UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2022~~2023

☐ 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: (713) 625-8100

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1 par value per share	STC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

☑

Large accelerated filer

☐

Non-accelerated filer

☐

Emerging growth company

☐

Accelerated filer

☐

Smaller reporting company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

On August ~~2, 2022,~~1, 2023, there were ~~27,108,912~~27,346,403 outstanding shares of the issuer's Common Stock.

FORM 10-Q QUARTERLY REPORT

QUARTER ENDED JUNE 30, ~~2022~~2023

TABLE OF CONTENTS


Item	Item		Page	Item		Page
		PART I – FINANCIAL INFORMATION			PART I – FINANCIAL INFORMATION

1.	1.	Financial Statements	3	1.	Financial Statements	3

2.	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

3.	3.	Quantitative and Qualitative Disclosures About Market Risk	28	3.	Quantitative and Qualitative Disclosures About Market Risk	27

4.	4.	Controls and Procedures	29	4.	Controls and Procedures	28
		PART II – OTHER INFORMATION			PART II – OTHER INFORMATION
1.	1.	Legal Proceedings	30	1.	Legal Proceedings	29

1A.	1A.	Risk Factors	30	1A.	Risk Factors	29

2.	2.	Unregistered Sales of Equity Securities and Use of Proceeds	30	2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

5.	5.	Other Information	30	5.	Other Information	29

6.	6.	Exhibits	31	6.	Exhibits	30

		Signature	32		Signature	30

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.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended June 30,		Six Months Ended June 30,
		2022	2021	2022	2021		2023	2022	2023	2022
		($000 omitted, except per share)					($000 omitted, except per share)
Revenues	Revenues					Revenues
Title revenues:	Title revenues:					Title revenues:
Direct operations	Direct operations	351,122	353,502	668,956	633,007	Direct operations	257,994	351,122	465,864	668,956
Agency operations	Agency operations	409,931	390,330	814,076	736,261	Agency operations	208,755	409,931	457,775	814,076
Real estate solutions and other	Real estate solutions and other	88,186	58,193	211,415	114,124	Real estate solutions and other	71,387	88,186	133,978	211,415
Operating revenues	Operating revenues	849,239	802,025	1,694,447	1,483,392	Operating revenues	538,136	849,239	1,057,617	1,694,447
Investment income	Investment income	6,739	5,130	10,361	9,074	Investment income	12,123	6,739	18,722	10,361
Net realized and unrealized (losses) gains		(11,905)	11,654	(7,820)	14,929
Net realized and unrealized losses						Net realized and unrealized losses	(1,105)	(11,905)	(2,883)	(7,820)
		844,073	818,809	1,696,988	1,507,395		549,154	844,073	1,073,456	1,696,988
Expenses	Expenses					Expenses
Amounts retained by agencies	Amounts retained by agencies	339,847	322,020	671,039	605,955	Amounts retained by agencies	171,776	339,847	377,514	671,039
Employee costs	Employee costs	210,246	188,467	415,228	357,864	Employee costs	182,666	210,246	353,217	415,228
Other operating expenses	Other operating expenses	162,008	137,796	351,756	263,279	Other operating expenses	129,333	162,008	250,073	351,756
Title losses and related claims	Title losses and related claims	26,398	33,569	55,619	62,342	Title losses and related claims	19,802	26,398	37,476	55,619
Depreciation and amortization	Depreciation and amortization	14,288	6,819	28,037	13,249	Depreciation and amortization	15,528	14,288	30,434	28,037
Interest	Interest	4,507	682	8,918	1,248	Interest	4,875	4,507	9,724	8,918
		757,294	689,353	1,530,597	1,303,937		523,980	757,294	1,058,438	1,530,597
Income before taxes and noncontrolling interests	Income before taxes and noncontrolling interests	86,779	129,456	166,391	203,458	Income before taxes and noncontrolling interests	25,174	86,779	15,018	166,391
Income tax expense	Income tax expense	(19,894)	(30,616)	(37,594)	(47,496)	Income tax expense	(5,392)	(19,894)	(454)	(37,594)
Net income	Net income	66,885	98,840	128,797	155,962	Net income	19,782	66,885	14,564	128,797
Less net income attributable to noncontrolling interests	Less net income attributable to noncontrolling interests	5,225	4,021	9,240	6,907	Less net income attributable to noncontrolling interests	3,967	5,225	6,939	9,240
Net income attributable to Stewart	Net income attributable to Stewart	61,660	94,819	119,557	149,055	Net income attributable to Stewart	15,815	61,660	7,625	119,557

Net income	Net income	66,885	98,840	128,797	155,962	Net income	19,782	66,885	14,564	128,797
Other comprehensive loss, net of taxes:
Other comprehensive (loss) income, net of taxes:						Other comprehensive (loss) income, net of taxes:
Foreign currency translation adjustments	Foreign currency translation adjustments	(8,181)	1,379	(7,561)	3,246	Foreign currency translation adjustments	4,254	(8,181)	4,852	(7,561)
Change in net unrealized gains and losses on investments	Change in net unrealized gains and losses on investments	(12,694)	1,009	(32,592)	(8,147)	Change in net unrealized gains and losses on investments	(5,765)	(12,694)	852	(32,592)
Reclassification adjustments for realized gains and losses on investments	Reclassification adjustments for realized gains and losses on investments	(117)	(418)	(302)	(563)	Reclassification adjustments for realized gains and losses on investments	221	(117)	313	(302)
Other comprehensive (loss) income, net of taxes:	Other comprehensive (loss) income, net of taxes:	(20,992)	1,970	(40,455)	(5,464)	Other comprehensive (loss) income, net of taxes:	(1,290)	(20,992)	6,017	(40,455)
Comprehensive income	Comprehensive income	45,893	100,810	88,342	150,498	Comprehensive income	18,492	45,893	20,581	88,342
Less net income attributable to noncontrolling interests	Less net income attributable to noncontrolling interests	5,225	4,021	9,240	6,907	Less net income attributable to noncontrolling interests	3,967	5,225	6,939	9,240
Comprehensive income attributable to Stewart	Comprehensive income attributable to Stewart	40,668	96,789	79,102	143,591	Comprehensive income attributable to Stewart	14,525	40,668	13,642	79,102

Basic average shares outstanding (000)	Basic average shares outstanding (000)	27,018	26,798	26,989	26,767	Basic average shares outstanding (000)	27,255	27,018	27,228	26,989
Basic earnings per share attributable to Stewart	Basic earnings per share attributable to Stewart	2.28	3.54	4.43	5.57	Basic earnings per share attributable to Stewart	0.58	2.28	0.28	4.43
Diluted average shares outstanding (000)	Diluted average shares outstanding (000)	27,293	27,123	27,377	27,038	Diluted average shares outstanding (000)	27,444	27,293	27,402	27,377
Diluted earnings per share attributable to Stewart	Diluted earnings per share attributable to Stewart	2.26	3.50	4.37	5.51	Diluted earnings per share attributable to Stewart	0.58	2.26	0.28	4.37

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS


		June 30, 2022 (Unaudited)	December 31, 2021		June 30, 2023 (Unaudited)	December 31, 2022
		($000 omitted)			($000 omitted)
Assets	Assets			Assets
Cash and cash equivalents	Cash and cash equivalents	405,310	485,919	Cash and cash equivalents	190,039	248,367
Short-term investments	Short-term investments	17,282	17,650	Short-term investments	26,566	24,318
Investments, at fair value:	Investments, at fair value:			Investments, at fair value:
Debt securities (amortized cost of $623,614 and $578,165)		593,583	589,772
Debt securities (amortized cost of $635,247 and $646,728)				Debt securities (amortized cost of $635,247 and $646,728)	601,927	611,934
Equity securities	Equity securities	93,672	89,442	Equity securities	78,226	98,149
		687,255	679,214		680,153	710,083
Receivables:	Receivables:			Receivables:
Premiums from agencies	Premiums from agencies	50,565	45,428	Premiums from agencies	40,601	39,921
Trade and other	Trade and other	70,572	75,079	Trade and other	73,218	67,348
Income taxes	Income taxes	4,338	5,420	Income taxes	9,661	10,281
Notes	Notes	4,633	1,124	Notes	13,464	7,482
Allowance for uncollectible amounts	Allowance for uncollectible amounts	(7,028)	(7,711)	Allowance for uncollectible amounts	(7,853)	(7,309)
		123,080	119,340		129,091	117,723
Property and equipment:	Property and equipment:			Property and equipment:
Land	Land	2,545	2,545	Land	2,545	2,545
Buildings	Buildings	18,692	19,303	Buildings	19,094	18,761
Furniture and equipment	Furniture and equipment	208,350	216,261	Furniture and equipment	226,455	213,707
Accumulated depreciation	Accumulated depreciation	(156,087)	(165,653)	Accumulated depreciation	(166,331)	(153,474)
		73,500	72,456		81,763	81,539
Operating lease assets	Operating lease assets	137,275	134,578	Operating lease assets	128,167	127,830
Title plants, at cost	Title plants, at cost	73,503	76,859	Title plants, at cost	73,358	73,358
Investments on equity method basis	Investments on equity method basis	4,650	4,754	Investments on equity method basis	4,073	4,575
Goodwill	Goodwill	964,212	924,837	Goodwill	1,074,678	1,072,982
Intangible assets, net of amortization	Intangible assets, net of amortization	187,494	229,804	Intangible assets, net of amortization	204,509	199,084
Deferred tax assets	Deferred tax assets	3,766	3,846	Deferred tax assets	2,582	2,590
Other assets	Other assets	78,015	64,105	Other assets	82,859	75,430
		2,755,342	2,813,362		2,677,838	2,737,879
Liabilities	Liabilities			Liabilities
Notes payable	Notes payable	444,908	483,491	Notes payable	445,027	447,006
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	200,294	287,326	Accounts payable and accrued liabilities	167,564	196,541
Operating lease liabilities	Operating lease liabilities	150,472	149,417	Operating lease liabilities	146,649	148,003
Estimated title losses	Estimated title losses	562,681	549,614	Estimated title losses	524,141	549,448
Deferred tax liabilities	Deferred tax liabilities	37,166	48,779	Deferred tax liabilities	28,462	26,616
		1,395,521	1,518,627		1,311,843	1,367,614
Contingent liabilities and commitments	Contingent liabilities and commitments	0	0	Contingent liabilities and commitments
Stockholders’ equity	Stockholders’ equity			Stockholders’ equity
Common Stock ($1 par value) and additional paid-in capital	Common Stock ($1 par value) and additional paid-in capital	316,224	309,622	Common Stock ($1 par value) and additional paid-in capital	332,025	324,344
Retained earnings	Retained earnings	1,073,788	974,800	Retained earnings	1,074,458	1,091,816
Accumulated other comprehensive income (loss):
Accumulated other comprehensive loss:				Accumulated other comprehensive loss:
Foreign currency translation adjustments	Foreign currency translation adjustments	(16,478)	(8,917)	Foreign currency translation adjustments	(19,004)	(23,856)
Net unrealized (losses) gains on debt securities investments		(23,724)	9,170
Net unrealized losses on debt securities investments				Net unrealized losses on debt securities investments	(26,322)	(27,487)

Treasury stock – 352,161 common shares, at cost	Treasury stock – 352,161 common shares, at cost	(2,666)	(2,666)	Treasury stock – 352,161 common shares, at cost	(2,666)	(2,666)
Stockholders’ equity attributable to Stewart	Stockholders’ equity attributable to Stewart	1,347,144	1,282,009	Stockholders’ equity attributable to Stewart	1,358,491	1,362,151
Noncontrolling interests	Noncontrolling interests	12,677	12,726	Noncontrolling interests	7,504	8,114
Total stockholders’ equity (27,038,282 and 26,893,430 shares outstanding)		1,359,821	1,294,735
Total stockholders’ equity (27,266,830 and 27,130,412 shares outstanding)				Total stockholders’ equity (27,266,830 and 27,130,412 shares outstanding)	1,365,995	1,370,265
		2,755,342	2,813,362		2,677,838	2,737,879

