STEWART INFORMATION SERVICES CORP

Previous wording

Second quarter 2024 overview. We reported net income attributable to Stewart of $17.3 million ($0.62 per diluted share) for the second quarter 2024, compared to net income of $15.8 million ($0.58 per diluted share) for the second quarter 2023. Pretax income before noncontrolling interests for the second quarter 2024 was $29.0 million compared to pretax income before noncontrolling interests of $25.2 million for the prior year quarter. The second quarter 2024 results included $0.5 million of pretax net realized and unrealized losses primarily driven by fair value changes of equity securities investments in the title segment, while second quarter 2023 results included $1.1 million of pretax net realized and unrealized losses primarily due to a realized loss related to a previous disposition of a business recorded in the corporate and other segment, partially offset by net unrealized gains on fair value changes of equity securities investments in the title segment.

Current wording

Third quarter 2024 overview. We reported net income attributable to Stewart of $30.1 million ($1.07 per diluted share) for the third quarter 2024, compared to net income of $14.0 million ($0.51 per diluted share) for the third quarter 2023. Pretax income before noncontrolling interests for the third quarter 2024 was $42.8 million compared to pretax income before noncontrolling interests of $27.1 million for the prior year quarter. The third quarter 2024 results included $4.7 million of pretax net realized and unrealized gains, while the third quarter 2023 results included $1.9 million of pretax net realized and unrealized losses, both of which were primarily driven by net unrealized gains and losses, respectively, from fair value changes of equity security investments in the title segment.

Previous wording

Title segment operating revenues improved $29.5 million, or 6%, in the second quarter 2024 primarily driven by increased revenues from our domestic commercial, international and agency title operations, partially offset by lower domestic noncommercial revenues, while total segment operating expenses increased $31.3 million, or 7%, compared to the second quarter 2023. Agency retention expenses in the second quarter 2024 increased $28.4 million, or 17%, primarily driven by $32.0 million, or 15%, improvement in gross agency revenues compared to the second quarter 2023, while the average independent agency remittance rate in the second quarter 2024 decreased to approximately 16.9%, compared to 17.7% during the prior year quarter, primarily due to increased agency revenues in states with relatively higher agent retention rates.

Current wording

Title segment operating revenues improved $31.2 million, or 6%, in the third quarter 2024 primarily driven by increased revenues from our domestic commercial and agency title operations, while total segment operating expenses increased $28.4 million, or 6%, compared to the third quarter 2023. Agency retention expenses in the third quarter 2024 increased $15.0 million, or 7%, primarily resulting from $16.8 million, or 6%, improvement in gross agency revenues compared to the third quarter 2023.

Previous wording

Total title segment employee costs and other operating expenses slightly increased by $2.0 million, or less than 1%, in the second quarter 2024 compared to the prior year quarter, primarily due to increased outside search expenses related to higher commercial revenues. As a percentage of operating revenues, these expenses were 49.7% in the second quarter 2024 compared to 52.4% in the second quarter 2023. Title loss expense in the second quarter 2024 increased $1.3 million, or 7%, primarily driven by higher title revenues compared to the prior year quarter. As a percentage of title revenues, title loss expense was 4.2% for both the second quarters 2024 and 2023.

Current wording

Total title segment employee costs and other operating expenses increased by $14.6 million, or 6%, in the third quarter 2024 compared to the prior year quarter, primarily due to higher outside search and incentive compensation expenses related to higher commercial revenues. As a percentage of operating revenues, these expenses were 47.4% in both third quarters of 2024 and 2023. Title loss expense in the third quarter 2024 decreased $1.0 million, or 4%, primarily due to an overall favorable claim experience compared to the prior year quarter. As a percentage of title revenues, title loss expense was 3.8% for the third quarter 2024 compared to 4.3% in the third quarter 2023.

Previous wording

Investment income improved by $2.2 million in the second quarter 2024 compared to the prior year quarter, primarily resulting from higher interest income on eligible escrow balances in the second quarter 2024. Included in the title segment’s pretax income for the second quarters 2024 and 2023 were acquisition intangible asset amortization expenses of $2.8 million and $3.3 million, respectively.

