10-Q 1 itic-20230630.htm 10-Q itic-20230630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

OR
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:  0-11774
 
INVESTORS TITLE COMPANY
(Exact name of registrant as specified in its charter)
North Carolina56-1110199
(State of incorporation)(I.R.S. Employer Identification No.)
                                        
121 North Columbia Street, Chapel Hill, North Carolina 27514
(Address of principal executive offices)  (Zip Code)

(919) 968-2200
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, no par valueITICThe Nasdaq Stock Market LLC
Rights to Purchase Series A Junior Participating Preferred StockThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

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

As of July 27, 2023, there were 1,890,623 common shares of the registrant outstanding.



INVESTORS TITLE COMPANY
AND SUBSIDIARIES

INDEX
 
PART I.FINANCIAL INFORMATION 
   
Item 1.Financial Statements (unaudited): 
   
 
Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022
 
 
Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2023 and 2022
 
 
Consolidated Statements of Comprehensive Income For the Three and Six Months Ended June 30, 2023 and 2022
 
 
Consolidated Statements of Stockholders’ Equity For the Three and Six Months Ended June 30, 2023 and 2022
 
 
Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2023 and 2022
 
 
  
  
  
  
PART II.OTHER INFORMATION
Legal Proceedings
Risk Factors
  
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
  
 




PART I.   FINANCIAL INFORMATION

Item 1.  Financial Statements

Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of June 30, 2023 and December 31, 2022
(in thousands)
(unaudited)
 June 30,
2023
December 31,
2022
Assets  
Cash and cash equivalents$26,184 $35,311 
Investments:  
Fixed maturity securities, available-for-sale, at fair value (amortized cost: June 30, 2023: $58,423; December 31, 2022: $53,775)
58,452 53,989 
Equity securities, at fair value (cost: June 30, 2023: $19,282; December 31, 2022: $25,278)
34,081 51,691 
Short-term investments
114,857 103,649 
Other investments
19,779 18,368 
Total investments
227,169 227,697 
Premiums and fees receivable 17,211 19,047 
Accrued interest and dividends949 872 
Prepaid expenses and other receivables11,523 11,095 
Property, net21,197 17,785 
Goodwill and other intangible assets, net16,927 17,611 
Lease assets6,830 6,707 
Other assets2,491 2,458 
Current income taxes recoverable 1,174 
Total Assets
$330,481 $339,757 
Liabilities and Stockholders’ Equity  
Liabilities:  
Reserve for claims
$36,865 $37,192 
Accounts payable and accrued liabilities
33,923 47,050 
Lease liabilities7,049 6,839 
Current income taxes payable
586  
Deferred income taxes, net
4,805 7,665 
Total liabilities
83,228 98,746 
Commitments and Contingencies  
Stockholders’ Equity:  
Preferred stock (1,000 authorized shares; no shares issued)
  
Common stock – no par value (10,000 authorized shares; 1,891 and 1,897 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively, excluding in each period 292 shares of common stock held by the Company)
  
Retained earnings
247,092 240,811 
Accumulated other comprehensive income 161 200 
Total stockholders' equity
247,253 241,011 
Total Liabilities and Stockholders’ Equity
$330,481 $339,757 

Refer to notes to the Consolidated Financial Statements.
1


Investors Title Company and Subsidiaries
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2023 and 2022
(in thousands, except per share amounts)
(unaudited)
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2023202220232022
Revenues:
Net premiums written$44,005 $69,626 $82,971 $132,751 
Escrow and other title-related fees4,604 6,247 8,259 11,325 
Non-title services4,565 2,798 9,877 5,210 
Interest and dividends2,150 911 4,224 1,826 
Other investment income 1,648 1,106 2,401 2,443 
Net investment gains (losses)1,092 (10,134)1,535 (14,302)
Other250 348 390 647 
Total Revenues58,314 70,902 109,657 139,900 
Operating Expenses:
Commissions to agents20,603 33,826 39,929 63,683 
Provision for claims991 1,310 2,059 1,486 
Personnel expenses18,548 20,898 39,368 42,152 
Office and technology expenses4,513 4,288 8,913 8,656 
Other expenses3,813 7,627 7,981 13,177 
Total Operating Expenses48,468 67,949 98,250 129,154 
Income before Income Taxes9,846 2,953 11,407 10,746 
Provision for Income Taxes2,261 674 2,641 2,282 
Net Income $7,585 $2,279 $8,766 $8,464 
Basic Earnings per Common Share$4.00 $1.20 $4.62 $4.46 
Weighted Average Shares Outstanding – Basic1,895 1,897 1,896 1,897 
Diluted Earnings per Common Share$4.00 $1.20 $4.62 $4.45 
Weighted Average Shares Outstanding – Diluted1,896 1,899 1,896 1,900 