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


		Six Months Ended June 30,			Six Months Ended June 30,
		2022	2021		2023	2022
		($000 omitted)			($000 omitted)
Reconciliation of net income to cash provided by operating activities:
Reconciliation of net income to cash (used) provided by operating activities:				Reconciliation of net income to cash (used) provided by operating activities:
Net income	Net income	128,797	155,962	Net income	14,564	128,797
Add (deduct):	Add (deduct):			Add (deduct):
Depreciation and amortization	Depreciation and amortization	28,037	13,249	Depreciation and amortization	30,434	28,037
Adjustments for bad debt provisions	Adjustments for bad debt provisions	(157)	846	Adjustments for bad debt provisions	1,443	(157)
Net realized and unrealized losses (gains)		7,820	(14,929)
Net realized and unrealized losses				Net realized and unrealized losses	2,883	7,820
Amortization of net premium on debt securities investments	Amortization of net premium on debt securities investments	1,382	1,904	Amortization of net premium on debt securities investments	387	1,382
Payments for title losses less than provisions		16,902	26,222
Payments for title losses (in excess of) less than provisions				Payments for title losses (in excess of) less than provisions	(27,468)	16,902
Adjustments for insurance recoveries of title losses	Adjustments for insurance recoveries of title losses	220	—	Adjustments for insurance recoveries of title losses	—	220
Decrease (increase) in receivables – net		2,907	(22,366)
(Increase) decrease in receivables – net				(Increase) decrease in receivables – net	(6,692)	2,907
Increase in other assets – net	Increase in other assets – net	(6,720)	(3,327)	Increase in other assets – net	(5,859)	(6,720)
Decrease in accounts payable and other liabilities – net	Decrease in accounts payable and other liabilities – net	(68,475)	(15,390)	Decrease in accounts payable and other liabilities – net	(34,042)	(68,475)
Change in net deferred income taxes	Change in net deferred income taxes	515	4,122	Change in net deferred income taxes	585	515
Net income from equity method investments	Net income from equity method investments	(1,860)	(3,412)	Net income from equity method investments	(378)	(1,860)
Dividends received from equity method investments	Dividends received from equity method investments	2,150	1,739	Dividends received from equity method investments	876	2,150
Stock-based compensation expense	Stock-based compensation expense	6,440	5,879	Stock-based compensation expense	7,043	6,440
Other – net	Other – net	229	(47)	Other – net	269	229
Cash provided by operating activities		118,187	150,452
Cash (used) provided by operating activities				Cash (used) provided by operating activities	(15,955)	118,187
Investing activities:	Investing activities:			Investing activities:
Proceeds from sales of investments in securities	Proceeds from sales of investments in securities	28,769	14,744	Proceeds from sales of investments in securities	39,488	28,769
Proceeds from matured investments in debt securities	Proceeds from matured investments in debt securities	23,521	51,034	Proceeds from matured investments in debt securities	55,250	23,521
Purchases of investments in securities	Purchases of investments in securities	(117,913)	(89,198)	Purchases of investments in securities	(55,461)	(117,913)
Net (purchases) sales of short-term investments		(189)	2,747
Net purchases of short-term investments				Net purchases of short-term investments	(2,838)	(189)
Purchases of property and equipment, and real estate	Purchases of property and equipment, and real estate	(26,226)	(16,430)	Purchases of property and equipment, and real estate	(15,495)	(26,226)
Proceeds from sale of property and equipment and other assets	Proceeds from sale of property and equipment and other assets	1,033	10,583	Proceeds from sale of property and equipment and other assets	106	1,033
Cash paid for acquisition of businesses	Cash paid for acquisition of businesses	(23,310)	(131,906)	Cash paid for acquisition of businesses	(22,400)	(23,310)
Cash paid for acquisition of equity method investment		(69)	(16,080)
Increase in notes receivable				Increase in notes receivable	(6,360)	(3,667)
Other – net	Other – net	3,242	855	Other – net	400	6,840
Cash used by investing activities	Cash used by investing activities	(111,142)	(173,651)	Cash used by investing activities	(7,310)	(111,142)
Financing activities:	Financing activities:			Financing activities:
Proceeds from notes payable	Proceeds from notes payable	5,721	181,755	Proceeds from notes payable	3,538	5,721
Payments on notes payable	Payments on notes payable	(44,553)	(157,662)	Payments on notes payable	(5,776)	(44,553)
Distributions to noncontrolling interests	Distributions to noncontrolling interests	(9,483)	(7,253)	Distributions to noncontrolling interests	(7,549)	(9,483)

Repurchases of Common Stock	Repurchases of Common Stock	(2,551)	(2,002)	Repurchases of Common Stock	(1,353)	(2,551)
Proceeds from stock option and employee stock purchase plan exercises	Proceeds from stock option and employee stock purchase plan exercises	2,713	181	Proceeds from stock option and employee stock purchase plan exercises	1,991	2,713
Cash dividends paid	Cash dividends paid	(20,258)	(17,688)	Cash dividends paid	(24,531)	(20,258)
Payment of contingent consideration related to acquisitions	Payment of contingent consideration related to acquisitions	(15,997)	(75)	Payment of contingent consideration related to acquisitions	(2,000)	(15,997)
Purchase of remaining interest in consolidated subsidiaries		—	(5,616)

Other - net	Other - net	94	(777)	Other - net	—	94
Cash used by financing activities	Cash used by financing activities	(84,314)	(9,137)	Cash used by financing activities	(35,680)	(84,314)
Effects of changes in foreign currency exchange rates	Effects of changes in foreign currency exchange rates	(3,340)	195	Effects of changes in foreign currency exchange rates	617	(3,340)
Change in cash and cash equivalents	Change in cash and cash equivalents	(80,609)	(32,141)	Change in cash and cash equivalents	(58,328)	(80,609)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	485,919	432,683	Cash and cash equivalents at beginning of period	248,367	485,919
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	405,310	400,542	Cash and cash equivalents at end of period	190,039	405,310

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)


		Common Stock	Additional paid-in capital	Retained earnings	Accumulated other comprehensive income (loss)	Treasury stock	Noncontrolling interests	Total		Common Stock	Additional paid-in capital	Retained earnings	Accumulated other comprehensive (loss) income	Treasury stock	Noncontrolling interests	Total
										($000 omitted)
Six Months Ended June 30, 2023									Six Months Ended June 30, 2023
Balance at December 31, 2022									Balance at December 31, 2022	27,483	296,861	1,091,816	(51,343)	(2,666)	8,114	1,370,265

Net income attributable to Stewart									Net income attributable to Stewart	—	—	7,625	—	—	—	7,625
Dividends on Common Stock ($0.90 per share)									Dividends on Common Stock ($0.90 per share)	—	—	(24,983)	—	—	—	(24,983)

Stock-based compensation									Stock-based compensation	117	6,926	—	—	—	—	7,043
Stock repurchases									Stock repurchases	(32)	(1,321)	—	—	—	—	(1,353)
Stock option and employee stock purchase plan exercises									Stock option and employee stock purchase plan exercises	52	1,939	—	—	—	—	1,991

Change in net unrealized gains and losses on investments, net of taxes									Change in net unrealized gains and losses on investments, net of taxes	—	—	—	852	—	—	852
Reclassification adjustment for realized gains and losses on investments, net of taxes									Reclassification adjustment for realized gains and losses on investments, net of taxes	—	—	—	313	—	—	313
Foreign currency translation adjustments, net of taxes									Foreign currency translation adjustments, net of taxes	—	—	—	4,852	—	—	4,852
Net income attributable to noncontrolling interests									Net income attributable to noncontrolling interests	—	—	—	—	—	6,939	6,939
Distributions to noncontrolling interests									Distributions to noncontrolling interests	—	—	—	—	—	(7,549)	(7,549)

Balance at June 30, 2023									Balance at June 30, 2023	27,620	304,405	1,074,458	(45,326)	(2,666)	7,504	1,365,995
		($000 omitted)
Six Months Ended June 30, 2022	Six Months Ended June 30, 2022								Six Months Ended June 30, 2022
Balance at December 31, 2021	Balance at December 31, 2021	27,246	282,376	974,800	253	(2,666)	12,726	1,294,735	Balance at December 31, 2021	27,246	282,376	974,800	253	(2,666)	12,726	1,294,735

Net income attributable to Stewart	Net income attributable to Stewart	—	—	119,557	—	—	—	119,557	Net income attributable to Stewart	—	—	119,557	—	—	—	119,557
Dividends on Common Stock ($0.75 per share)	Dividends on Common Stock ($0.75 per share)	—	—	(20,569)	—	—	—	(20,569)	Dividends on Common Stock ($0.75 per share)	—	—	(20,569)	—	—	—	(20,569)

Stock-based compensation	Stock-based compensation	126	6,314	—	—	—	—	6,440	Stock-based compensation	126	6,314	—	—	—	—	6,440
Stock repurchases	Stock repurchases	(37)	(2,514)	—	—	—	—	(2,551)	Stock repurchases	(37)	(2,514)	—	—	—	—	(2,551)
Stock option and employee stock purchase plan exercises	Stock option and employee stock purchase plan exercises	55	2,658	—	—	—	—	2,713	Stock option and employee stock purchase plan exercises	55	2,658	—	—	—	—	2,713

Change in net unrealized gains and losses on investments, net of taxes	Change in net unrealized gains and losses on investments, net of taxes	—	—	—	(32,592)	—	—	(32,592)	Change in net unrealized gains and losses on investments, net of taxes	—	—	—	(32,592)	—	—	(32,592)
Reclassification adjustment for realized gains and losses on investments, net of taxes		—	—	—	(302)	—	—	(302)
Reclassification adjustment for realized gains and losses on investments, net of taxes, net of taxes									Reclassification adjustment for realized gains and losses on investments, net of taxes, net of taxes	—	—	—	(302)	—	—	(302)
Foreign currency translation adjustments, net of taxes	Foreign currency translation adjustments, net of taxes	—	—	—	(7,561)	—	—	(7,561)	Foreign currency translation adjustments, net of taxes	—	—	—	(7,561)	—	—	(7,561)
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	—	—	—	—	—	9,240	9,240	Net income attributable to noncontrolling interests	—	—	—	—	—	9,240	9,240
Distributions to noncontrolling interests	Distributions to noncontrolling interests	—	—	—	—	—	(9,483)	(9,483)	Distributions to noncontrolling interests	—	—	—	—	—	(9,483)	(9,483)
Net effect of other changes in ownership	Net effect of other changes in ownership	—	—	—	—	—	194	194	Net effect of other changes in ownership	—	—	—	—	—	194	194
Balance at June 30, 2022	Balance at June 30, 2022	27,390	288,834	1,073,788	(40,202)	(2,666)	12,677	1,359,821	Balance at June 30, 2022	27,390	288,834	1,073,788	(40,202)	(2,666)	12,677	1,359,821

Six Months Ended June 30, 2021
Balance at December 31, 2020		27,080	274,857	688,819	17,022	(2,666)	7,294	1,012,406

Net income attributable to Stewart		—	—	149,055	—	—	—	149,055
Dividends on Common Stock ($0.66 per share)		—	—	(18,040)	—	—	—	(18,040)

Stock-based compensation		131	5,748	—	—	—	—	5,879
Stock repurchases		(39)	(1,963)	—	—	—	—	(2,002)
Stock option and employee stock purchase plan exercises		5	176	—	—	—	—	181
Purchase of remaining interest in consolidated subsidiary		—	(4,744)	—	—	—	(872)	(5,616)
Change in net unrealized gains and losses on investments, net of taxes		—	—	—	(8,147)	—	—	(8,147)
Reclassification adjustment for realized gains and losses on investments, net of taxes, net of taxes		—	—	—	(563)	—	—	(563)
Foreign currency translation adjustments, net of taxes		—	—	—	3,246	—	—	3,246
Net income attributable to noncontrolling interests		—	—	—	—	—	6,907	6,907
Distributions to noncontrolling interests		—	—	—	—	—	(7,253)	(7,253)

Balance at June 30, 2021		27,177	274,074	819,834	11,558	(2,666)	6,096	1,136,073

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)


		Common Stock	Additional paid-in capital	Retained earnings	Accumulated other comprehensive income (loss)	Treasury stock	Noncontrolling interests	Total		Common Stock	Additional paid-in capital	Retained earnings	Accumulated other comprehensive loss	Treasury stock	Noncontrolling interests	Total
		($000 omitted)								($000 omitted)
Three Months Ended June 30, 2023									Three Months Ended June 30, 2023
Balance at March 31, 2023									Balance at March 31, 2023	27,598	300,225	1,071,320	(44,036)	(2,666)	7,311	1,359,752

Net income attributable to Stewart									Net income attributable to Stewart	—	—	15,815	—	—	—	15,815
Dividends on Common Stock ($0.45 per share)									Dividends on Common Stock ($0.45 per share)	—	—	(12,677)	—	—	—	(12,677)

