Company Quick10K Filing
Investors Title
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 2 $305
10-Q 2019-11-07 Quarter: 2019-09-30
10-Q 2019-08-08 Quarter: 2019-06-30
10-Q 2019-05-08 Quarter: 2019-03-31
10-K 2019-03-13 Annual: 2018-12-31
10-Q 2018-11-07 Quarter: 2018-09-30
10-Q 2018-08-08 Quarter: 2018-06-30
10-Q 2018-05-10 Quarter: 2018-03-31
10-K 2018-03-12 Annual: 2017-12-31
10-Q 2017-11-07 Quarter: 2017-09-30
10-Q 2017-08-08 Quarter: 2017-06-30
10-Q 2017-05-08 Quarter: 2017-03-31
10-K 2017-03-10 Annual: 2016-12-31
10-Q 2016-11-07 Quarter: 2016-09-30
10-Q 2016-08-08 Quarter: 2016-06-30
10-Q 2016-05-06 Quarter: 2016-03-31
10-K 2016-03-11 Annual: 2015-12-31
10-Q 2015-11-09 Quarter: 2015-09-30
10-Q 2015-08-07 Quarter: 2015-06-30
10-Q 2015-05-07 Quarter: 2015-03-31
10-K 2015-03-13 Annual: 2014-12-31
10-Q 2014-11-06 Quarter: 2014-09-30
10-Q 2014-08-08 Quarter: 2014-06-30
10-Q 2014-05-09 Quarter: 2014-03-31
10-K 2014-03-14 Annual: 2013-12-31
10-Q 2013-11-07 Quarter: 2013-09-30
10-Q 2013-08-08 Quarter: 2013-06-30
10-Q 2013-05-10 Quarter: 2013-03-31
10-K 2013-03-14 Annual: 2012-12-31
10-Q 2012-11-13 Quarter: 2012-09-30
10-Q 2012-08-13 Quarter: 2012-06-30
10-Q 2012-05-08 Quarter: 2012-03-31
10-K 2012-03-15 Annual: 2011-12-31
10-Q 2011-11-14 Quarter: 2011-09-30
10-Q 2011-08-09 Quarter: 2011-06-30
10-Q 2011-04-29 Quarter: 2011-03-31
10-K 2011-03-09 Annual: 2010-12-31
10-Q 2010-10-29 Quarter: 2010-09-30
10-Q 2010-08-02 Quarter: 2010-06-30
10-Q 2010-04-30 Quarter: 2010-03-31
10-K 2010-03-05 Annual: 2009-12-31
8-K 2019-11-04 Earnings, Exhibits
8-K 2019-08-05 Earnings, Exhibits
8-K 2019-05-15 Officers, Shareholder Vote, Exhibits
8-K 2019-05-03 Earnings, Exhibits
8-K 2019-02-08 Earnings, Exhibits
8-K 2018-11-02 Earnings, Exhibits
8-K 2018-08-06 Earnings, Exhibits
8-K 2018-05-16 Shareholder Vote
8-K 2018-05-08 Earnings, Exhibits
8-K 2018-02-07 Earnings, Exhibits
ITIC 2019-09-30
Part I. Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation and Significant Accounting Policies
Note 2 - Reserve for Claims
Note 3 - Earnings per Common Share and Share Awards
Note 4 - Segment Information
Note 5 - Retirement Agreements and Other Postretirement Benefits
Note 6 - Investments and Estimated Fair Value
Note 7 - Commitments and Contingencies
Note 8 - Related Party Transactions
Note 9 - Intangible Assets, Goodwill and Title Plant
Note 10 - Accumulated Other Comprehensive Income
Note 11 - Revenue From Contracts with Customers
Note 12 - Leases
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 itic_20190930xex-311.htm
EX-31.2 itic_20190930xex-312.htm
EX-32 itic_20190930xex-32.htm

Investors Title Earnings 2019-09-30

ITIC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
ARGO 2,388 10,167 8,238 1,497 0 117 209 2,785 0% 13.3 1%
EHTH 1,788 583 140 310 309 6 11 1,670 100% 151.4 1%
CRVL 1,543 428 224 595 127 48 91 1,439 21% 15.7 11%
STC 944 1,477 776 1,848 0 49 92 743 0% 8.1 3%
GSHD 757 38 69 73 0 12 20 786 0% 40.2 30%
ITIC 305 256 68 135 0 23 31 269 0% 8.7 9%
HIIQ 296 508 411 220 0 12 34 404 0% 12.0 2%
ARGD
BRP
ERIE 1,890 826 2,430 0 306 405 -239 0% -0.6 16%