Refer to notes to the Consolidated Financial Statements.
2


Investors Title Company and Subsidiaries
Consolidated Statements of Comprehensive Income
For the Three and Six Months Ended June 30, 2023 and 2022
(in thousands)
(unaudited)
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2023202220232022
Net income $7,585 $2,279 $8,766 $8,464 
Other comprehensive loss, before income tax:
Accumulated postretirement benefit obligation adjustment(7)(8)134 211 
Net unrealized losses on investments arising during the period(530)(1,178)(297)(3,942)
Reclassification adjustment for sale of securities included in net income  46  46 
Reclassification adjustment for write-down of securities included in net income 30 127 112 127 
Other comprehensive loss, before income tax(507)(1,013)(51)(3,558)
Income tax (benefit) expense related to postretirement health benefits(2)(2)28 44 
Income tax benefit related to net unrealized losses on investments arising during the period(113)(252)(66)(835)
Income tax expense related to reclassification adjustment for sale of securities included in net income  10  10 
Income tax expense related to reclassification adjustment for write-down of securities included in net income 7 29 26 29 
Net income tax benefit on other comprehensive loss(108)(215)(12)(752)
Other comprehensive loss(399)(798)(39)(2,806)
Comprehensive Income $7,186 $1,481 $8,727 $5,658 

Refer to notes to the Consolidated Financial Statements.
3


Investors Title Company and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the Three and Six Months Ended June 30, 2023 and 2022
(in thousands, except per share amounts)
(unaudited)
 Common StockRetained EarningsAccumulated Other Comprehensive Income Total
Stockholders’
Equity
 SharesAmount
Balance, March 31, 2022
1,897 $ $231,274 $1,218 $232,492 
Net income  2,279  2,279 
Dividends paid ($0.46 per share)
  (872) (872)
Share-based compensation expense related to stock appreciation rights
  78  78 
Accumulated postretirement benefit obligation adjustment(6)(6)
Net unrealized loss on investments   (792)(792)
Balance, June 30, 2022
1,897 $ $232,759 $420 $233,179 
Balance, March 31, 2023
1,898 $ $241,278 $560 $241,838 
Net income  7,585  7,585 
Dividends paid ($0.46 per share)
  (873) (873)
Repurchases of common stock(7)(959)(959)
Share-based compensation expense related to stock appreciation rights
  61  61 
Accumulated postretirement benefit obligation adjustment(5)(5)
Net unrealized loss on investments  (394)(394)
Balance, June 30, 2023
1,891 $ $247,092 $161 $247,253 
4



Common StockRetained EarningsAccumulated Other Comprehensive Income Total
Stockholders’
Equity
SharesAmount
Balance, December 31, 2021
1,895 $ $225,861 $3,226 $229,087 
Net income8,464 8,464 
Dividends paid ($0.92 per share)
(1,745)(1,745)
Exercise of stock appreciation rights
2 (1)(1)
Share-based compensation expense related to stock appreciation rights
180 180 
Accumulated postretirement benefit obligation adjustment167 167 
Net unrealized loss on investments(2,973)(2,973)
Balance, June 30, 2022
1,897 $ $232,759 $420 $233,179 
Balance, December 31, 2022
1,897 $ $240,811 $200 $241,011 
Net income8,766 8,766 
Dividends paid ($0.92 per share)
(1,746)(1,746)
Repurchases of common stock(7)(959)(959)
Exercise of stock appreciation rights
1   
Share-based compensation expense related to stock appreciation rights
220 220 
Accumulated postretirement benefit obligation adjustment106 106 
Net unrealized loss on investments(145)(145)
Balance, June 30, 2023
1,891 $ $247,092 $161 $247,253 