Stock-based compensation									Stock-based compensation	24	4,260	—	—	—	—	4,284
Stock repurchases									Stock repurchases	(2)	(80)	—	—	—	—	(82)

Change in net unrealized gains and losses on investments, net of taxes									Change in net unrealized gains and losses on investments, net of taxes	—	—	—	(5,765)	—	—	(5,765)
Reclassification adjustment for realized gains and losses on investments, net of taxes									Reclassification adjustment for realized gains and losses on investments, net of taxes	—	—	—	221	—	—	221
Foreign currency translation adjustments, net of taxes									Foreign currency translation adjustments, net of taxes	—	—	—	4,254	—	—	4,254
Net income attributable to noncontrolling interests									Net income attributable to noncontrolling interests	—	—	—	—	—	3,967	3,967
Distributions to noncontrolling interests									Distributions to noncontrolling interests	—	—	—	—	—	(3,774)	(3,774)

Balance at June 30, 2023									Balance at June 30, 2023	27,620	304,405	1,074,458	(45,326)	(2,666)	7,504	1,365,995

Three Months Ended June 30, 2022	Three Months Ended June 30, 2022								Three Months Ended June 30, 2022
Balances at June 30, 2021		27,367	284,524	1,022,456	(19,210)	(2,666)	12,317	1,324,788
Balance at March 31, 2022									Balance at March 31, 2022	27,367	284,524	1,022,456	(19,210)	(2,666)	12,317	1,324,788

Net income attributable to Stewart	Net income attributable to Stewart	—	—	61,660	—	—	—	61,660	Net income attributable to Stewart	—	—	61,660	—	—	—	61,660
Dividends on Common Stock ($0.38 per share)	Dividends on Common Stock ($0.38 per share)	—	—	(10,328)	—	—	—	(10,328)	Dividends on Common Stock ($0.38 per share)	—	—	(10,328)	—	—	—	(10,328)

Stock-based compensation	Stock-based compensation	18	4,183	—	—	—	—	4,201	Stock-based compensation	18	4,183	—	—	—	—	4,201
Stock repurchases	Stock repurchases	(1)	(88)	—	—	—	—	(89)	Stock repurchases	(1)	(88)	—	—	—	—	(89)
Stock option and employee stock purchase plan exercises		6	215	—	—	—		221
Purchase of remaining interest in consolidated subsidiaries		—	0	—	—	—	0	—
Change in net unrealized gains and losses on investments, net of taxes		—	—	—	(12,694)	—	—	(12,694)
Reclassification adjustment for realized gains and losses on investments, net of taxes		—	—	—	(117)	—	—	(117)
Foreign currency translation adjustments, net of taxes		—	—	—	(8,181)	—	—	(8,181)
Net income attributable to noncontrolling interests		—	—	—	—	—	5,225	5,225
Distributions to noncontrolling interests		—	—	—	—	—	(4,915)	(4,915)
Net effect of other changes in ownership		—	—	—	—	—	50	50
Balance at June 30, 2022		27,390	288,834	1,073,788	(40,202)	(2,666)	12,677	1,359,821
Stock option exercises									Stock option exercises	6	215					221

Three Months Ended June 30, 2021
Balances at June 30, 2020		27,158	273,820	733,973	9,588	(2,666)	6,025	1,047,898

Net income attributable to Stewart		—	—	94,819	—	—	—	94,819
Dividends on Common Stock ($0.33 per share)		—	—	(8,958)	—	—	—	(8,958)

Stock-based compensation		18	2,687	—	—	—	—	2,705
Stock repurchases		(2)	(65)	—	—	—	—	(67)
Stock option exercises		3	117					120
Purchase of remaining interest in consolidated subsidiary		—	(2,485)	—	—	—	(561)	(3,046)
Change in net unrealized gains and losses on investments, net of taxes	Change in net unrealized gains and losses on investments, net of taxes	—	—	—	1,009	—	—	1,009	Change in net unrealized gains and losses on investments, net of taxes	—	—	—	(12,694)	—	—	(12,694)
Reclassification adjustment for realized gains and losses on investments, net of taxes, net of taxes	Reclassification adjustment for realized gains and losses on investments, net of taxes, net of taxes	—	—	—	(418)	—	—	(418)	Reclassification adjustment for realized gains and losses on investments, net of taxes, net of taxes	—	—	—	(117)	—	—	(117)
Foreign currency translation adjustments, net of taxes	Foreign currency translation adjustments, net of taxes	—	—	—	1,379	—	—	1,379	Foreign currency translation adjustments, net of taxes	—	—	—	(8,181)	—	—	(8,181)
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	—	—	—	—	—	4,021	4,021	Net income attributable to noncontrolling interests	—	—	—	—	—	5,225	5,225
Distributions to noncontrolling interests	Distributions to noncontrolling interests	—	—	—	—	—	(3,409)	(3,409)	Distributions to noncontrolling interests	—	—	—	—	—	(4,915)	(4,915)
Net effect of other changes in ownership	Net effect of other changes in ownership	—	—	—	—	—	20	20	Net effect of other changes in ownership	—	—	—	—	—	50	50
Balance at June 30, 2021		27,177	274,074	819,834	11,558	(2,666)	6,096	1,136,073
Balance at June 30, 2022									Balance at June 30, 2022	27,390	288,834	1,073,788	(40,202)	(2,666)	12,677	1,359,821

See notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

Interim financial statements. The financial information contained in this report for the three and six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, and as of June 30, ~~2022,~~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, ~~2021~~2022 filed with the Securities and Exchange Commission on February 28, ~~2022 (2021~~2023 (2022 Form 10-K).

A. Management’s responsibility. The accompanying interim financial statements were prepared by management, who is responsible for their integrity and objectivity. These financial statements have been prepared in conformity with the United States (U.S.) generally accepted accounting principles (GAAP), including management’s best judgments and estimates. In the opinion of management, all adjustments necessary for a fair presentation of this information for all interim periods, consisting only of normal recurring accruals, have been made. The Company’s results of operations for interim periods are not necessarily indicative of results for a full year and actual results could differ.

B. Consolidation. The condensed consolidated financial statements include all subsidiaries in which the Company owns more than 50% voting rights in electing directors. All significant intercompany amounts and transactions have been eliminated and provisions have been made for noncontrolling interests. Unconsolidated investees, in which the Company typically owns from 20% to 50% of the voting stock, are accounted for using the equity method.

C. Restrictions on cash and investments. The Company maintains investments in accordance with certain statutory requirements for the funding of statutory premium reserves. Statutory reserve funds are required to be fully funded and invested in high-quality securities and short-term investments. Statutory reserve funds are not available for current claim payments, which must be funded from current operating cash flow. Included in investments in debt and equity securities are statutory reserve funds of approximately ~~$538.1~~$519.5 million and ~~$523.5~~$544.0 million at June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. In addition, included within cash and cash equivalents are statutory reserve funds of approximately ~~$14.9~~$10.2 million and ~~$41.4~~$8.6 million at June 30, ~~2022~~2023 and December 31, ~~2021,~~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 June 30,		Six Months Ended June 30,			Three Months Ended June 30,		Six Months Ended June 30,
		2022	2021	2022	2021		2023	2022	2023	2022
		($000 omitted)					($000 omitted)
Title insurance premiums:	Title insurance premiums:					Title insurance premiums:
Direct	Direct	231,721	243,638	437,283	438,631	Direct	170,677	231,721	301,494	437,283
Agency	Agency	409,931	390,330	814,076	736,261	Agency	208,755	409,931	457,775	814,076
Escrow fees	Escrow fees	61,497	63,534	117,289	120,183	Escrow fees	42,323	61,497	75,250	117,289
Real estate solutions and abstract fees	Real estate solutions and abstract fees	104,213	80,712	213,015	149,332	Real estate solutions and abstract fees	89,811	104,213	166,971	213,015
Other revenues	Other revenues	41,877	23,811	112,784	38,985	Other revenues	26,570	41,877	56,127	112,784
		849,239	802,025	1,694,447	1,483,392		538,136	849,239	1,057,617	1,694,447

NOTE 3

Investments in debt and equity securities. As of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the net unrealized investment gains relating to investments in equity securities held were ~~$14.5~~$13.6 million and ~~$21.1~~$19.2 million, respectively (refer to Note 5).

The amortized costs and fair values of investments in debt securities are as follows:


		June 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
		Amortized costs	Fair values	Amortized costs	Fair values		Amortized costs	Fair values	Amortized costs	Fair values
		($000 omitted)					($000 omitted)
Municipal	Municipal	32,555	32,525	34,739	36,323	Municipal	26,273	25,949	30,104	29,835
Corporate	Corporate	268,626	255,437	249,757	258,102	Corporate	249,888	233,200	272,362	254,316
Foreign	Foreign	311,894	295,134	287,240	288,883	Foreign	326,937	311,354	315,184	299,137
U.S. Treasury Bonds	U.S. Treasury Bonds	10,539	10,487	6,429	6,464	U.S. Treasury Bonds	32,149	31,424	29,078	28,646

		623,614	593,583	578,165	589,772		635,247	601,927	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:


		June 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
		Gains	Losses	Gains	Losses		Gains	Losses	Gains	Losses
		($000 omitted)					($000 omitted)
Municipal	Municipal	114	144	1,585	1	Municipal	1	325	3	272
Corporate	Corporate	435	13,624	9,389	1,044	Corporate	433	17,121	489	18,535
Foreign	Foreign	319	17,079	3,285	1,642	Foreign	293	15,876	165	16,212
U.S. Treasury Bonds	U.S. Treasury Bonds	33	85	60	25	U.S. Treasury Bonds	12	737	21	453

		901	30,932	14,319	2,712		739	34,059	678	35,472

Debt securities as of June 30, ~~2022~~2023 mature, according to their contractual terms, as follows (actual maturities may differ due to call or prepayment rights):


		Amortized costs	Fair values		Amortized costs	Fair values
		($000 omitted)			($000 omitted)
In one year or less	In one year or less	98,843	98,429	In one year or less	90,765	88,947
After one year through five years	After one year through five years	333,202	318,895	After one year through five years	357,970	337,352
After five years through ten years	After five years through ten years	158,609	145,799	After five years through ten years	171,140	162,291
After ten years	After ten years	32,960	30,460	After ten years	15,372	13,337
		623,614	593,583		635,247	601,927

Gross unrealized losses on investments in debt securities and the fair values of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, ~~2022,~~2023, were:


		Less than 12 months		More than 12 months		Total			Less than 12 months		More than 12 months		Total
		Losses	Fair values	Losses	Fair values	Losses	Fair values		Losses	Fair values	Losses	Fair values	Losses	Fair values
		($000 omitted)							($000 omitted)
Municipal	Municipal	144	11,631	—	—	144	11,631	Municipal	191	20,666	134	4,033	325	24,699
Corporate	Corporate	12,033	218,982	1,591	11,268	13,624	230,250	Corporate	1,990	50,979	15,131	165,730	17,121	216,709
Foreign	Foreign	14,322	249,533	2,757	37,154	17,079	286,687	Foreign	1,335	84,849	14,541	206,510	15,876	291,359
U.S. Treasury Bonds	U.S. Treasury Bonds	61	1,410	24	611	85	2,021	U.S. Treasury Bonds	656	28,748	81	1,278	737	30,026

		26,560	481,556	4,372	49,033	30,932	530,589		4,172	185,242	29,887	377,551	34,059	562,793

The number of specific debt investment holdings held in an unrealized loss position as of June 30, ~~2022~~2023 was ~~303.~~356. Of these securities, 23216 were in unrealized loss positions for more than 12 months. ~~Gross~~Total gross unrealized investment losses at June 30, ~~2022 increased~~2023 slightly improved compared to December 31, ~~2021,~~2022 primarily due to ~~the market volatility influenced by higher~~slower interest ~~rates and credit spreads~~rate increases during ~~2022.~~2023. 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.


		Less than 12 months		More than 12 months		Total			Less than 12 months		More than 12 months		Total
		Losses	Fair values	Losses	Fair values	Losses	Fair values		Losses	Fair values	Losses	Fair values	Losses	Fair values
		($000 omitted)							($000 omitted)
Municipal	Municipal	1	130	—	—	1	130	Municipal	262	27,491	10	67	272	27,558
Corporate	Corporate	588	42,231	456	12,014	1,044	54,245	Corporate	12,935	193,239	5,600	44,342	18,535	237,581
Foreign	Foreign	1,502	118,943	140	3,394	1,642	122,337	Foreign	7,608	186,221	8,604	101,294	16,212	287,515
U.S. Treasury Bonds	U.S. Treasury Bonds	8	477	17	508	25	985	U.S. Treasury Bonds	413	25,102	40	445	453	25,547

		2,099	161,781	613	15,916	2,712	177,697		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.

