UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

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

For the quarterly period ended June 30, ~~2018~~2019


¨	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

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

For the transition period from to

Commission file number 001-02658

STEWART INFORMATION SERVICES ~~CORPORATION~~CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		74-1677330
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
~~1980~~1360 Post Oak Blvd.,	Suite 100
Houston, TX	Texas	77056
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: ~~(713)~~ (713) 625-8100

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



~~(Former name, former address and former fiscal year, if changed since last report)~~Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1 par value per share	STC	New York Stock Exchange

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

Yes þ☑ No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes þ☑ No ¨☐

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



☑	Large accelerated filerþ		~~Accelerated~~☐	Non-accelerated filer¨	~~Non-accelerated filer~~ ¨ ~~(Do not check if smaller reporting company)~~ ☐	Emerging growth company
		~~Smaller reporting company~~ ¨
~~Emerging growth company~~ ¨
☐	Accelerated filer		☐	Smaller reporting company

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

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

On ~~August 1, 2018,~~July 31, 2019, there were ~~23,744,381~~23,712,238 outstanding shares of the issuer's Common ~~Stock, $1 par value per share.~~Stock.

FORM 10-Q QUARTERLY REPORT

QUARTER ENDED JUNE 30, ~~2018~~2019

TABLE OF CONTENTS


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

1.	Financial Statements	3	Financial Statements	3

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

3.	Quantitative and Qualitative Disclosures About Market Risk	31	Quantitative and Qualitative Disclosures About Market Risk	29

4.	Controls and Procedures	31	Controls and Procedures	29
	PART II – OTHER INFORMATION		PART II – OTHER INFORMATION
1.	Legal Proceedings	32	Legal Proceedings	30

1A.	Risk Factors	32	Risk Factors	30

2.	Unregistered Sales of Equity Securities and Use of Proceeds	36	Unregistered Sales of Equity Securities and Use of Proceeds	30

5.	Other Information	36	Other Information	30

6.	Exhibits	36	Exhibits	30

	Signature	37	Signature	31

As used in this report, “we,” “us,” “our,” "Registrant," the “Company” and “Stewart” mean Stewart Information Services Corporation and our subsidiaries, unless the context indicates otherwise.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
	($000 omitted, except per share)								($000 omitted, except per share)
Revenues
Title revenues:
Direct operations	224,240		231,662		409,752		419,091		227,883		224,240		389,130		409,752
Agency operations	247,257		234,407		484,111		467,756		230,817		247,257		445,680		484,111
Ancillary services	13,732		15,118		25,563		32,422		7,798		13,732		22,080		25,563
Operating revenues	485,229		481,187		919,426		919,269		466,498		485,229		856,890		919,426
Investment income	5,247		4,941		9,951		9,613		5,155		5,247		9,879		9,951
Investment and other gains (losses) – net	2,393		(676	)	722		(389	)
Investment and other gains – net									422		2,393		3,826		722
	492,869		485,452		930,099		928,493		472,075		492,869		870,595		930,099
Expenses
Amounts retained by agencies	203,793		192,558		399,000		383,733		191,091		203,793		367,586		399,000
Employee costs	146,278		139,346		285,101		279,131		139,896		146,278		269,151		285,101
Other operating expenses	85,953		88,786		166,220		167,103		86,051		85,953		163,207		166,220
Title losses and related claims	18,697		24,462		37,678		45,163		18,786		18,697		34,473		37,678
Depreciation and amortization	6,154		6,441		12,388		12,819		5,775		6,154		11,764		12,388
Interest	673		712		1,646		1,529		1,124		673		2,288		1,646
	461,548		452,305		902,033		889,478		442,723		461,548		848,469		902,033

Income before taxes and noncontrolling interests	31,321		33,147		28,066		39,015		29,352		31,321		22,126		28,066
Income tax expense	5,602		10,993		4,307		10,850		(7,027	)	(5,601	)	(4,585	)	(4,307	)

Net income	25,719		22,154		23,759		28,165		22,325		25,720		17,541		23,759
Less net income attributable to noncontrolling interests	3,342		3,586		5,161		5,508		3,019		3,342		5,001		5,161
Net income attributable to Stewart	22,377		18,568		18,598		22,657		19,306		22,378		12,540		18,598

Net income	25,719		22,154		23,759		28,165		22,325		25,720		17,541		23,759
Other comprehensive (loss) income, net of taxes:
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments	(4,038	)	3,204		(5,630	)	4,529		2,475		(4,038	)	7,063		(5,630	)
Change in net unrealized gains and losses on investments	(2,428	)	355		(10,434	)	2,822		5,371		(2,428	)	14,382		(10,434	)
Reclassification adjustment for net gains included in net income	(231	)	(94	)	(480	)	(461	)
Other comprehensive (loss) income, net of taxes:	(6,697	)	3,465		(16,544	)	6,890

Reclassification adjustment for net losses (gains) included in net income									50		(231	)	212		(480	)
Other comprehensive income (loss), net of taxes:									7,896		(6,697	)	21,657		(16,544	)
Comprehensive income	19,022		25,619		7,215		35,055		30,221		19,023		39,198		7,215
Less net income attributable to noncontrolling interests	3,342		3,586		5,161		5,508		3,019		3,342		5,001		5,161
Comprehensive income attributable to Stewart	15,680		22,033		2,054		29,547		27,202		15,681		34,197		2,054

Basic average shares outstanding (000)	23,546		23,444		23,527		23,438		23,614		23,546		23,605		23,527
Basic earnings per share attributable to Stewart	0.95		0.79		0.79		0.97		0.82		0.95		0.53		0.79

Diluted average shares outstanding (000)	23,625		23,620		23,607		23,613		23,758		23,625		23,750		23,607
Diluted earnings per share attributable to Stewart	0.95		0.79		0.79		0.96		0.81		0.95		0.53		0.79

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS


	As of June 30, 2018 (Unaudited)		As of December 31, 2017		As of June 30, 2019 (Unaudited)		As of December 31, 2018
	($000 omitted)				($000 omitted)
Assets
Cash and cash equivalents	121,128		150,079		201,205		192,067
Short-term investments	23,642		24,463		23,064		22,950
Investments in debt and equity securities, at fair value	673,333		709,355		617,349		636,017
Receivables:
Premiums from agencies	30,242		27,903		32,347		29,032
Trade and other	50,282		51,299		52,471		43,568
Income taxes	2,477		1,267		4,304		489
Notes	3,088		3,203		2,889		2,987
Allowance for uncollectible amounts	(4,842	)	(5,156	)	(4,025	)	(4,614	)
	81,247		78,516		87,986		71,462
Property and equipment, at cost:
Property and equipment:
Land	3,991		3,991		3,512		3,991
Buildings	22,806		22,849		21,498		22,968
Furniture and equipment	233,154		226,461		218,726		216,498
Accumulated depreciation	(193,128	)	(186,279	)	(186,439	)	(182,663	)
	66,823		67,022		57,297		60,794
Operating lease assets					102,134		—
Title plants, at cost	74,237		74,237		74,737		74,737
Investments on equity method basis	8,985		9,202		8,455		8,590
Goodwill	242,736		231,428		248,890		248,890
Intangible assets, net of amortization	11,138		9,734		7,340		9,727
Deferred tax assets	4,222		4,186		4,575		4,575
Other assets	50,408		47,664		44,007		43,121
	1,357,899		1,405,886		1,477,039		1,372,930
Liabilities
Notes payable	107,657		109,312		105,404		108,036
Accounts payable and accrued liabilities	94,057		117,740		85,436		109,283
Operating lease liabilities					114,022		—
Estimated title losses	475,460		480,990		450,208		461,560
Deferred tax liabilities	14,488		19,034		21,142		14,214
	691,662		727,076		776,212		693,093
Contingent liabilities and commitments
Stockholders’ equity
Common Stock and additional paid-in capital	184,301		184,026
Common Stock ($1 par value) and additional paid-in capital					188,300		186,714
Retained earnings	499,656		491,698		512,467		514,248
Accumulated other comprehensive (loss) income:
Net unrealized investment (losses) gains on investments available-for-sale	(6,336	)	7,526
Accumulated other comprehensive income (loss):
Net unrealized investment gains (losses) on debt securities investments					9,328		(5,266	)
Foreign currency translation adjustments	(14,647	)	(8,373	)	(12,442	)	(19,505	)
Treasury stock – 352,161 common shares, at cost	(2,666	)	(2,666	)	(2,666	)	(2,666	)
Stockholders’ equity attributable to Stewart	660,308		672,211		694,987		673,525
Noncontrolling interests	5,929		6,599		5,840		6,312
Total stockholders’ equity (23,744,939 and 23,719,522 shares outstanding)	666,237		678,810
Total stockholders’ equity (23,712,238 and 23,719,347 shares outstanding)					700,827		679,837
	1,357,899		1,405,886		1,477,039		1,372,930

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Six Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2019		2018
	($000 omitted)				($000 omitted)
Reconciliation of net income to cash provided by operating activities:
Reconciliation of net income to cash (used) provided by operating activities:
Net income	23,759		28,165		17,541		23,759
Add (deduct):
Depreciation and amortization	12,388		12,819		11,764		12,388
Provision for bad debt	69		634		462		69
Investment and other (gains) losses – net	(722	)	389
Amortization of net premium on investments available-for-sale	3,116		3,421
Investment and other gains – net					(3,826	)	(722	)
Amortization of net premium on debt securities investments					2,628		3,116
Payments for title losses in excess of provisions	(1,175	)	(467	)	(11,178	)	(1,175	)
Adjustment for insurance recoveries of title losses	1,448		793		314		1,448
Increase in receivables – net	(4,363	)	(9,792	)	(16,865	)	(4,363	)
Increase in other assets – net	(2,626	)	(6,526	)	(1,111	)	(2,626	)
Decrease in payables and accrued liabilities – net	(26,326	)	(18,868	)
Decrease in accounts payable and other liabilities – net					(11,588	)	(26,326	)
Change in net deferred income taxes	(457	)	2,329		1,185		(457	)
Net income from equity investees	(768	)	(977	)	(1,047	)	(768	)
Dividends received from equity investees	985		1,237		1,220		985
Stock-based compensation expense	1,979		3,372		2,057		1,979
Other – net	60		2		15		60
Cash provided by operating activities	7,367		16,531

Cash (used) provided by operating activities					(8,429	)	7,367
Investing activities:
Proceeds from sales of investments in securities	25,722		49,655		9,952		25,722
Proceeds from matured investments in debt securities	10,355		22,834		35,884		10,355
Purchases of investments in securities	(26,220	)	(88,381	)	(1,263	)	(26,220	)
Net sales (purchases) of short-term investments	221		(182	)
Net (purchases) sales of short-term investments					(58	)	221
Purchases of property and equipment, and real estate – net	(5,690	)	(9,328	)	(7,889	)	(5,690	)
Cash paid for acquisition of businesses	(11,978	)	(18,080	)	—		(11,978	)
Other – net	458		410		1,705		458
Cash used by investing activities	(7,132	)	(43,072	)

Cash provided (used) by investing activities					38,331		(7,132	)
Financing activities:
Payments on notes payable	(5,993	)	(17,917	)	(23,139	)	(5,993	)
Proceeds from notes payable	26		25,897		20,506		26
Distributions to noncontrolling interests	(5,751	)	(5,300	)	(5,487	)	(5,751	)
Repurchases of common stock	(672	)	—		(471	)	(672	)
Cash dividends paid	(14,127	)	(14,065	)	(14,167	)	(14,127	)
Payment of contingent consideration related to an acquisition	—		(1,298	)
Purchase of remaining interest in consolidated subsidiary	(1,112	)	(1,013	)	—		(1,112	)
Cash used by financing activities	(27,629	)	(13,696	)	(22,758	)	(27,629	)

Effects of changes in foreign currency exchange rates	(1,557	)	1,670		1,994		(1,557	)
Decrease in cash and cash equivalents	(28,951	)	(38,567	)

Increase (decrease) in cash and cash equivalents					9,138		(28,951	)
Cash and cash equivalents at beginning of period	150,079		185,772		192,067		150,079
Cash and cash equivalents at end of period	121,128		147,205		201,205		121,128

~~See notes to condensed consolidated financial statements.~~

~~CONDENSED CONSOLIDATED STATEMENT OF EQUITY (UNAUDITED)~~

Common Stock ($1 par value) Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock Noncontrolling interests Total
($000 omitted)
Balances at December 31, 2017 24,072
159,954
491,698
(847 ) (2,666 ) 6,599
678,810
Cumulative effect adjustments on adoption of new accounting standards (Note 1-D) —
—
3,592
(3,592 ) —
—
—
Net income attributable to Stewart —
—
18,598
—
—
—
18,598
Dividends on Common Stock ($0.60 per share) —
—
(14,232 ) —
—
—
(14,232 )
Stock-based compensation and other 42
1,937
—
—
—
—
1,979
Stock repurchases (17 ) (655 ) —
—
—
—
(672 )
Purchase of remaining interest in consolidated subsidiary —
(1,032 ) —
—
—
(80 ) (1,112 )
Net change in unrealized gains and losses on investments, net of taxes —
—
—
(10,434 ) —
—
(10,434 )
Net realized gain reclassification, net of taxes —
—
—
(480 ) —
—
(480 )
Foreign currency translation adjustments, net of taxes —
—
—
(5,630 ) —
—
(5,630 )
Net income attributable to noncontrolling interests —
—
—
—
—
5,161
5,161
Distributions to noncontrolling interests —
—
—
—
—
(5,751 ) (5,751 )
Balances at June 30, 2018 24,097
160,204
499,656
(20,983 ) (2,666 ) 5,929
666,237

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)



	Common Stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Treasury stock		Noncontrolling interests		Total
	($000 omitted)
Six Months Ended June 30, 2019:
Balances at December 31, 2018	24,072		162,642		514,248		(24,771	)	(2,666	)	6,312		679,837
Net income attributable to Stewart	—		—		12,540		—		—		—		12,540
Dividends on Common Stock ($0.60 per share)	—		—		(14,321	)	—		—		—		(14,321	)
Stock-based compensation	4		2,053		—		—		—		—		2,057
Stock repurchases	(11	)	(460	)	—		—		—		—		(471	)
Net change in unrealized gains and losses on investments, net of taxes	—		—		—		14,382		—		—		14,382
Net investment realized loss reclassification, net of taxes	—		—		—		212		—		—		212
Foreign currency translation adjustments, net of taxes	—		—		—		7,063		—		—		7,063
Net income attributable to noncontrolling interests	—		—		—		—		—		5,001		5,001
Distributions to noncontrolling interests	—		—		—		—		—		(5,487	)	(5,487	)
Net effect of other changes in ownership	—		—		—		—		—		14		14
Balances at June 30, 2019	24,065		164,235		512,467		(3,114	)	(2,666	)	5,840		700,827

Six Months Ended June 30, 2018:
Balances at December 31, 2017	24,072		159,954		491,698		(847	)	(2,666	)	6,599		678,810
Cumulative effect adjustments on adoption of new accounting standards	—		—		3,592		(3,592	)	—		—		—
Net income attributable to Stewart	—		—		18,598		—		—		—		18,598
Dividends on Common Stock ($0.60 per share)	—		—		(14,232	)	—		—		—		(14,232	)
Stock-based compensation	42		1,937		—		—		—		—		1,979
Stock repurchases	(17	)	(655	)	—		—		—		—		(672	)
Purchase of remaining interest in consolidated subsidiary	—		(1,032	)	—		—		—		(80	)	(1,112	)
Net change in unrealized gains and losses on investments, net of taxes	—		—		—		(10,434	)	—		—		(10,434	)
Net investment realized gain reclassification, net of taxes	—		—		—		(480	)	—		—		(480	)
Foreign currency translation adjustments, net of taxes	—		—		—		(5,630	)	—		—		(5,630	)
Net income attributable to noncontrolling interests	—		—		—		—		—		5,161		5,161
Distributions to noncontrolling interests	—		—		—		—		—		(5,751	)	(5,751	)
Balances at June 30, 2018	24,097		160,204		499,656		(20,983	)	(2,666	)	5,929		666,237

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)



	Common Stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Treasury stock		Noncontrolling interests		Total
	($000 omitted)
Three Months Ended June 30, 2019:
Balances at March 31, 2019	24,052		163,087		500,335		(11,010	)	(2,666	)	5,106		678,904
Net income attributable to Stewart	—		—		19,306		—		—		—		19,306
Dividends on Common Stock ($0.30 per share)	—		—		(7,174	)	—		—		—		(7,174	)
Stock-based compensation	15		1,238		—		—		—		—		1,253
Stock repurchases	(2	)	(90	)	—		—		—		—		(92	)
Net change in unrealized gains and losses on investments, net of taxes	—		—		—		5,371		—		—		5,371
Net investment realized loss reclassification, net of taxes	—		—		—		50		—		—		50
Foreign currency translation adjustments, net of taxes	—		—		—		2,475		—		—		2,475
Net income attributable to noncontrolling interests	—		—		—		—		—		3,019		3,019
Distributions to noncontrolling interests	—		—		—		—		—		(2,310	)	(2,310	)
Net effect of other changes in ownership	—		—		—		—		—		25		25
Balances at June 30, 2019	24,065		164,235		512,467		(3,114	)	(2,666	)	5,840		700,827