Refer to notes to the Consolidated Financial Statements.
5


Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2023 and 2022
(in thousands)
(unaudited)
 Six Months Ended
June 30,
 20232022
Operating Activities  
Net income$8,766 $8,464 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:  
Depreciation1,307 1,109 
(Accretion) Amortization of investments, net(1,704)310 
Amortization of other intangible assets, net657 653 
Share-based compensation expense related to stock appreciation rights220 180 
Net gain on disposals of property(53)(36)
Net investment (gains) losses(1,535)14,302 
Net earnings from other investments(2,087)(1,918)
Provision for claims2,059 1,486 
Benefit for deferred income taxes(2,848)(3,708)
Changes in assets and liabilities:  
Decrease (increase) in premium and fees receivable1,836 (2,424)
Increase in other assets(511)(1,171)
Increase in lease assets(123)(1,359)
Decrease (increase) in current income taxes receivable1,174 (390)
Decrease in accounts payable and accrued liabilities(12,993)(3,613)
Increase in lease liabilities210 1,375 
Increase (decrease) in current income taxes payable586 (3,329)
Payments of claims, net of recoveries(2,386)(1,637)
Net cash (used in) provided by operating activities(7,425)8,294 
Investing Activities  
Purchases of fixed maturities(10,963)(350)
Purchases of equity securities(6,006)(1,146)
Purchases of short-term investments(81,202)(47,890)
Purchases of other investments(1,095)(939)
Purchases of subsidiary, net of cash (4,927)
Proceeds from sales and maturities of fixed maturity securities6,212 14,496 
Proceeds from sales of equity securities25,378 9,378 
Proceeds from sales and maturities of short-term investments71,688 22,509 
Proceeds from sales and distributions of other investments1,657 3,054 
Purchases of property(5,017)(2,452)
Proceeds from the sale of property351 37 
Net cash provided by (used in) investing activities1,003 (8,230)
Financing Activities  
Repurchases of common stock(959) 
Exercise of stock appreciation rights (1)
Dividends paid(1,746)(1,745)
Net cash used in financing activities(2,705)(1,746)
Net Decrease in Cash and Cash Equivalents(9,127)(1,682)
Cash and Cash Equivalents, Beginning of Period35,311 37,168 
Cash and Cash Equivalents, End of Period$26,184 $35,486 
6


Consolidated Statements of Cash Flows, continued 
 Six Months Ended
June 30,
 20232022
Supplemental Disclosures:  
Cash Paid During the Year for:  
Income tax payments, net$3,729 $9,709 
Non-Cash Investing and Financing Activities:
Non-cash net unrealized loss on investments, net of deferred tax benefit of $40 and $835 for June 30, 2023 and 2022, respectively
$145 $2,973 
Adjustments to postretirement benefits obligation, net of deferred tax expense of $(28) and $(44) for June 30, 2023 and 2022, respectively
$(106)$(167)
    
Changes in Financial Statement Amounts Related to Purchase of Subsidiaries, Net of Cash Received:
Goodwill and other intangibles acquired$ $(3,028)
Title plant acquired (500)
Prepaid and other assets acquired (77)
Fixed assets acquired (1,322)
Purchase of subsidiary, net of cash received$ $(4,927)








Refer to notes to the Consolidated Financial Statements.
7


INVESTORS TITLE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2023
(unaudited)

Note 1 – Basis of Presentation and Significant Accounting Policies

Reference should be made to the “Notes to Consolidated Financial Statements” appearing in the Annual Report on Form 10-K for the year ended December 31, 2022 of Investors Title Company (the “Company”) for a complete description of the Company’s significant accounting policies.

Principles of Consolidation – The accompanying unaudited Consolidated Financial Statements include the accounts and operations of Investors Title Company and its subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information, with the instructions to Form 10-Q and with Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in annual consolidated financial statements have been condensed or omitted. All intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows of the Company in the accompanying unaudited Consolidated Financial Statements have been included. All such adjustments are of a normal recurring nature. Operating results for the three- and six-month periods ended June 30, 2023 are not necessarily indicative of the financial condition and results that may be expected for the year ending December 31, 2023 or any other interim period.

Reclassifications – Certain amounts have been reclassified for consistency with the current period presentation. The reclassifications were between revenue lines of the unaudited Consolidated Statements of Operations. These reclassifications are not considered an accounting change and had no effect on the reported results of operations.

Use of Estimates and Assumptions – The preparation of the Company’s unaudited Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the unaudited Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions used.

Subsequent Events – The Company has evaluated and concluded that there were no material subsequent events requiring adjustment or disclosure to its unaudited Consolidated Financial Statements.