As of June 30, 2023, financial instruments measured at fair value on a recurring basis are summarized below:


	Level 1	Level 2	Fair value measurements
	($000 omitted)
Investments in securities:
Debt securities:
Municipal	—	25,949	25,949
Corporate	—	233,200	233,200
Foreign	—	311,354	311,354
U.S. Treasury Bonds	—	31,424	31,424
Equity securities	78,226	—	78,226
	78,226	601,927	680,153

As of December 31, 2022, financial instruments measured at fair value on a recurring basis are summarized below:

Level 1 Level 2
Fair value
measurements
($000 omitted)
Investments in securities:
Debt securities:
Municipal — 32,525 32,525
Corporate — 255,437 255,437
Foreign — 295,134 295,134
U.S. Treasury Bonds — 10,487 10,487
Equity securities 93,672 — 93,672
93,672 593,583 687,255

~~As of December 31, 2021, financial instruments measured at fair value on a recurring basis are summarized below:~~


		Level 1	Level 2	Fair value measurements		Level 1	Level 2	Fair value measurements
		($000 omitted)				($000 omitted)
Investments in securities:	Investments in securities:				Investments in securities:
Debt securities:	Debt securities:				Debt securities:
Municipal	Municipal	—	36,323	36,323	Municipal	—	29,835	29,835
Corporate	Corporate	—	258,102	258,102	Corporate	—	254,316	254,316
Foreign	Foreign	—	288,883	288,883	Foreign	—	299,137	299,137
U.S. Treasury Bonds	U.S. Treasury Bonds	—	6,464	6,464	U.S. Treasury Bonds	—	28,646	28,646
Equity securities	Equity securities	89,442	—	89,442	Equity securities	98,149	—	98,149
		89,442	589,772	679,214		98,149	611,934	710,083

As of June 30, ~~2022~~2023 and December 31, ~~2021,~~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 June 30,		Six Months Ended June 30,			Three Months Ended June 30,		Six Months Ended June 30,
		2022	2021	2022	2021		2023	2022	2023	2022
		($000 omitted)					($000 omitted)
Realized gains	Realized gains	1,683	7,909	3,277	8,080	Realized gains	278	1,683	339	3,277
Realized losses	Realized losses	(3,671)	—	(3,839)	(2,469)	Realized losses	(3,430)	(3,671)	(4,177)	(3,839)
Net unrealized investment (losses) gains recognized on equity securities still held at end of period		(9,917)	3,745	(7,258)	9,318
Net unrealized investment gains (losses) recognized on equity securities still held at end of period						Net unrealized investment gains (losses) recognized on equity securities still held at end of period	2,047	(9,917)	955	(7,258)
		(11,905)	11,654	(7,820)	14,929		(1,105)	(11,905)	(2,883)	(7,820)

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

Investment gains and losses recognized related to investments in equity securities are as follows:

Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
($000 omitted)
Net investment (losses) gains recognized on equity securities during the period (9,366) 3,780 (6,795) 9,361
Less: Net realized gains on equity securities sold during the period 551 35 463 43
Net unrealized investment (losses) gains recognized on equity securities still held at end of period (9,917) 3,745 (7,258) 9,318


	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
	($000 omitted)
Net investment gains (losses) recognized on equity securities during the period	1,988	(9,366)	232	(6,795)
Less: Net realized (losses) gains on equity securities sold during the period	(59)	551	(723)	463
Net unrealized investment gains (losses) recognized on equity securities still held at end of period	2,047	(9,917)	955	(7,258)

Proceeds from sales of investments in securities are as follows:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended June 30,		Six Months Ended June 30,
		2022	2021	2022	2021		2023	2022	2023	2022
		($000 omitted)					($000 omitted)
Proceeds from sales of debt securities	Proceeds from sales of debt securities	11,002	11,634	28,282	14,571	Proceeds from sales of debt securities	7,433	11,002	14,879	28,282
Proceeds from sales of equity securities	Proceeds from sales of equity securities	117	59	487	173	Proceeds from sales of equity securities	5,283	117	24,609	487
Total proceeds from sales of investments in securities	Total proceeds from sales of investments in securities	11,119	11,693	28,769	14,744	Total proceeds from sales of investments in securities	12,716	11,119	39,488	28,769

NOTE 6

Goodwill. The summary of changes in goodwill is as ~~follows.~~follows:

Title Real Estate Solutions Corporate and Other Consolidated Total
($000 omitted)
Balances at December 31, 2021 583,944 325,543 15,350 924,837
Acquisitions 25,325 — — 25,325
Purchase accounting adjustments 802 28,990 (14,450) 15,342
Disposals (392) — (900) (1,292)
Balances at June 30, 2022 609,679 354,533 — 964,212


	Title	Real Estate Solutions	Corporate and Other	Consolidated Total
	($000 omitted)
Balances at December 31, 2022	720,478	352,504	—	1,072,982
Acquisitions	4,674	18,000	—	22,674
Purchase accounting adjustments	(20,978)	—	—	(20,978)

Balances at June 30, 2023	704,174	370,504	—	1,074,678

During the first six months of ~~2022,~~2023, goodwill recorded in the real estate solutions and title ~~segment~~segments was related to acquisitions of a financial and personal information online verification services provider and several title ~~search and support services providers,~~offices, respectively, while title purchase accounting adjustments were primarily related to ~~measurements~~provisional recognition of intangible assets ~~and deferred taxes, and adjustments~~(customer relationships) related to ~~provisional estimates within one year of the related~~recent acquisitions.

NOTE 7

Estimated title losses. A summary of estimated title losses for the six months ended June 30 is as follows:


		2022		2021			2023		2022
		($000 omitted)					($000 omitted)
Balances at January 1	Balances at January 1	549,614		496,275		Balances at January 1	549,448		549,614
Provisions:	Provisions:					Provisions:
Current year	Current year	55,760		61,147		Current year	36,773		55,760
Previous policy years	Previous policy years	(141)		1,195		Previous policy years	703		(141)
Total provisions	Total provisions	55,619		62,342		Total provisions	37,476		55,619
Payments, net of recoveries:	Payments, net of recoveries:					Payments, net of recoveries:
Current year	Current year	(8,927)		(7,682)		Current year	(6,990)		(8,927)
Previous policy years	Previous policy years	(29,790)		(28,438)		Previous policy years	(57,954)		(29,790)
Total payments, net of recoveries	Total payments, net of recoveries	(38,717)		(36,120)		Total payments, net of recoveries	(64,944)		(38,717)

Effects of changes in foreign currency exchange rates	Effects of changes in foreign currency exchange rates	(3,835)		2,486		Effects of changes in foreign currency exchange rates	2,161		(3,835)
Balances at June 30	Balances at June 30	562,681		524,983		Balances at June 30	524,141		562,681
Loss ratios as a percentage of title operating revenues:	Loss ratios as a percentage of title operating revenues:					Loss ratios as a percentage of title operating revenues:
Current year provisions	Current year provisions	3.8	%	4.5	%	Current year provisions	4.0	%	3.8	%
Total provisions	Total provisions	3.8	%	4.6	%	Total provisions	4.1	%	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 six months of 2023 and 2022, the Company granted time-based and performance-based restricted stock units with an aggregate grant-date fair ~~value~~values of $12.0 million (293,000 units with an average grant price per unit of $41.01) and $11.2 million (174,000 units with an average grant price per unit of $64.15). During the first six months of 2021, the aggregate grant-date fair values of restricted stock unit and stock option awards, respectively, were $8.9 million (166,000 units with an average grant price per unit of $53.71) and $1.3 million (139,000 options with an average grant price per option of $9.24 and exercise strike price of $53.24).

NOTE 9

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

The calculation of the basic and diluted EPS is as follows:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended June 30,		Six Months Ended June 30,
		2022	2021	2022	2021		2023	2022	2023	2022
		($000 omitted, except per share)					($000 omitted, except per share)
Numerator:	Numerator:					Numerator:

Net income attributable to Stewart	Net income attributable to Stewart	61,660	94,819	119,557	149,055	Net income attributable to Stewart	15,815	61,660	7,625	119,557

Denominator (000):	Denominator (000):					Denominator (000):
Basic average shares outstanding	Basic average shares outstanding	27,018	26,798	26,989	26,767	Basic average shares outstanding	27,255	27,018	27,228	26,989
Average number of dilutive shares relating to options	Average number of dilutive shares relating to options	154	189	226	154	Average number of dilutive shares relating to options	43	154	52	226
Average number of dilutive shares relating to grants of restricted units and shares	Average number of dilutive shares relating to grants of restricted units and shares	121	136	162	117	Average number of dilutive shares relating to grants of restricted units and shares	146	121	122	162
Diluted average shares outstanding	Diluted average shares outstanding	27,293	27,123	27,377	27,038	Diluted average shares outstanding	27,444	27,293	27,402	27,377

Basic earnings per share attributable to Stewart	Basic earnings per share attributable to Stewart	2.28	3.54	4.43	5.57	Basic earnings per share attributable to Stewart	0.58	2.28	0.28	4.43

Diluted earnings per share attributable to Stewart	Diluted earnings per share attributable to Stewart	2.26	3.50	4.37	5.51	Diluted earnings per share attributable to Stewart	0.58	2.26	0.28	4.37

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 June 30, ~~2022,~~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 June 30, ~~2022,~~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.

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. ~~Prior to 2022, the~~The Company reported 2 operating segments: the title insurance and related services (title) segment, and the ancillary services and corporate segment. Effective in the first quarter 2022, the Company began reporting 3has three reportable operating segments: the title segment, the real estate solutions segment, and the corporate and other segment. The new segment presentation is primarily due to the increased size of the real estate solutions operations (formerly, ancillary services operations) resulting from strategic acquisitions. Previously, the real estate solutions operations were combined in one segment with the Company's corporate operations, which consist of expenses of the parent holding company and other centralized administrative services departments.

Under the revised segment presentation, the composition of each of the title and real estate solutions segments is substantially unchanged, while the corporate and other segment primarily includes corporate operations. The title segment provides services needed to transfer title to property in a real estate transaction and includes services such as searching, abstracting, examining, closing and insuring the condition of the title to the property. In addition, the title segment includes home and personal insurance services, Internal Revenue Code Section 1031 tax-deferred exchanges, and digital customer engagement platform services. The real estate solutions segment supports the real estate industry and primarily ~~include appraisal~~includes credit and real estate information services, valuation management services, online notarization and closing services, ~~credit and real estate information services,~~ and search services. The corporate and ~~valuation services. Amounts for 2021 were recast in~~other segment is primarily comprised of the ~~following table to conform with the new segment presentation.~~parent holding company and centralized administrative services departments.

Selected statement of income information related to these segments is as follows:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended June 30,		Six Months Ended June 30,
		2022	2021	2022	2021		2023	2022	2023	2022
		($000 omitted)					($000 omitted)
Title segment:	Title segment:					Title segment:
Revenues	Revenues	759,035	753,119	1,488,393	1,385,704	Revenues	480,825	759,035	942,468	1,488,393
Depreciation and amortization	Depreciation and amortization	7,489	4,709	13,631	9,023	Depreciation and amortization	8,883	7,489	16,986	13,631
Income before taxes and noncontrolling interest	Income before taxes and noncontrolling interest	93,595	125,671	176,375	202,760	Income before taxes and noncontrolling interest	35,459	93,595	34,794	176,375

Real estate solutions segment:	Real estate solutions segment:					Real estate solutions segment:
Revenues	Revenues	82,864	58,193	172,255	114,124	Revenues	71,411	82,864	134,035	172,255
Depreciation and amortization	Depreciation and amortization	6,381	1,884	13,177	3,778	Depreciation and amortization	6,280	6,381	12,581	13,177
Income before taxes	Income before taxes	6,095	2,212	12,886	4,869	Income before taxes	3,282	6,095	4,648	12,886

Corporate and other segment:	Corporate and other segment:					Corporate and other segment:
Revenues		2,174	7,497	36,340	7,567
Revenues (net realized losses)						Revenues (net realized losses)	(3,082)	2,174	(3,047)	36,340
Depreciation and amortization	Depreciation and amortization	418	226	1,229	448	Depreciation and amortization	365	418	867	1,229
(Loss) income before taxes		(12,911)	1,573	(22,870)	(4,171)
Loss before taxes						Loss before taxes	(13,567)	(12,911)	(24,424)	(22,870)

Consolidated Stewart:	Consolidated Stewart:					Consolidated Stewart:
Revenues	Revenues	844,073	818,809	1,696,988	1,507,395	Revenues	549,154	844,073	1,073,456	1,696,988
Depreciation and amortization	Depreciation and amortization	14,288	6,819	28,037	13,249	Depreciation and amortization	15,528	14,288	30,434	28,037
Income before taxes and noncontrolling interest	Income before taxes and noncontrolling interest	86,779	129,456	166,391	203,458	Income before taxes and noncontrolling interest	25,174	86,779	15,018	166,391

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.