Current wording

Included in the title segment’s pretax income for the third quarters 2024 and 2023 were acquisition intangible asset amortization and related expenses of$2.8 million and $3.4 million, respectively.

Previous wording

The segment's operating revenues increased $20.8 million, or 29%, in the second quarter 2024 compared to the prior year quarter, primarily due to increased revenues from credit information and valuation services. On a combined basis, employee costs and other operating expenses in the second quarter 2024 increased $19.0 million, or 31%, primarily due to the higher operating revenues. Included in the segment's results for the second quarters 2024 and 2023 were acquisition intangible asset amortization expenses of $5.5 million and $5.8 million, respectively.

Current wording

The segment's operating revenues increased $28.2 million, or 41%, in the third quarter 2024 compared to the prior year quarter, primarily due to improved revenues from our credit information and valuation services. On a combined basis, segment employee costs and other operating expenses in the third quarter 2024 increased $24.2 million, or 41%, in line with the higher operating revenues. Included in the segment's results for the third quarters 2024 and 2023 were acquisition intangible asset amortization expenses of $5.5 million and $6.3 million, respectively.

Previous wording

In regard to the corporate and other segment, pretax results were driven by net expenses attributable to corporate operations which decreased to $9.5 million in the second quarter 2024, compared to $10.5 million in the second quarter 2023, primarily driven by management’s cost discipline. The segment’s results for the second quarter 2023 included net realized losses of $3.1 million, primarily driven by a loss adjustment resulting from a previous disposition of a business.

Current wording

In regard to the corporate and other segment, pretax results were driven by net expenses attributable to corporate operations, which decreased to $9.5 million in the third quarter 2024, compared to $10.8 million in the third quarter 2023, primarily due to a prior acquisition-related settlement expense in the third quarter 2023.

Previous wording

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, 2024, we made no material changes to our critical accounting estimates as previously disclosed in Management’s Discussion and Analysis in the 2023 Form 10-K.

Current wording

Actual results can differ from our accounting estimates. While we do not anticipate significant changes in our estimates, there is a risk that such changes could have a material impact on our consolidated financial condition or results of operations for future periods. During the nine months ended September 30, 2024, we made no material changes to our critical accounting estimates as previously disclosed in Management’s Discussion and Analysis in the 2023 Form 10-K.

Previous wording

Comparisons of our results of operations for the three and six months ended June 30, 2024 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.

Current wording

Comparisons of our results of operations for the three and nine months ended September 30, 2024 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.

Previous wording

Operating environment. Existing home sales in June 2024 were 3.9 million units (seasonally-adjusted basis), which were 5% lower from both a year ago and May 2024, primarily due to the continuing elevated interest rate environment accompanied by rising home prices. According to NAR, the June 2024 median home price of $427,000 was the highest ever recorded, further affecting housing affordability and increasing unsold home inventory, which at the end of June 2024 was 23% higher than a year ago and 3% higher than May 2024. On new residential construction, U.S. housing starts(seasonally-adjusted) in June 2024 were 3% better than May 2024, but 4% lower than a year ago, while June 2024 newly-issued building permits were 3% higher than May 2024, but 3% lower compared to June 2023.

Current wording

Operating environment. According to NAR, existing home sales (seasonally-adjusted basis) in September 2024 totaled 3.8 million units, which was 1% and 4% lower from August 2024 and a year ago, respectively, primarily due to the consumer hesitancy and affordability challenges, despite the gradually declining interest rate environment. The median home price increased 3% in September 2024 to $405,000 from September 2023, marking the 15th consecutive month of year-over-year price increases, which contributed to increases of 2% and 23% in unsold home inventory in September 2024 compared to August 2024 and September 2023, respectively. In relation to new residential construction, U.S. housing starts(seasonally-adjusted) in September 2024 were 1% lower compared to both August 2024 and September 2023, while newly-issued building permits in September 2024 were 3% and 6% lower compared to August 2024 and September 2023, respectively.

