STEWART INFORMATION SERVICES CORP

Previous 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.

Current wording

First quarter 2025 overview. We reported net income attributable to Stewart of $3.1 million ($0.11 per diluted share) for the first quarter 2025, compared to net income of $3.1 million ($0.11 per diluted share) for the first quarter 2024. Pretax income before noncontrolling interests for the first quarter 2025 was $5.9 million compared to pretax income before noncontrolling interests of $7.1 million for the prior year quarter. The first quarter 2025 results included $3.1 million of pretax net realized and unrealized gains, while the first quarter 2024 results included $7.0 million of pretax net realized gains, both primarily related to net gains from fair value changes of equity security investments in the title segment.

Previous 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.

Current wording

Title segment operating revenues in the first quarter 2025 increased $47.8 million, or 11%, as revenues from both our direct and agency title operations improved, while total segment operating expenses increased $41.9 million, or 9%, compared to the first quarter 2024. Agency retention expenses in the first quarter 2025 increased $21.4 million, or 11%, consistent with the gross agency revenue increase of $26.7 million, or 11%, compared to the first quarter 2024.

Previous 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.

Current wording

Total title segment employee costs and other operating expenses for the first quarter 2025 increased $20.3 million, or 9%, compared to the first quarter 2024, primarily due to increased incentive compensation expenses related to higher title revenues, and higher outside search and service expenses resulting from higher commercial revenues. As a percentage of operating revenues, total title employee costs and other operating expenses improved to 51.1% in the first quarter 2025 compared to 52.0% in the first quarter 2024.

Previous 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.

Current wording

Title loss expense in the first quarter 2025 was $17.7 million, compared to $17.4 million in the prior year quarter. As a percentage of title operating revenues, first quarter 2025 title loss expense improved to 3.5%, compared to 3.9% in the first quarter 2024, primarily driven by our overall favorable claims experience. Included in the title segment’s pretax income for the first quarters 2025 and 2024 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 $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.

Current wording

The segment's operating revenues increased $14.1 million, or 17%, in the first quarter 2025, primarily driven by increased revenues from our credit information services operations compared to the first quarter 2024. Combined employee costs and other operating expenses increased $16.6 million, or 24%, primarily due to higher costs of services related to credit information and increased employee costs supporting revenue growth. Included in the segment's results for the first quarters 2025 and 2024 were acquisition intangible asset amortization expenses of $5.5 million and $5.6 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 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.

Current wording

In regard to the corporate segment, pretax results were driven by net expenses attributable to corporate operations, which totaled $9.9 million in the first quarter 2025 compared to $9.7 million in the first quarter 2024.

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 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.

Current wording

The preparation of the Company’s condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures surrounding contingencies and commitments. Actual results can differ from our accounting estimates. While we do not anticipate significant changes in our estimates, there is a risk that such changes could have a material impact on our consolidated financial condition or results of operations for future periods. During the three months ended March 31, 2025, we made no material changes to our critical accounting estimates as previously disclosed in Management’s Discussion and Analysis in the 2024 Form 10-K.

Previous wording

Operations. Our primary business is title insurance and settlement-related services. We close transactions and issue title policies on homes, commercial and other real properties located in all 50 states, the District of Columbia and international markets through policy-issuing offices, agencies and centralized title services centers. Our real estate solutions operations include credit and real estate information services, valuation management services, online notarization and closing services, and search services. The corporate and other segment includes our parent holding company and centralized support services departments.

Current wording

Operations. Our primary business is title insurance and settlement-related services. We close transactions and issue title policies on homes, commercial and other real properties located in all 50 states, the District of Columbia and international markets through policy-issuing offices, agencies and centralized title services centers. Our real estate solutions operations include credit and real estate information services, valuation management services, online notarization and closing services, and capital markets search services. The corporate segment includes our parent holding company and centralized support services departments.

Previous 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.

Current wording

Comparisons of our results of operations for the three months ended March 31, 2025 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. 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.

Current wording

Operating environment. According to NAR, March 2025 existing home sales (seasonally-adjusted basis) declined to 4.02 million units, which were 2% and 6% lower compared to last year and February 2025, respectively, primarily due to affordability challenges resulting from high mortgage interest rates and rising home prices. The median home price in March 2025 increased 3% and 2% compared to March 2024 and February 2025, respectively, marking the 21st consecutive month of year-over-year price increases. As a result, unsold home inventory in March 2025 increased 20% and 8% compared to last year and February 2025, respectively. In relation to new residential construction, U.S. housing starts(seasonally-adjusted) in March 2025 were 11% lower compared to February 2025, but were 2% higher than March 2024, while newly-issued building permits in March 2025 were similar to March 2024 and 2% higher than February 2025.

Previous 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.

