section 1031 notes, was approximately 13.9%, below the 20% we have set as our unofficial internal limit on leverage.12.0%.
During each of the first three months of 2020 and 2019,quarter 2021, we paid total dividends of $8.8 million ($0.33 per common share), compared to the total dividends paid in the first quarter 2020 of $7.1 million or $0.30($0.30 per common share.share).
Effect of changes in foreign currency exchange rates. The effect of changes in foreign currency exchange rates on our cash and cash equivalents on the consolidated statements of cash flows was minimal during the first quarter 2021, compared to a net decrease of $3.5 million during the first three months of 2020 and a net increase of $1.4 million during the same period in 2019.quarter 2020. Our principal foreign operating unit is in Canada, and, on average, the value of the Canadian dollar relative to the U.S. dollar did not significantly change in 2021, while it depreciated in 2020 and improved in 2019.2020.
***********
We believe we have sufficient liquidity and capital resources to meet the cash needs of our ongoing operations, including in the current economic and real estate environment created by the COVID-19 pandemic. However, we may determine that additional debt or equity funding is warranted to provide liquidity for achievement of strategic goals or acquisitions or for unforeseen circumstances. Other than scheduled maturities of debt, operating lease payments and anticipated claims payments, we have no material contractual commitments. We expect that cash flows from operations and cash available from our underwriters, subject to regulatory restrictions, will be sufficient to fund our operations, including claims payments. However, to the extent that these funds are not sufficient, we may be required to borrow funds on terms less favorable than we currently have or seek funding from the equity market, which may not be successful or may be on terms that are dilutive to existing stockholders.
Contingent liabilities and commitments. See discussion of contingent liabilities and commitments in Note 910 to the condensed consolidated financial statements included in Item 1 of Part I of this Report.statements.
Other comprehensive income (loss) income.. Unrealized gains and losses on available-for-sale debt securities investments and changes in foreign currency exchange rates are reported net of deferred taxes in accumulated other comprehensive income (loss), a component of stockholders’ equity, until they are realized. During the first three monthsquarter 2021, net unrealized investment losses of $9.3 million, net of taxes, which increased our other comprehensive loss, were primarily related to a net decrease in the fair values of our overall bond securities investment portfolio mainly driven by the effect of rising interest rates. During the first quarter 2020, net unrealized investment losses of $2.7 million, net of taxes, which increased our other comprehensive loss, were primarily related to a net decrease in the fair values of our overall bond securities investment portfolio mainly driven by increased credit spreads. During the first three months of 2019, net unrealized investment gains of $9.2 million, net of taxes, which increased our other comprehensive income, were primarily related to increases in the fair values of our overall bond securities investment portfolio driven by reduced interest rates and credit spreads.
Changes in foreign currency exchange rates, primarily related to our Canadian and United Kingdom operations, reduced our other comprehensive loss, net of taxes, by $1.9 million in the first quarter 2021; while they increased our other comprehensive loss, net of taxes, by $11.4 million in the first three months of 2020; while they increased our other comprehensive income, net of taxes, by $4.6 million for the same period in 2019.2020.
Off-balance sheet arrangements. We do not have any material source of liquidity or financing that involves off-balance sheet arrangements, other than our contractual obligations under operating leases. We also routinely hold funds in segregated escrow accounts pending the closing of real estate transactions and have qualified intermediaries in tax-deferred property exchanges for customers pursuant to Section 1031 of the Internal Revenue Code. The Company holds the proceeds from these transactions until a qualifying exchange can occur. In accordance with industry practice, these segregated accounts are not included on the balance sheet. See Note 16 in our Annual Report on2020 Form 10-K for the year ended December 31, 2019.10-K.