Previous wording

Regarding lending activity, total U.S. single family mortgage originations during the second quarter 2024 totaled $441 billion, which was comparable to $442 billion in the second quarter 2023, as the purchase lending decline of 3% was offset by a 12% improvement in refinancing originations, according to Fannie Mae and MBA (averaged). During the second quarter 2024, the average 30-year fixed interest rate averaged 7.0% compared to 6.5% in the second quarter 2023 and 6.7% in the first quarter 2024. For the full year 2024, Fannie Mae and MBA expect the interest rate to average 6.8%, similar to the 2023 average, while total originations for the year 2024 are expected to be 13% higher compared to 2023, with total lending volumes in the third and fourth quarters of 2024 anticipated to improve 17% and 29%, respectively, compared to the same periods in 2023.

Current wording

Based on averaged estimates by Fannie Mae and MBA, total U.S. single family mortgage originations during the third quarter 2024 increased 10% to $464 billion compared to the prior year quarter, with purchase and refinancing originations increasing 4% and 42%, respectively. During the third quarter 2024, the average 30-year fixed interest rate averaged lower at 6.6%, compared to 7.0% in both the third quarter 2023 and the second quarter 2024, primarily influenced by the federal government's first interest rate reduction since March 2020. For the fourth quarter 2024, Fannie Mae and MBA expect the interest rate to further decline to an average of 6.2%, lower than the 7.3% average in the fourth quarter 2023, while total dollar originations for the fourth quarter 2024 are expected to increase 7%, compared to the third quarter 2024, behind a projected 69% increase in refinancing lending, partially offset by a 10% decline forecast in purchase originations.

Previous wording

Domestic commercial revenues increased in the second quarter and first six months of 2024, compared to the same periods in 2023, primarily as a result of increased average transaction size (primarily in the energy and industrial sectors). Average domestic commercial fee per file improved to $13,500 (or 17%) and $13,700 (or 39%) in the second quarter and first six months of 2024, respectively, while domestic commercial orders closed increased 6% in the second quarter 2024 and slightly decreased 2% in the first six months of 2024, compared to the same periods in 2023.

Current wording

Domestic commercial revenues increased in the third quarter and first nine months of 2024, compared to the same periods in 2023, primarily as a result of increased average transaction size, primarily from the energy and multi-family sectors, and, for third quarter 2024, an improvement in commercial transactions closed compared to the third quarter 2023. Average domestic commercial fee per file increased to $17,700 (or 25%) and $15,100 (or 34%) in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023.

Previous wording

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

Current wording

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

Previous wording

Other opened and closed orders, which typically have a lower average fee per file compared to residential purchase transactions, increased in the second quarter and first six months of 2024 compared to the same periods in 2023, primarily due to higher institutional bulk securitization and reverse mortgage transactions resulting from the ramp up of acquisitions completed in late 2022.

Current wording

Other opened and closed orders, which typically have a lower average fee per file compared to residential purchase transactions, increased in the third quarter and first nine months of 2024 compared to the same periods in 2023, primarily due to higher home equity loan-related transactions.

Previous wording

Gross revenues from independent agency operations improved $32.0 million, or 15%, in the second quarter 2024 and $23.8 million, or 5%, in the first six months of 2024, compared to the same periods in 2023, primarily due to increased agent activity in 2024. Agency revenues, net of retention, increased $3.7 million, or 10%, in the second quarter 2024 and $1.2 million, or 2%, in the first six months of 2024, compared to the same periods in 2023, primarily due to higher gross agency revenues, partially offset by higher average agent retention rates influenced by the geographical transaction mix of additional gross revenues. Refer further to the "Retention by agencies" discussion under Expenses below.

Current wording

Gross revenues from independent agency operations improved $16.8 million, or 6%, in the third quarter 2024 and $40.6 million, or 6%, in the first nine months of 2024, compared to the same periods in 2023, primarily due to increased agent activity in 2024. Agency revenues, net of retention, increased $1.9 million, or 4%, in the third quarter 2024 and $3.0 million, or 2%, in the first nine months of 2024, compared to the same periods in 2023, primarily due to higher gross agency revenues and slightly higher average agent retention rates. Refer further to the "Retention by agencies" discussion under Expenses below.