Total revenues generated in the United States and all international operations are as follows:


		Three Months Ended June 30,		Six Months Ended June 30,			Three Months Ended June 30,		Six Months Ended June 30,
		2022	2021	2022	2021		2023	2022	2023	2022
		($000 omitted)					($000 omitted)
United States	United States	791,447	762,344	1,600,651	1,414,926	United States	514,699	791,447	1,012,228	1,600,651
International	International	52,626	56,465	96,337	92,469	International	34,455	52,626	61,228	96,337
		844,073	818,809	1,696,988	1,507,395		549,154	844,073	1,073,456	1,696,988

NOTE 13

Other comprehensive (loss) income. Changes in the balances of each component of other comprehensive (loss) income and the related tax effects are as follows:


		Three Months Ended June 30, 2022			Three Months Ended June 30, 2021				Three Months Ended June 30, 2023			Three Months Ended June 30, 2022
		Before-Tax Amount	Tax Expense (Benefit)	Net-of-Tax Amount	Before-Tax Amount	Tax Expense (Benefit)	Net-of-Tax Amount		Before-Tax Amount	Tax Expense (Benefit)	Net-of-Tax Amount	Before-Tax Amount	Tax Expense (Benefit)	Net-of-Tax Amount
		($000 omitted)							($000 omitted)
Net unrealized gains and losses on investments:	Net unrealized gains and losses on investments:							Net unrealized gains and losses on investments:
Change in net unrealized gains and losses on investments	Change in net unrealized gains and losses on investments	(16,068)	(3,374)	(12,694)	1,277	268	1,009	Change in net unrealized gains and losses on investments	(7,298)	(1,533)	(5,765)	(16,068)	(3,374)	(12,694)
Reclassification adjustments for realized gains and losses on investments	Reclassification adjustments for realized gains and losses on investments	(148)	(31)	(117)	(529)	(111)	(418)	Reclassification adjustments for realized gains and losses on investments	280	59	221	(148)	(31)	(117)
		(16,216)	(3,405)	(12,811)	748	157	591		(7,018)	(1,474)	(5,544)	(16,216)	(3,405)	(12,811)

Foreign currency translation adjustments	Foreign currency translation adjustments	(9,329)	(1,148)	(8,181)	1,760	381	1,379	Foreign currency translation adjustments	5,102	848	4,254	(9,329)	(1,148)	(8,181)

Other comprehensive (loss) income		(25,545)	(4,553)	(20,992)	2,508	538	1,970
Other comprehensive loss								Other comprehensive loss	(1,916)	(626)	(1,290)	(25,545)	(4,553)	(20,992)


		Six Months Ended June 30, 2022			Six Months Ended June 30, 2021				Six Months Ended June 30, 2023			Six Months Ended June 30, 2022
		Before-Tax Amount	Tax Expense (Benefit)	Net-of-Tax Amount	Before-Tax Amount	Tax Expense (Benefit)	Net-of-Tax Amount		Before-Tax Amount	Tax Expense (Benefit)	Net-of-Tax Amount	Before-Tax Amount	Tax Expense (Benefit)	Net-of-Tax Amount
		($000 omitted)							($000 omitted)
Net unrealized gains and losses on investments:	Net unrealized gains and losses on investments:							Net unrealized gains and losses on investments:
Change in net unrealized gains and losses on investments	Change in net unrealized gains and losses on investments	(41,256)	(8,664)	(32,592)	(10,312)	(2,165)	(8,147)	Change in net unrealized gains and losses on investments	1,078	226	852	(41,256)	(8,664)	(32,592)
Reclassification adjustment for realized gains and losses on investments	Reclassification adjustment for realized gains and losses on investments	(382)	(80)	(302)	(713)	(150)	(563)	Reclassification adjustment for realized gains and losses on investments	396	83	313	(382)	(80)	(302)
		(41,638)	(8,744)	(32,894)	(11,025)	(2,315)	(8,710)		1,474	309	1,165	(41,638)	(8,744)	(32,894)

Foreign currency translation adjustments	Foreign currency translation adjustments	(8,353)	(792)	(7,561)	4,111	865	3,246	Foreign currency translation adjustments	5,812	960	4,852	(8,353)	(792)	(7,561)

Other comprehensive loss		(49,991)	(9,536)	(40,455)	(6,914)	(1,450)	(5,464)
Other comprehensive income (loss)								Other comprehensive income (loss)	7,286	1,269	6,017	(49,991)	(9,536)	(40,455)

1716

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

MANAGEMENT’S OVERVIEW

Second quarter ~~2022~~2023 overview. We reported net income attributable to Stewart of $15.8 million ($0.58 per diluted share) for the second quarter 2023, compared to net income attributable to Stewart of $61.7 million ($2.26 per diluted share) for the second quarter ~~2022, compared to net income attributable to Stewart of $94.8 million ($3.50 per diluted share) for the second quarter 2021.~~2022. Pretax income before noncontrolling interests for the second quarter ~~2022~~2023 was ~~$86.8~~$25.2 million compared to pretax income before noncontrolling interests of ~~$129.5~~$86.8 million for the prior year quarter. The second quarter 2023 results included $1.1 million of pretax net realized and unrealized losses, primarily composed of a contingent receivable loss adjustment resulting from a previous disposition of a business, partially offset by net unrealized gains on fair value changes of equity securities investments, while the second quarter 2022 results included $11.9 million of pretax net realized and unrealized losses, primarily related to net unrealized losses on fair value changes of equity securities investments and losses on disposition of businesses, while the second quarter 2021 results included $11.7 million of pretax net realized and unrealized gains, primarily related to realized gains from sales of buildings and net unrealized gains on fair value changes of equity securities investments.

Summary results of the title segment are as follows ($ in millions, except pretax margin):


		For the Three Months Ended June 30						For the Three Months Ended June 30
		2022		2021		% Change				2023		2022		% Change

Operating revenues	Operating revenues	761.1		743.8		2	%		Operating revenues	466.7		761.1		(39)	%
Investment income	Investment income	6.7		5.1		31	%		Investment income	12.1		6.7		80	%
Net realized and unrealized (losses) gains	Net realized and unrealized (losses) gains	(8.8)		4.2		(311)	%		Net realized and unrealized (losses) gains	2.0		(8.8)		123	%
Pretax income	Pretax income	93.6		125.7		(26)	%		Pretax income	35.5		93.6		(62)	%
Pretax margin	Pretax margin	12.3	%	16.7	%				Pretax margin	7.4	%	12.3	%

~~The title segment’s~~Title segment operating revenues infor the second quarter ~~2022 increased by $17.2~~2023 decreased $294.3 million, or 2%39%, compared to the second quarter ~~2021, primarily due to increased~~2022, as a result of transaction volume declines in our direct and agency ~~operations revenues of $19.6~~title businesses, while total segment operating expenses decreased $220.1 million, or 5%33%, ~~partially offset~~primarily driven by ~~$2.4 million, or 1%,~~ lower ~~revenues from direct title operations. Overall segment operating~~revenues. Agency retention expenses in the second quarter ~~2022 increased $38.0~~2023 decreased $168.1 million, or 6%49%, ~~compared to the prior year quarter, primarily driven by 6% higher agency retention expenses on higher~~in line with $201.2 million, or 49%, lower gross agency revenues, ~~and 9% higher combined title employee costs and other operating expenses, primarily due to recent acquisitions. Average~~while the average independent agency remittance rate in the second quarter ~~2022 was 17.1%,~~2023 slightly improved to 17.7% compared to ~~17.5%~~17.1% in the prior year quarter, primarily as a result of geographic mix.

Total employee costs and other operating expenses in the second quarter ~~2021.~~2023 decreased $47.2 million, or 16%, compared to the prior year quarter. As a percentage of operating revenues, ~~combined title employee costs and other operating~~these expenses ~~was~~were 52.4% in the second quarter 2023 compared to 38.3% in the second quarter 2022, ~~compared~~primarily due to ~~35.9%~~lower second quarter 2023 revenues. Title loss expense decreased $6.6 million, or 25%, in the second quarter ~~2021.~~

~~Title loss expense in~~2023 compared to the ~~second~~prior year quarter ~~2022 decreased 21% to $26.4 million from $33.6 million in the second quarter 2021,~~ primarily ~~due to favorable claims experience.~~as a result of lower title revenues. As a percentage of title revenues, title loss expense was 4.2% in the second quarter 2023 compared to 3.5% in the second quarter 2022, ~~was 3.5% compared to 4.5% in the prior year quarter. For the full year 2022, we anticipate our title losses will be approximately 4% of title revenues.~~which benefited from last year’s favorable claims experience.

The title segment’s net realized and unrealized gains in the second quarter ~~2022~~2023 were primarily ~~included~~driven by $2.0 million of unrealized gains from fair value changes of equity securities investments, while the segment’s net realized and unrealized losses in the prior year quarter were primarily due to $9.9 million of net unrealized losses on fair value changes of equity securities investments, partially offset by a $1.0 million gain related to an acquisition contingent liability ~~adjustment, while net realized and unrealized gains in the second quarter 2021 were primarily related to net unrealized gains on fair value changes of equity securities investments.~~adjustment. Investment income in the second quarter ~~2022~~2023 increased $5.4 million compared to the second quarter ~~2021,~~2022, primarily ~~as a result of~~due to higher interest income resulting from earned interest from eligible escrow balances and increased ~~dividend income from investments~~interest rates and higher short-term investment balances in the second quarter ~~2022.~~2023. The segment's pretax income included $3.3 million and $2.5 million of acquisition intangible asset amortization and other expenses in the second quarters 2023 and 2022, respectively.

1817

Summary results of the real estate solutions segment are as follows ($ in millions):


		For the Three Months Ended June 30						For the Three Months Ended June 30
		2022		2021		% Change				2023		2022		% Change

Operating revenues	Operating revenues	82.9		58.2		42	%		Operating revenues	71.4		82.9		(14)	%
Pretax income	Pretax income	6.1		2.2		176	%		Pretax income	3.3		6.1		(46)	%
Pretax margin	Pretax margin	7.4	%	3.8	%				Pretax margin	4.6	%	7.4	%

~~Pretax income for the segment improved~~The segment’s operating revenues in the second quarter ~~2022,~~2023 decreased $11.5 million, or 14%, compared to the ~~prior year~~second quarter ~~as a result of $24.7 million, or 42%, higher operating revenues~~2022, primarily due to lower transaction volumes resulting from ~~acquisitions. Total~~the continuing elevated interest rate environment. Consistent with the revenue decline, combined employee costs and other operating ~~expenses increased $20.8 million, or 37%, consistent with increased revenues and higher purchased intangible asset amortization~~ expenses in the second quarter ~~2022 compared to the prior year quarter. Total~~2023 decreased $8.5 million, or 12%. The segment's pretax income included acquisition intangible asset amortization expenses of $5.8 million and $6.1 million in the second quarters 2023 and 2022, respectively, and ~~2021 were $6.1~~a $1.2 million ~~and $1.6 million, respectively.~~state sales tax assessment expense in the second quarter 2023 related to an acquisition.

~~Summary results of~~In regard to the corporate and other segment, ~~are as follows ($ in millions):~~

For the Three Months
Ended June 30
2022 2021 % Change
Operating revenues 5.3 — 100 %
Realized (loss) gains (3.2) 7.5 (142) %
Pretax (loss) income (12.9) 1.6 (921) %

pretax results for the second quarter 2023 included net realized losses of $3.1 million, primarily driven by a contingent receivable loss adjustment resulting from a previous disposition of a business, while second quarter 2022 results included net realized losses of $3.2 million primarily resulting from the same disposition of a business. Net expenses attributable to corporate operations induring the second quarter ~~2022~~2023 were ~~$10.2~~$10.5 million compared to ~~$5.9~~$10.2 million in the second quarter 2021, with the increase primarily driven by higher interest expense resulting from debt issued in the fourth quarter 2021. Realized losses for the second quarter 2022 were primarily related to the sale of the real estate brokerage company, while realized gains in the second quarter 2021 were primarily related to a sale of buildings.prior year quarter.