Current wording

Based on averaged estimates by Fannie Mae and MBA, total U.S. single family mortgage originations increased 7% to $378 billion during the first quarter 2025, primarily driven by 39% higher refinancing originations with purchase lending slightly lower by 1% compared to the first quarter 2024. The 30-year fixed mortgage interest rate remained elevated, averaging 6.8% during the first quarter 2025 compared to 6.7% from the prior year quarter. It is expected that the interest rate will only gradually decline during the rest of the year, dipping to an average of 6.4% by the end of 2025. Second quarter 2025 existing and new homes sales (seasonally-adjusted) are expected to increase 5% and 3%, respectively, compared to last year, while total purchase and refinancing originations are forecast to improve 11% and 80% respectively, compared to the second quarter 2024.

Previous wording

Domestic non-commercial revenues in the third quarter 2024 were comparable to the prior year quarter, primarily due to the slightly higher average fee per file offsetting the slightly lower non-commercial domestic transactions in the third quarter 2024. Domestic non-commercial revenues in the first nine months of 2024 declined compared to the same period in 2023, primarily as a result of lower residential transactions. Average residential fee per file for both the third quarter and first nine months of 2024 was $3,000, which was 2% higher compared to the third quarter 2023 and 6% lower compared to the first nine months of 2023 primarily due to a lower purchase transaction mix during the first nine months of 2024.

Current wording

Domestic non-commercial revenues in the first quarter 2025 slightly declined 1%, compared to the prior year quarter, primarily due to lower total residential transactions, which was partially offset by a 13% higher average fee per file. Average residential fee per file for the first quarter 2025 was $3,300, compared to $2,900 from the first quarter 2024, primarily due to a higher share of purchase transactions during the first quarter 2025.

Previous 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.

Current wording

Domestic commercial revenues improved 39% in the first quarter 2025 compared to the first quarter 2024, primarily driven by an increased average transaction size and higher commercial closed transactions, primarily from the energy, multi-family, industrial and mixed use sectors. Average domestic commercial fee per file increased 13% to $15,800 in the first quarter 2025 compared to $13,900 in the first quarter 2024. Total international revenues improved $2.4 million, or 9%, in the first quarter 2025, primarily driven by increased volumes from our Canadian operations compared to the prior year quarter.

Previous wording

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

Current wording

Orders information for the three months ended March 31 is as follows:

Previous wording

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

Current wording

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

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 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.

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, slightly improved to an average of 82.8% in the first quarter 2025, compared to 83.1% in the prior year quarter, primarily as a result of increased revenues from states with relatively lower retention rates in 2025. 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

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 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 fees, attorney fee splits, 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.

Current wording

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 rent and other occupancy expenses, equipment rental, insurance, repairs and maintenance, technology costs and telecommunications expenses. Variable costs include third-party service and appraiser expenses related to real estate solutions operations, outside search fees, attorney fee splits, 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.

Previous 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.

Current wording

Consolidated other operating expenses increased $24.0 million, or 18%, in the first quarter 2025 primarily due to higher real estate solutions services expenses and commercial title outside search fees driven by higher related revenues compared to the prior year quarter. Total variable costs in the first quarter 2025 increased $20.2 million, or 25%, primarily driven by our real estate solutions and commercial services operations, while total costs that are primarily fixed in nature increased $2.4 million, or 5%, primarily due to higher technology costs compared to the prior year quarter. Independent costs increased $1.4 million, or 12%, primarily due to higher travel and business promotion expenses, partially offset by lower office closure costs in the first quarter 2025 compared to the prior year quarter.

Previous 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.

Current wording

As a percentage of total operating revenues, consolidated other operating expenses in the first quarter 2025 were 27.0% compared to 25.6% in the first quarter 2024, primarily resulting from increased real estate solutions service expenses related to higher first quarter 2025 revenues.

Previous 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.

Current wording

Title losses. Provisions for title losses, as a percentage of title operating revenues, were 3.5% and 3.9% for the first quarters 2025 and 2024, respectively. The title loss expense in the first quarter 2025 increased $0.3 million, or 2%, compared to the prior year quarter, primarily due to our overall favorable claim experience partially offsetting the effect of increased title revenues in the first quarter 2025. 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 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.

Current wording

Total known claims provision decreased $1.1 million, or 6%, in the first quarter 2025, compared to the first quarter 2024, primarily as a result of timing of claims reported related to prior policy years. Current year IBNR provisions in the first quarter 2025 increased $0.3 million, or 2%, primarily due to increased title premiums compared to the prior year quarter. As a percentage of title operating revenues, provisions - IBNR for the current policy year was 3.0% and 3.3% in the first quarters 2025 and 2024, respectively.

Previous wording

Cash claim payments in the third quarter 2024 decreased $2.4 million, or 11%, compared to the third quarter 2023, primarily due to lower payments on general claims and a loss recovery, partially offset by increased payments on large claims related to prior policy years. Cash claim payments in the first nine months of 2024 decreased $17.3 million, or 20%, compared to the same period in 2023, primarily due to lower payments on both large and general claims related to prior policy years and several loss recoveries. We continue to manage and resolve large claims prudently and in keeping with our commitments to our policyholders.