Previous wording

Real estate solutions revenues. Real estate solutions revenues improved $20.8 million, or 29%, in the second quarter 2024 and $41.2 million, or 31%, in the first six months of 2024, primarily driven by higher revenues from credit-related information and valuation services businesses compared to the same periods in 2023.

Current wording

Real estate solutions revenues. Real estate solutions revenues improved $28.2 million, or 41%, in the third quarter 2024 and $69.4 million, or 34%, in the first nine months of 2024, primarily driven by higher revenues from credit-related information and valuation services businesses compared to the same periods in 2023.

Previous wording

Investment income. Investment income in the second quarter and first six months of 2024 increased $2.2 million, or 18%, and $8.5 million, or 45%, respectively, compared to the same periods in 2023, primary due to higher interest income in 2024 resulting from earned interest from eligible escrow balances, which was an initiative that we started during the late second quarter 2023.

Current wording

Investment income. Investment income in the third quarter and first nine months of 2024 increased $0.2 million, or 2%, and $8.7 million, or 27%, respectively, compared to the same periods in 2023. The higher investment income in the first nine months of 2024 was primarily due to higher interest income in 2024 resulting from earned interest from eligible escrow balances, which was an initiative that we started during the late second quarter 2023.

Previous wording

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 83.1% in both the second quarter and first six months of 2024 compared to 82.3% and 82.5% in the second quarter and first six months of 2023, respectively, primarily as a result of increased revenues from states with relatively higher retention rates in 2024. 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 higher, 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.

Current wording

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 82.8% and 83.0% in the third quarter and first nine months of 2024, respectively, compared to 82.4% in both the third quarter and first nine months of 2023, primarily as a result of increased revenues from states with relatively higher retention rates in 2024. 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 higher, 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.

Previous wording

Employee costs. Consolidated employee costs decreased $3.0 million and $1.1 million in the second quarter and first six months of 2024, respectively, compared to the same periods in 2023, primarily due to lower incentive compensation and severance expenses, partially offset by slightly higher salaries expense resulting from annual merit increases, and for the first six months of 2024, higher medical benefits expense due to increased claims activity. Title segment employee costs decreased $2.7 million, or 2%, in the second quarter 2024 compared to the second quarter 2023, while employee costs in the first six months of 2024 were comparable to the same period in 2023. Employee costs in the real estate solutions segment increased $1.0 million, or 8%, in the second quarter 2024 and $0.8 million, or 3%, in the first six months of 2024, compared to the same periods in 2023, primarily driven by business growth in the segment.

Current wording

Employee costs. Consolidated employee costs increased $12.4 million, or 7%, and $11.3 million, or 2%, in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023, primarily due to higher salaries expense resulting from business growth and annual merit increases, higher incentive compensation consistent with improved revenues, and higher medical benefits expense due to increased claims activity. Title segment employee costs increased $10.4 million, or 6%, in the third quarter 2024 and $10.3 million, or 2%, in the first nine months of 2024, while employee costs in the real estate solutions segment increased $1.7 million, or 14%, in the third quarter 2024 and $2.6 million, or 7%, in the first nine months of 2024, compared to the same periods in 2023.

Previous wording

Total employee costs, as a percentage of total operating revenues, improved to 30.5% and 31.4% in the second quarter and first six months of 2024, respectively, compared to 33.9% and 33.4% in the second quarter and first six months of 2023, respectively, primarily due to higher operating revenues and lower average employee count in 2024. As of June 30, 2024, we had approximately 6,700 employees compared to approximately 6,900 and 6,800 employees as of June 30, 2023 and December 31, 2023, respectively.