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 six months ended June 30, ~~2022,~~2023, we made no material changes to our critical accounting estimates as previously disclosed in Management’s Discussion and Analysis in the ~~2021~~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 ~~appraisal~~credit and real estate information services, valuation management services, online notarization and closing services, ~~credit and real estate information services,~~ and search ~~and valuation~~ services. The corporate and other segment includes our parent holding company expenses and certain enterprise-wide overhead costs, along with other businesses not related to title or real estate solutions operations.

Factors affecting revenues. The principal factors that contribute to changes in our operating revenues include:

•~~mortgage~~ interest rates;

•availability of mortgage loans;

•number and average value of mortgage loan originations;

•ability of potential purchasers to qualify for loans;

•inventory of existing homes available for sale;

•ratio of purchase transactions compared with refinance transactions;

•ratio of closed orders to open orders;

•home prices;

•consumer confidence, including employment trends;

•demand by buyers;

•premium rates;

•foreign currency exchange rates;

•market share;

•ability to attract and retain highly productive sales associates;

•~~departure of revenue-attached employees;~~

•independent agency remittance rates;

•opening 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.

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 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 six months ended June 30, ~~2022~~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 June 30, ~~2022.~~2023. We also use information from our direct operations.

Operating environment. ~~Existing~~According to NAR, existing home sales (seasonally-adjusted basis) in June ~~2022, on~~2023 were 4.2 million units, a ~~seasonally-adjusted basis, declined for the fifth straight month, decreasing 5% and 14% compared to May 2022 and~~decrease of 19% from a year ago ~~respectively. According to NAR, the decline in existing homes sales was~~and 3% from May 2023, primarily due to the current elevated mortgage interest rate environment. Housing inventory continued ~~fall~~to be low and was 14% lower in ~~housing affordability resulting from the sharp increase in mortgage rates and~~June 2023 compared to June 2022, while home prices ~~negatively affecting potential~~have steadily increased. The existing home ~~buyers. The median home~~median price in June 2023 was $410,200, which was the second highest since 1999, when NAR began tracking the data. The June 2023 median price was 3% higher than May 2023, but 1% lower compared to $413,800 observed in June 2022 which was ~~13% higher compared a year ago, which marked~~ the ~~124th consecutive month of year-over-year median home price increases. With regard to~~all-time high. With new residential construction, U.S. housing starts (seasonally-adjusted) in June ~~2022~~2023 were ~~2% and 6%~~8% lower compared to ~~May~~both June 2022 and ~~June 2021,~~May 2023, while ~~newly issued~~newly-issued building permits in June ~~2022~~2023 were ~~1% higher than~~15% and 4% lower compared to a year ago ~~but 1% lower compared to~~and May ~~2022.~~2023, respectively.

~~According~~With regard to ~~Fannie Mae and MBA (averaged), total~~lending activity, single family mortgage originations during the second quarter ~~2022~~2023 decreased ~~37%~~34% to ~~approximately $687~~$450 billion compared to the second quarter ~~2021, primarily driven by the expected decline in refinancing originations~~2022, resulting from ~~higher interest rates due to elevated inflation rates~~58% and ~~related federal monetary actions. The~~25% lower refinancing ~~originations were partially offset by 3% higher~~and purchase ~~originations during~~transactions, respectively, according to Fannie Mae and MBA (averaged). During the second quarter ~~2022 compared to the prior year quarter. As of June 2022,~~2023, the average 30-year fixed interest rate ~~is expected~~was 6.5% compared to 5.3% during the second quarter 2022. For the year 2023, Fannie Mae and MBA expect the interest rate to average ~~4.9% for 2022, which is 180 basis points~~6.3%, higher than the ~~3.1%~~5.4% average ~~interest rate~~ observed during ~~2021. With~~2022, while total originations for the ~~continuing interest rate and housing affordability concerns, third quarter 2022 total originations~~year 2023 are expected to ~~be 45% lower than last year's third quarter. On a seasonally-adjusted basis, third quarter 2022 existing home sales are expected to be 13% lower, while new home sales are anticipated to be flat~~decline 27% compared to ~~the third quarter 2021.~~2022.

Title revenues. Direct title revenue information is presented below:


		Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended June 30,					Six Months Ended June 30,
		2022	2021	Change	% Change		2022	2021	Change	% Change			2023	2022	Change	% Chg		2023	2022	Change	% Chg
		($ in millions)					($ in millions)						($ in millions)					($ in millions)
Non-commercial	Non-commercial											Non-commercial
Domestic	Domestic	234.4	245.7	(11.3)	(5)	%	454.8	459.9	(5.1)	(1)	%	Domestic	184.5	234.4	(49.9)	(21)	%	334.9	454.8	(119.9)	(26)	%
International	International	41.2	45.9	(4.7)	(10)	%	72.6	74.6	(2.0)	(3)	%	International	25.9	41.2	(15.3)	(37)	%	45.0	72.6	(27.6)	(38)	%
		275.6	291.6	(16.0)	(5)	%	527.4	534.5	(7.1)	(1)	%		210.4	275.6	(65.2)	(24)	%	379.9	527.4	(147.5)	(28)	%
Commercial:	Commercial:											Commercial:
Domestic	Domestic	67.1	53.8	13.3	25	%	123.5	84.8	38.7	46	%	Domestic	41.5	67.1	(25.6)	(38)	%	74.2	123.5	(49.3)	(40)	%
International	International	8.4	8.1	0.3	4	%	18.1	13.7	4.4	32	%	International	6.1	8.4	(2.3)	(27)	%	11.8	18.1	(6.3)	(35)	%
		75.5	61.9	13.6	22	%	141.6	98.5	43.1	44	%		47.6	75.5	(27.9)	(37)	%	86.0	141.6	(55.6)	(39)	%
Total direct title revenues	Total direct title revenues	351.1	353.5	(2.4)	(1)	%	669.0	633.0	36.0	6	%	Total direct title revenues	258.0	351.1	(93.1)	(27)	%	465.9	669.0	(203.1)	(30)	%

Non-commercial revenues decreased in the second quarter and first six months of ~~2022,~~2023, compared to the same periods in ~~2021,~~2022, primarily ~~due to~~resulting from lower residential purchase and refinancing transactions influenced by the rising mortgage interest rates ~~and home prices. Compared to the same periods in 2021, combined~~during 2023. Combined purchase and refinancing orders closed declined ~~30%~~31% and ~~28%~~41% in the second quarter and first six months of 2023, respectively, compared to the same periods in 2022, ~~respectively,~~ while average residential fee per file ~~increased 35% to $2,900 and 36% to $2,800~~ in both the second quarter and first six months of ~~2022, respectively,~~2023 increased to $3,300 (or 11% and 19%, respectively), primarily due to the higher mix of purchase ~~transactions and higher average home prices.~~transactions.

Commercial revenues in the second quarter and first six months of ~~2022, improved~~2023 were lower compared to the same periods in ~~2021, primarily due to growth in commercial~~2022, as a result of lower transaction ~~size~~volume and ~~volume.~~average transaction size. Domestic commercial orders closed ~~improved 4%~~decreased 30% and ~~15%~~22% in the second quarter and first six months of ~~2022,~~2023, respectively, while average domestic commercial fee per file ~~increased 17%~~decreased 12% to ~~$13,100~~$11,600 and ~~27%~~23% to ~~$12,900~~$9,900 in the second quarter and first six months of ~~2022,~~2023, respectively, compared to the same periods in ~~2021.~~

2022. Total international revenues in the second quarter 2022 decreased by $4.4 million, or 8%, compared to the second quarter 2021 primarily as a result of lower transaction volume in our Canadian operations, while total international revenues improved by $2.4 million, or 3%, during the first six months of 2022 compared the same period last year, primarily due to higher transaction volume in our Canadian operations. Additionally, the weaker foreign currency exchange rates against the U.S. dollar during the second quarter and first six months of ~~2022,~~2023 declined by $17.6 million, or 35%, and $33.9 million, or 37%, respectively, primarily due to lower transaction volumes in our Canadian operations compared to the same periods in ~~2021, negatively affected our total international revenues.~~

2022.

Orders information for the three and six months ended June 30 is as follows:


		Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended June 30,					Six Months Ended June 30,
		2022	2021	Change	% Change		2022	2021	Change	% Change			2023	2022	Change	% Chg		2023	2022	Change	% Chg
Opened Orders:	Opened Orders:											Opened Orders:
Commercial	Commercial	5,530	5,605	(75)	(1)	%	11,572	9,174	2,398	26	%	Commercial	3,294	5,530	(2,236)	(40)	%	7,136	11,572	(4,436)	(38)	%
Purchase	Purchase	72,084	76,632	(4,548)	(6)	%	140,582	147,421	(6,839)	(5)	%	Purchase	58,637	72,084	(13,447)	(19)	%	108,106	140,582	(32,476)	(23)	%
Refinance	Refinance	24,953	59,710	(34,757)	(58)	%	65,527	141,460	(75,933)	(54)	%	Refinance	18,642	24,953	(6,311)	(25)	%	34,771	65,527	(30,756)	(47)	%
Other	Other	1,079	1,682	(603)	(36)	%	2,721	3,492	(771)	(22)	%	Other	4,611	1,079	3,532	327	%	9,032	2,721	6,311	232	%
Total	Total	103,646	143,629	(39,983)	(28)	%	220,402	301,547	(81,145)	(27)	%	Total	85,184	103,646	(18,462)	(18)	%	159,045	220,402	(61,357)	(28)	%

Closed Orders:	Closed Orders:											Closed Orders:
Commercial	Commercial	5,132	4,957	175	4	%	9,563	8,334	1,229	15	%	Commercial	3,585	5,132	(1,547)	(30)	%	7,509	9,563	(2,054)	(21)	%
Purchase	Purchase	55,354	58,710	(3,356)	(6)	%	102,680	104,193	(1,513)	(1)	%	Purchase	43,082	55,354	(12,272)	(22)	%	74,710	102,680	(27,970)	(27)	%
Refinance	Refinance	22,677	52,628	(29,951)	(57)	%	57,164	118,294	(61,130)	(52)	%	Refinance	10,674	22,677	(12,003)	(53)	%	20,287	57,164	(36,877)	(65)	%
Other	Other	1,719	1,178	541	46	%	3,359	2,353	1,006	43	%	Other	2,905	1,719	1,186	69	%	5,639	3,359	2,280	68	%
Total	Total	84,882	117,473	(32,591)	(28)	%	172,766	233,174	(60,408)	(26)	%	Total	60,246	84,882	(24,636)	(29)	%	108,145	172,766	(64,621)	(37)	%

Gross revenues from independent agency operations in the second quarter and first six months of ~~2022 increased $19.6~~2023 decreased $201.2 million, or 5%49%, and ~~$77.8~~$356.3 million, or ~~11%~~44%, respectively, compared to the same periods in ~~2021,~~2022, primarily influenced by ~~increased~~lower commercial and residential market activity. Agency revenues, net of retention, ~~improved $1.8~~declined $33.1 million, or 3%47%, and ~~$12.7~~$62.8 million, or ~~10%~~44%, in the second quarter and first six months of ~~2022~~2023 compared to the same periods in ~~2021,~~2022, generally in line with ~~increased~~the change in gross agency revenues. Refer further to the "Retention by agencies" discussion under Expenses below.

Real estate solutions and other revenues. Real estate solutions and other revenues are comprised of revenues generated by our real estate solutions ~~operations~~segment and, for 2022, by a real estate brokerage company ~~(which was acquired in late 2021 and subsequently~~which we sold during the second quarter ~~2022). These~~2022. Real estate solutions revenues ~~increased by $30.0~~decreased $11.5 million, or ~~52%~~14%, and ~~$97.3~~$38.3 million, or ~~85%~~22%, in the second quarter and first six months of ~~2022, respectively, compared to the same periods in 2021,~~2023, primarily due to ~~additional revenues~~the decreased market activity resulting from ~~our~~the continued elevated interest rate environment. The disposed real estate ~~solutions operations which were driven by recent acquisitions~~brokerage company generated revenues of ~~credit~~$5.3 million and ~~real estate information services companies.~~$39.2 million during the second quarter and first six months of 2022, respectively.