Forward-looking statements. Certain statements in this report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to future, not past, events and often address our expected future business and financial performance. These statements often contain words such as “may,” "expect," "anticipate," "intend," "plan," "believe," "seek," "will," "foresee" or other similar words. Forward-looking statements by their nature are subject to various risks and uncertainties that could cause our actual results to be materially different than those expressed in the forward-looking statements. These risks and uncertainties include, among other things, the volatility of economic conditions, including the duration and effects of the COVID-19 pandemic; adverse changes in the level of real estate activity; changes in mortgage interest rates, existing and new home sales, and availability of mortgage financing; our ability to respond to and implement technology changes, including the completion of the implementation of our enterprise systems; the impact of unanticipated title losses or the need to strengthen our policy loss reserves; any effect of title losses on our cash flows and financial condition; the ability to attract and retain highly productive sales associates; the impact of vetting our agency operations for quality and profitability; independent agency remittance rates; changes to the participants in the secondary mortgage market and the rate of refinancing that affects the demand for title insurance products; regulatory non-compliance, fraud or defalcations by our title insurance agencies or employees; our ability to timely and cost-effectively respond to significant industry changes and introduce new products and services; the outcome of pending litigation; the impact of changes in governmental and insurance regulations, including any future reductions in the pricing of title insurance products and services; our dependence on our operating subsidiaries as a source of cash flow; our ability to access the equity and debt financing markets when and if needed; our ability to grow our international operations; seasonality and weather; and our ability to respond to the actions of our competitors. These risks and uncertainties, as well as others, are discussed in more detail in our documents filed with the Securities and Exchange Commission, including in Part I, Item 1A "Risk Factors" in our Annual Report on2020 Form 10-K, for the year ended December 31, 2019, as updated and supplemented in Part II, Item 1A of this Quarterly Report on Form 10-Q, and as maybe further updated and supplemented from time to time in our future Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K.8-K filed subsequently. All forward-looking statements included in this report are expressly qualified in their entirety by such cautionary statements. We expressly disclaim any obligation to update, amend or clarify any forward-looking statements contained in this report to reflect events or circumstances that may arise after the date hereof, except as may be required by applicable law.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes during the quarter ended March 31, 20202021 in our investment strategies, types of financial instruments held or the risks associated with such instruments that would materially alter the market risk disclosures made in our Annual Report on2020 Form 10-K for the year ended December 31, 2019.10-K.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures. Our principal executive officer and principal financial officer are responsible for establishing and maintaining disclosure controls and procedures. They evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2020,2021, and have concluded that, as of such date, our disclosure controls and procedures are adequate and effective to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting. There was no change in our internal control over financial reporting during the quarter ended March 31, 2020,2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
See discussion of legal proceedings in Note 1011 to the condensed consolidated financial statements included in Item 1 of Part I of this Report, which is incorporated by reference into this Part II, Item 1, as well as Item 3. Legal Proceedings, in our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Item 1A. Risk Factors
Except as stated below, thereOur operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to our risk factors during the three months ended March 31, 20202021 since our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
A widespread health outbreak or pandemic, such as the current COVID-19 pandemic, could adversely impact our business operations
In March 2020, a global pandemic escalated relating to a novel strain of coronavirus (COVID-19), which resulted in decreased economic activity and financial volatility globally. In response to the pandemic, health and governmental bodies have issued travel restrictions, quarantine orders, temporary closures of non-essential businesses, and other restrictive measures. Although the title insurance industry has been deemed essential in the United States, the pandemic and measures to contain it have caused disruptions in the real estate market and on our business operations, which include decrease in volume of orders and other business activity, delay in closing real estate transactions, and decrease in value of investments. Depending on the duration and extent of the disruption caused by COVID-19, as well as the counter-measures enacted by health and governmental bodies and their timing, our future results of operations and financial position could be significantly impacted.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no repurchases of our Common Stock during the three months ended March 31, 2020,2021, except for repurchases of approximately 9,90037,300 shares (aggregate purchase price of approximately $0.4$1.9 million) related to the statutory income tax withholding on the vesting of restricted share and unit grants to executives and senior management.
Item 5. Other Information
Book value per share. Our book value per share was $30.90$38.87 and $31.52$37.60 as of March 31, 20202021 and December 31, 2019,2020, respectively. As of March 31, 2021, our book value per share was based on approximately $1,041.9 million of stockholders’ equity attributable to Stewart and 26,806,025 shares of Common Stock outstanding. As of December 31, 2020, our book value per share was based on approximately $731.8$1,005.1 million of stockholders’ equity attributable to Stewart and 23,679,888 shares of Common Stock outstanding. As of December 31, 2019, our book value per share was based on approximately $747.3 million of stockholders’ equity attributable to Stewart and 23,709,40726,728,242 shares of Common Stock outstanding.
Item 6. Exhibits
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| Exhibit | | | | |
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3.1 | | - |
| 3.1 | — | |
| 3.2 | | |
3.2 | | - | — | |
| 10.1†* | | | | |
10.1† | | - | — | |
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10.2† | | - | | |
| 10.2†* | | | | |
10.3† | | - | — | |
| 10.3†* | — | |
| 10.4†* | — | |
| 10.5†* | | | | |
10.4† | | - | — | |
| 10.6†* | — | |
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| Exhibit | | |
| 10.7†* | — | |
| 10.8†* | | | | |
10.5† | | - | — | |
| 10.9†* | — | |
| 10.10†* | — | |
| 10.11†* | | | | |
10.6† | | - | | |
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10.7† | | - | | |
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10.8† | | - | | |
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10.9† | | - | |
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| 10.12†* | — | | | |
31.1*10.13†* | | - | — | |
| 10.14†* | — | |
| 10.15†* | — | |
| 10.16†* | — | |
| 31.1* | — | |
| 31.2* | | |
31.2* | | - | — | |
| 32.1* | | |
32.1* | | - | — | |
| 32.2* | | | | |
32.2* | | - | — | |
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.