Current wording

Total employee costs, as a percentage of total operating revenues, were 29.8% and 30.8% in the third quarter and first nine months of 2024, respectively, compared to 30.7% and 32.4% in the third quarter and first nine months of 2023, respectively, primarily due to higher operating revenues. As of September 30, 2024, we had approximately 6,800 employees compared to approximately 7,000 and 6,800 employees as of September 30, 2023 and December 31, 2023, respectively.

Previous wording

Consolidated other operating expenses increased $23.0 million, or 18%, in the second quarter 2024 and $39.2 million, or 16%, in the first six months of 2024, primarily due to higher information and service expenses and outside search fees consistent with increased revenues in our real estate solutions and commercial title operations, respectively, compared to the same periods in 2023. Total variable costs in the second quarter and first six months of 2024 increased $20.5 million, or 28%, and $39.0 million, or 29%, primarily driven by our real estate solutions and commercial services operations. Total costs that are primarily fixed in nature increased $1.2 million, or 3%, in the second quarter 2024, but decreased $1.1 million, or 1%, in the first six months of 2024, while independent costs increased $1.2 million, or 10%, and $1.3 million, or 5%, in the second quarter and first six months of 2024, respectively, primarily due to office closure costs recorded in the second quarter 2024.

Current wording

Consolidated other operating expenses increased $25.2 million, or 19%, in the third quarter 2024 and $64.4 million, or 17%, in the first nine months of 2024 compared to the same periods in 2023, primarily due to higher information and service expenses and outside search fees consistent with increased revenues in our real estate solutions and commercial title operations, respectively. Total variable costs in the third quarter and first nine months of 2024 increased $27.9 million, or 40%, and $66.9 million, or 33%, primarily driven by our real estate solutions and commercial services operations. Total costs that are primarily fixed in nature decreased $1.3 million, or 3%, and $2.4 million, or 2%, in the third quarter and first nine months of 2024, respectively, while independent costs decreased $1.5 million, or 10%, in the third quarter 2024 primarily due to office closure costs recorded in the third quarter 2023, and were comparable in both the first nine months of 2024 and 2023, primarily as a result of lower litigation-related expenses being offset by higher travel and business promotion expenses in the first nine months of 2024.

Previous wording

As a percentage of total operating revenues, consolidated other operating expenses in the second quarter and first six months of 2024 were 25.9% and 25.8%, respectively, compared to 24.0% and 23.6% in the second quarter and first six months of 2023, respectively, primarily driven by increased real estate solutions service expenses related to higher revenues in 2024.

Current wording

As a percentage of total operating revenues, consolidated other operating expenses in the third quarter and first nine months of 2024 were 24.0% and 25.1%, respectively, compared to 22.1% and 23.1% in the third quarter and first nine months of 2023, respectively, primarily resulting from increased real estate solutions service expenses related to higher revenues in 2024.

Previous wording

Title losses. Provisions for title losses, as a percentage of title operating revenues, were 4.2% for both the second quarters 2024 and 2023 and 4.1% for both the first six months of 2024 and 2023. The title loss expense in the second quarter and first six months of 2024 increased $1.3 million, or 7%, and $1.0 million, or 3%, respectively, primarily as a result of increased title revenues in 2024. The title loss ratio in any given quarter can be significantly influenced by changes in large claims incurred, escrow losses and adjustments to reserves for existing large claims.

Current wording

Title losses. Provisions for title losses, as a percentage of title operating revenues, were 3.8% and 4.3% for the third quarters 2024 and 2023, respectively, and 4.0% and 4.1% for the first nine months of 2024 and 2023, respectively. The title loss expense in the third quarter 2024 decreased $1.0 million, or 4%, compared to the prior year quarter, and was comparable in both the first nine months of 2024 and 2023, primarily due to our overall favorable claim experience, partially offset by effect of increased title revenues in 2024. The title loss ratio in any given quarter can be significantly influenced by changes in large claims incurred, escrow losses and adjustments to reserves for existing large claims.