Investment income. Investment income increased by ~~$1.6~~$5.4 million, or ~~31%~~80%, and ~~$1.3~~$8.4 million, or ~~14%~~81%, in the second quarter and first six months of ~~2022,~~2023, respectively, compared to the same periods in ~~2021,~~2022, primarily ~~due to~~as a result of higher interest income resulting from earned interest from eligible escrow balances and increased ~~dividend income from~~interest rates and higher short-term investments balances in ~~2022.~~2023.

Net realized and unrealized gains. Refer to Note 5 to the condensed consolidated financial statements.

Expenses. An analysis of expenses is shown below:


		Three Months Ended June 30,							Six Months Ended June 30,								Three Months Ended June 30,							Six Months Ended June 30,
		2022		2021		Change*	% Chg		2022		2021		Change*	% Chg			2023		2022		Change*	% Chg		2023		2022		Change*	% Chg
		($ in millions)							($ in millions)								($ in millions)							($ in millions)

Amounts retained by agencies	Amounts retained by agencies	339.8		322.0		17.8	6	%	671.0		606.0		65.1	11	%	Amounts retained by agencies	171.8		339.8		(168.0)	(49	%)	377.5		671.0		(293.5)	(44	%)
As a % of agency revenues	As a % of agency revenues	82.9	%	82.5	%				82.4	%	82.3	%				As a % of agency revenues	82.3	%	82.9	%				82.5	%	82.4	%
Employee costs	Employee costs	210.2		188.5		21.8	12	%	415.2		357.9		57.4	16	%	Employee costs	182.7		210.2		(27.6)	(13	%)	353.2		415.2		(62.0)	(15	%)
As a % of operating revenues	As a % of operating revenues	24.8	%	23.5	%				24.5	%	24.1	%				As a % of operating revenues	33.9	%	24.8	%				33.4	%	24.5	%
Other operating expenses	Other operating expenses	162.0		137.8		24.2	18	%	351.8		263.3		88.5	34	%	Other operating expenses	129.3		162.0		(32.7)	(20	%)	250.1		351.8		(101.7)	(29	%)
As a % of operating revenues	As a % of operating revenues	19.1	%	17.2	%				20.8	%	17.7	%				As a % of operating revenues	24.0	%	19.1	%				23.6	%	20.8	%
Title losses and related claims	Title losses and related claims	26.4		33.6		(7.2)	(21	%)	55.6		62.3		(6.7)	(11	%)	Title losses and related claims	19.8		26.4		(6.6)	(25	%)	37.5		55.6		(18.1)	(33	%)
As a % of title revenues	As a % of title revenues	3.5	%	4.5	%				3.8	%	4.6	%				As a % of title revenues	4.2	%	3.5	%				4.1	%	3.8	%

*Amounts change may not foot due to rounding.

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 ~~82.9%~~82.3% and ~~82.4%~~82.5% in the second quarter and first six months of ~~2022,~~2023, respectively, compared to ~~82.5%~~82.9% and ~~82.3%~~82.4% in the same periods in ~~2021, primarily due to increased revenues generated by our agents from higher retention states.~~2022. 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 $21.8 million, or 12%, and $57.4 million, or 16%,~~ in the second quarter and first six months of ~~2022,~~2023 decreased $27.6 million, or 13%, and $62.0 million, or 15%, respectively, compared to the ~~same periods in 2021,~~second quarter and first six months of 2022, primarily ~~due to higher salaries and employee benefits~~ resulting from ~~increased~~lower salaries expenses, incentive compensation and temporary labor costs related to lower volumes and 11% and 10% lower average employee counts ~~of 17% and 20%, respectively, which were influenced by acquisitions. Employee costs, as a percentage of total operating revenues, were 24.8% and 24.5%~~ in the second quarter and first six months of ~~2022, respectively, compared~~2023, respectively. Compared to ~~23.5% and 24.1%~~corresponding periods in the ~~same periods in 2021.~~

~~During~~prior year, employee costs for the second quarter and first six months of ~~2022, employee costs~~2023 in the title segment ~~increased $15.6~~decreased $27.9 million, or 9%14%, and ~~$41.1~~$58.6 million, or ~~12%~~15%, respectively, while employee costs in the real estate solutions segment ~~increased $5.2~~decreased $0.3 million, or ~~69%~~2%, and ~~$11.7~~$1.3 million, or ~~81%~~5%, ~~respectively, compared to the same periods in 2021, primarily due to recent acquisitions in the title~~respectively.

Total employee costs, as a percentage of total operating revenues, were higher at 33.9% and real estate solutions segments. During the second quarter and first six months of 2022, average employee counts in the title segment increased 12% and 15%, respectively, while average employee counts in the real estate solutions segment increased 66% and 70%, respectively, compared to the same periods in 2021. Employee costs in the corporate and other segment33.4% in the second quarter and first six months of 2023, respectively, compared to 24.8% and 24.5% in the same periods in 2022, ~~increased $0.9 million, or 32%, and $4.5 million, or 74%, respectively, due to the recently-sold real estate brokerage company.~~

primarily as a result of lower revenues in 2023. As of June 30, ~~2022,~~2023, we had approximately ~~7,300~~6,900 employees compared to approximately ~~6,400~~7,700 and 7,100 employees as of June 30, ~~2021.~~2022 and December 31, 2022, respectively.

Other operating expenses. Other operating expenses include costs that are primarily fixed in nature, costs that follow, to varying degrees, changes in transaction volumes and revenues (variable costs) and costs that fluctuate independently of revenues (independent costs). Costs that are primarily fixed in nature include ~~attorney and professional fees, third-party outsourcing provider fees, equipment rental, insurance,~~ rent and other occupancy expenses, equipment rental, insurance, repairs and maintenance, technology costs, telecommunications and title plant expenses. Variable costs include appraiser and service expenses related to real estate solutions operations, outside search ~~and valuation~~ fees, attorney fee splits, ~~bad debt expenses,~~credit losses (on receivables), copy supplies, delivery fees, postage, premium taxes and title plant maintenance expenses. Independent costs include general supplies, litigation defense, business promotion and marketing and travel.

Consolidated other operating expenses in the second quarter and first six months of ~~2022 increased $24.2~~2023 declined $32.7 million, or ~~18%~~20%, and ~~$88.5~~$101.7 million, or ~~34%~~29%, respectively, compared to the ~~same periods in 2021,~~second quarter and first six months of 2022, primarily due to ~~higher service expenses~~decreased costs tied to ~~increased revenues from~~lower title and real estate solutions ~~operations, higher technology, marketing and travel costs, and increased rent and other occupancy expenses resulting from acquisitions.~~revenues. Total variable costs ~~increased $11.3 million, or 13%, and $60.5 million, or 37%,~~ in the second quarter and first six months of ~~2022,~~2023 decreased $25.7 million, or 26%, and $90.3 million, or 40%, respectively, ~~mainly~~primarily due to ~~higher services~~lower appraisal and outside search expenses ~~from our real estate solutions operations.~~and premium taxes. Total costs that are primarily fixed in nature ~~increased $8.8 million, or 22%, and $20.4 million, or 26%,~~ in the second quarter and first six months of ~~2022,~~2023 decreased $5.0 million, or 10%, and $7.3 million, or 7%, respectively, primarily due to ~~higher technology costs, rent and occupancy expenses,~~reduced outsourcing and insurance ~~costs. Independent~~expenses, while independent costs ~~increased~~decreased $2.0 million, or 13%, and $4.1 million, or ~~38%~~14%, ~~and $7.6 million, or 37%, in the second quarter and first six months of 2022,~~ respectively, primarily due to ~~higher~~lower business promotion and marketing costs and ~~travel costs due to increased activity following the pandemic period.~~bank fees expense.

As a percentage of total operating revenues, consolidated other operating expenses in the second quarter and first six months of ~~2022,~~2023 increased to 24.0% and 23.6%, respectively, compared to 19.1% and 20.8%~~, respectively, compared to 17.2% and 17.7%~~ in the same periods in ~~2021,~~2022, primarily due to ~~the increased size of our real estate solutions operations which typically have higher other~~lower operating ~~expenses.~~revenues in 2023.

Title losses. Provisions for title losses, as a percentage of title operating revenues, were 4.2% and 4.1% for the second quarter and first six months of 2023, respectively, compared to 3.5% and 3.8% for the second quarter and first six months of 2022, ~~compared~~respectively. The slightly higher title loss ratios in 2023 were primarily due to ~~4.5% and 4.6% for~~ the ~~second quarter and first six months of 2021.~~favorable claims experience during 2022. Title loss expense in the second quarter and first six months of ~~2022 was $26.4~~2023 decreased $6.6 million, or 25%, and ~~$55.6~~$18.1 million, or 33%, respectively, ~~compared to $33.6 million and $62.3 million, respectively, in the same periods in 2021,~~ primarily ~~due to favorable claims experience, partially offset by higher~~as a result of lower title revenues ~~during 2022.~~in 2023. 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.

The composition of title policy loss expense is as follows:


		Three Months Ended June 30,					Six Months Ended June 30,						Three Months Ended June 30,					Six Months Ended June 30,
		2022	2021	Change	% Chg		2022	2021	Change	% Chg			2023	2022	Change	% Chg		2023	2022	Change	% Chg
		($ in millions)					($ in millions)						($ in millions)					($ in millions)
Provisions – known claims:	Provisions – known claims:											Provisions – known claims:
Current year	Current year	3.7	4.3	(0.6)	(14)	%	8.4	6.5	1.9	29	%	Current year	3.3	3.7	(0.4)	(11)	%	5.8	8.4	(2.6)	(31)	%
Prior policy years	Prior policy years	16.7	14.4	2.3	16	%	31.6	27.7	3.9	14	%	Prior policy years	24.5	16.7	7.8	47	%	42.5	31.6	10.9	34	%
		20.4	18.7	1.7	9	%	40.0	34.2	5.8	17	%		27.8	20.4	7.4	36	%	48.3	40.0	8.3	21	%
Provisions – IBNR	Provisions – IBNR											Provisions – IBNR
Current year	Current year	23.2	28.5	(5.3)	(19)	%	47.3	54.6	(7.3)	(13)	%	Current year	16.3	23.2	(6.9)	(30)	%	31.0	47.3	(16.3)	(34)	%
Prior policy years	Prior policy years	(0.5)	0.8	(1.3)	(163)	%	(0.1)	1.2	(1.3)	(108)	%	Prior policy years	0.2	(0.5)	0.7	(140)	%	0.7	(0.1)	0.8	(800)	%
		22.7	29.3	(6.6)	(23)	%	47.2	55.8	(8.6)	(15)	%		16.5	22.7	(6.2)	(27)	%	31.7	47.2	(15.5)	(33)	%
Transferred from IBNR to known claims	Transferred from IBNR to known claims	(16.7)	(14.4)	(2.3)	16	%	(31.6)	(27.7)	(3.9)	14	%	Transferred from IBNR to known claims	(24.5)	(16.7)	(7.8)	47	%	(42.5)	(31.6)	(10.9)	34	%
Total provisions	Total provisions	26.4	33.6	(7.2)	(21)	%	55.6	62.3	(6.7)	(11)	%	Total provisions	19.8	26.4	(6.6)	(25)	%	37.5	55.6	(18.1)	(33)	%

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.

~~Current~~Total known claims provision increased in the second quarter and first six months of 2023, compared to the same periods in 2022, as a result of increases to existing large and non-large claims related to prior policy years, while current year IBNR provisions in the second quarter and first six months of ~~202~~20232 decreased, ~~$5.3 million, or 19%, and $7.3 million, or 13%, respectively, compared to the same periods in 2021,~~ primarily due to lower ~~provisioning rates resulting from favorable claims experience.~~title premiums. As a percentage of title operating revenues, provisions - IBNR for the current policy year were 3.5% and 3.4% in the second quarter and first six months of 2023, respectively, compared to 3.0% and 3.2% in the second quarter and first six months of 2022, ~~respectively, compared to 3.8% and 4.0%~~respectively. Cash claim payments in the second quarter and first six months of ~~2021, respectively. Cash claim payments in the second quarter 2022 decreased $1.1~~2023 increased $13.0 million, or 6%71%, ~~compared to the second quarter 2021, primarily due to lower payments on non-large claims, while cash claim payments in the first six months of 2022 increased $2.6~~and $26.2 million, or 7%68%, respectively, compared to the same ~~period~~periods in ~~2021, as a result of increased large claim payments, partially offset by lower~~2022, primarily due to payments on ~~non-large claims.~~existing large claims related to prior policy years resulting from resolution of those claims in 2023. 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 expenses 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.