Three Months Ended June 30, 2018:
Balances at March 31, 2018	24,086		159,300		484,359		(14,286	)	(2,666	)	5,410		656,203
Net income attributable to Stewart	—		—		22,378		—		—		—		22,378
Dividends on Common Stock ($0.30 per share)	—		—		(7,081	)	—		—		—		(7,081	)
Stock-based compensation	14		1,825		—		—		—		—		1,839
Stock repurchases	(3	)	(90	)	—		—		—		—		(93	)
Purchase of remaining interest in consolidated subsidiary	—		(831	)	—		—		—		—		(831	)
Net change in unrealized gains and losses on investments, net of taxes	—		—		—		(2,428	)	—		—		(2,428	)
Net investment realized gain reclassification, net of taxes	—		—		—		(231	)	—		—		(231	)
Foreign currency translation adjustments, net of taxes	—		—		—		(4,038	)	—		—		(4,038	)
Net income attributable to noncontrolling interests	—		—		—		—		—		3,342		3,342
Distributions to noncontrolling interests	—		—		—		—		—		(2,823	)	(2,823	)
Balances at June 30, 2018	24,097		160,204		499,656		(20,983	)	(2,666	)	5,929		666,237

See notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

Interim financial statements. The financial information contained in this report for the three and six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, and as of June 30, ~~2018,~~2019, is unaudited. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

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

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

C. Restrictions on cash and investments. The Company maintains investments in accordance with certain statutory requirements for the funding of statutory premium reserves. Statutory reserve funds ~~which approximated $482.4 million and $490.8 million at June 30, 2018 and December 31, 2017, respectively,~~ 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 $444.4 million and $462.2 million at June 30, 2019 and December 31, 2018, respectively, In addition, included within cash and cash equivalents are statutory reserve funds of approximately ~~$13.6~~$65.7 million and ~~$14.2~~$37.7 million at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Although these cash statutory reserve funds are not restricted or segregated in depository accounts, they are required to be held pursuant to state statutes. If the Company fails to maintain minimum investments or cash and cash equivalents sufficient to meet statutory requirements, the Company may be subject to fines or other penalties, including potential revocation of its business license. These funds are not available for any other purpose. In the event that insurance regulators adjust the determination of the statutory premium reserves of the Company’s title insurers, these restricted funds as well as statutory surplus would correspondingly increase or decrease.

D. ~~Cumulative effect adjustments on adoption of new~~Recently adopted accounting ~~standards.~~standard. In February ~~2018,~~2016, the Financial Accounting Standards Board (FASB) issued ~~ASU 2018-02,~~ ~~Income Statement - Reporting Comprehensive Income, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~,Accounting Standards Update (ASU) 2016-02, Topic 842:Leases (Topic 842) which amended its standard on comprehensive income to provide a one-time option for an entity to reclassify the stranded tax effects of the Tax Cuts and Jobs Act (the 2017 Act) that was passed in December 2017 from accumulated other comprehensive income/loss (AOCI) directly to retained earnings. The stranded tax effects result from the remeasurement of deferred tax assets and liabilities which were originally recorded in comprehensive income but whose remeasurement is reflected in the income statement. The Company adopted ASU 2018-02 effective on January 1, 2018 and reclassified $1.0 million of net tax expense from AOCI to retained earnings in the consolidated statement of equity.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~, which, among others, (i) required equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplified the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminated the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and (iv) required separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements. The Company adopted ASU 2016-01 effective on January 1, 2018, which resulted in a reclassification of the outstanding net unrealized investment gains, net of taxes, of $4.6 million relating to investments in equity securities previously carried in AOCI to retained earnings in the consolidated statement of equity.

~~E. Recent significant accounting pronouncement.~~ ~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases, which updated~~updates the current guidance related to ~~leases. The new guidance includes~~leases to increase transparency and comparability among organizations. Most prominent among the ~~requirement for~~changes in the ~~lessee to recognize in~~standard is the recognition of right-of-use lease assets and lease liabilities on the balance sheet a liability equal to the present value of contractual lease payments with terms of more than twelve months and a right-of-use asset representing the right to use the underlying asset for the lease term. Disclosures will be required by lessees for those leases classified as operating leases. Additional financial statement disclosures are required to ~~meet the objective of enabling~~enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. ~~This ASU~~Topic 842 is effective for annual and interim periods beginning after December 15, ~~2018~~2018. Topic 842 permits adoption using either a modified retrospective approach or an optional transition method. The optional transition method allows the application of the recognition and ~~early~~measurement requirements of the standard in the period of adoption ~~is allowed.~~ and annual disclosures using the legacy lease guidance in Topic 840 for comparative periods.

The Company ~~expects to adopt ASU 2016-02 on~~adopted Topic 842 effective January 1, 2019 using the ~~modified retrospective~~optional transition method of adoption. In addition, the Company elected practical expedients permitted under the transition guidance of the standard, which among other things, allowed the carry forward of the historical lease classifications for existing leases. The ~~Company expects the~~ adoption ~~of ASU 2016-02 will result in material increases~~resulted in the recognition on the Company's January 1, 2019 consolidated balance sheet of approximately $99.8 million of operating lease assets and lease liabilities, ~~reported on its consolidated balance sheets as indicated by~~and the reclassification of approximately ~~$167.1~~$10.7 million of ~~undiscounted future minimum~~existing deferred rent liabilities from accounts payable and accrued liabilities to operating lease ~~payments with terms of more than twelve months as of December 31, 2017 (as disclosed in Note 16 of~~assets. There was no impact on the Company's ~~consolidated financial statements included in the Company's 2017 Annual Report on Form 10-K). The Company expects the new ASU will likely have an insignificant impact on its~~2019 consolidated statements of operations and comprehensive income and cash flows. The ~~Company is currently in the process of system implementation and data migration and expects the transition to be completed during the fourth quarter 2018.~~accounting treatment for finance leases remained substantially unchanged.

F.E. Merger ~~Agreement.~~ ~~On March 18, 2018,~~Agreement update. In relation to the ~~Company entered into an Agreement~~Company's agreement and ~~Plan~~plan of ~~Merger (the Merger~~merger (Merger Agreement) with Fidelity National Financial, Inc. (FNF) (the Mergers), ~~a Delaware corporation (FNF), A Holdco Corp., a Delaware corporation~~as disclosed in detail in Note 1-S of the Company’s 2018 Annual Report on Form 10-K and a wholly-owned direct subsidiary of FNF (Merger Sub I), and S Holdco LLC, a Delaware limited liability company and a wholly-owned direct subsidiary of FNF (Merger Sub II and, together with Merger Sub I, the Merger Subs). Upon the terms and subjectin Exhibit 2.1 to the ~~conditions set forth in the Merger Agreement, at the Effective Time (as defined below), Merger Sub I will merge~~Company's Current Report on Form 8-K filed on March 19, 2018 with and into the Company (Merger I), with the Company surviving Merger I as a direct wholly-owned subsidiary of FNF, and at the Subsequent Effective Time (as defined in the Merger Agreement), the Company will merge with and into Merger Sub II (Merger II and, together with Merger I, the Mergers), with Merger Sub II surviving Merger II as a direct wholly-owned subsidiary of FNF.

Subject to the terms and conditions of the Merger Agreement, at the effective time of Merger I (the Effective Time, each share of the Company's Common Stock outstanding immediately prior to the Effective Time (other than (i) shares owned by the Company, its subsidiaries, FNF or the Merger Subs and (ii) shares in respect of which appraisal rights have been properly exercised and perfected under Delaware law) will be converted into the right to receive cash consideration of $25.00 and 0.6425 shares of FNF common stock, par value $0.0001 per share (FNF Common Stock), subject to potential adjustment as described below. Pursuant to the terms of the Merger Agreement, the Company's stockholders have the option to elect to receive the merger consideration in all cash (the Cash Election Consideration), all FNF Common Stock (the Stock Election Consideration) or a mix of 50% cash and 50% FNF Common Stock (the Mixed Election Consideration), subject to pro-rata reductions to the extent either the election for the Cash Election Consideration or the election for the Stock Election Consideration is oversubscribed. Stockholders that elect to receive the Cash Election Consideration will receive is $50.00 per share, subject to potential adjustment as described below and proration to the extent the cash option is oversubscribed. The Stock Election Consideration and the stock portion of the Mixed Election Consideration will be calculated using a fixed exchange ratio that is based on the average of the volume weighted average prices of FNF Common Stock for each of the twenty (20) trading days prior to the signing of the Merger Agreement, or $38.91 (the Parent Share Price). The exchange ratio for the Stock Election Consideration will be equal to 1.2850 shares of FNF Common Stock per share of Common Stock (the Exchange Ratio), subject to potential adjustment described below and proration to the extent the stock option is oversubscribed.

Under the terms of the Merger Agreement, if the combined company is required to divest assets or businesses with 2017 annual revenues in excess of $75 million in order to receive required regulatory approvals (up to a cap of $225 million of 2017 annual revenues), the per share purchase price will be adjusted downwards on a sliding scale between such amounts of divestitures up to a maximum reduction of $4.50 in value in the event that businesses or assets with 2017 annual revenues of $225 million are divested, with such adjustment to consist of (i) in the case shares of Common Stock with respect to which Cash Election Consideration has been elected, a reduction of the amount of cash paid in respect of each share, (ii) in the case shares of Common Stock with respect to which Stock Election Consideration has been elected, a reduction in the Exchange Ratio based on the Parent Share Price, and (iii) in the case of shares of Common Stock with respect to which Mixed Election Consideration has been elected, a reduction in both the amount of cash and the Exchange Ratio to be paid to the holders of such shares, with 50% of the aggregate value of such reduction to consist of a reduction of the cash consideration and 50% of the aggregate value of such reduction to consist of a reduction in the Exchange Ratio based on the Parent Share Price.

The consummation of the Mergers, which is expected during the first or second quarter of 2019, is subject to the satisfaction or waiver of customary conditions, including, among other things, (i) the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of Common Stock entitled to vote on the Mergers (the Company Stockholder Approval), (ii) the absence of any injunction or court or other governmental order (with respect to applicable antitrust or insurance laws, solely with respect to the Required Antitrust Regulatory Filings/Approvals and the Required Insurance Regulatory Filings/Approvals (each as defined in the Merger Agreement)) enjoining, prohibiting or rendering illegal the consummation of the Mergers, (iii) obtaining certain Required Antitrust Regulatory Filings/Approvals, (iv) obtaining certain Required Insurance Regulatory Filings/Approvals, (v) the Securities and Exchange Commission, ~~(SEC) declaring~~ the ~~Registration Statement (as defined~~Company continues to work with FNF to gain approval for the merger from the Federal Trade Commission and the remaining state regulators, including Texas and New York. As set forth in the ~~Merger Agreement)~~Risk Factors of the Company’s 2018 Annual Report on Form ~~S-4 effective, (vi)~~10-K, no assurances can be given that the ~~shares~~requisite approvals thereunder will be obtained, or that the approvals, if obtained, will not include conditions which will delay or materially increase the costs of ~~FNF Common Stock to be issued~~the Mergers, or result in the ~~Mergers having been approved for listing on the New York Stock Exchange, (vii) the representations and warranties made by each~~abandonment of the ~~Company and FNF being true at and as of~~Mergers.

Additionally, the Closing Date (as defined in the Merger Agreement), subject to the materiality standards contained in the Merger Agreement, (viii) the performance, in all material respects, by each of the Company, FNF and the Merger Subs of all of their respective obligations under the Merger Agreement and (ix) no Company Material Adverse Effect or Parent Material Adverse Effect (each as defined in the Merger Agreement) having occurred since the signing of the Merger Agreement.

The Merger Agreement contains certain customary representations, warranties and covenants made by the Company and FNF. The Merger Agreement also contains customary covenants for each of the parties, including the obligation for the parties to refrain from taking specified actions without the consent of the other party, and, in the case of the Company, conduct its business in the ordinary course and use commercially reasonable efforts to preserve intact its business organizations and relationships with third parties. Under the Merger Agreement, each of the Company and FNF has agreed to use its reasonable best efforts to take all actions and to do all things necessary or advisable under applicable law to consummate the Mergers, including preparing and filing as promptly as practicable with any governmental authority or other third party all documentation to effect all necessary filings, notices, petitions, statements, registrations, submissions of information, applications and other documents and obtaining and maintaining all approvals, consents, registrations, permits, authorizations and other confirmations required to be obtained from any governmental authority or other third party that are necessary, proper or advisable to consummate the transactions contemplated by this Agreement. Notwithstanding such obligation, in connection with obtaining any required regulatory approval, (a) FNF is not required to sell, divest, dispose of, license or hold separate (i) title plants and rights to title plants, businesses, product lines or assets to the extent that such title plants, rights to title plants, businesses, product lines or assets generated 2017 revenues in excess of $225 million in the aggregate, or (ii) any of its own brands in full and (b) FNF and its affiliates are not required to litigate in order to avoid or have terminated any legal restraint that would prevent the Mergers from being consummated.

~~The~~ Merger Agreement contains certain customary termination rights in favor of either the Company or FNF, which are exercisable (i) by mutual consent, (ii) upon the failure to complete the Mergers by March 18, 2019 (the End Date), subject to certain exceptions and subject to up to two (2) extensions of up to three (3) months each upon the election of either the Company or FNF if, as of such date, all closing conditions (other than the receipt of the Required Antitrust Regulatory Filings/Approvals, the receipt of the Required Insurance Regulatory Filings/Approvals and the absence of any law or court or other governmental order relating thereto) having been met or being capable of being satisfied as of such time, (iii) in the event of a final and non-appealable law or order that prohibits the consummation of the Mergers or (iv) if the Company’s stockholders do not vote to approve the Mergers.

~~The Merger Agreement contains certain customary termination rights in favor of~~ On March 11, 2019 and June 10, 2019, respectively, FNF exercised the ~~Company, which are exercisable (i) for a breach of any representation, warranty, covenant or agreement made by FNF under~~first and second options to extend the Merger Agreement that would result in failure to satisfy a closing condition (subject to certain cure periods) or (ii) if, prior to the Company Stockholder Approval being obtained, the Company’s board of directors authorizes the Company to enter into, and the Company enters into, an alternative acquisition agreement in connection with a superior proposal. Under the Merger Agreement, the Company will be obligated to pay a termination fee of $33 million to FNF if the Merger Agreement is terminated due to the Company’s board of directors changing its recommendation or if the Company terminates the Merger Agreement to enter into an agreement for a superior proposal.

~~The Merger Agreement also contains certain customary termination rights in favor of FNF. If the Merger Agreement is terminated due to (i) the failure to complete the Mergers by the~~Agreement's End Date, because of a failure to obtain the Required Antitrust Regulatory Filings/Approvals or Required Insurance Regulatory Filings/Approvals, and all other closing conditions have been or are capable of being satisfied at the time of such termination, or (ii) an injunction or governmental or other court order enjoining, prohibiting or rendering illegal the consummation of the Mergers thatwhich is based on the failure to obtain the Required Antitrust Regulatory Filings/Approvals or Required Insurance Regulatory Filings/Approvals, then FNF will be obligated to pay a reverse termination fee of $50 million to the Company.now September 18, 2019.

~~The Merger Agreement was included as Exhibit 2.1 to the Form 8-K filed with the SEC on March 19, 2018.~~

NOTE 2

Revenues. The Company's operating revenues, summarized by type, are as follows:



	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
	($000 omitted)
Title insurance premiums:
Direct	162,367	158,947	274,285	291,708
Agency	230,817	247,257	445,680	484,111
Escrow fees	36,611	35,468	61,904	63,335
Search, abstract and valuation services	19,248	25,114	42,187	46,901
Other revenues	17,455	18,443	32,834	33,371
	466,498	485,229	856,890	919,426

Three Months Ended
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
($000 omitted) ($000 omitted)
Title insurance premiums:
Direct 158,947
159,488
291,708
290,489
Agency 247,257
234,407
484,111
467,756
Escrow fees 35,468
39,447
63,335
72,210
Search, abstract and valuation services 25,114
28,030
46,901
56,200
Other revenues 18,443
19,815
33,371
32,614
485,229
481,187
919,426
919,269

~~Direct premiums - Premiums from title insurance policies directly issued or issued by affiliate offices are recognized at the time of the closing of the related real estate transaction.~~

Agency premiums - Premiums from title insurance policies written by independent agencies (agencies) are recognized when the policies are reported to the Company. In addition, where reasonable estimates can be made, the Company accrues for policies issued but not reported until after period end. The Company believes that reasonable estimates can be made when recent and consistent policy issuance information is available. Estimates are based on historical reporting patterns and other information obtained about agencies, as well as current trends in direct operations and in the title industry. In this accrual, future transactions are not being estimated. The Company is estimating revenues on policies that have already been issued by agencies but not yet reported to or received by the Company. The Company has consistently followed the same basic method of estimating unreported policy revenues for more than 10 years.