Previous wording

Total known claims provision increased $2.8 million, or 10%, in the second quarter 2024 and decreased $0.4 million or 1% in the first six months of 2024, compared to the same periods in 2023, primarily as a result of timing of claims reported related to prior policy years. The current year IBNR provisions in the second quarter and first six months of 2024 increased $1.2 million, or 7% and $1.2 million, or 4%, respectively, compared to the same periods in 2023, primarily due to increased title premiums. As a percentage of title operating revenues, provisions - IBNR for the current policy year were 3.5% in both the second quarters 2024 and 2023 and 3.4% in both the first six months of 2024 and 2023. Cash claim payments in the second quarter and first six months of 2024 decreased $4.3 million, or 14%, and $14.9 million, or 23.0%, respectively, compared to the same periods in 2023, primarily due to lower payments on large claims related to prior policy years. We continue to manage and resolve large claims prudently and in keeping with our commitments to our policyholders.

Current wording

Total known claims provision decreased $7.5 million, or 36%, and $7.7 million or 11% in the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023, primarily as a result of timing of claims reported related to prior policy years. Current year IBNR provisions increased $0.6 million, or 3%, in the third quarter 2024 and increased $1.8 million, or 4%, in the first nine months of 2024, compared to the same periods in 2023, primarily due to increased title premiums in 2024. As a percentage of title operating revenues, provisions - IBNR for the current policy year was 3.3% in both the third quarters 2024 and 2023, and were 3.3% and 3.4% in the first nine months of 2024 and 2023, respectively.

Previous wording

Depreciation and amortization. Depreciation and amortization expenses in the second quarter 2024 decreased $0.3 million, or 2%, compared to the second quarter 2023, primarily due to lower acquisition intangible amortization expenses resulting from several assets becoming fully amortized, while depreciation and amortization expenses in the first six months of 2024 were comparable to the same period in 2023, primarily due to the lower acquisition intangible amortization expenses being offset by increased depreciation expenses related to additional internal-use systems placed into operation during late 2023 and in 2024. Acquisition intangible amortization expenses for the second quarter and first six months of 2024 were $8.0 million and $16.1 million, respectively, compared to $8.7 million and $17.0 million in the same periods in 2023.

Current wording

Depreciation and amortization. Depreciation and amortization expenses in the third quarter and first nine months of 2024 decreased $0.9 million, or 6%, and $0.8 million, or 2%, compared to the corresponding periods in 2023, primarily due to lower acquisition intangible amortization expenses resulting from several assets becoming fully amortized, partially offset by increased depreciation expenses related to new internal-use systems placed into operation. Acquisition intangible amortization expenses for the third quarter and first nine months of 2024 were $7.9 million and $24.0 million, respectively, compared to $9.3 million and $26.3 million in the same periods in 2023.

Previous wording

Income taxes. Our effective tax rates, based on income before taxes and after deducting income attributable to noncontrolling interests, were 31% and 30% in the second quarter and first six months of 2024, respectively, compared to 25% and 6% in the second quarter and first six months of 2023, respectively. The higher effective tax rates in 2024 were primarily due to the higher pretax contribution of our international operations (which have higher average income tax rates) compared to our domestic operations. The lower effective tax rate for the first six months of 2023 was primarily driven by discrete tax adjustments mainly related to increased utilization of net operating loss carryforwards.

Current wording

Income taxes. Our effective tax rates, based on income before taxes and after deducting income attributable to noncontrolling interests, were 23% and 26% in the third quarter and first nine months of 2024, respectively, compared to 39% and 31% in the third quarter and first nine months of 2023, respectively. The higher effective tax rates in the third quarter and first nine months of 2023 were primarily driven by discrete annual federal return tax adjustments recorded in the third quarter 2023 related to lower utilization of foreign tax credits.

Previous wording

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, 2024, our total cash and investments, including amounts reserved pursuant to statutory requirements aggregated $837.7 million. Of our total cash and investments at June 30, 2024, $432.2 million ($187.9 million, net of statutory reserves) was held in the United States and the rest internationally (principally in Canada).