Note 2 – Reserve for Claims

Activity in the reserve for claims for the six-month period ended June 30, 2023 and the year ended December 31, 2022 are summarized as follows:
 (in thousands)June 30, 2023December 31, 2022
Balance, beginning of period$37,192 $36,754 
Provision charged to operations2,059 4,255 
Payments of claims, net of recoveries(2,386)(3,817)
Balance, end of period
$36,865 $37,192 

The total reserve for all reported and unreported losses the Company incurred through June 30, 2023 is represented by the reserve for claims on the unaudited Consolidated Balance Sheets. The Company's reserves for unpaid losses and loss adjustment expenses are established using estimated amounts required to settle claims for which notice has been received (reported) and the amount estimated to be required to satisfy claims that have been incurred but not yet reported (“IBNR”). Despite the variability of such estimates, management believes that the total reserve for claims is adequate to cover claim losses which might result from pending and future claims under title insurance policies issued through June 30, 2023. Management continually reviews and adjusts its reserve for claims estimates to reflect its loss experience and any new information that becomes available. Adjustments resulting from such reviews could be significant.

8


A summary of the Company’s reserve for claims, broken down into its components of known title claims and IBNR, follows:
 (in thousands, except percentages)June 30, 2023%December 31, 2022%
Known title claims$3,034 8.2 $3,250 8.7 
IBNR33,831 91.8 33,942 91.3 
Total reserve for claims
$36,865 100.0 $37,192 100.0 

Claims and losses paid are charged to the reserve for claims. Although claims losses are typically paid in cash, occasionally claims are settled by purchasing the interest of the insured or the claimant in the real property. When this event occurs, the Company carries assets at the lower of cost or estimated fair value, net of any indebtedness on the property.

Note 3 – Earnings Per Common Share and Share Awards

Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed by dividing net income by the combination of dilutive potential common stock, comprised of shares issuable under the Company’s share-based compensation plans, and the weighted average number of common shares outstanding during the reporting period. Dilutive common share equivalents include the dilutive effect of in-the-money share-based awards, which are calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, when share-based awards are assumed to be exercised, (a) the exercise price of a share-based award and (b) the amount of compensation cost, if any, for future services that the Company has not yet recognized, are assumed to be used to repurchase shares in the current period.

The following table sets forth the computation of basic and diluted earnings per share for the three- and six-month periods ended June 30:
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands, except per share amounts)
2023202220232022
Net income $7,585 $2,279 $8,766 $8,464 
Weighted average common shares outstanding – Basic1,895 1,897 1,896 1,897 
Incremental shares outstanding assuming the exercise of dilutive SARs (share-settled)
1 2  3 
Weighted average common shares outstanding – Diluted
1,896 1,899 1,896 1,900 
Basic earnings per common share$4.00 $1.20 $4.62 $4.46 
Diluted earnings per common share$4.00 $1.20 $4.62 $4.45 

There were 17 thousand and 13 thousand potential shares excluded from the computation of diluted earnings per share for the three-month periods ended June 30, 2023 and 2022, respectively, due to the out-of-the-money status of the related share-based awards. There were 24 thousand and 13 thousand potential shares excluded from the computation of diluted earnings per share for the six-month periods ended June 30, 2023 and 2022, respectively, due to the out-of-the-money status of the related share-based awards.

The Company historically has adopted employee stock award plans under which restricted stock, options or stock appreciation rights ("SARs") exercisable for the Company's stock may be granted to key employees or directors of the Company. There is currently one active plan from which the Company may grant share-based awards. The awards eligible to be granted under the active plan are limited to SARs, and the maximum aggregate number of shares of common stock of the Company available pursuant to the plan for the grant of SARs is 250 thousand shares. SARs give the holder the right to receive stock equal to the appreciation in the value of shares of stock from the grant date for a specified period of time, and as a result, are accounted for as equity instruments.

As of June 30, 2023, the only outstanding awards under the plans were SARs, which expire within seven years or less from the date of grant. All outstanding SARs vest and are exercisable within five years or less from the date of grant, and all SARs issued to date have been share-settled only. There have been no stock options or SARs granted where the exercise price was less than the market price on the date of grant.

9


A summary of share-based award transactions for all share-based award plans follows:
(in thousands, except weighted average exercise price and average remaining contractual term)Number
Of Shares
Weighted
Average
Exercise Price
Average Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
Outstanding as of January 1, 2022
35 $150.36 3.96$1,643 
SARs granted10 155.16   
SARs exercised(6)94.44   
Outstanding as of December 31, 202239 $159.39 4.10$243 
SARs granted5 142.88   
SARs exercised(2)93.87   
Outstanding as of June 30, 202342 $160.83 4.19$127 
Exercisable as of June 30, 202330 $168.30 3.57$84 
Unvested as of June 30, 202312 $142.46 5.71$43 