10-Q 1 itic20190930-10q.htm 10-Q Document


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 September 30, 2019

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 Carolina
 
56-1110199
 
 
(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 class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, no par value
 
ITIC
 
The NASDAQ Stock Market LLC
Rights to Purchase Series A Junior Participating Preferred Stock
 
 
 
The 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.  (Check one):
 
Large accelerated filer
 
 
Accelerated filer
 
 
 
 
 
 
 
 
 
 
 
 
Non-accelerated filer
 
 
Smaller 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 October 18, 2019, there were 1,888,672 common shares of the registrant outstanding.




INVESTORS TITLE COMPANY
AND SUBSIDIARIES

INDEX
 
PART I.
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements:
 
 
 
 
 
Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
 
 
 
 
Consolidated Statements of Income For the Three and Nine Months Ended September 30, 2019 and 2018
 
 
 
 
Consolidated Statements of Comprehensive Income For the Three and Nine Months Ended September 30, 2019 and 2018
 

 
 
Consolidated Statements of Stockholders’ Equity For the Three and Nine Months Ended September 30, 2019 and 2018
 
 
 
 
Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2019 and 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 September 30, 2019 and December 31, 2018
(in thousands)
(unaudited)
 
September 30,
2019
 
December 31,
2018
Assets
 
 
 
Cash and cash equivalents
$
43,992

 
$
18,694

Investments:
 
 
 
Fixed maturity securities, available-for-sale, at fair value (amortized cost: September 30, 2019: $80,947; December 31, 2018: $87,714)
85,037

 
88,957

Equity securities, at fair value (cost: September 30, 2019: $32,332; December 31, 2018: $31,255)
55,785

 
48,489

Short-term investments
21,714

 
32,787

Other investments
12,689

 
12,436

Total investments
175,225

 
182,669

 
 
 
 
Premium and fees receivable
12,630

 
12,128

Accrued interest and dividends
1,161

 
946

Prepaid expenses and other receivables
6,676

 
7,288

Property, net
9,914

 
10,304

Goodwill and other intangible assets, net
10,401

 
10,780

Operating lease right-of-use assets
4,619

 

Other assets
1,496

 
1,459

Total Assets
$
266,114

 
$
244,268

 
 
 
 
Liabilities and Stockholders’ Equity
 

 
 

Liabilities:
 

 
 

Reserve for claims
$
31,805

 
$
31,729

Accounts payable and accrued liabilities
27,530

 
27,735

Operating lease liabilities
4,622

 

Current income taxes payable
142

 
4,981

Deferred income taxes, net
6,125

 
4,184

Total liabilities
70,224

 
68,629

 
 
 
 
Commitments and Contingencies

 

 
 
 
 
Stockholders’ Equity:
 

 
 

Preferred stock (1,000 authorized shares; no shares issued)

 

Common stock – no par value (10,000 authorized shares; 1,889 and 1,887 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively, excluding in each period 292 shares of common stock held by the Company)

 

Retained earnings
192,695

 
174,690

Accumulated other comprehensive income
3,195

 
949

Total stockholders' equity
195,890

 
175,639

Total Liabilities and Stockholders’ Equity
$
266,114

 
$
244,268


Refer to notes to the Consolidated Financial Statements.

1



Investors Title Company and Subsidiaries
Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 2019 and 2018
(in thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
 