Escrow fees - An escrow is a transaction pursuant to an agreement of a buyer, seller, borrower, or lender wherein an impartial third party, such as the Company, acts in a fiduciary capacity on behalf of the parties in accordance with the terms of such agreement in order to accomplish the directions stated therein. Services provided include, among others, acting as escrow or other fiduciary agent, obtaining releases, and conducting the actual closing or settlement. Escrow fees are recognized upon closing of the escrow, which is generally at the same time of the closing of the related real estate transaction.

Search, abstract and valuation services - These services are primarily related to establishing the ownership, legal status and valuation of the property in a real estate transaction. In these cases, the Company does not issue a title insurance policy or perform duties of an escrow agent. Revenues from these services are recognized upon delivery of the service to the customer.

Other revenues - Other revenues consist primarily of fees related to tax-deferred property exchange services, information technology products related to real property records and closing settlement services, income from equity investees, and other services performed to facilitate the closing of real estate transactions. For those products and services that are delivered at a point in time, the related revenue is recognized upon delivery based on the unit price of the product or service. For those products and services where delivery occurs over time, the related revenue is recognized ratably over the duration of the contract.

NOTE 3

Investments in debt and equity securities. The total fair values of the Company's investments in debt and equity securities are ~~detailed below:~~as follows:



	June 30, 2019	December 31, 2018
	($000 omitted)
Investments in:
Debt securities	579,823	602,020
Equity securities	37,526	33,997
	617,349	636,017

June 30, 2018 December 31, 2017
($000 omitted)
Investments in:
Debt securities 637,883
671,441
Equity securities 35,450
37,914
673,333
709,355

Investments in debt securities are classified as available-for-sale and the net unrealized gains and losses on such investments, net of applicable deferred taxes, are included as a component of AOCI within stockholders' equity. As a result of the Company's adoption of ASU 2016-01 (as discussed in Note 1-D), fair value changes relating to investments in equity securities are recognized as part of investment and other (losses) gains - net in the statement of operations beginning on January 1, 2018. Previously, the investments in equity securities, which consist of common stocks and master limited partnership interests, were accounted for similar to investments in debt securities.

As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the net unrealized investment gains relating to investments in equity securities held were ~~$4.9~~$6.4 million and ~~$5.8~~$2.9 million, respectively.

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



	June 30, 2019		December 31, 2018
	Amortized costs	Fair values	Amortized costs	Fair values
	($000 omitted)
Municipal	60,141	61,578	61,779	61,934
Corporate	311,687	319,745	333,289	328,495
Foreign	189,650	192,068	200,667	198,938
U.S. Treasury Bonds	6,537	6,432	12,951	12,653
	568,015	579,823	608,686	602,020

June 30, 2018 December 31, 2017

Amortized
costs

Fair
values

Amortized
costs

Fair
values
($000 omitted)
Municipal 62,837
62,831
71,581
72,669
Corporate 347,379
342,595
351,477
357,933
Foreign 222,740
219,932
229,750
228,237
U.S. Treasury Bonds 12,947
12,525
12,838
12,602
645,903
637,883
665,646
671,441

Foreign debt securities consist of Canadian government and corporate bonds, United Kingdom treasury and corporate bonds, and Mexican government bonds.

Gross unrealized gains and losses on investments in debt securities are as follows:



	June 30, 2019		December 31, 2018
	Gains	Losses	Gains	Losses
	($000 omitted)
Municipal	1,439	2	482	327
Corporate	8,184	126	1,894	6,688
Foreign	3,022	604	1,402	3,131
U.S. Treasury Bonds	8	113	2	300
	12,653	845	3,780	10,446

June 30, 2018 December 31, 2017
Gains Losses Gains Losses
($000 omitted)
Municipal 463
469
1,263
175
Corporate 2,372
7,156
6,953
497
Foreign 1,320
4,128
1,742
3,255
U.S. Treasury Bonds 1
423
—
236
4,156
12,176
9,958
4,163

Debt securities as of June 30, ~~2018~~2019 mature, according to their contractual terms, as follows (actual maturities may differ due to call or prepayment rights):



	Amortized costs	Fair values
	($000 omitted)
In one year or less	50,679	50,634
After one year through five years	330,611	335,702
After five years through ten years	155,433	160,440
After ten years	31,292	33,047
	568,015	579,823

Amortized
costs

Fair
values
($000 omitted)
In one year or less 55,856
55,917
After one year through five years 359,043
355,605
After five years through ten years 190,383
186,494
After ten years 40,621
39,867
645,903
637,883

Gross unrealized losses on investments in debt securities and the fair values of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, ~~2018,~~2019, were:



	Less than 12 months		More than 12 months		Total
	Losses	Fair values	Losses	Fair values	Losses	Fair values
	($000 omitted)
Municipal	—	—	2	506	2	506
Corporate	1	80	125	22,619	126	22,699
Foreign	30	21,616	574	59,053	604	80,669
U.S. Treasury Bonds	—	—	113	5,836	113	5,836
	31	21,696	814	88,014	845	109,710

Less than 12 months More than 12 months Total
Losses Fair values Losses Fair values Losses Fair values
($000 omitted)
Municipal 198
21,849
271
5,756
469
27,605
Corporate 6,916
268,573
240
4,755
7,156
273,328
Foreign 897
73,483
3,231
88,709
4,128
162,192
U.S. Treasury Bonds 157
5,732
266
6,686
423
12,418
8,168
369,637
4,008
105,906
12,176
475,543

The number of specific debt investment holdings held in an unrealized loss position as of June 30, ~~2018~~2019 was ~~313.~~61. Of these securities, ~~64 securities~~53 were in unrealized loss positions for more than 12 months. During 2019, the overall gross unrealized losses on debt securities improved compared to the prior year-end, primarily due to reduced interest rates and credit spreads which increased investment fair values. Since the Company does not intend to sell and will more likely than not maintain each investment security until its maturity or anticipated recovery, and no significant credit risk is deemed to exist, these investments are not considered as other-than-temporarily impaired. The Company believes its investment portfolio is diversified and expects no material loss to result from the failure to perform by issuers of the debt securities it holds. Investments made by the Company are not collateralized.



	Less than 12 months		More than 12 months		Total
	Losses	Fair values	Losses	Fair values	Losses	Fair values
	($000 omitted)
Municipal	91	13,366	236	11,645	327	25,011
Corporate	4,416	201,965	2,272	71,044	6,688	273,009
Foreign	158	11,424	2,973	137,793	3,131	149,217
U.S. Treasury Bonds	—	—	300	12,544	300	12,544
	4,665	226,755	5,781	233,026	10,446	459,781

Less than 12 months More than 12 months Total
Losses Fair values Losses Fair values Losses Fair values
($000 omitted)
Municipal 58
17,023
117
5,784
175
22,807
Corporate 386
81,632
111
4,926
497
86,558
Foreign 1,528
116,130
1,727
39,031
3,255
155,161
U.S. Treasury Bonds 53
5,830
183
6,772
236
12,602
2,025
220,615
2,138
56,513
4,163
277,128

NOTE 4

Fair value measurements. The Fair Value Measurements and Disclosures Topic (Topic 820) of the FASB Accounting Standards Codification (ASC) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal, or most advantageous, market for the asset or liability in an orderly transaction between market participants at the measurement date. Topic 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs when possible.

The three levels of inputs used to measure fair value are as follows:

Level 1 – quoted prices in active markets for identical assets or liabilities;

Level 2 – observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and

Level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

As of June 30, 2019, financial instruments measured at fair value on a recurring basis are summarized below:



	Level 1	Level 2	Fair value measurements
	($000 omitted)
Investments in securities:
Debt securities:
Municipal	—	61,578	61,578
Corporate	—	319,745	319,745
Foreign	—	192,068	192,068
U.S. Treasury Bonds	—	6,432	6,432
Equity securities	37,526	—	37,526
	37,526	579,823	617,349

As of December 31, 2018, financial instruments measured at fair value on a recurring basis are summarized below:



	Level 1	Level 2	Fair value measurements
	($000 omitted)
Investments in securities:
Debt securities:
Municipal	—	61,934	61,934
Corporate	—	328,495	328,495
Foreign	—	198,938	198,938
U.S. Treasury Bonds	—	12,653	12,653
Equity securities	33,997	—	33,997
	33,997	602,020	636,017

Level 1 Level 2
Fair value
measurements
($000 omitted)
Investments in securities:
Debt securities:
Municipal —
62,831
62,831
Corporate —
342,595
342,595
Foreign —
219,932
219,932
U.S. Treasury Bonds —
12,525
12,525
Equity securities 35,450
—
35,450
35,450
637,883
673,333

~~As of December 31, 2017, financial instruments measured at fair value on a recurring basis are summarized below:~~

Level 1 Level 2
Fair value
measurements
($000 omitted)
Investments in securities:
Debt securities:
Municipal —
72,669
72,669
Corporate —
357,933
357,933
Foreign —
228,237
228,237
U.S. Treasury Bonds —
12,602
12,602
Equity securities 37,914
—
37,914
37,914
671,441
709,355

As of June 30, ~~2018,~~2019, Level 1 financial instruments consist of equity securities. Level 2 financial instruments consist of municipal, governmental, and corporate bonds, both U.S. and foreign. In accordance with the Company’s policies and guidelines which incorporate relevant statutory requirements, the Company’s third-party registered investment manager invests only in securities rated as investment grade or higher by the major rating services, where observable valuation inputs are significant. The fair value of the Company's investments in ~~available-for-sale~~debt and equity securities ~~are~~is primarily determined using a third-party pricing service provider. The third-party pricing service provider calculates the fair values using both market approach and model valuation methods, as well as pricing information obtained from brokers, dealers and custodians. Management ensures the reasonableness of the third-party service valuations by comparing them with pricing information from the Company's investment manager.

~~There were no transfers of investments between levels during the six months ended June 30, 2018 and 2017.~~

NOTE 5

Investment and other ~~(losses)~~ gains - net. Investments and other gains (losses) ~~gains~~ are detailed as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	($000 omitted)
Investment and other gains	791		603		953		1,166
Investment and other losses	(59	)	(38	)	(363	)	(68	)
Net unrealized investment (losses) gains recognized on equity securities still held at June 30	(310	)	1,828		3,236		(376	)
	422		2,393		3,826		722

Three Months Ended
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
($000 omitted)
Realized gains 603
279
1,166
845
Realized losses (38 ) (955 ) (68 ) (1,234 )
Net unrealized investment gains (losses) recognized on equity securities held 1,828
—
(376 ) —
2,393
(676 ) 722
(389 )

~~Following the adoption of ASU 2016-01 discussed in Notes 1~~Investment gains and ~~3, net investment~~ losses recognized during the ~~three and six months~~periods ended June 30, 2019 and 2018 related to investments in equity securities ~~still held~~are as ~~of June 30, 2018 are calculated as follows ($000 omitted):~~follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019	2018
	($000 omitted)
Net investment (losses) gains recognized on equity securities during the period	(264	)	1,612		3,393	(614	)
Less: Net realized gains (losses) on equity securities sold during the period	46		(216	)	157	(238	)
Net unrealized investment (losses) gains recognized on equity securities still held at June 30	(310	)	1,828		3,236	(376	)

June 30, 2018
Three Months Ended Six Months Ended
($000 omitted)
Total net investment gains (losses) recognized on equity securities during the period 1,612
(614 )
Less: Net realized losses on equity securities sold during the period (216 ) (238 )
Net unrealized investment gains (losses) recognized on equity securities still held 1,828
(376 )

Proceeds from sales of investments in securities are as follows:



	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
	($000 omitted)
Proceeds from sales of debt securities	2,734	8,003	9,052	21,149
Proceeds from sales of equity securities	260	2,353	900	4,573
Total proceeds from sales of investments in securities	2,994	10,356	9,952	25,722

Three Months Ended
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
($000 omitted)
Proceeds from sales of debt securities 8,003
33,776
21,149
48,826
Proceeds from sales of equity securities 2,353
36
4,573
829
Total proceeds from sales of investment in securities 10,356
33,812
25,722
49,655

NOTE 6

~~Goodwill and other intangibles.~~ ~~The summary of changes in goodwill is as follows.~~

Title Ancillary Services and Corporate Consolidated Total
($000 omitted)

Balances at December 31, 2017 225,699
5,729
231,428
Acquisitions 11,308
—
11,308
Balances at June 30, 2018 237,007
5,729
242,736

During the first quarter 2018, the Company acquired certain title businesses which increased goodwill related to the title segment by a total of $11.3 million, which is substantially deductible for income tax purposes over a period of 15 years. Also, in connection with the acquisitions, the Company identified and recorded $3.6 million of other intangibles, primarily related to employment and non-compete agreements, to be amortized over 3 years from the date of acquisition.

~~NOTE 7~~

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



	2019		2018
	($000 omitted)
Balances at January 1	461,560		480,990
Provisions:
Current year	33,833		41,372
Previous policy years	640		(3,694	)
Total provisions	34,473		37,678
Payments, net of recoveries:
Current year	(5,722	)	(5,263	)
Previous policy years	(39,929	)	(33,590	)
Total payments, net of recoveries	(45,651	)	(38,853	)
Effects of changes in foreign currency exchange rates	(174	)	(4,355	)
Balances at June 30	450,208		475,460
Loss ratios as a percentage of title operating revenues:
Current year provisions	4.1	%	4.6	%
Total provisions	4.1	%	4.2	%

2018 2017
($000 omitted)
Balances at January 1 480,990
462,572
Provisions:
Current year 41,372
43,850
Previous policy years (3,694 ) 1,313
Total provisions 37,678
45,163
Payments, net of recoveries:
Current year (5,263 ) (5,966 )
Previous policy years (33,590 ) (39,664 )
Total payments, net of recoveries (38,853 ) (45,630 )
Effects of changes in foreign currency exchange rates (4,355 ) 3,189
Balances at June 30 475,460
465,294
Loss ratios as a percentage of title operating revenues:
Current year provisions 4.6 % 4.9 %
Total provisions 4.2 % 5.1 %

~~During the six months ended June 30,~~Title loss provisions during 2019 decreased compared to 2018, ~~the Company decreased its loss provisioning rate due to lower loss experience and reduced prior policy year reserves~~primarily as a result of ~~the actuarial reserve review. This resulted~~lower title premiums in ~~a $3.7 million favorable loss development for previous policy years and decreased total title loss provisions for the six months ended June 30, 2018 compared to the same period in 2017.~~

~~NOTE 8~~

~~Share-based payments.~~ ~~Prior to~~2019. During 2018, the Company ~~granted executives and senior management shares of restricted common stock, consisting of time-based shares,~~recorded a $4.0 million net reduction in prior policy years' reserves, which ~~vest~~was driven by its favorable loss experience. Claim payments increased during 2019 compared to 2018, primarily due to higher payments on each of the first three anniversaries of the grant date, and performance-based shares, which vest upon achievement of certain financial objectives over the period of three years. Starting on January 1,existing non-large claims.

NOTE 7

Share-based payments. Beginning in 2018, the Company ~~began granting~~grants time-based and performance-based restricted stock units ~~which have vesting conditions generally similar~~ to ~~those restricted common stock shares awarded previously.~~executives and senior management employees. Each restricted stock unit represents a contractual right to receive a share of the Company's common stock.

The ~~aggregate grant-date fair values~~time-based units vest on each of ~~these awards during 2018 and 2017 were $4.7 million (109,000 shares with an average~~the first three anniversaries of the grant ~~price per share~~date, while the performance-based units vest upon achievement of ~~$43.39) and $4.7 million (107,000 shares with an average grant price per share~~certain financial objectives over a period of ~~$44.21), respectively.~~approximately three years. Awards ~~were~~are made pursuant to the Company’s employee incentive compensation plans and the compensation expense associated with ~~restricted stock~~the awards is recognized over the corresponding vesting period. ~~Additionally, during the second quarters 2018 and 2017, the Company granted its board of directors, as a component of annual director retainer compensation,~~ ~~14,300~~ ~~and~~ ~~13,000~~ ~~shares, respectively, of common stock, which vested immediately.~~ The aggregate grant-date fair values of ~~these director~~restricted stock unit awards atduring the first six months of 2019 and 2018 were $4.5 million (104,000 units with an average grant ~~dates in 2018~~price per unit of $43.22) and ~~2017 were both~~ ~~$0.6~~ ~~million.~~$4.7 million (109,000 units with an average grant price per unit of $43.39), respectively.