During the second quarter of 2023, the Company issued 4 thousand share-settled SARs to directors of the Company. During the second quarter of 2022, the Company issued 5 thousand share-settled SARs to directors of the Company. During the first quarter of 2023, the Company issued 1 thousand share-settled SARs to a non-executive employee of the Company. There were no such first quarter issuances in 2022. The fair value of each award is estimated on the date of grant using the Black-Scholes option valuation model. Expected volatilities are based on both the implied and historical volatility of the Company’s stock. The Company uses historical data to project SAR exercises and pre-exercise forfeitures within the valuation model. The expected term of awards represents the period of time that SARs granted are expected to be outstanding. The interest rate assumed for the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of the grant. The weighted average fair value for the SARs issued during 2023 and 2022 were $55.52 and $69.64, respectively, and were estimated using the weighted average assumptions shown in the table below:
20232022
Expected Life in Years6.2-7.07.0
Volatility36.6%35.0%
Interest Rate3.7%2.9%
Yield Rate1.2%0.1%

There was approximately $220 thousand and $180 thousand of compensation expense relating to SARs vesting on or before June 30, 2023 and 2022, respectively, included in personnel expenses in the unaudited Consolidated Statements of Operations. As of June 30, 2023, there was $611 thousand of unrecognized compensation expense related to unvested share-based compensation arrangements granted under the Company’s stock award plans.

Note 4 – Segment Information

The Company has one reportable segment, title insurance services. The remaining immaterial segments have been combined into a group called “All Other.”

The title insurance segment primarily issues title insurance policies through approved attorneys from underwriting offices and through independent issuing agents. Title insurance policies insure titles to real estate.

10


Provided below is selected financial information about the Company's operations by segment for the periods ended June 30, 2023 and 2022:
Three Months Ended
June 30, 2023 (in thousands)
Title
Insurance
All
Other
Intersegment EliminationsTotal
Insurance and other services revenues$54,034 $5,081 $(5,691)$53,424 
Net investment income4,052 838  4,890 
Total revenues$58,086 $5,919 $(5,691)$58,314 
Operating expenses51,161 2,825 (5,518)48,468 
Income before income taxes$6,925 $3,094 $(173)$9,846 
Total assets$236,185 $94,296 $ $330,481 
Three Months Ended
June 30, 2022 (in thousands)
Title
Insurance
All
Other
Intersegment EliminationsTotal
Insurance and other services revenues$83,478 $3,242 $(7,701)$79,019 
Net investment loss(7,084)(1,033) (8,117)
Total revenues$76,394 $2,209 $(7,701)$70,902 
Operating expenses72,234 3,265 (7,550)67,949 
Income (loss) before income taxes$4,160 $(1,056)$(151)$2,953 
Total assets$249,160 $76,032 $ $325,192 
Six Months Ended
June 30, 2023 (in thousands)
Title
Insurance
All
Other
Intersegment EliminationsTotal
Insurance and other services revenues$100,200 $10,824 $(9,527)$101,497 
Net investment income6,579 1,581  8,160 
Total revenues
$106,779 $12,405 $(9,527)$109,657 
Operating expenses101,885 5,548 (9,183)98,250 
Income before income taxes$4,894 $6,857 $(344)$11,407 
Total assets
$236,185 $94,296 $ $330,481 
Six Months Ended
June 30, 2022 (in thousands)
Title
Insurance
All
Other
Intersegment EliminationsTotal
Insurance and other services revenues$156,543 $5,979 $(12,589)$149,933 
Net investment loss(8,661)(1,372) (10,033)
Total revenues
$147,882 $4,607 $(12,589)$139,900 
Operating expenses135,422 6,018 (12,286)129,154 
Income (loss) before income taxes$12,460 $(1,411)$(303)$10,746 
Total assets
$249,160 $76,032 $ $325,192 

11


Note 5 – Retirement Agreements and Other Postretirement Benefits

The Company’s subsidiary, Investors Title Insurance Company ("ITIC"), is a party to employment agreements with key executives that provide for the continuation of certain employee benefits and other payments due under the agreements upon retirement, estimated to total $15.1 million and $15.0 million as of June 30, 2023 and December 31, 2022, respectively. The executive employee benefits include health, dental, vision and life insurance and are unfunded. These amounts are classified as accounts payable and accrued liabilities in the unaudited Consolidated Balance Sheets. The following sets forth the net periodic benefit cost for the executive benefits for the periods ended June 30, 2023 and 2022:
Three Months Ended
June 30,
Six Months Ended
June 30,
 (in thousands)2023202220232022
Service cost – benefits earned during the year$ $ $ $ 
Interest cost on the projected benefit obligation10 8 20 14 
Amortization of unrecognized gain(7)(4)(14)(4)
Net periodic benefit cost$3 $4 $6 $10 