Total title policy loss reserve balances are as follows:


		June 30, 2022	December 31, 2021		June 30, 2023	December 31, 2022
		($ in millions)			($ in millions)
Known claims	Known claims	77.3	75.9	Known claims	70.5	87.3
IBNR	IBNR	485.4	473.7	IBNR	453.6	462.1
Total estimated title losses	Total estimated title losses	562.7	549.6	Total estimated title losses	524.1	549.4

The actual timing of estimated title loss payments may vary since claims, by their nature, are complex and paid over long periods of time. Based on historical payment patterns, the outstanding loss reserves are substantially paid out within ~~seven~~eight 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 increased ~~$7.5~~$1.2 million ~~or 110%,~~ and ~~$14.8~~$2.4 million ~~or 112%,~~(both 9%) in the second quarter and first six months of ~~2022~~2023, respectively, compared to the same periods in ~~2021,~~2022, primarily due to ~~recent acquisitions, which generated higher purchased~~increased depreciation expenses related to internal-use systems placed into operation starting in the second quarter 2022. Acquisition intangible ~~asset~~ amortization expenses for the second quarter and first six months of ~~$6.5~~2023 were $8.7 million and ~~$12.6~~$17.0 million, respectively, compared to $8.5 million and ~~higher depreciation expense resulting from increased capital expenditures.~~$16.9 million, respectively, for the same periods in 2022.

Income taxes. Our effective tax rates, based on income before taxes and after deducting income attributable to noncontrolling interests, were ~~24.4%~~25% and ~~23.9%~~6% in the second quarter and first six months of ~~2022,~~2023, respectively, compared to ~~24.4%~~24% for both the second quarter and ~~24.2% in~~first six months of 2022. Excluding discrete tax adjustments, primarily recorded during the ~~corresponding periods in 2021.~~first quarter 2023 and related to increased utilization of net operating loss carryforwards of prior years' acquisitions, the effective tax rate for the first six months of 2023 would have been 26%.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital resources reflect our ability to generate cash flow to meet our obligations to stockholders, customers (payments to satisfy claims on title policies), vendors, employees, lenders and others. As of June 30, ~~2022,~~2023, our total cash and investments, including amounts reserved pursuant to statutory requirements aggregated ~~$1.1 billion.~~$896.8 million. Of our total cash and investments at June 30, ~~2022, $709.6~~2023, $497.5 million ($~~429.9~~244.2 million, net of statutory reserves) was held in the United States and the rest internationally (principally in Canada).

As a holding company, the parent company is funded principally by cash from its subsidiaries' earnings in the form of dividends, operating and other administrative expense reimbursements and pursuant to intercompany tax sharing agreements. Cash held at the parent company and its unregulated subsidiaries (which totaled ~~$53.9~~$42.3 million at June 30, ~~2022)~~2023) is available for funding the parent company's operating expenses, interest payments on debt and dividend payments to common stockholders. The parent company also receives distributions from Stewart Title Guaranty Company (Guaranty), its regulated title insurance underwriter, to meet cash requirements for acquisitions and other strategic investments.

A substantial majority of our consolidated cash and investments as of June 30, ~~2022~~2023 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 uses 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 claims payments. Guaranty may also, subject to certain limitations, provide funds to its subsidiaries (whose operations consist principally of field title offices and real estate solutions 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 ~~$538.1~~$519.5 million and ~~$523.5~~$544.0 million at June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. In addition, included within cash and cash equivalents are statutory reserve funds of approximately ~~$14.9~~$10.2 million and ~~$41.4~~$8.6 million at June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. As of June 30, ~~2022,~~2023, our known claims reserve totaled ~~$77.3~~$70.5 million and our estimate of claims that may be reported in the future, under generally accepted accounting principles, totaled ~~$485.4~~$453.6 million. In addition to this, we had cash and investments (excluding equity method investments) of ~~$402.3~~$289.6 million, which are available for underwriter operations, including claims payments, and acquisitions.

The ability of Guaranty to pay dividends to its parent is governed by Texas insurance law. The Texas Department of Insurance (TDI) must be notified of any dividend declared, and any dividend in excess of the greater of the statutory net operating income or 20% of surplus ~~(approximately $210.1~~(which was approximately $158.1 million as of December 31, ~~2021)~~2022) 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. ~~Guaranty paid no dividends to its parent during~~During the six months ended June 30, 2023 and 2022, ~~compared~~no dividends have been paid by Guaranty to ~~$100.0 million paid during~~ the ~~same period in 2021.~~parent company.

As the parent company conducts no operations apart from its wholly-owned subsidiaries, the discussion below focuses on consolidated cash flows.


		Six Months Ended June 30,			Six Months Ended June 30,
		2022	2021		2023	2022
		($ in millions)			($ in millions)
Net cash provided by operating activities		118.2	150.5
Net cash (used) provided by operating activities				Net cash (used) provided by operating activities	(16.0)	118.2
Net cash used by investing activities	Net cash used by investing activities	(111.1)	(173.7)	Net cash used by investing activities	(7.3)	(111.1)
Net cash used by financing activities	Net cash used by financing activities	(84.3)	(9.1)	Net cash used by financing activities	(35.7)	(84.3)

Operating activities. Our principal sources of cash from operations are premiums on title policies and revenue from title service-related transactions, real estate solutions 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 ~~provided~~used by operations in the first six months of ~~2022 decreased $32.3~~2023 was $16.0 million compared to net cash provided by operations of $118.2 million in the same period in ~~2021,~~2022, primarily ~~due to~~driven by lower net income and higher claims payments ~~of previously-outstanding operating liabilities in 2022.~~during 2023. 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 ~~rising~~elevated mortgage interest ~~and inflation~~ rates, specifically focusing on lowering unit costs of production and improving operating margins in our direct title and real estate solutions operations. Our plans to improve margins include additional automation of manual processes, ~~and~~ further consolidation of our various systems and production ~~operations.~~operations, and full integration of acquisitions. We continue to invest in the technology necessary to accomplish these goals.

Investing activities. Net cash used by investing activities is primarily driven by proceeds from matured and sold investments, purchases of investments, capital expenditures and acquisition of businesses. During the first six months of ~~2022,~~2023, total proceeds from securities investments sold and matured were ~~$52.3~~$94.7 million, compared to ~~$65.8~~$52.3 million during the first six months of ~~2021.~~2022. Cash used for purchases of securities investments was ~~$117.9~~$55.5 million during the first six months of ~~2022~~2023 compared to ~~$89.2~~$117.9 million during the same period in ~~2021.~~2022.

We used $22.4 million and $23.3 million of net cash for ~~two acquisitions in the title segment during the first six months of 2022, compared to net cash used of $131.9 million for several~~ acquisitions in the title and real estate solutions segments ~~and $16.1 million for acquiring an equity method investment in a title company~~ during the ~~same period in 2021.~~first six months of 2023 and 2022, respectively, while we received $6.6 million during the first six months of 2022 from the sale of a subsidiary. We used ~~$26.2~~$15.5 million and ~~$16.4~~$26.2 million of cash for purchases of property and equipment during the first six months of ~~2022~~2023 and ~~2021,~~2022, respectively. 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 ~~$444.9~~$445.0 million and ~~$1.36~~$1.37 billion, respectively, as of June 30, ~~2022.~~2023. During the first six months of ~~2022~~2023 and ~~2021,~~2022, payments on notes payable of ~~$42.9~~$5.7 million and ~~$157.2~~$42.9 million, respectively, and notes payable additions of ~~$5.7~~$3.5 million and ~~$156.8~~$5.7 million, respectively, were related to short-term loan agreements in connection with our Section 1031 tax-deferred property exchange (Section 1031) business.

At June 30, ~~2022,~~2023, our line of credit facility was fully available, while our debt-to-equity and debt-to-capitalization ratios, excluding our Section 1031 notes, were approximately 33% and 25%, respectively. During the first six months of ~~2022,~~2023, we paid total dividends of ~~$20.3~~$24.5 million ($~~0.75~~0.90 per common share), compared to the total dividends paid in the same period in ~~2021~~2022 of ~~$17.7~~$20.3 million ($~~0.66~~0.75 per common share).

~~***********~~

We believe we have sufficient liquidity and capital resources to meet the cash needs of our ongoing operations, including inconsideration of the current economic and real estate environment created by the ~~increasing~~higher mortgage interest ~~and inflation~~ rates. 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 10 to the condensed consolidated financial statements.

Other comprehensive loss. 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 six months of 2023, net unrealized investment gains of $1.2 million, net of taxes, which increased our other comprehensive income, were primarily related to net increases in the fair values of our corporate bond securities investments. During the first six months of 2022, net unrealized investment losses of $32.9 million, net of taxes, which increased our other comprehensive loss, were primarily related to net decreases in the fair values of our corporate and foreign bond securities investments, primarily driven by the effect of higher interest rates and credit spreads. During the first six months of 2021, net unrealized investment losses of $8.7 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 the effect of rising interest rates.

Changes in foreign currency exchange rates, primarily related to our Canadian and United Kingdom operations, increased our other comprehensive income, net of taxes, by $4.9 million in the first six months of 2023, while they increased our other comprehensive loss, net of taxes, by $7.6 million in the first six months of ~~2022; while they decreased our other comprehensive loss, net of taxes, by $3.2 million in the same period in 2021.~~2022.

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 15 in our ~~2021~~2022 Form 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 following:

•the volatility of economic conditions;

•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;

•our ability to prevent and mitigate cyber risks;

•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;

•our ability to realize anticipated benefits of our previous acquisitions;

•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;~~

•effects of seasonality and weather; and

•our ability to respond to the actions of our competitors. ~~These~~

The above 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 ~~2021~~2022 Form 10-K, and as ~~maybe~~may be 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 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 June 30, ~~2022~~2023 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 ~~2021~~2022 Form 10-K.

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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 June 30, ~~2022,~~2023, 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 June 30, ~~2022,~~2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

See discussion of legal proceedings in Note 11 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 ~~2021~~2022 Form 10-K.

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in our ~~2021~~2022 Form 10-K. There have been no material changes to our risk factors since our ~~2021~~2022 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no repurchases of our Common Stock during the six months ended June 30, ~~2022,~~2023, except for repurchases of approximately ~~37,300~~32,200 shares (aggregate purchase price of approximately ~~$2.6~~$1.4 million) related to the statutory income tax withholding on the vesting of restricted unit grants to executives and senior management employees.

Item 5. Other Information

Book value per share. Our book value per share was $49.82 and ~~$47.67~~$50.21 as of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. As of June 30, 2023, our book value per share was based on approximately $1.36 billion of stockholders’ equity attributable to Stewart and 27,266,830 shares of Common Stock outstanding. As of December 31, 2022, our book value per share was based on approximately ~~$1.35~~$1.36 billion of stockholders’ equity attributable to Stewart and 27,038,282 shares of Common Stock outstanding. As of December 31, 2021, our book value per share was based on approximately $1.28 billion of stockholders’ equity attributable to Stewart and 26,893,43027,130,412 shares of Common Stock outstanding.

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Item 6. Exhibits


Exhibit


3.1	—	Restated Certificate of Incorporation of the Registrant, dated April 28, 2016 (incorporated by reference in this report from Exhibit 3.1 of the Current Report on Form 8-K filed April 29, 2016)
3.2	—	~~Third~~Fifth Amended and Restated By-Laws of the Registrant, as of ~~April~~December 27, ~~2016~~2022 (incorporated by reference in this report from Exhibit ~~3.2~~3.1 of the Current Report on Form 8-K filed ~~April 28, 2016)~~December 30, 2022)













31.1*	—	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	—	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	—	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	—	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	—	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*	—	XBRL Taxonomy Extension Schema Document
101.CAL*	—	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	—	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	—	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	—	XBRL Taxonomy Extension Presentation Linkbase Document
104*	—	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


* Filed herewith
~~† Management contract or compensatory plan~~

SIGNATURE

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.


August ~~9, 2022~~8, 2023
Date


						Stewart Information Services Corporation
						Registrant

By:						/s/ David C. Hisey
						David C. Hisey, Chief Financial Officer ~~Secretary~~ and Treasurer

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