NOTE 98

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

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



	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
	($000 omitted, except per share)
Numerator:
Net income attributable to Stewart	19,306	22,378	12,540	18,598

Denominator (000):
Basic average shares outstanding	23,614	23,546	23,605	23,527
Average number of dilutive shares relating to grants of restricted shares and units	144	79	145	80
Basic and diluted average shares outstanding	23,758	23,625	23,750	23,607

Basic earnings per share attributable to Stewart	0.82	0.95	0.53	0.79

Diluted earnings per share attributable to Stewart	0.81	0.95	0.53	0.79

Three Months Ended
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
($000 omitted, except per share)
Numerator:
Net income attributable to Stewart 22,377
18,568
18,598
22,657

Denominator (000):
Basic average shares outstanding 23,546
23,444
23,527
23,438
Average number of dilutive shares relating to grants of restricted shares and units 79
176
80
175
Diluted average shares outstanding 23,625
23,620
23,607
23,613

Basic earnings per share attributable to Stewart 0.95
0.79
0.79
0.97

Diluted earnings per share attributable to Stewart 0.95
0.79
0.79
0.96

NOTE 9

Leases. The Company primarily leases office space, storage units, data centers and equipment, and determines if an arrangement is a lease at inception. Operating leases are included in operating lease assets and operating lease liabilities on the consolidated balance sheets. Operating lease assets represent the right to use the underlying leased assets over the corresponding lease terms. Finance leases are included in furniture and equipment and notes payable on the consolidated balance sheets. Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company's leases do not provide an implicit rate, the Company's incremental borrowing rate based on the information available at the lease commencement date is used in determining the present value of the future lease payments. Lease options to extend or terminate that the Company is reasonably certain to exercise are considered in the present value calculation.

Operating lease expense, which is calculated on a straight-line basis over the lease term and presented as part of other operating expenses in the statement of operations, is composed of the amortization of the lease asset and the accretion of the lease liability. Finance lease expense is composed of the depreciation of the lease asset and accretion of the lease liability and presented as part of depreciation and amortization and interest expense, respectively, in the condensed consolidated statement of income and comprehensive income.

The Company accounts for the lease and non-lease fixed payment components of a lease agreement as a single lease component for all its classes of assets. Variable lease payments are not capitalized and are recorded as lease expense when incurred or paid. Operating leases with initial terms of 12 months or less (short-term leases), which are not reasonably certain to be extended at the commencement date, are not capitalized on the balance sheet. Additionally, operating leases of equipment are not recorded on the balance sheet on the basis that they are relatively short-term in nature and considered as not material to the condensed consolidated balance sheet.

During the three and six months ended June 30, 2019, total operating lease expense was $11.4 million and $22.9 million, respectively, which included $1.1 million and $2.1 million, respectively, of lease expense related to short-term leases and equipment. Total finance lease expense was $0.5 million and $1.1 million, respectively, for the three and six months ended June 30, 2019.

Lease-related assets and liabilities as of June 30, 2019 are as follows ($000 omitted):



Assets:
Operating lease assets, net of accumulated amortization		102,134
Finance lease assets, net of accumulated depreciation		1,369
Total lease assets		103,503

Liabilities:
Operating lease liabilities		114,022
Finance lease liabilities		4,975
Total lease liabilities		118,997

Other information related to operating and finance leases during the six months ended June 30, 2019 is as follows:



	Operating		Finance

Cash paid for amounts included in the measurement of lease liabilities ($000)	22,167		1,734
Lease assets obtained in exchange for lease obligations ($000)	33,419		—
Weighted average remaining lease term (years):	4.7		2.7
Weighted average discount rate	4.6	%	5.0	%

Future minimum lease payments under operating and finance leases as of June 30, 2019 are as follows:



	Operating		Finance
	($000 omitted)
2019 (excludes the six months ended June 30, 2019)	20,396		1,342
2020	33,926		1,913
2021	25,264		957
2022	18,186		957
2023	12,907		80
Thereafter	21,809		—
Total future minimum lease payments	132,488		5,249
Less: imputed interest	(18,466	)	(274	)
Net future minimum lease payments	114,022		4,975

NOTE 10

Contingent liabilities and commitments. In the ordinary course of business, the Company guarantees the third-party indebtedness of certain of its consolidated subsidiaries. As of June 30, ~~2018,~~2019, the maximum potential future payments on the guarantees are not more than the related notes payable recorded in the condensed consolidated balance sheets. The Company also guarantees the indebtedness related to lease obligations of certain of its consolidated subsidiaries. The maximum future obligations arising from these lease-related guarantees are not more than the Company’s future minimum lease payments. As of June 30, ~~2018,~~2019, the Company also had unused letters of credit aggregating $5.4 million related to workers’ compensation and other insurance. The Company does not expect to make any payments on these guarantees.

NOTE 11

Regulatory and legal developments. The Company is subject to claims and lawsuits arising in the ordinary course of its business, most of which involve disputed policy claims. In some of these lawsuits, the plaintiff seeks exemplary or treble damages in excess of policy limits. The Company does not expect that any of these ordinary course proceedings will have a material adverse effect on its consolidated financial condition or results of operations. ~~In addition, along with the other major title insurance companies, the Company is party to class action lawsuits concerning the title insurance industry.~~ The Company believes that it has adequate reserves for the various litigation matters and contingencies discussed in this paragraph and that the likely resolution of these matters will not materially affect its consolidated financial condition or results of operations.

Additionally, the Company receives from time to time various other inquiries from governmental regulators concerning practices in the insurance industry. Many of these practices do not concern title insurance. To the extent the Company is in receipt of such inquiries, it believes that it has adequately reserved for these matters and does not anticipate that the outcome of these inquiries will materially affect its consolidated financial condition or results of operations.

The Company is subject to various other administrative actions and inquiries into its business conduct in certain of the states in which it operates. While the Company cannot predict the outcome of the various regulatory and administrative matters, it believes that it has adequately reserved for these matters and does not anticipate that the outcome of any of these matters will materially affect its consolidated financial condition or results of operations.

NOTE 12

Segment information. The Company reports two operating segments: title and ancillary services and corporate. The title segment provides services needed to transfer title to property in a real estate transaction and includes services such as searching, examining, closing and insuring the condition of the title to the property. In addition, the title segment includes ~~centralized title services,~~ home and personal insurance services and Internal Revenue Code Section 1031 tax-deferred exchanges. The ancillary services and corporate segment includes search and valuation services, which are the principal offerings of ancillary services, and expenses of the parent holding company and certain other enterprise-wide overhead costs ~~net~~(net of centralized administrative services costs allocated to respective operating ~~businesses.~~businesses).

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	($000 omitted)
Title segment:
Revenues	463,636		479,125		848,074		904,536
Depreciation and amortization	5,048		5,249		10,200		10,566
Income before taxes and noncontrolling interest	39,041		37,737		38,661		42,862

Ancillary services and corporate segment:
Revenues	8,439		13,744		22,521		25,563
Depreciation and amortization	727		905		1,564		1,822
Loss before taxes and noncontrolling interest	(9,689	)	(6,416	)	(16,535	)	(14,796	)

Consolidated Stewart:
Revenues	472,075		492,869		870,595		930,099
Depreciation and amortization	5,775		6,154		11,764		12,388
Income before taxes and noncontrolling interest	29,352		31,321		22,126		28,066

Three Months Ended
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
($000 omitted)
Title segment:
Revenues 479,125
470,449
904,536
896,246
Depreciation and amortization 5,249
5,321
10,566
10,547
Income before taxes and noncontrolling interest 37,737
39,467
42,862
51,744

Ancillary services and corporate segment:
Revenues 13,744
15,003
25,563
32,247
Depreciation and amortization 905
1,120
1,822
2,272
Loss before taxes and noncontrolling interest (6,416 ) (6,320 ) (14,796 ) (12,729 )

Consolidated Stewart:
Revenues 492,869
485,452
930,099
928,493
Depreciation and amortization 6,154
6,441
12,388
12,819
Income before taxes and noncontrolling interest 31,321
33,147
28,066
39,015

The Company does not provide asset information by reportable operating segment as it does not routinely evaluate the asset position by segment.

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



	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
	($000 omitted)
United States	441,614	460,529	818,096	873,833
International	30,461	32,340	52,499	56,266
	472,075	492,869	870,595	930,099

Three Months Ended
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
($000 omitted)
United States 460,529
451,766
873,833
871,019
International 32,340
33,686
56,266
57,474
492,869
485,452
930,099
928,493

NOTE 13

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



	Three Months Ended June 30, 2019			Three Months Ended June 30, 2018
	Before-Tax Amount	Tax Expense (Benefit)	Net-of-Tax Amount	Before-Tax Amount		Tax Expense (Benefit)		Net-of-Tax Amount
	($000 omitted)
Net unrealized gains (losses) on investments:
Change in net unrealized gains and losses on investments	6,800	1,429	5,371	(3,074	)	(646	)	(2,428	)
Less: reclassification adjustment for net losses (gains) included in net income	63	13	50	(292	)	(61	)	(231	)
	6,863	1,442	5,421	(3,366	)	(707	)	(2,659	)
Foreign currency translation adjustments	3,378	903	2,475	(4,575	)	(537	)	(4,038	)
Other comprehensive income (loss)	10,241	2,345	7,896	(7,941	)	(1,244	)	(6,697	)

Three Months Ended
June 30, 2018 Three Months Ended
June 30, 2017
Before-Tax Amount Tax Expense (Benefit) Net-of-Tax Amount Before-Tax Amount Tax Expense (Benefit) Net-of-Tax Amount
($000 omitted)
Net unrealized (losses) gains on investments:
Change in net unrealized gains and losses on investments (3,074 ) (646 ) (2,428 ) 548
193
355
Less: reclassification adjustment for net gains included in net income (292 ) (61 ) (231 ) (145 ) (51 ) (94 )
(3,366 ) (707 ) (2,659 ) 403
142
261
Foreign currency translation adjustments (4,575 ) (537 ) (4,038 ) 4,334
1,130
3,204
Other comprehensive (loss) income (7,941 ) (1,244 ) (6,697 ) 4,737
1,272
3,465

Six Months Ended
June 30, 2018 Six Months Ended
June 30, 2017
Before-Tax Amount Tax Expense (Benefit) Net-of-Tax Amount Before-Tax Amount Tax Expense (Benefit) Net-of-Tax Amount
($000 omitted)
Net unrealized (losses) gains on investments:
Change in net unrealized gains and losses on investments (13,208 ) (2,774 ) (10,434 ) 4,343
1,521
2,822
Less: reclassification adjustment for net gains included in net income (607 ) (127 ) (480 ) (710 ) (249 ) (461 )
(13,815 ) (2,901 ) (10,914 ) 3,633
1,272
2,361
Foreign currency translation adjustments (6,854 ) (1,224 ) (5,630 ) 6,014
1,485
4,529
Other comprehensive (loss) income (20,669 ) (4,125 ) (16,544 ) 9,647
2,757
6,890



	Six Months Ended June 30, 2019			Six Months Ended June 30, 2018
	Before-Tax Amount	Tax Expense (Benefit)	Net-of-Tax Amount	Before-Tax Amount		Tax Expense (Benefit)		Net-of-Tax Amount
	($000 omitted)
Net unrealized gains (losses) on investments:
Change in net unrealized gains and losses on investments	18,206	3,824	14,382	(13,208	)	(2,774	)	(10,434	)
Less: reclassification adjustment for net losses (gains) included in net income	268	56	212	(607	)	(127	)	(480	)
	18,474	3,880	14,594	(13,815	)	(2,901	)	(10,914	)
Foreign currency translation adjustments	8,926	1,863	7,063	(6,854	)	(1,224	)	(5,630	)
Other comprehensive income (loss)	27,400	5,743	21,657	(20,669	)	(4,125	)	(16,544	)

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

MANAGEMENT’S OVERVIEW

We reported net income attributable to Stewart of $19.3 million ($0.81 per diluted share) for the second quarter 2019, compared to net income attributable to Stewart of $22.4 million ($0.95 per diluted share) for the second quarter ~~2018 compared to net income attributable to Stewart of $18.6 million ($0.79 per diluted share) for the second quarter 2017.~~2018. Pretax income before noncontrolling interests for the second quarter ~~2018~~2019 was ~~$31.3~~$29.4 million compared to a pretax income before noncontrolling interests of ~~$33.1~~$31.3 million for the second quarter ~~2017.~~2018.

~~On March 18, 2018, Stewart entered into an agreement and plan~~Second quarter 2019 results included:

$3.7 million of ~~merger with~~third-party advisory expenses related to the Fidelity National Financial ~~Inc.~~ (FNF), merger transaction recorded in ~~which~~other operating expenses within the ~~outstanding shares of Stewart will be exchanged for a combination of cash~~ancillary services and ~~shares of FNF,~~corporate segment, and ~~the Company will be merged into a subsidiary of FNF (the Mergers). We announced~~

$0.4 million in ~~the first~~net investment and other gains.

Second quarter 2018 ~~that we had begun the regulatory approval process for Stewart’s merger with FNF by submitting our preliminary Hart-Scott-Rodino filings to the Federal Trade Commission (FTC)~~results included $2.4 million in net investment and the Form A filings to the states of Texas and New York, the domiciles of Stewart’s two main underwriters. During the second quarter 2018, we received an expected second request for additional information and documentary material from the FTC and are in the process of responding to this request. In addition, we have received approval from a majority of the states with which a Form E was filed and are awaiting approval from the remaining states. Subject to approval by our stockholders and regulatory authorities and the satisfaction of customary closing conditions, the Mergers are expected to close by the first or second quarter 2019.other gains.

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


	For the Three Months Ended June 30,						For the Three Months Ended June 30,
	2018		2017		% Change		2019		2018		% Change

Total operating revenues	471.5		466.0		1	%	458.7		471.5		(3	)%
Investment income and other net gains	7.6		4.4		73	%	4.9		7.6		(35	)%
Pretax income	37.7		39.5		(4	)%	39.0		37.7		3	%
Pretax margin	7.9	%	8.4	%			8.4	%	7.9	%	7	%

Title operating revenues in the second quarter ~~2018 increased $5.5 million from~~2019 decreased 3% compared to the prior year quarter ~~driven by increased commercial and~~primarily due to the decrease in independent agency ~~revenues, which were partially offset by lower residential direct title~~ revenues. ~~Pretax income declined $1.8 million~~The segment’s overall operating expenses in the second quarter ~~2018~~2019 decreased $16.8 million, or 4%, compared to the ~~second~~prior year quarter, ~~2017. The title segment incurred higher~~primarily driven by the 2% reduction in combined employee ~~costs due to increased commissions and additional employee costs from acquisitions, which were partially offset by lower title losses~~ and other operating ~~expenses. Included in~~costs and the ~~segment’s results were $4.0~~6% lower agency retention expense largely resulting from lower agency gross revenues. The segment recognized $0.4 million of net policy loss reserve reductions resulting from our midyear actuarial reserve review, partially offset by charges to policy loss expenses of $3.9 million related to two ongoing escrow litigation matters,unrealized losses in the second quarter 2019 and $1.8 million of net unrealized gains in the prior year quarter relating to changes in fair value of ~~investments in~~ equity securities ~~(which were previously being recorded~~investments. Excluding the effects of these equity securities’ fair value remeasurements, the title segment’s pretax income in the second quarter 2019 was $39.4 million, an increase of $3.5 million, or 10%, compared to ~~other comprehensive~~pretax income ~~but are now included~~of $35.9 million in ~~investment and other net gains due to an adoption of a new accounting standard in 2018).~~the second quarter 2018.



	For the Three Months Ended June 30,
	2019	2018	% Change
	($ in millions)
Non-commercial
Domestic	148.9	145.7	2	%
International	22.4	22.8	(2	)%
	171.3	168.5	2	%
Commercial:
Domestic	50.3	48.2	4	%
International	6.3	7.5	(16	)%
	56.6	55.7	2	%
Total direct title revenues	227.9	224.2	2	%

~~Included in the non-commercial~~Non-commercial domestic revenues, ~~(as shown under the Results of Operations - Title revenues section) were~~which include revenues from purchase transactions and centralized title operations, ~~(processing primarily~~increased as a result of the increase in combined purchase and refinancing closed orders and ~~default title orders) which decreased $1.9 million (1%) and $5.5 million (46%), respectively,~~the higher premium effect of increased home sale prices in the second quarter ~~2018~~2019 compared to the prior year ~~quarter~~quarter. Domestic commercial revenues increased due to lower closed orders, primarily on refinancing activities. Total commercial revenues improved 8% from the prior year quarter due to our continued focus on delivering quality service and underwriting to our domestic and international commercial customers. Total international title revenues ina higher fee per file during the second quarter ~~2018 decreased $1.8 million~~2019, compared to the ~~prior year~~second quarter 2018. Second quarter 2019 domestic commercial fee per file increased 25% to approximately $11,600, as a result of ~~lower volumes, principally~~increased transaction sizes, while domestic residential fee per file increased 3% to approximately $2,300 primarily due to home price appreciation, more than offsetting the effects of reduced fee per file from ~~our Canada operations, partially offset by the positive impact of the stronger foreign exchange rates against the U.S. dollar.~~increased refinancing volume.