Note 6 – Investments and Estimated Fair Value

Investments in Fixed Maturity Securities

The estimated fair value, gross unrealized holding gains, gross unrealized holding losses and amortized cost for fixed maturity securities by major classification are as follows:
As of June 30, 2023 (in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
Fixed maturity securities, available-for-sale, at fair value:    
 Government obligations$1,938 $ $(8)$1,930 
General obligations of U.S. states, territories and political subdivisions
8,298 3 (71)8,230 
Special revenue issuer obligations of U.S. states, territories and political subdivisions
27,011 56 (120)26,947 
Corporate debt securities21,176 359 (190)21,345 
Total
$58,423 $418 $(389)$58,452 
As of December 31, 2022 (in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
Fixed maturity securities, available-for-sale, at fair value:    
 Government obligations$4,329 $ $(7)$4,322 
General obligations of U.S. states, territories and political subdivisions
8,561 21 (36)8,546 
Special revenue issuer obligations of U.S. states, territories and political subdivisions
30,123 106 (219)30,010 
Corporate debt securities10,762 417 (68)11,111 
Total
$53,775 $544 $(330)$53,989 

The special revenue category for both periods presented includes approximately 30 individual fixed maturity securities with revenue sources from a variety of industry sectors.

12


The scheduled maturities of fixed maturity securities at June 30, 2023 are as follows:
 Available-for-Sale
(in thousands)Amortized
Cost
Estimated Fair
Value
Due in one year or less$17,422 $17,422 
Due one year through five years31,178 31,070 
Due five years through ten years8,993 8,902 
Due after ten years830 1,058 
Total
$58,423 $58,452 

Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties.

The following table presents the gross unrealized losses on fixed maturity securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous loss position at June 30, 2023 and December 31, 2022:
 Less than 12 Months12 Months or LongerTotal
As of June 30, 2023 (in thousands)Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Government obligations$2 $(8)$ $ $2 $(8)
General obligations of U.S. states, territories and political subdivisions6,939 (69)101 (2)7,040 (71)
Special revenue issuer obligations of U.S. states, territories and political subdivisions
7,196 (48)3,893 (72)11,089 (120)
Corporate debt securities15,126 (187)248 (3)15,374 (190)
Total$29,263 $(312)$4,242 $(77)$33,505 $(389)
 Less than 12 Months12 Months or LongerTotal
As of December 31, 2022 (in thousands)Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Government obligations$4,322 $(7)$ $ $4,322 $(7)
General obligations of U.S. states, territories and political subdivisions3,221 (36)  3,221 (36)
Special revenue issuer obligations of U.S. states, territories and political subdivisions
12,568 (216)1,100 (3)13,668 (219)
Corporate debt securities
6,498 (68)  6,498 (68)
Total$26,609 $(327)$1,100 $(3)$27,709 $(330)

Management evaluates available-for-sale fixed maturity securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. The decline in estimated fair value of the fixed maturity securities can be attributed primarily to changes in market interest rates and changes in credit spreads over Treasury securities.

Factors considered in determining whether a loss is credit-related include the financial condition and prospects of the issuer (including credit ratings and analyst reports) and macro-economic changes. A total of 83 and 51 fixed maturity securities had unrealized losses at June 30, 2023 and December 31, 2022, respectively. The Company does not intend to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. The Company believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, including changes in market interest rates and other market conditions, and therefore the unrealized loss is recorded in accumulated other comprehensive income.


13


Reviews of the values of fixed maturity securities are inherently uncertain and the value of the investment may not fully recover, or may decline in future periods, resulting in a realized loss. The Company recorded $112 thousand in impairment charges related to fixed maturity securities for the six-month period ended June 30, 2023 and had $127 thousand recorded in impairment charges for the six-month period ended June 30, 2022. Expenses related to impairments are recorded in net investment gains (losses) in the unaudited Consolidated Statements of Operations when recognized.

Investments in Equity Securities

The cost and estimated fair value of equity securities are as follows:
As of June 30, 2023 (in thousands)
CostEstimated Fair
Value
Equity securities, at fair value:  
Common stocks$19,282 $34,081 
Total
$19,282 $34,081 
As of December 31, 2022 (in thousands)
CostEstimated Fair
Value
Equity securities, at fair value:  
Common stocks$25,278 $51,691 
Total
$25,278 $51,691 

Unrealized holding gains and losses are recorded net in net investment gains (losses) in the unaudited Consolidated Statements of Operations.