Current wording

Cash claim payments in the first quarter 2025 decreased $3.8 million, or 17%, compared to the first quarter 2024, primarily due to lower payments on general claims and recoveries, partially offset by increased 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.

Previous wording

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.

Current wording

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. There were no material escrow losses for the first quarters 2025 and 2024.

Previous 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.

Current wording

Depreciation and amortization. Total depreciation and amortization expenses in the first quarter 2025 were comparable to the first quarter 2024. Compared to the prior year quarter, acquisition intangible amortization expenses for the first quarter 2025 declined due to several assets becoming fully amortized in 2025, offset by higher depreciation expenses in the first quarter 2025 related to new internal systems recently placed into operations.

Previous 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.

Current wording

Income taxes. Our effective tax rate, based on income before taxes and after deducting income attributable to noncontrolling interests, was 14% in the first quarter 2025 compared to 23% in the first quarter 2024. The lower first quarter 2025 effective tax rate was primarily driven by a higher tax benefit related to share-based compensation deductions compared to the first quarter 2024.

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 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).

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 March 31, 2025, our total cash and investments, including amounts reserved pursuant to statutory requirements aggregated $869.1 million. Of our total cash and investments at March 31, 2025, $471.9 million ($205.9 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 $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.

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 $19.2 million at March 31, 2025) 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 $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.

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 $539.2 million and $535.5 million at March 31, 2025 and December 31, 2024, respectively. In addition, included within cash and cash equivalents are statutory reserve funds of approximately $10.3 million and $9.5 million at March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025, our known claims reserve totaled $64.1 million and our estimate of claims that may be reported in the future, under generally accepted accounting principles, totaled $446.7 million. In addition to this, we had cash and investments (at amortized cost and excluding equity method investments) of $251.4 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 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.

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 $173.0 million as of December 31, 2024) would be, by regulation, considered extraordinary and subject to pre-approval by the TDI. Also, the Texas Insurance Commissioner may raise an objection to a planned distribution during the notification period. Guaranty’s actual ability or intent to pay dividends to its parent may be constrained by business and regulatory considerations, such as the impact of dividends on surplus and liquidity, which could affect its ratings and competitive position, the amount of insurance it can write and its ability to pay future dividends. During the three months ended March 31, 2025, Guaranty paid no dividends to the parent company, while it paid $20.0 million in dividends to the parent company during the three months ended March 31, 2024.

Previous 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.

Current wording

Net cash used in operations in the first quarter 2025 of $29.9 million was comparable to net cash used in operations of $29.6 million in the first quarter 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 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.

Current wording

Investing activities. Cash used and provided 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 quarters 2025 and 2024, total proceeds from securities investments sold and matured were $27.9 million and $27.5 million, respectively, while cash used for purchases of securities investments was $22.4 million and $23.7 million, respectively. Additionally, cash paid for cost-basis and other investments was $0.9 million and $29.9 million during the first quarters 2025 and 2024, respectively.

Previous 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.

Current wording

We used $12.3 million and $10.2 million of cash for expenditures related to property and equipment and other long-lived assets during the first quarters 2025 and 2024, respectively, while we used net cash of $7.4 million for acquisitions of title offices in the first quarter 2025. 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 $445.7 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.

Current wording

Financing activities and capital resources. Total debt and stockholders’ equity were $445.9 million and $1.41 billion, respectively, as of March 31, 2025. During the first quarters 2025 and 2024, payments on notes payable of $1.1 million and $3.4 million, respectively, and notes payable additions of $1.0 million and $3.4 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 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).

Current wording

At March 31, 2025, 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 quarter 2025, we paid total dividends of $13.9 million ($0.50 per common share), compared to total dividends paid in the first quarter 2024 of $13.1 million ($0.48 per common share).

Previous wording

We believe we have sufficient liquidity and capital resources to meet the cash needs of our ongoing operations, including consideration of the current economic and real estate environment created by the increasing mortgage interest 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.

Current wording

We believe we have sufficient liquidity and capital resources to meet the cash needs of our ongoing operations, including consideration of the current economic and real estate environment created by the elevated mortgage interest 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.

Previous 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.

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 quarter 2025, net unrealized investment gains of $5.4 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 primarily resulted from lower interest rates during the first quarter 2025. During the first quarter 2024, net unrealized investment losses of $2.1 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 elevated interest rate environment.

Previous 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.

Current wording

Changes in foreign currency spot exchange rates (primarily related to our Canadian and United Kingdom operations) resulted in other comprehensive income (loss), net of taxes, of $1.0 million in the first quarter 2025 and ($4.5) million in the first quarter 2024. During the first quarter 2025, the Canadian dollar and British pound both appreciated relative to the U.S. dollar, while they both depreciated during the same period in 2024.

Previous wording

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 2023 Form 10-K.

Current wording

Off-balance sheet arrangements. We do not have any material source of liquidity or financing that involves off-balance sheet arrangements. 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 2024 Form 10-K.