Gross revenues from independent agency operations declined 7% in the second quarter ~~2018 increased $12.9 million~~2019, compared to ~~the second quarter 2017.~~last year’s quarter. The independent agency remittance rate in the second quarter ~~2018 remained comparable~~2019 was 17.2%, compared to 17.6% in the prior year quarter. Agency revenues, net of agency retention, improved 4% in the second quarter 2018, compared to the prior year quarter, as we maintain our focus on enhancing customer service and technology connectivity.

Summary results of the ancillary services and corporate segment are as follows ($ in millions):


	For the Three Months Ended June 30,						For the Three Months Ended June 30,
	2018		2017		% Change		2019		2018		% Change

Total revenues	13.7		15.0		(8	)%	8.4		13.7		(39	)%
Pretax loss	(6.4	)	(6.3	)	(2	)%	(9.7	)	(6.4	)	(51	)%

Excluding the $3.7 million FNF merger-related expenses noted above for the segment, the second quarter 2019 pretax loss would have been $6.0 million, a 7% improvement compared to the prior year quarter. Second quarter ~~2018~~2019 segment revenues ~~declined $1.3~~decreased $5.3 million compared to the prior year quarter, primarily due to ~~a 23% revenue decrease in the~~lower revenues from search and valuation services ~~business which was partially offset by a 6% increase in the search services business. The segment’s pretax results for the second quarter 2018 were comparable to the prior year quarter~~ as a result of lower ~~employee costs, which fully offset~~customer orders. Additionally, the ~~revenue decline for the quarter. The~~ segment’s results for the second quarter ~~2018~~2019 and ~~2017~~2018 included approximately ~~$6.3~~$9.4 million and ~~$5.9~~$6.3 million, respectively, of net expenses attributable to parent company and corporate operations, with the increased expenses in the second quarter 2019 driven by the merger-related charges.

As set forth in Note 1-E to the condensed consolidated financial statements and in the Company’s 2018 Annual Report on Form 10-K, the proposed FNF merger is subject to the receipt of approvals, consents and clearances from various regulatory authorities. There can be no assurance that the necessary approvals, consents and clearances will be obtained, or if obtained, that any regulator will not impose conditions, terms, obligations or restrictions and that such conditions, terms, obligations or restrictions will not have the effect of delaying completion of the Mergers or imposing additional material costs on the Company. In addition, neither FNF nor Stewart can provide assurance that any such conditions, terms, obligations, restrictions or disapprovals will not result in the delay or abandonment of the Mergers.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the Company’s condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures surrounding contingencies and commitments.

Actual results can differ from our accounting estimates. While we do not anticipate significant changes in our estimates, there is a risk that such changes could have a material impact on our consolidated financial condition or results of operations for future periods. During the six months ended June 30, ~~2018,~~2019, we made no material changes to our critical accounting estimates as previously disclosed in Management’s Discussion and Analysis in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Operations. Our primary business is title insurance and settlement-related services. We close transactions and issue title policies on homes, commercial and other real properties located in all 50 states, the District of Columbia and international markets through policy-issuing offices, agencies and centralized title services centers. Our ancillary services and corporate segment includes our parent holding company expenses and certain enterprise-wide overhead costs, along with our ~~remaining~~ ancillary services operations, principally search and valuation services.

Factors affecting revenues. The principal factors that contribute to changes in operating revenues for our title and ancillary services and corporate segments include:

mortgage interest rates;

availability of mortgage loans;

number and average value of mortgage loan originations;

ability of potential purchasers to qualify for loans;

inventory of existing homes available for sale;

ratio of purchase transactions compared with refinance transactions;

ratio of closed orders to open orders;

home prices;

consumer confidence, including employment trends;

demand by buyers;

number of households;

premium rates;

foreign currency exchange rates;

market share;

ability to attract and retain highly productive sales associates;

independent agency remittance rates;

opening of new offices and acquisitions;

office closures;

number and value of commercial transactions, which typically yield higher premiums;

government or regulatory initiatives, including tax incentives and the implementation of the new integrated disclosure requirements;

acquisitions or divestitures of businesses;

volume of distressed property transactions; and

seasonality and/or weather.

Premiums are determined in part by the values of the transactions we handle. To the extent inflation or market conditions cause increases in the prices of homes and other real estate, premium revenues are also increased. Conversely, falling home prices cause premium revenues to decline. As an overall guideline, a 5% change in median home prices results in an approximate 3.7% change in title premiums. Home price changes may override the seasonal nature of the title insurance business. Historically, our first quarter is the least active in terms of title insurance revenues as home buying is generally depressed during winter months. Our second and third quarters are the most active as the summer is the traditional home buying season, and while commercial transaction closings are skewed to the end of the year, individually large commercial transactions can occur any time of year. On average, refinance title premium rates are 60% of the premium rates for a similarly priced sale transaction.

RESULTS OF OPERATIONS

Comparisons of our results of operations for the three and six months ended June 30, ~~2018~~2019 with the three and six months ended June 30, ~~2017~~2018 are set forth below. Factors contributing to fluctuations in the results of operations are presented in the order of their monetary significance, and we have quantified, when necessary, significant changes. Segment results are included in the discussions and, when relevant, are discussed separately.

Our statements on home sales and loan activity are based on published industry data from sources including Fannie Mae, the National Association of Realtors^® (NAR), and the ~~Mortgage Bankers Association (MBA) and Freddie Mac.~~U.S. Census Bureau. We also use information from our direct operations.

Operating environment. Actual existing home sales in the second quarter ~~2018~~2019 declined approximately 2%3% from the second quarter ~~2017.~~2018. June ~~2018~~2019 existing home sales totaled ~~570,000,~~527,000, which was down 5%(seasonally-adjusted) 2% both from a year ago ~~but up 7%~~and from May ~~2018. According to NAR, the shortage of~~2019. June 2019 median home ~~listings in the market continues to elevate current home prices, which is pricing out would-be buyers~~price was $285,700, an all-time high and ~~slowing home sales.~~4% increase from June 2018, ~~median and~~while June 2019 average home ~~prices rose approximately 5% and 4%, respectively, compared to~~price was $321,600, a 3% increase from June ~~2017 prices.~~2018. June ~~2018~~ 2019 housing starts declined ~~12% sequentially from~~1% compared to May ~~2018 and also decreased 4%~~2019, but increased 6% from a year ago. Newly issued building permits in June ~~2018~~ 2019 were down 2%6% and 7% sequentially from May 2019 and from June 2018, ~~and also down 3% from a year ago.~~respectively. According to Fannie Mae, one-to-four family residential lending ~~declined 5% to $468 billion~~ in the second quarter ~~2018~~2019 totaled $498 billion, a 5% increase from ~~$492~~the prior year quarter. This increase was primarily driven by $19 billion, or 15%, more refinancing originations in the second quarter 2017, primarily driven by a 14%, or $21 billion, reduction in refinance originations. Purchase lending slightly decreased 2%, or $3 billion, in the second quarter 2018 compared to the prior year quarter. Refinance lending is forecasted to decrease $26 billion, or 20%, in the third quarter 20182019, compared to the second quarter ~~2018. On average, refinance title premium rates are 60%~~2018, as a result of the ~~premium rates~~lower mortgage rate environment. Purchase originations declined $12 billion, or 3%, in the second quarter versus last year's quarter, primarily due to the moderate home price growth and lower inventories. Fannie Mae expects total origination volume to increase $134 billion, or 17%, in the second half of 2019, compared to the corresponding period in 2018, as refinancing activity is expected to continue improving, and new and existing home sales are expected to recover with increased home inventory and forecasted lower interest rates. The 30-year mortgage interest rate is expected to average 3.7% for ~~a similarly priced sale transaction.~~the rest of 2019, after averaging 4.0% in the second quarter 2019.

Title revenues.Direct title revenue information is presented below:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,						Six Months Ended June 30,
	2018	2017	% Change		2018	2017	% Change		2019		2018		% Change		2019		2018		% Change
	($ in millions)				($ in millions)				($ in millions)						($ in millions)
Non-commercial
Domestic	145.7	153.1	(5	)%	261.5	276.1	(5	)%	148.9		145.7		2	%	256.2		261.5		(2	)%
International	22.8	27.2	(16	)%	41.0	45.5	(10	)%	22.4		22.8		(2	)%	38.1		41.0		(7	)%
	168.5	180.3	(7	)%	302.5	321.6	(6	)%	171.3		168.5		2	%	294.3		302.5		(3	)%
Commercial:
Domestic	48.2	46.5	4	%	95.7	88.2	9	%	50.3		48.2		4	%	84.0		95.7		(12	)%
International	7.5	4.9	53	%	11.6	9.3	25	%	6.3		7.5		(16	)%	10.8		11.6		(7	)%
	55.7	51.4	8	%	107.3	97.5	10	%	56.6		55.7		2	%	94.8		107.3		(12	)%
Total direct title revenues	224.2	231.7	(3	)%	409.8	419.1	(2	)%	227.9		224.2		2	%	389.1		409.8		(5	)%
% of direct title revenues over total title revenues									50	%	48	%			47	%	46	%

Revenues from direct title operations ~~which~~ include residential, commercial, international and centralized title services transactions, which primarily process refinancing and default title orders. Total direct title revenues were $3.6 million, or 2%, higher in the second quarter 2019 compared to the prior year quarter, primarily due to increased non-commercial and commercial domestic revenues. Non-commercial domestic revenues increased as a result of increased combined purchase and refinancing closed orders and the higher premium effect of increased home sale prices in the second quarter 2019 compared to the prior year quarter. U.S. commercial revenues increased during the second quarter 2019 due to a higher commercial fee per file, which increased 25% to approximately $11,600 as a result of increased transaction sizes. Domestic residential fee per file increased 3% to approximately $2,300 primarily due to home price appreciation, more than offsetting the effects of reduced fee per file from increased refinancing volume. Total international revenues declined $1.5 million, or 5%, in the second quarter 2019 compared to last year's quarter, primarily driven by the weaker Canadian dollar and British pound against the U.S. dollar.

For the first six months of 2019, total direct title revenues decreased ~~$7.5~~$20.7 million, or 5%, compared to the corresponding prior year period, primarily as a result of 8% lower overall closed orders, largely influenced by the decline in total home sales and ~~$9.3~~mortgage lending. Residential and centralized title operations revenues declined 1% and 25%, respectively, while total commercial revenues decreased $12.5 million, or 12%, in the first six months of 2019 compared to the same period in 2018. Respectively, domestic commercial and residential fees per file in the first six months of 2019 were approximately $10,700 and $2,300, which were 19% and 5% higher than the same period in 2018. Total international revenues in the first six months of 2019 declined $3.7 million, or 7%, compared to the same period last year, primarily driven by lower volumes from our Canada operations and the weaker Canadian dollar and British pound against the U.S. dollar.

Order information for the periods ended June 30 is as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2019	2018*	Change		% Change		2019	2018*	Change		% Change
Opened Orders:
Commercial	4,660	6,171	(1,511	)	(24	)%	8,958	13,610	(4,652	)	(34	)%
Purchase	65,172	66,074	(902	)	(1	)%	118,719	122,565	(3,846	)	(3	)%
Refinance	33,342	21,615	11,727		54	%	56,526	44,747	11,779		26	%
Other	1,108	2,531	(1,423	)	(56	)%	2,699	5,544	(2,845	)	(51	)%
Total	104,282	96,391	7,891		8	%	186,902	186,466	436		—	%

Closed Orders:
Commercial	4,349	5,218	(869	)	(17	)%	7,853	10,613	(2,760	)	(26	)%
Purchase	45,596	49,069	(3,473	)	(7	)%	78,914	85,750	(6,836	)	(8	)%
Refinance	18,754	14,582	4,172		29	%	31,997	29,461	2,536		9	%
Other	955	2,536	(1,581	)	(62	)%	1,951	5,651	(3,700	)	(65	)%
Total	69,654	71,405	(1,751	)	(2	)%	120,715	131,475	(10,760	)	(8	)%

*Prior year commercial orders were updated to take into account changes to our domestic order tracking process and the exclusion of international orders.

Gross revenues from independent agency operations declined $16.4 million, or 7%, and $38.4 million, or 8%, in the second quarter and first six months of ~~2018,~~2019, respectively, compared to the same periods in 2017, due to lower closed orders (primarily on refinancing activities), partially offset by improved commercial revenues. Revenues from our centralized title operations, which primarily process refinancing and default title orders,2018. Agency revenues, net of retention, decreased ~~$5.5~~$3.7 million, or ~~46%~~9%, and ~~$10.9~~$7.0 million, or ~~43%~~8%, in the second quarter and first six months of 2018 compared to the second quarter and first six months of 2017, respectively, primarily due to decreased refinancing orders and lower demand for default services, which are in line with industry trends. Our residential revenues, which comprise approximately 60% of our total direct revenues, slightly declined 1% ($1.9 million and $3.7 million, respectively) in the second quarter and first six months of 2018, compared to the same periods in 2017.

~~Our direct operations include local offices and international operations, and we generate commercial revenues both domestically and internationally. U.S. commercial revenues during the~~ ~~second quarter and first six months of 2018~~ increased $1.7 million and $7.5 million, compared to the second quarter and first six months of 2017, respectively, primarily due to our continued focus on delivering quality service and underwriting to our customers. Total ~~international revenues in the~~ ~~second quarter and first six months of 2018~~ ~~declined $1.8 million, or 6%, and $2.2 million, or 4%,~~2019, respectively, compared to the same periods in ~~2017,~~ 2018, primarily ~~as a result of decreased transaction volume~~ ~~from our Canada operations, offset~~driven by ~~increased commercial revenues and~~ the ~~stronger foreign currency exchange rates against the U.S. dollar. Direct revenues constituted 48% and 46% of our total title revenues in the second quarter and first six months of 2018, respectively, compared to 50% and 47%, respectively, in the same periods in 2017.~~

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

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 Change % Change 2018 2017 Change % Change
Opened Orders:
Commercial 8,353
10,788
(2,435 ) (23 )% 17,327
22,238
(4,911 ) (22 )%
Purchase 66,074
67,823
(1,749 ) (3 )% 122,565
129,065
(6,500 ) (5 )%
Refinance 21,615
24,183
(2,568 ) (11 )% 44,747
47,639
(2,892 ) (6 )%
Other 2,531
4,423
(1,892 ) (43 )% 5,544
9,019
(3,475 ) (39 )%
Total 98,573
107,217
(8,644 ) (8 )% 190,183
207,961
(17,778 ) (9 )%

Closed Orders:
Commercial 6,968
8,167
(1,199 ) (15 )% 13,488
15,493
(2,005 ) (13 )%
Purchase 49,069
52,362
(3,293 ) (6 )% 85,750
92,564
(6,814 ) (7 )%
Refinance 14,582
16,298
(1,716 ) (11 )% 29,461
35,506
(6,045 ) (17 )%
Other 2,536
4,135
(1,599 ) (39 )% 5,651
7,333
(1,682 ) (23 )%
Total 73,155
80,962
(7,807 ) (10 )% 134,350
150,896
(16,546 ) (11 )%

~~Gross revenues from independent agency operations increased $12.9 million, or 6%, and $16.4 million, or 4% in the~~ ~~second quarter and first six months of 2018, respectively,~~ compared to the same periods in 2017, primarily as a result of revenue increases in the states of New York, Texas, Pennsylvania, Arizona, Wisconsin, Ohio and Louisiana, partially offset by decreases in the states of Massachusetts, Michigan and Colorado. Agency revenues, net of retention, improved $1.6 million, or 4%, and $1.1 million, or 1%, in the ~~second quarter and first six months of 2018, respectively, compared to the same periods in 2017,~~ ~~primarily due to the higher~~ gross agency ~~revenues and~~revenue decline accompanied by relatively comparable average agency remittance rates. Refer further to the "Retention by agencies" discussion under Expenses below.