Net Investment Gains (Losses)

Gross realized gains and losses on sales of investments and unrealized holding gains and losses for the three and six-months ended June 30, 2023 and 2022 are summarized as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2023202220232022
Gross realized gains from securities:  
Common stocks
$6,217 $2,809 $13,700 $4,556 
Total
$6,217 $2,809 $13,700 $4,556 
Gross realized losses from securities:  
Corporate debt securities
$ $(46)$ $(46)
Common stocks
(202)(189)(323)(189)
Write-down of securities (30)(127)(112)(127)
Total
$(232)$(362)$(435)$(362)
Net realized gains from securities$5,985 $2,447 $13,265 $4,194 
Gross realized gains (losses) on other investments:
    Losses on other investments$(69)$(409)$(116)$(409)
Total
$(69)$(409)$(116)$(409)
Net realized investment gains $5,916 $2,038 $13,149 $3,785 
Changes in the estimated fair value of equity security investments$(4,824)$(12,172)$(11,614)$(18,087)
Net investment gains (losses)$1,092 $(10,134)$1,535 $(14,302)

Realized gains and losses are determined on the specific identification method.  

14


Variable Interest Entities

The Company holds investments in variable interest entities ("VIEs") that are not consolidated in the Company's financial statements as the Company is not the primary beneficiary. These entities are considered VIEs as the equity investors at risk, including the Company, do not have the power over the activities that most significantly impact the economic performance of the entities; this power resides with a third-party general partner or managing member that cannot be removed except for cause and no participation rights exist. The following table sets forth details about the Company's variable interest investments in VIEs, which are structured either as limited partnerships ("LPs") or limited liability companies ("LLCs"), as of June 30, 2023:
(in thousands)Balance Sheet ClassificationCarrying ValueEstimated Fair ValueMaximum Potential Loss (a)
Real estate LLCs or LPsOther investments$4,425 $4,720 $5,658 
Small business investment LPsOther investments8,838 9,063 13,080 
Total
$13,263 $13,783 $18,738 
(a)Maximum potential loss is calculated as the total investment in the LLC or LP, including any capital commitments that may have not yet been called. The Company is not exposed to any loss beyond the total commitment of its investment.

Valuation of Financial Assets
 
The Financial Accounting Standards Board ("FASB") has established a valuation hierarchy for disclosure of the inputs used to measure estimated fair value of financial assets and liabilities, such as securities. This hierarchy categorizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions intended to represent market participant assumptions used to measure assets and liabilities at fair value.

A financial instrument’s classification within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement – consequently, if there are multiple significant valuation inputs that are categorized in different levels of the hierarchy, the instrument’s hierarchy level is the lowest level (with Level 3 being the lowest level) within which any significant input falls.

The Level 1 category includes equity securities and U.S. Treasury securities that are measured at estimated fair value using quoted active market prices.

The Level 2 category includes fixed maturity securities such as corporate debt securities, U.S. government obligations, and obligations of U.S. states, territories, and political subdivisions. Estimated fair value is principally based on market values obtained from a third-party pricing service. Factors that are used in determining estimated fair market value include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. The Company receives one quote per security from a third-party pricing service, although as discussed below, the Company does consult other pricing resources when confirming that the prices it obtains reflect the fair values of the instruments in accordance with GAAP. Generally, quotes obtained from the pricing service for instruments classified as Level 2 are not adjusted and are not binding. As of June 30, 2023 and December 31, 2022, the Company did not adjust any Level 2 fair values.

A number of the Company’s investment grade corporate debt securities are frequently traded in active markets, and trading prices are consequently available for these securities. However, these securities are classified as Level 2 because the pricing service from which the Company has obtained estimated fair values for these instruments uses valuation models that use observable market inputs in addition to trading prices. Substantially all of the input assumptions used in the service’s model are observable in the marketplace or can be derived or supported by observable market data.

In the measurement of the estimated fair value of certain financial instruments, other valuation techniques were utilized if quoted market prices were not available. These derived fair value estimates are significantly affected by the assumptions used. Additionally, certain financial instruments, including those related to insurance contracts, pension and other postretirement benefits, and equity method investments are excluded from the scope of disclosures.
 