Current wording

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 September 30, 2024, our total cash and investments, including amounts reserved pursuant to statutory requirements aggregated $917.3 million. Of our total cash and investments at September 30, 2024, $491.2 million ($241.7 million, net of statutory reserves) was held in the United States and the rest internationally (principally in Canada).

Previous wording

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 $26.1 million at June 30, 2024) 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.

Current wording

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 $37.9 million at September 30, 2024) 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.

Previous wording

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 $518.6 million and $527.4 million at June 30, 2024 and December 31, 2023, respectively. In addition, included within cash and cash equivalents are statutory reserve funds of approximately $9.6 million and $10.0 million at June 30, 2024 and December 31, 2023, respectively. As of June 30, 2024, our known claims reserve totaled $68.1 million and our estimate of claims that may be reported in the future, under generally accepted accounting principles, totaled $444.3 million. In addition to this, we had cash and investments (at amortized cost and excluding equity method investments) of $253.9 million, which are available for underwriter operations, including claims payments, and acquisitions.

Current wording

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 $537.0 million and $527.4 million at September 30, 2024 and December 31, 2023, respectively. In addition, included within cash and cash equivalents are statutory reserve funds of approximately $9.7 million and $10.0 million at September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024, our known claims reserve totaled $62.6 million and our estimate of claims that may be reported in the future, under generally accepted accounting principles, totaled $455.0 million. In addition to this, we had cash and investments (at amortized cost and excluding equity method investments) of $282.5 million, which are available for underwriter operations, including claims payments, and acquisitions.

Previous wording

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 (which was approximately $168.7 million as of December 31, 2023) would be, by regulation, considered extraordinary and subject to pre-approval by the TDI. Also, the Texas Insurance Commissioner may raise an objection to a planned distribution during the notification period. Guaranty’s actual ability or intent to pay dividends to its parent may be constrained by business and regulatory considerations, such as the impact of dividends on surplus and liquidity, which could affect its ratings and competitive position, the amount of insurance it can write and its ability to pay future dividends. During the six months ended June 30, 2024, Guaranty paid $20.0 million of dividends to the parent company. Guaranty did not pay any dividends during the six months ended June 30, 2023.

Current wording

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 (which was approximately $168.7 million as of December 31, 2023) would be, by regulation, considered extraordinary and subject to pre-approval by the TDI. Also, the Texas Insurance Commissioner may raise an objection to a planned distribution during the notification period. Guaranty’s actual ability or intent to pay dividends to its parent may be constrained by business and regulatory considerations, such as the impact of dividends on surplus and liquidity, which could affect its ratings and competitive position, the amount of insurance it can write and its ability to pay future dividends. During the nine months ended September 30, 2024, Guaranty paid $30.0 million of dividends to the parent company. Guaranty did not pay any dividends during the nine months ended September 30, 2023.

Previous wording

Net cash used by operations in the first six months of 2024 improved to $8.5 million compared to net cash used by operations of $16.0 million in the first six months of 2023, primarily as a result of improved results and lower payments on claims and accounts payable in 2024. 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 elevated mortgage interest 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, further consolidation of our various systems and production operations, and full integration of acquisitions. We continue to invest in the technology necessary to accomplish these goals.

Current wording

Net cash provided by operations in the first nine months of 2024 improved to $67.7 million compared to $43.6 million in the first nine months of 2023, primarily driven by improved net results and lower payments on claims in 2024. 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 elevated mortgage interest 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, further consolidation of our various systems and production operations, and full integration of acquisitions. We continue to invest in the technology necessary to accomplish these goals.

Previous wording

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 2024, total proceeds from securities investments sold and matured were $72.7 million compared to $94.7 million during the first six months of 2023, while cash used for purchases of securities investments was $58.4 million in the first six months of 2024 compared to $55.5 million in the same period of 2023. Additionally, cash paid for cost-basis and other investments was $29.9 million during the first six months of 2024.