Ancillary services revenues. Ancillary services operating revenues decreased ~~$1.4~~$5.9 million, or 9%43%, and ~~$6.9~~$3.5 million, or ~~21%~~14%, in the second quarter and first six months of ~~2018~~2019, respectively, compared to the same periods in ~~2017, primarily~~2018, as a result of lower revenues from our search and valuation services operations due to lower ~~revenues generated by the valuation services operations resulting from reduced orders from our principal customers.~~customer orders.

Investment income. Investment income during the second quarter and first six months of ~~2018~~2019 was comparable to the same periods in ~~2017.~~2018.

Investment and other gains ~~(losses)~~ - net. Investment and other gains - net for the second quarter ~~and first six months of 2018 included~~2019 decreased $2.0 million compared to the prior year quarter, primarily due to $1.8 million of net unrealized gains in the second quarter 2018 related to the fair value changes of equity securities investments. In the first six months of 2019, investments and ~~$0.4~~other gains - net increased $3.1 million compared to the same period in 2018, primarily driven by $3.2 million of net unrealized ~~losses, respectively,~~gains related to ~~equity securities investments (refer to Note 5 to the condensed consolidated financial statements for details), and $0.6 million of net realized gains from changes in~~ the fair value changes of a contingent liability related to a prior acquisition. Investments and other losses - net for the second quarter and first six months of 2017 included $0.8 million net realized losses from changes in the fair value of a contingent liability related to a prior acquisition.equity securities investments.

Expenses. An analysis of expenses is shown below:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018		2017		% Change		2018		2017		% Change		2019		2018		% Change		2019		2018		% Change
	($ in millions)						($ in millions)						($ in millions)						($ in millions)

Amounts retained by agencies	203.8		192.6		6	%	399.0		383.7		4	%	191.1		203.8		(6	)%	367.6		399.0		(8	)%
As a % of agency revenues	82.4	%	82.1	%			82.4	%	82.0	%			82.8	%	82.4	%			82.5	%	82.4	%
Employee costs	146.3		139.3		5	%	285.1		279.1		2	%	139.9		146.3		(4	)%	269.2		285.1		(6	)%
As a % of operating revenues	30.1	%	29.0	%			31.0	%	30.4	%			30.0	%	30.1	%			31.4	%	31.0	%
Other operating expenses	86.0		88.8		(3	)%	166.2		167.1		(1	)%	86.1		86.0		—	%	163.2		166.2		(2	)%
As a % of operating revenues	17.7	%	18.5	%			18.1	%	18.2	%			18.4	%	17.7	%			19.0	%	18.1	%
Title losses and related claims	18.7		24.5		(24	)%	37.7		45.2		(17	)%	18.8		18.7		1	%	34.5		37.7		(9	)%
As a % of title revenues	4.0	%	5.2	%			4.2	%	5.1	%			4.1	%	4.0	%			4.1	%	4.2	%

Retention by agencies. Amounts retained by title agencies are based on agreements between agencies and our title underwriters. Amounts retained by independent agencies, as a percentage of revenues generated by them, averaged ~~82.4%~~82.8% and ~~82.1%~~82.4% in the second quarters ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~82.4%~~82.5% and ~~82.0%~~82.4% in the first six months of ~~2018~~2019 and ~~2017,~~2018, respectively. The average retention percentage may vary from period to period due to the geographical mix of agency operations, the volume of title revenues and, in some states, laws or regulations. Due to the variety of such laws or regulations, as well as competitive factors, the average retention rate can differ significantly from state to state. In addition, a high proportion of our independent agencies are in states with retention rates greater than 80%. We continue to focus on increasing profit margins in every state, increasing premium revenue in states where remittance rates are above 20%, and maintaining the quality of our agency network, which we believe to be the industry’s best, in order to mitigate claims risk and drive consistent future performance. While market share is important in our agency operations channel, it is not as important as margins, risk mitigation and profitability.

Employee costs. Total employee costs ~~increased $7.0~~decreased $6.4 million ~~or 5%,~~ and ~~$6.0~~$16.0 million ~~or 2%,~~ in the second quarter and first six months of ~~2018,~~2019, respectively, compared to the same periods in ~~2017,~~2018, primarily due to ~~higher commissions on increased commercial title revenues~~lower salaries and ~~additional employee costs attributed to previous acquisitions in the title segment, which were partially offset by decreased salaries~~other benefits resulting from an approximately 8% and 9%, respectively, decrease in average employee counts. The reduced employee ~~counts. During the second quarter and first six months of 2018, average employee~~ counts ~~decreased approximately 6%, primarily~~were principally related to ~~the continued~~ volume declines in our direct title and ancillary services ~~and centralized title~~ operations ~~and staff departures~~as well as increasing efficiencies in ~~direct operations during the second quarter 2017.~~

how we manage these businesses. Employee costs in the title ~~segment increased $7.9~~and ancillary services and corporate segments decreased $3.5 million, or 6%3%, and ~~$11.4~~$2.9 million, or 36%, respectively, in the second quarter 2019 compared to the prior year quarter, and also decreased $12.0 million, or 4%, and $3.9 million, or 26%, respectively, in the ~~second quarter and~~ first six months of 2018, compared to the second quarter and first six months of 2017, primarily due to increased commissions and additional costs from previous acquisitions. In the ancillary services and corporate segment, employee costs decreased $1.0 million, or 11%~~, and $5.4 million, or 26%,~~ ~~in the second quarter and first six months of 2018,~~2019 compared to the same ~~periods~~period in ~~2017, primarily as a result of the reductions in average employee count.~~2018.

Other operating expenses. Other operating expenses include ~~costs that are fixed in nature,~~ costs that follow, to varying degrees, changes in transaction volumes and revenues, ~~and~~ costs that fluctuate independently of ~~revenues. Costs~~revenues, and costs that are fixed in nature include attorney and professional fees, third-party outsourcing provider fees, equipment rental, insurance, rent and other occupancy expenses, repairs and maintenance, technology costs, telephone and title plant expenses.nature. Costs that follow, to varying degrees, changes in transaction volumes and revenues include attorney fee splits, bad debt expenses, ancillary services cost of sales expenses, copy supplies, delivery fees, outside search fees, postage, premium taxes and title plant maintenance expenses. Costs that fluctuate independently of revenues include general supplies, litigation defense, business promotion and marketing and travel. Costs that are fixed in nature include attorney and professional fees, third-party outsourcing provider fees, equipment rental, insurance, rent and other occupancy expenses, repairs and maintenance, technology costs, telecommunications and title plant expenses.

Consolidated other operating expenses ~~decreased $2.8~~of $86.1 million in the second quarter 2019 were comparable to the second quarter 2018, while consolidated other operating expenses in the first six months of 2019 were $163.2 million, a decrease of $3.0 million, or 3%2%, ~~and $0.9 million, or 1%,~~compared to the same period in 2018. During the second quarter and first six months of 2018 compared to the same periods in 2017; while as a percentage of total operating revenues, other operating expenses were 17.7% and 18.5% in the second quarters 2018 and 2017, respectively, and 18.1% and 18.2% in the first six months of 2018 and 2017, respectively. During the first quarter 2018,2019, we incurred ~~$2.3~~$3.7 million and $5.7 million, respectively, of third-party advisory expenses recorded in the ancillary services and corporate segment ~~relating~~related to the ~~strategic alternatives review.~~FNF merger transaction. Additionally, the first six months of 2019 included $0.8 million of litigation expense related to a prior year lender services acquisition recorded in the ancillary services and corporate segment, and $0.7 million of office closure costs included within the title segment. In comparison, during the first six months of 2018, we incurred $2.3 million of third-party advisory expenses related to the FNF merger transaction which were recorded in the ancillary services and corporate segment. Excluding these non-operating charges, other operating expenses, as a percentage of operating revenues, ~~during~~were 17.7% and 18.2% in the second quarter and first six months of 2019, respectively, compared to 17.7% and 17.8% in the second quarter and first six months of 2018, ~~were 17.8%.~~respectively.

Costs that follow, to varying degrees, changes in transaction volumes and revenues decreased ~~$3.6~~$1.9 million, or ~~8%, and $5.2 million, or 7%~~5%, in the second quarter ~~and first six months of 2018,~~2019 compared to the ~~same periods in 2017,~~prior year quarter, primarily due to reduced outside title search fees resulting from lower ancillary services revenues and lower title plant expenses. These costs also decreased $3.3 million, or 5%, in the first six months of ~~services related~~2019 compared to the same period in 2018, primarily driven by lower ~~revenues from our centralized~~outside title search fees and attorney fee splits consistent with lower direct title and ancillary services ~~operations.~~ revenues.

Costs that fluctuate independently of revenues ~~increased $1.3~~were comparable for the second quarters 2019 and 2018. Excluding the litigation and office closures expenses mentioned above, these costs decreased $0.5 million or ~~13%, and $1.8 million, or 10%~~2%, in the ~~second quarter and~~ first six months of ~~2018,~~2019 compared to the same ~~periods~~period in ~~2017,~~2018, primarily due to ~~increased~~reduced travel ~~and marketing~~ expenses. Excluding the ~~charges~~merger-related expenses mentioned above, costs that are fixed in nature decreased ~~$1.3~~$1.0 million, or ~~4%, and $0.8 million, or 1%~~3%, in the second quarter 2019 and decreased $3.3 million, or 5%, in the first six months of ~~2018,~~2019, compared to the same periods in ~~2017,~~2018, primarily due to ~~reduced third-party outsourcing provider~~lower professional fees and ~~professional fees.~~insurance expenses, partially offset by increased rent expenses.

Title losses. Provisions for title losses, as a percentage of title operating revenues, were ~~4.0%~~4.1% and ~~5.2%~~4.0% for the second ~~quarter~~quarters 2019 and 2018, ~~and 2017,~~ respectively, and ~~4.2%~~4.1% and ~~5.1%~~4.2% for the first six months of ~~2018~~2019 and ~~2017,~~2018, respectively. Title ~~losses decreased $5.8 million, or 24%, and $7.5 million, or 17%, in~~loss expense for the second quarter ~~and~~2019 was $18.8 million compared to $18.7 million from the prior year quarter, while title losses decreased $3.2 million, or 9%, for the first six months of ~~2018, respectively,~~2019 compared to the ~~similar periods~~same period in ~~2017,~~2018, primarily as a result of ~~our reduced loss provisioning rate during the first half of 2018 based on~~ lower loss experience. During the second quarter 2018, we recorded $4.0 million of prior policy year loss reserve reductions as a result of our actuarial reserve review, while we also incurred charges of $3.9 million related to two ongoing escrow litigation matters.title premiums in 2019. The title loss ratio in any given quarter can be significantly influenced by changes in new large claims incurred, escrow losses and adjustments to reserves for existing large claims. We expect our title loss ~~provisioning rate~~expense for the year 2019 will range between 4.0% to ~~4.5% for the year 2018.~~4.2% of title revenues.

Cash claim payments increased $1.6 million, or 8%, and $6.8 million, or 18%, in the second quarter and first six months of ~~2018,~~2019, respectively, compared to the ~~similar~~same periods in ~~2017, decreased $1.2 million, or 5%, and $6.8 million, or 15%, respectively,~~2018, primarily due to ~~a reduction in~~higher payments on existing non-large claims. We continue to manage and resolve large claims prudently and in keeping with our commitments to our policyholders.

The composition of title policy loss expense is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
	($ in millions)				($ in millions)				($ in millions)
Provisions – known claims:
Current year	6.0		2.1		7.5		4.2		2.4		6.0		4.4		7.5
Prior policy years	15.5		15.9		30.2		34.7		20.5		15.5		37.7		30.2
	21.5		18.0		37.7		38.9		22.9		21.5		42.1		37.7
Provisions – IBNR
Current year	16.5		21.3		33.9		39.7		15.9		16.5		29.4		33.9
Prior policy years	(3.8	)	1.1		(3.7	)	1.3		0.5		(3.8	)	0.7		(3.7	)
	12.7		22.4		30.2		41.0		16.4		12.7		30.1		30.2
Transferred from IBNR to known claims	(15.5	)	(15.9	)	(30.2	)	(34.7	)	(20.5	)	(15.5	)	(37.7	)	(30.2	)
Total provisions	18.7		24.5		37.7		45.2		18.8		18.7		34.5		37.7

Provisions for known claims arise primarily from prior policy years as claims are not typically reported until several years after policies are issued. Provisions - Incurred But Not Reported (IBNR) are estimates of claims expected to be incurred over the next 20 years; therefore, it is not unusual or unexpected to experience changes to those estimated provisions in both current and prior policy years as additional loss experience on policy years is obtained. This loss experience may result in changes to our estimate of total ultimate losses expected (i.e., the IBNR policy loss reserve). Current year provisions - IBNR are recorded on policies issued in the current year as a percentage of premiums earned (provisioning rate). As claims become known, provisions are reclassified from IBNR to known claims. Adjustments relating to large losses (those individually in excess of $1.0 million) may impact provisions either for known claims or for IBNR.

Known claims provisions increased $3.5 million, or 19%, in the second quarter 2018 compared to the second quarter 2017 and decreased $1.2 million, or 3%, in the first six months of 2018 compared to the same period in 2017. TotalCurrent year provisions - IBNR decreased ~~$9.7~~$0.6 million, or ~~43%~~4%, and ~~$10.8~~$4.5 million, or ~~26%~~13%, in the second quarter and first six months of ~~2018,~~2019, respectively, compared to the same periods in ~~2017,~~2018, primarily ~~as a result~~ due to lower title premiums in 2019. Prior policy years provisions - IBNR increased in the second quarter and first six months of 2019 compared to the ~~$4.0 million prior policy year~~same periods in 2018, primarily due to the loss reserve ~~reduction~~reductions recorded in the second quarter 2018 as ~~well as~~ a ~~decrease~~result of favorable loss experience. Current year known claims provisions decreased $3.6 million, or 60%, and $3.1 million, or 41%, in the ~~provisioning rate related~~second quarter and first six months of 2019, compared to the ~~current~~same periods in 2018, primarily due to higher claims reported in the prior year. As a percentage of title operating revenues, provisions - IBNR for the current policy year were 3.5% in both the second quarters 2019 and 2018, and 3.5% and 3.8% in the ~~second quarter and~~ first six months of 2019 and 2018, ~~compared to 4.6% and 4.5%, respectively, in the same periods in 2017.~~respectively.

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 expense when discovered or when contingencies associated with them (such as litigation) are resolved and are typically paid less than 12 months after the loss is recognized. During the first six months ~~ended June 30,~~of 2019 and 2018, ~~and 2017,~~ we recorded approximately ~~$4.4~~$1.5 million and ~~$2.1~~$4.4 million, respectively, of policy loss reserves relating to escrow losses arising from fraud.

Total title policy loss reserve balances are as follows:


	June 30, 2018	December 31, 2017	June 30, 2019	December 31, 2018
	($ in millions)		($ in millions)
Known claims	68.6	69.8	63.3	66.9
IBNR	406.9	411.2	386.9	394.7
Total estimated title losses	475.5	481.0	450.2	461.6

The amount of the reserve represents the aggregate, non-discounted future payments (net of recoveries) that we expect to incur on policy and escrow losses and in costs to settle claims. Title claims are generally incurred three to five years after policy issuance and the timing of payments on these claims can significantly impact the balance of known claims. In many cases, claims may be open for several years before the resolution and payment of the claims occur; as a result, the estimate of the ultimate amount to be paid may be modified over that time period.

Due to the inherent uncertainty in predicting future title policy losses, significant judgment is required by both our management and our third party actuaries in estimating reserves. As a consequence, our ultimate liability may be materially greater or less than current reserves and/or our third party actuary’s calculated estimates.

Depreciation and amortization. Depreciation and amortization expenses during the second quarter and first six months of ~~2018 were comparable~~2019 decreased $0.4 million, or 6%, and $0.6 million, or 5%, compared to the same periods in ~~2017.~~2018, primarily due to some assets becoming fully depreciated.

Income taxes. Our effective tax rates, based on income before taxes and after deducting income attributable to noncontrolling interests, were 27% for both the second quarter and first six months of 2019, compared to 20% and 19% infor the second quarter and first six months of 2018, respectively. Excluding discrete income tax benefit effects of approximately $1.5 million (primarily related to a cumulative foreign currency adjustment on deemed repatriation of foreign earnings) in both the second quarter and first six months of 2018, our 2018 effective tax rates were 25% and 26%, respectively. Our effective tax rates in the second quarter and first six months of 2017 were 37% and 32%, respectively. Excluding discrete net income tax benefit effects of $1.5 million (primarily related to previously unrecognized research and development tax credits) in the first six months of 2017, our effective tax rate was 37%. The lower effective tax rates in 2018, compared to 2017, were primarily the result of the reduced corporate tax rate of the Tax Cuts and Jobs Act that was enacted in December 2017.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital resources reflect our ability to generate cash flow to meet our obligations to shareholders, customers (payments to satisfy claims on title policies), vendors, employees, lenders and others. As of June 30, ~~2018,~~2019, our cash and investments, including amounts reserved pursuant to statutory requirements, aggregated ~~$818.1~~$841.6 million ($~~322.2~~331.5 million, net of statutory reserves on cash and investments). Of our total cash and investments at June 30, ~~2018, $549.1~~2019, $563.2 million ($~~254.7~~263.4 million, net of statutory reserves) was held in the United States (U.S.) and the rest internationally, principally in Canada.