15


In estimating the fair value of the financial instruments presented, the Company used the following methods and assumptions:
 
Cash and cash equivalents
 
The carrying amount for cash and cash equivalents is a reasonable estimate of fair value due to the short-term maturity of these investments.
 
Measurement alternative equity investments
 
The measurement alternative method requires investments without readily determinable fair values to be recorded at cost, less impairments, and plus or minus any changes resulting from observable price changes.  The Company monitors any events or changes in circumstances that may have had a significant adverse effect on the fair value of these investments and makes any necessary adjustments.

Notes Receivable
 
Notes receivable are recorded at amortized cost basis and are included in prepaid expenses and other receivables in the unaudited Consolidated Balance Sheets. The amortized cost basis is the amount at which a receivable is originated and adjusted for applicable accrued interest, accretion, or amortization of premium, discount, and net deferred fees or costs, collection of cash, writeoffs, foreign exchange, and fair value hedge accounting adjustments. The Company monitors any events or changes in circumstances that may have had a significant adverse effect on the fair value of these investments and makes any necessary adjustments.

Accrued interest and dividends
 
The carrying amount for accrued interest and dividends is a reasonable estimate of fair value due to the short-term maturity of these assets.

The following table presents, by level, fixed maturity securities carried at estimated fair value as of June 30, 2023 and December 31, 2022:
As of June 30, 2023 (in thousands)Level 1Level 2 *Level 3Total
Fixed maturity securities:    
Obligations of U.S. states, territories and political subdivisions$1,930 $35,177 $ $37,107 
Corporate debt securities 21,345  21,345 
Total
$1,930 $56,522 $ $58,452 

As of December 31, 2022 (in thousands)Level 1Level 2 *Level 3Total
Fixed maturity securities:
Obligations of U.S. states, territories and political subdivisions$4,322 $38,556 $ $42,878 
Corporate debt securities 11,111  11,111 
Total
$4,322 $49,667 $ $53,989 

*Denotes fair market value obtained from pricing services.
16



The following table presents, by level, estimated fair values of equity investments and other financial instruments as of June 30, 2023 and December 31, 2022:
As of June 30, 2023 (in thousands)Level 1Level 2Level 3Total
Financial assets:
Cash and cash equivalents
$26,184 $ $ $26,184 
Accrued interest and dividends
949   949 
Equity securities, at fair value:
Common stocks
34,081   34,081 
Short-term investments: 
Money market funds and U.S. Treasury bills114,857   114,857 
Total
$176,071 $ $ $176,071 
As of December 31, 2022 (in thousands)Level 1Level 2Level 3Total
Financial assets:
Cash and cash equivalents
$35,311 $ $ $35,311 
Accrued interest and dividends
872   872 
Equity securities, at fair value:
Common stocks
51,691   51,691 
Short-term investments:
Money market funds and U.S. Treasury bills103,649   103,649 
Total
$191,523 $ $ $191,523 

The Company did not hold any Level 3 category debt or marketable equity investment securities as of June 30, 2023 or December 31, 2022.

There were no transfers into or out of Levels 1, 2 or 3 during the periods presented.

To help ensure that estimated fair value determinations are consistent with GAAP, prices from our pricing services go through multiple review processes to ensure appropriate pricing. Pricing procedures and inputs used to price each security include, but are not limited to, the following: unadjusted quoted market prices for identical securities such as stock market closing prices; non-binding quoted prices for identical securities in markets that are not active; interest rates; yield curves observable at commonly quoted intervals; volatility; prepayment speeds; loss severity; credit risks; and default rates. The Company reviews the procedures and inputs used by its pricing services, and verifies a sample of the services’ quotes by comparing them to values obtained from other pricing resources. In the event the Company disagrees with a price provided by its pricing services, the respective service reevaluates the price to corroborate the market information and then reviews inputs to the evaluation in light of potentially new market data.

Certain equity investments under the measurement alternative and notes receivable are measured at estimated fair value on a non-recurring basis and are reviewed for impairment quarterly. If any such investment is determined to be impaired, an impairment charge is recorded against such investment and reflected in the unaudited Consolidated Statements of Operations. There were no impairments of such investments made during the six-month period ended June 30, 2023 or the twelve-month period ended December 31, 2022. The following table presents assets measured at fair value on a non-recurring basis at the time of impairment as of June 30, 2023 and December 31, 2022:
As of June 30, 2023 (in thousands)
Level 1Level 2Level 3Total
Financial assets:
Equity investments in unconsolidated affiliates, measurement alternative