Current wording

Investing activities. Net cash used by investing activities is primarily related to proceeds from matured and sold investments, purchases of investments, capital expenditures and acquisition of businesses. During the first nine months of 2024, total proceeds from securities investments sold and matured were $113.1 million compared to $111.6 million during the first nine months of 2023, while cash used for purchases of securities investments was $99.2 million in the first nine months of 2024 compared to $72.9 million in the same period of 2023. Additionally, cash paid for cost-basis and other investments was $29.8 million and $1.1 million during the first nine months of 2024 and 2023, respectively.

Previous wording

We used $19.4 million and $15.5 million of cash for purchases of property and equipment and other long-lived assets during the first six months of 2024 and 2023, respectively, while we used net cash of $8.2 million for an acquisition of a title office in the first six months of 2024, compared to $22.4 million used for acquisitions in the title and real estate solutions segments during the first six months of 2023. 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.

Current wording

We used $28.1 million and $29.5 million of cash for purchases of property and equipment and other long-lived assets during the first nine months of 2024 and 2023, respectively, while we used net cash of $14.4 million for an acquisition of a title office and a prior acquisition-related customer relationship asset in the title segment in the first nine months of 2024, compared to $25.1 million used for acquisitions in the title and real estate solutions segments during the first nine months of 2023. 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.

Previous wording

Financing activities and capital resources. Total debt and stockholders’ equity were $445.6 million and $1.37 billion, respectively, as of June 30, 2024. During the first six months of 2024 and 2023, payments on notes payable of $3.4 million and $5.7 million, respectively, and notes payable additions of $3.4 million and $3.5 million, respectively, were related to short-term loan agreements in connection with our Section 1031 tax-deferred property exchange (Section 1031) business.

Current wording

Financing activities and capital resources. Total debt and stockholders’ equity were $445.7 million and $1.41 billion, respectively, as of September 30, 2024. During the first nine months of 2024 and 2023, payments on notes payable of $3.4 million and $5.7 million, respectively, and notes payable additions of $3.4 million and $3.5 million, respectively, were related to short-term loan agreements in connection with our Section 1031 tax-deferred property exchange (Section 1031) business.

Previous wording

At June 30, 2024, 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 32% and 25%, respectively. During the first six months of 2024, we paid total dividends of $26.2 million ($0.95 per common share), compared to total dividends paid in the first six months of 2023 of $24.5 million ($0.90 per common share).

Current wording

At September 30, 2024, 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 32% and 24%, respectively. During the first nine months of 2024, we paid total dividends of $40.0 million ($1.45 per common share), compared to total dividends paid in the first nine months of 2023 of $37.5 million ($1.38 per common share).

Previous wording

Other comprehensive (loss) income. Unrealized gains and losses on available-for-sale debt securities investments and changes in foreign currency exchange rates are reported net of deferred taxes in accumulated other comprehensive income (loss), a component of stockholders’ equity, until they are realized. During the first six months of 2024, net unrealized investment losses of $1.6 million, net of taxes, which increased our other comprehensive loss, were primarily related to net decreases in the fair values of our foreign and corporate bond securities investments, primarily influenced by the continued elevated interest rate environment. 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.

Current wording

Other comprehensive income (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 nine months of 2024, net unrealized investment gains of $11.8 million, net of taxes, which increased our other comprehensive income, were primarily related to net increases in the fair values of our foreign and corporate bond securities investments. These increases were primarily influenced by the federal government's reduction of interest rates during the third quarter 2024. During the first nine months of 2023, net unrealized investment losses of $6.3 million, net of taxes, which increased our other comprehensive loss, were primarily related to net decreases in the fair values of our foreign and corporate bond securities investments, primarily resulting from the elevated interest rate environment in 2023.

Previous wording

Changes in foreign currency exchange rates (primarily related to our Canadian and United Kingdom operations) increased our other comprehensive loss, net of taxes, by $5.7 million in the first six months of 2024, while they increased our other comprehensive income by $4.9 million in the first six months of 2023.

Current wording

Changes in foreign currency exchange rates (primarily related to our Canadian and United Kingdom operations) decreased our other comprehensive income, net of taxes, by $0.9 million in the first nine months of 2024, while they increased our other comprehensive loss by $1.0 million in the first nine months of 2023.