Cash held at the parent company totaled ~~$2.5~~$3.6 million at June 30, ~~2018.~~2019. As a holding company, the parent company is funded principally by cash from its subsidiaries in the form of dividends, operating and other administrative expense reimbursements and pursuant to intercompany tax sharing agreements. The expense reimbursements are paid in accordance with management agreements, approved by the Texas Department of Insurance (TDI), among us and our subsidiaries. In addition to funding operating expenses, cash held at the parent company is used for dividend payments to common stockholders and for stock repurchases, if any. To the extent such uses exceed cash available, the parent company is dependent on distributions from its regulated title insurance underwriter, Stewart Title Guaranty Company (Guaranty).

A substantial majority of our consolidated cash and investments as of June 30, ~~2018~~2019 was held by Guaranty and its subsidiaries. The use and investment of these funds, dividends to the parent company, and cash transfers between Guaranty and its subsidiaries and the parent company are subject to certain legal and regulatory restrictions. In general, Guaranty may use its cash and investments in excess of its legally-mandated statutory premium reserve (established in accordance with requirements under Texas law) to fund its insurance operations, including claims payments. Guaranty may also, subject to certain limitations, provide funds to its subsidiaries (whose operations consist principally of field title offices and ancillary services operations) for their operating and debt service needs.

We maintain investments in accordance with certain statutory requirements ~~in the states of domicile of our underwriters~~ for the funding of statutory premium reserves. Statutory ~~premium reserves, which approximated $482.4 million and $490.8 million at June 30, 2018 and December 31, 2017, respectively,~~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 $444.4 million and $462.2 million at June 30, 2019 and December 31, 2018, respectively. In addition, included within cash and cash equivalents are statutory reserve funds of approximately ~~$13.6~~$65.7 million and ~~$14.2~~$37.7 million at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Although these cash statutory reserve funds are not restricted or segregated in depository accounts, they are required to be held pursuant to state statutes. If the Company fails to maintain minimum investments or cash and cash equivalents sufficient to meet statutory requirements, the Company may be subject to fines or other penalties, including potential revocation of its business license. As of June 30, ~~2018,~~2019, our known claims reserve totaled ~~$68.6~~$63.3 million and our estimate of claims that may be reported in the future, under generally accepted accounting principles, totaled ~~$406.9~~$386.9 million. In addition to this, we had cash and investments (excluding equity method investments) of ~~$268.4~~$251.5 million which are available for underwriter operations, including claims payments.

The ability of Guaranty to pay dividends to its parent is governed by Texas insurance law. The TDI must be notified of any dividend declared, and any dividend in excess of the statutory maximum of 20% of surplus (approximately ~~$102.0~~$115.0 million as of December 31, ~~2017)~~2018) 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 the liquidity ratio, which could affect its ratings and competitive position, the amount of insurance it can write and its ability to pay future dividends. As of ~~March 31, 2018,~~June 30, 2019, our liquidity ratio for our principal underwriter was ~~109%~~110% based on its statutory balance sheet. The liquidity ratio is calculated using Guaranty's total cash and investments divided over its total liabilities. Our internal objective is to maintain a ratio of at least 100%, as we believe that ratio is crucial to our competitiveness in the market and our insurer financial strength ratings. On an ongoing basis, this ratio will largely guide our decisions as to frequency and magnitude of dividends from Guaranty to the parent company. Further, depending on business and regulatory conditions, we may in the future need to retain cash in Guaranty or even raise cash in the capital markets to contribute to it in order to maintain its ratings or statutory capital position. Such a requirement could be the result of investment losses, reserve charges, adverse economic environment operating conditions or changes in interpretation of statutory accounting requirements by regulators. No dividend was paid by Guaranty to its parent during the first six months of ~~2018~~2019 and ~~2017.~~2018.

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

For the Six Months
Ended June 30,
2018 2017
($ in millions)
Net cash provided by operating activities 7.4
16.5
Net cash used by investing activities (7.1 ) (43.1 )
Net cash used by financing activities (27.6 ) (13.7 )



	Six Months Ended June 30,
	2019		2018
	($ in millions)
Net cash (used) provided by operating activities	(8.4	)	7.4
Net cash provided (used) by investing activities	38.3		(7.1	)
Net cash used by financing activities	(22.8	)	(27.6	)

Operating activities. Our principal sources of cash from operations are premiums on title policies and revenue from title service-related transactions, ancillary services and other operations. Our independent agencies remit cash to us net of their contractual retention. Our principal cash expenditures for operations are employee costs, operating costs and title claims payments.

~~Cash provided~~Net cash used by operations ~~decreased $9.2~~in the first six months of 2019 was $8.4 million, compared to net cash provided of $7.4 million in the first six months of 2018, ~~compared to the same period in 2017,~~ primarily due to the lower net income ~~generated in 2018~~ and ~~higher~~increased payments ~~on accounts payable and other liabilities.~~of liabilities during the first six months of 2019. 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. ~~Our approach allows us to adjust more easily to seasonal and cyclical fluctuations in transaction volumes.~~ We are continuing our emphasis on cost management, specifically focusing on lowering unit costs of production, which will result in improved margins. Our plans to improve margins also include additional automation of manual processes, and further consolidation of our various systems and production operations. We are currently investing in the technology necessary to accomplish these goals.

Investing activities. Cash provided and used by investing activities ~~was~~is primarily driven by proceeds from matured and sold investments, purchases of investments, capital expenditures and acquisition of ~~subsidiaries, offset by proceeds from matured and sold investments. For~~subsidiaries. During the first six months of ~~2018 and 2017,~~2019, total proceeds from securities investments sold and matured were $45.8 million, compared to $36.1 million ~~and $72.5 million, respectively; while cash~~during the same period in 2018, primarily due to increased maturities of securities investments in 2019. Cash used for purchases of securities investments was $1.3 million during the first six months of 2019, compared to $26.2 million ~~and $88.4 million, respectively.~~during the same period in 2018. The ~~higher~~lower purchases ~~and sale~~ of investments ~~in 2017, compared to 2018,~~during 2019 was primarily due to ~~a reallocation of~~our decision, as bonds matured, to invest in cash toequivalents and short-term investments, which have attractive interest rates in the ~~portfolio held by our Canadian operations, as well as overall portfolio repositioning in the first half of 2017 to prepare for~~current markets on a ~~higher rate environment.~~risk adjusted basis.

During the first six months of 2019 and 2018, we used $7.9 million and ~~2017,~~$5.7 million, respectively, of cash for purchases of property and equipment, while we used $12.0 million ~~and $18.1 million, respectively,~~ of cash for acquisitions of new ~~subsidiaries; while cash used for purchases~~subsidiaries during the first six months of ~~property and equipment were $5.7 million and $9.3 million, respectively.~~2018. We maintain investment in capital expenditures at a level that enables us to implement technologies for increasing our operational and back-office efficiencies and to pursue growth in key markets.

Financing activities and capital resources. Total debt and stockholders’ equity were ~~$107.7~~$105.4 million and ~~$666.2~~$700.8 million, respectively, as of June 30, ~~2018.~~2019. Notes payable payments during the first six months of 2019 and 2018 of $21.5 million and ~~2017 of~~ $4.1 million, respectively, and ~~$16.0~~notes payable additions of $20.5 million ~~respectively,~~during the first six months of 2019 were related to short-term loan agreements in connection with our Section 1031 tax-deferred property exchange (Section 1031) business. ~~During the first six months of 2017, we borrowed $16.0 million from our line of credit facility and added $9.9 million of notes payable related to our Section 1031 business.~~ At June 30, ~~2018,~~2019, the outstanding balance of ~~the~~our line of credit facility was $98.9 million, while the ~~remaining~~available balance of the line of credit ~~available for use~~ was ~~$23.6~~$48.6 million, net of an unused $2.5 million letter of credit. At June 30, ~~2018,~~2019, our debt-to-equity ratio, excluding our Section 1031 notes, was approximately ~~16.1%~~14.8%, below the 20% we have set as our unofficial internal limit on leverage.

During ~~both~~ the first six months of ~~2018 and 2017,~~2019, we paid total dividends of $14.2 million, or $0.60 per common share, ~~which aggregated~~compared to total dividends paid of $14.1 million, ~~in both periods. There were no stock repurchases~~or $0.60 per common share, during the first six months of 2018 and 2017, except for repurchases during 2018 of approximately 16,600 shares (aggregate purchase price of approximately $0.7 million) related to the statutory income tax withholding on the vesting of restricted share grants to executives and senior management.2018.

Effect of changes in foreign currency exchange rates. The effect of changes in foreign currency exchange rates on our cash and cash equivalents on the consolidated statements of cash flows was a net ~~decrease~~increase of ~~$1.6~~$2.0 million during the first six months of ~~2018~~2019 and a net ~~increase~~decrease of ~~$1.7~~$1.6 million during the same period in ~~2017.~~2018. Our principal foreign operating unit is in Canada, and, on average, the value of the ~~U.S.~~Canadian dollar ~~declined~~ relative to the ~~Canadian~~U.S. dollar ~~during~~improved in the first six months of ~~2018, compared to its appreciation during~~2019 and declined in the the same period in ~~2017.~~2018.

***********

We believe we have sufficient liquidity and capital resources to meet the cash needs of our ongoing operations. However, we may determine that additional debt or equity funding is warranted to provide liquidity for achievement of strategic goals or acquisitions or for unforeseen circumstances. Other than scheduled maturities of debt, operating lease payments and anticipated claims payments, we have no material contractual commitments. We expect that cash flows from operations and cash available from our underwriters, subject to regulatory restrictions, will be sufficient to fund our operations, including claims payments. However, to the extent that these funds are not sufficient, we may be required to borrow funds on terms less favorable than we currently have or seek funding from the equity market, which may not be successful or may be on terms that are dilutive to existing stockholders.

Contingent liabilities and commitments. See discussion of contingent liabilities and commitments in Note 10 to the condensed consolidated financial statements included in Item 1 of Part I of this Report.

Other comprehensive income (loss) ~~income.~~. Unrealized gains and losses on available-for-sale debt securities investments and changes in foreign currency exchange rates are reported net of deferred taxes in accumulated other comprehensive (loss) income, a component of stockholders’ equity, until realized. ~~For~~During the first six months of 2019, net unrealized investment gains of $14.6 million, net of taxes, which increased our other comprehensive income, were primarily related to increases in the fair values of our overall bond securities investment portfolio driven by reduced interest rates and credit spreads. During the first six months of 2018, net unrealized investment losses of ~~$10.4~~$10.9 million, net of taxes, which increased our other comprehensive loss, were primarily related to ~~temporary~~ decreases in the fair values ~~over costs~~ of our ~~corporate~~overall bond securities ~~available-for-sale investments, driven~~investment portfolio which were influenced by ~~increases in~~ the overall rate environment. During the first six months of 2018, the five-year U.S. treasury yield increased approximately 50 basis points and our net unrealized investment losses were consistent with this level ofrising interest rate increase and our average bond investments duration of slightly more than 4 years. For the first six months of 2017, net unrealized investment gains of $2.4 million, net of taxes, which increased our other comprehensive income, were primarily related to temporary increases in the fair values over costs of our corporate and municipal bond securities available-for-sale investments as a result of the slight decline in interest rates during the first six months of 2017.market environment.

Changes in foreign currency exchange rates, primarily related to our Canadian operations, increased our other comprehensive income, net of taxes, by $7.1 million in the first six months of 2019; while they increased our other comprehensive loss, net of taxes, by $5.6 million for the ~~first six months of 2018; while they increased our other comprehensive income, net of taxes, by $4.5 million for the~~ same period in ~~2017.~~2018.

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 17 in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Forward-looking statements.Certain statements in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to future, not past, events and often address our expected future business and financial performance. These statements often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "will," "foresee" or other similar words. Forward-looking statements by their nature are subject to various risks and uncertainties that could cause our actual results to be materially different than those expressed in the forward-looking statements. These risks and uncertainties include, among other things, the completion or the termination of our merger agreement with Fidelity National Financial, Inc. dated March 18, 2018; the challenging economic conditions; adverse changes in the level of real estate activity; changes in mortgage interest rates, existing and new home sales, and availability of mortgage financing; our ability to respond to and implement technology changes, including the completion of the implementation of our enterprise systems; the impact of unanticipated title losses or the need to strengthen our policy loss reserves; any effect of title losses on our cash flows and financial condition; the ability to attract and retain highly productive sales associates; the impact of vetting our agency operations for quality and profitability; independent agency remittance rates; changes to the participants in the secondary mortgage market and the rate of refinancing that affects the demand for title insurance products; regulatory non-compliance, fraud or defalcations by our title insurance agencies or employees; our ability to timely and cost-effectively respond to significant industry changes and introduce new products and services; the outcome of pending litigation; the impact of changes in governmental and insurance regulations, including any future reductions in the pricing of title insurance products and services; our dependence on our operating subsidiaries as a source of cash flow; ~~the continued realization of expense savings from our cost management program;~~ our ability to successfully integrate acquired businesses; our ability to access the equity and debt financing markets when and if needed; our ability to grow our international operations; seasonality and weather; and our ability to respond to the actions of our competitors. These risks and uncertainties, as well as others, are discussed in more detail in our documents filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, and if applicable, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K. All forward-looking statements included in this report are expressly qualified in their entirety by such cautionary statements. We expressly disclaim any obligation to update, amend or clarify any forward-looking statements contained in this report to reflect events or circumstances that may arise after the date hereof, except as may be required by applicable law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes during the quarter ended June 30, ~~2018~~2019 in our investment strategies, types of financial instruments held or the risks associated with such instruments that would materially alter the market risk disclosures made in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. Our principal executive officer and principal financial officer are responsible for establishing and maintaining disclosure controls and procedures. They evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, ~~2018,~~2019, and have concluded that, as of such date, our disclosure controls and procedures are adequate and effective to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. There was no change in our internal control over financial reporting during the quarter ended June 30, ~~2018,~~2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

See discussion of legal proceedings in Note 11 to the condensed consolidated financial statements included in Item 1 of Part I of this Report, which is incorporated by reference into this Part II, Item 1, as well as Item 3. Legal Proceedings, in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Item 1A. Risk Factors

There are no ~~other~~ changes during the six months ended June 30, ~~2018~~2019 to our risk factors as listed in our Annual Report on Form 10-K for the year ended December 31, ~~2017, except for the risk factors described below relating to Stewart's merger with Fidelity National Financial (FNF) (the Mergers) as announced during the first quarter~~ 2018.

~~The Mergers may present certain risks to Stewart’s business and operations prior to the closing of the Mergers, including, among other things, risks that:~~

~~FNF’s stock price may be negatively impacted by risks and conditions that apply to FNF, which are different from the risks and conditions applicable to Stewart.~~

Upon completion of the Mergers, our stockholders who elect to receive the Stock Election Consideration or Mixed Election Consideration will become holders of FNF Common Stock. The businesses and markets of FNF and the other companies it has acquired and may acquire in the future are different from those of Stewart. There is a risk that various factors, conditions and developments that would not affect the price of our Common Stock could negatively affect the price of FNF Common Stock.

The Mergers are subject to the receipt of consents and clearances from regulatory authorities that may impose conditions that could have an adverse effect on Stewart or that could delay or, if not obtained, could prevent completion of the Mergers.

The Mergers are subject to approvals or non-disapprovals from or notices to state insurance regulators, state financial institution regulators, state real estate regulators and various other federal and state regulatory authorities, as well as insurance authorities in Canada, Mexico and the United Kingdom. Additionally, the Mergers are subject to review by the FTC and the Antitrust Division of the DOJ under the HSR Act, and the Canada Competition Bureau under the Canadian Competition Act. Before the Mergers may be completed, applicable waiting periods must expire or terminate under antitrust laws and various approvals, consents or clearances may be required to be obtained from regulatory entities. In deciding whether to grant antitrust or other regulatory clearances, the relevant governmental entities will consider the effect of the Mergers on competition within their relevant jurisdictions. The terms and conditions of the approvals that are granted may impose requirements, limitations or costs or place restrictions on the conduct of FNF’s business following the Mergers. There can be no assurance that regulators will not impose conditions, terms, obligations or restrictions and that such conditions, terms, obligations or restrictions will not have the effect of delaying completion of the Mergers or imposing additional material costs on or materially limiting the revenues of FNF following the Mergers. In addition, neither FNF nor Stewart can provide assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the Mergers.

Our stockholders may not receive all consideration in the form they elect, and the form of consideration that they receive may have a lower value or less favorable tax consequences than the form of consideration that they elect to receive.

Our stockholders that make an election for either the Cash Election Consideration or the Stock Election Consideration will be subject to proration if holders of our Common Stock, in the aggregate, elect to receive more or less than the aggregate amount of cash consideration to be paid in the Mergers. Accordingly, some of the consideration our stockholders receive in the Mergers may differ from the type of consideration they select and such difference may be significant. This may result in, among other things, tax consequences that differ from those that would have resulted if our stockholders had received solely the form of consideration that they elected. The relative proportion of stock and cash that one of our stockholders receives may also have a value that is higher or lower than the relative proportion of stock and cash that such stockholder elected to receive.

~~We may have difficulty attracting, motivating and retaining executives and other employees in light of the Mergers.~~

Uncertainty about the effect of the Mergers on our employees may have an adverse effect on us. This uncertainty may impair our ability to attract, retain and motivate personnel until the Mergers are completed. We are dependent on the experience and industry knowledge of our officers and other key employees to execute our business plans. The combined company’s success after the Mergers will depend in part upon its ability to retain key management personnel and other key employees of FNF and Stewart. Employee retention may be particularly challenging during the pendency of the Mergers, as employees may feel uncertain about their future roles with the combined company. In addition, we may have to provide additional compensation in order to retain employees. If employees of FNF and Stewart depart because of issues relating to the uncertainty and difficulty of integration or a desire not to become employees of the combined company, the combined company’s ability to realize the anticipated benefits of the Mergers could be reduced.

~~We will incur substantial transaction-related costs in connection with the Mergers.~~

We expect to incur a number of non-recurring transaction-related costs associated with completing the Mergers, combining the operations of the two companies and achieving desired synergies. These fees and costs will be substantial. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors, filing fees and printing costs. Additional unanticipated costs may be incurred in the integration of the businesses of FNF and Stewart. There can be no assurance that the elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the two businesses, will offset the incremental transaction-related costs over time. Thus, any net benefit may not be achieved in the near term, the long term or at all.

The Mergers are subject to conditions, including certain conditions that may not be satisfied, and may not be completed on a timely basis, or at all. Failure to complete the Mergers could have material and adverse effects on us.

The completion of the Mergers is subject to a number of conditions, including the approval of the Merger Agreement proposal by our stockholders, which make the completion and timing of the completion of the Mergers uncertain. Also, either we or FNF may terminate the Merger Agreement if the Mergers have not been completed by March 18, 2019 (or the extended end date, if applicable), unless the failure of the Mergers to be completed by such date has resulted from the failure of the party seeking to terminate the Merger Agreement to perform its obligations.

If the Mergers are not completed on a timely basis, or at all, our ongoing businesses may be adversely affected and, without realizing any of the benefits of having completed the Mergers, we will be subject to a number of risks, including the following:

~~we may be required, under certain circumstances, to pay FNF a termination fee of $33 million if the Merger Agreement is terminated under qualifying circumstances, as described in the Merger Agreement;~~

~~we will be required to pay certain costs relating to the Mergers, whether or not the Mergers are completed, such as legal, accounting, financial advisor and printing fees;~~

under the Merger Agreement, we are subject to certain restrictions on the conduct of its business prior to completing the Mergers which may adversely affect its ability to execute certain of its business strategies;

~~time and resources committed by our management to matters relating to the Mergers could otherwise have been devoted to pursuing other beneficial opportunities;~~

~~the market price of our Common Stock could decline below current market prices to the extent that such current market prices reflect a market assumption that the Mergers will be completed; and~~

if the Merger Agreement is terminated and our board seeks another business combination, our stockholders cannot be certain that we will be able to find a party willing to enter into a business combination or other strategic transaction on terms equivalent to or more attractive than the terms that FNF has agreed to in the Merger Agreement.

In addition, if the Mergers are not completed, we may experience negative reactions from the financial markets and from our customers and employees. We could also be subject to litigation related to any failure to complete the Mergers or to enforcement proceedings commenced against us to perform our obligations under the Merger Agreement. If the Mergers are not completed, we cannot assure our stockholders that the risks described above will not materialize and will not adversely affect the business, financial results and stock prices of Stewart.

The Merger Agreement contains provisions that limit our ability to pursue alternatives to the Mergers, could discourage a potential competing acquirer from making a favorable alternative transaction proposal and, in specified circumstances, could require us to pay a termination fee of $33 million to FNF.

Under the Merger Agreement, we are restricted from entering into an alternative transaction. Unless and until the Merger Agreement is terminated, subject to specified exceptions, we are restricted from soliciting, initiating, knowingly facilitating, knowingly encouraging or knowingly inducing or negotiating, any inquiry, proposal or offer for a competing acquisition proposal with any person. Additionally, under the Merger Agreement, in the event of a potential change by our board of its recommendation with respect to the Mergers in light of a superior proposal, we must provide FNF with four business days’ notice to allow FNF to propose an adjustment to the terms and conditions of the Merger Agreement. We may terminate the Merger Agreement and enter into an agreement with respect to a superior proposal only if specified conditions have been satisfied, including compliance with the no solicitation and termination provisions of the Merger Agreement. These provisions could discourage a third party that may have an interest in acquiring all or a significant part of Stewart from considering or proposing that acquisition, even if such third party were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the Mergers, or might result in a potential competing acquirer proposing to pay a lower price than it would otherwise have proposed to pay because of the added expense of the termination fee that may become payable in specified circumstances.

Under the Merger Agreement, we may be required to pay to FNF a termination fee of $33 million if the Merger Agreement is terminated under specified circumstances. If such a termination fee is payable, the payment of this fee could have material and adverse consequences to our financial condition and operations.

~~We are subject to business uncertainties and contractual restrictions while the Mergers are pending, which could adversely affect our business and operations.~~

Under the terms of the Merger Agreement, we are subject to certain restrictions on the conduct of our business prior to completing the Mergers, which may adversely affect our ability to execute certain of our business strategies, including the ability in certain cases to enter into contracts or incur capital expenditures to grow our business. Such limitations could negatively affect our businesses and operations prior to the completion of the Mergers. Furthermore, the process of planning to integrate two businesses and organizations for the post-merger period can divert management attention and company resources and could ultimately have an adverse effect on us.

In connection with the pending Mergers, it is possible that some customers, suppliers and other persons with whom we have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with us as a result of the proposed Mergers, which could negatively affect our revenues, earnings and cash flows, as well as the market price of shares of our Common Stock, regardless of whether the Mergers are completed.

Because the exchange ratio is fixed and because the market price of FNF Common Stock and our Common Stock will fluctuate, our stockholders receiving FNF Common Stock as part of the merger consideration cannot be sure of the market value of such merger consideration relative to the value of their shares of our Common Stock that they are exchanging.

If the Mergers are completed, each share of our Common Stock will be converted into the right to receive either $50.00 in cash, 1.2850 shares of FNF Common Stock or $25.00 in cash and 0.6425 shares of FNF Common Stock (subject to the adjustment and proration procedures set forth in the Merger Agreement). During the pendency of the Mergers, the market value of FNF Common Stock will fluctuate, and decreases in the market value of FNF Common Stock will negatively affect the value of the merger consideration that our stockholders receive. The market value of our Common Stock will also fluctuate during the pendency of the Mergers, and increases in the market value of our Common Stock may mean that the merger consideration issued to our stockholders will be worth less than the market value of the shares of our Common Stock such stockholders are exchanging. The exchange ratio was fixed at the time the Merger Agreement was executed, and the value of FNF and Stewart stock may vary significantly from their values on the date of the Merger Agreement, the date of this report, the date on which our stockholders vote on the Merger Agreement, the date on which our stockholders make their election and the date on which our stockholders receive the merger consideration. Neither Stewart nor FNF is permitted to terminate the Merger Agreement solely due to changes in the market price of either party’s common stock.

There will be a time lapse between the date on which our stockholders make an election with respect to the form of merger consideration to be received by them in exchange for their Common Stock and the date on which our stockholders actually receive FNF Common Stock, depending on their election and subject to proration. Fluctuations in the market value of FNF stock during this time period will also affect the value of the merger consideration, once it is actually received.

If any of our stockholders makes a stock election or mixed election and the market value of FNF Common Stock falls between the time of the election and the time the merger consideration is actually received, the value of the merger consideration received may be less than the value of the merger consideration such stockholder would have received under a cash election. Conversely, if any of our stockholders makes a cash election and the market value of FNF Common Stock rises between the time of the election and the time the merger consideration is actually received, the value of the merger consideration received may be less than the value of the merger consideration such stockholder would have received under a stock or mixed election. Our stockholders are urged to obtain current market quotations for FNF Common Stock when they make their elections.

If the Mergers are approved, the date that our stockholders will receive the merger consideration is uncertain and, due to potential divestitures required by regulatory authorities, the per share purchase price may be adjusted downwards.

If the proposed Mergers are approved, the date that our stockholders will receive the merger consideration depends on the completion date of the Mergers, which is uncertain. Additionally, under the terms of the Merger Agreement, if the combined company is required to divest assets or businesses with 2017 annual revenues in excess of $75 million in order to receive required regulatory approvals (up to a cap of $225 million of 2017 annual revenues), the per share purchase price will be adjusted downwards on a sliding scale between such amounts of divestitures up to a maximum reduction of $4.50 in value in the event that businesses or assets with 2017 annual revenues of $225 million are divested.

There can be no assurance that a divestiture or divestitures of businesses and assets in excess of $75 million in 2017 annual revenues will not occur, and accordingly there can be no assurance that holders of our Common Stock will receive (i) for those who make an election for the Cash Election Consideration, $50.00 per share in cash instead of an amount less than $50.00 per share in cash (but in any case, no less than $45.50 per share in cash), (ii) for those who make an election for the Stock Election Consideration, an amount of FNF Common Stock equal to 1.2850 shares of FNF Common Stock per share of our Common Stock instead of an amount of FNF Common Stock less than 1.2850 shares of FNF common stock per share of our common stock calculated based on a reduced exchange ratio for the number of shares of FNF Common Stock per share of our Common Stock or (iii) for those who make an election for the Mixed Election Consideration, $25.00 per share in cash and an amount of FNF Common Stock equal to 0.6425 shares of FNF Common Stock per share of our Common Stock instead of an amount less than $25.00 per share in cash and an amount of FNF Common Stock less than 0.6425 shares of FNF Common Stock per share of our Common Stock calculated based on a reduced exchange ratio for the number of shares of FNF Common Stock per share of our Common Stock, as applicable.

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

There were no repurchases of our Common Stock during the six months ended June 30, ~~2018,~~2019, except for repurchases of approximately 11,000 shares (aggregate purchase price of approximately $0.5 million) related to the statutory income tax withholding on the vesting of restricted share and unit grants to executives and senior management.

Item 5. Other Information

Book value per share. Our book value per share was ~~$28.06~~$29.56 and ~~$28.62~~$28.66 as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. As of June 30, 2019, our book value per share was based on approximately $700.8 million in stockholders’ equity and 23,712,238 shares of Common Stock outstanding. As of December 31, 2018, our book value per share was based on approximately ~~$666.2~~$679.8 million in stockholders’ equity and ~~23,744,939~~23,719,347 shares of Common Stock outstanding. ~~As of December 31, 2017, our book value per share was based on approximately $678.8 million in stockholders’ equity and 23,719,522 shares of Common Stock outstanding.~~

Item 6. Exhibits



Exhibit

2.1	-	Agreement and Plan of Merger, dated as of March 18, 2018, among the Registrant, Fidelity National Financial, Inc., A Holdco Corp. and S Holdco LLC. (incorporated by reference in this report from Exhibit 2.1 of the Current Report on Form 8-K filed on March 19, 2018)

3.1	-	Restated Certificate of Incorporation of the Registrant, dated April 28, 2016 (incorporated by reference in this report from Exhibit 3.1 of the Current Report on Form 8-K filed April 29, 2016)

3.2	-	Third Amended and Restated By-Laws of the Registrant, as of April 27, 2016 (incorporated by reference in this report from Exhibit 3.2 of the Current Report on Form 8-K filed April 28, 2016)



31.1*	-	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*	-	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*	-	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*	-	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



101.INS*		-	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*		-	XBRL Taxonomy Extension Schema Document

101.CAL*		-	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		-	XBRL Taxonomy Extension Definition Linkbase Document
	��
101.LAB*		-	XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		-	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith

~~† Management contract or compensatory plan~~

SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

August ~~6, 2018~~7, 2019

Date



		Stewart Information Services Corporation
		Registrant

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

3731



	Common Stock ($1 par value)		Additional paid-in capital		Retained earnings		Accumulated other comprehensive loss		Treasury stock		Noncontrolling interests		Total
	($000 omitted)
Balances at December 31, 2017	24,072		159,954		491,698		(847	)	(2,666	)	6,599		678,810
Cumulative effect adjustments on adoption of new accounting standards (Note 1-D)	—		—		3,592		(3,592	)	—		—		—
Net income attributable to Stewart	—		—		18,598		—		—		—		18,598
Dividends on Common Stock ($0.60 per share)	—		—		(14,232	)	—		—		—		(14,232	)
Stock-based compensation and other	42		1,937		—		—		—		—		1,979
Stock repurchases	(17	)	(655	)	—		—		—		—		(672	)
Purchase of remaining interest in consolidated subsidiary	—		(1,032	)	—		—		—		(80	)	(1,112	)
Net change in unrealized gains and losses on investments, net of taxes	—		—		—		(10,434	)	—		—		(10,434	)
Net realized gain reclassification, net of taxes	—		—		—		(480	)	—		—		(480	)
Foreign currency translation adjustments, net of taxes	—		—		—		(5,630	)	—		—		(5,630	)
Net income attributable to noncontrolling interests	—		—		—		—		—		5,161		5,161
Distributions to noncontrolling interests	—		—		—		—		—		(5,751	)	(5,751	)
Balances at June 30, 2018	24,097		160,204		499,656		(20,983	)	(2,666	)	5,929		666,237



	June 30, 2018	December 31, 2017
	($000 omitted)
Investments in:
Debt securities	637,883	671,441
Equity securities	35,450	37,914
	673,333	709,355



	June 30, 2018
	Three Months Ended		Six Months Ended
	($000 omitted)
Total net investment gains (losses) recognized on equity securities during the period	1,612		(614	)
Less: Net realized losses on equity securities sold during the period	(216	)	(238	)
Net unrealized investment gains (losses) recognized on equity securities still held	1,828		(376	)



	Title	Ancillary Services and Corporate	Consolidated Total
		($000 omitted)
Balances at December 31, 2017	225,699	5,729	231,428
Acquisitions	11,308	—	11,308
Balances at June 30, 2018	237,007	5,729	242,736



	Three Months Ended June 30, 2018						Three Months Ended June 30, 2017
	Before-Tax Amount		Tax Expense (Benefit)		Net-of-Tax Amount		Before-Tax Amount		Tax Expense (Benefit)		Net-of-Tax Amount
	($000 omitted)
Net unrealized (losses) gains on investments:
Change in net unrealized gains and losses on investments	(3,074	)	(646	)	(2,428	)	548		193		355
Less: reclassification adjustment for net gains included in net income	(292	)	(61	)	(231	)	(145	)	(51	)	(94	)
	(3,366	)	(707	)	(2,659	)	403		142		261
Foreign currency translation adjustments	(4,575	)	(537	)	(4,038	)	4,334		1,130		3,204
Other comprehensive (loss) income	(7,941	)	(1,244	)	(6,697	)	4,737		1,272		3,465

	Six Months Ended June 30, 2018						Six Months Ended June 30, 2017
	Before-Tax Amount		Tax Expense (Benefit)		Net-of-Tax Amount		Before-Tax Amount		Tax Expense (Benefit)		Net-of-Tax Amount
	($000 omitted)
Net unrealized (losses) gains on investments:
Change in net unrealized gains and losses on investments	(13,208	)	(2,774	)	(10,434	)	4,343		1,521		2,822
Less: reclassification adjustment for net gains included in net income	(607	)	(127	)	(480	)	(710	)	(249	)	(461	)
	(13,815	)	(2,901	)	(10,914	)	3,633		1,272		2,361
Foreign currency translation adjustments	(6,854	)	(1,224	)	(5,630	)	6,014		1,485		4,529
Other comprehensive (loss) income	(20,669	)	(4,125	)	(16,544	)	9,647		2,757		6,890



	For the Six Months Ended June 30,
	2018		2017
	($ in millions)
Net cash provided by operating activities	7.4		16.5
Net cash used by investing activities	(7.1	)	(43.1	)
Net cash used by financing activities	(27.6	)	(13.7	)