Net premiums written
 
$
40,169

 
$
39,422

 
$
103,942

 
$
104,123

Escrow and other title-related fees
 
2,393

 
1,812

 
5,616

 
5,465

Non-title services
 
2,539

 
1,795

 
7,444

 
5,083

Interest and dividends
 
1,156

 
1,138

 
3,605

 
3,381

Other investment income
 
708

 
829

 
2,044

 
2,279

Net realized investment gains
 
423

 
188

 
1,199

 
629

Changes in the estimated fair value of equity security investments
 
406

 
2,920

 
6,218

 
2,626

Other
 
145

 
157

 
550

 
387

Total Revenues
 
47,939

 
48,261

 
130,618

 
123,973

 
 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
Commissions to agents
 
19,928

 
18,490

 
51,261

 
48,942

Provision for claims
 
987

 
997

 
3,610

 
155

Personnel expenses
 
11,576

 
11,096

 
34,871

 
33,234

Office and technology expenses
 
2,350

 
2,208

 
6,803

 
6,603

Other expenses
 
3,079

 
2,910

 
8,821

 
8,440

Total Operating Expenses
 
37,920

 
35,701

 
105,366

 
97,374

 
 
 
 
 
 
 
 
 
Income before Income Taxes
 
10,019

 
12,560

 
25,252

 
26,599

 
 
 
 
 
 
 
 
 
Provision for Income Taxes
 
2,067

 
1,927

 
5,174

 
4,873

 
 
 
 
 
 
 
 
 
Net Income
 
7,952

 
10,633

 
20,078

 
21,726

 
 
 
 
 
 
 
 
 
Net Loss Attributable to Noncontrolling Interests
 

 
1

 

 
31

 
 
 
 
 
 
 
 
 
Net Income Attributable to the Company
 
$
7,952

 
$
10,634

 
$
20,078

 
$
21,757

 
 
 
 
 
 
 
 
 
Basic Earnings per Common Share
 
$
4.21

 
$
5.64

 
$
10.63

 
$
11.53

 
 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding – Basic
 
1,889

 
1,887

 
1,888

 
1,886

 
 
 
 
 
 
 
 
 
Diluted Earnings per Common Share
 
$
4.20

 
$
5.61

 
$
10.59

 
$
11.47

 
 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding – Diluted
 
1,895

 
1,897

 
1,896

 
1,896


Refer to notes to the Consolidated Financial Statements.

2



Investors Title Company and Subsidiaries
Consolidated Statements of Comprehensive Income
For the Three and Nine Months Ended September 30, 2019 and 2018
(in thousands)
(unaudited)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2019
 
2018
 
2019
 
2018
Net income
 
$
7,952

 
$
10,633

 
$
20,078

 
$
21,726

Other comprehensive income (loss), before tax:
 
 
 
 
 
 
 
 
Net unrealized gain (loss) on investments arising during the period
 
431

 
(618
)
 
2,847

 
(2,536
)
Other comprehensive income (loss), before tax
 
431

 
(618
)
 
2,847

 
(2,536
)
Income tax expense (benefit) related to net unrealized gain (loss) on investments arising during the period
 
90

 
(131
)
 
601

 
(537
)
Net income tax expense (benefit) on other comprehensive income (loss)
 
90

 
(131
)
 
601

 
(537
)
Other comprehensive income (loss)
 
341

 
(487
)
 
2,246

 
(1,999
)
Comprehensive Income
 
$
8,293

 
$
10,146

 
$
22,324

 
$
19,727

Comprehensive loss attributable to noncontrolling interests
 

 
1

 

 
31

Comprehensive Income Attributable to the Company
 
$
8,293

 
$
10,147

 
$
22,324

 
$
19,758


Refer to notes to the Consolidated Financial Statements.

3



Investors Title Company and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the Three and Nine Months Ended September 30, 2019 and 2018
(in thousands, except per share amounts)
(unaudited)
 
Common Stock
 
Retained Earnings

 
Accumulated
Other
Comprehensive
Income

 
Noncontrolling
Interests

 
Total
Stockholders’
Equity

 
Shares
 
Amount
 
 
 
 
Balance, July 1, 2018
1,887

 
$

 
$
185,252

 
$
806

 
$
55

 
$
186,113

Net income attributable to the Company
 

 
 

 
10,634

 
 

 
 
 
10,634

Dividends paid ($0.40 per share)
 

 
 

 
(755
)
 
 

 
 
 
(755
)
Repurchases of common stock

 
 

 

 
 

 
 
 

Exercise of stock appreciation rights

 
 

 

 
 

 
 
 

Share-based compensation expense related to stock appreciation rights
 

 
 

 
89

 
 

 
 
 
89

Cumulative effect adjustment for adoption of new accounting standards
 
 
 
 

 

 
 
 

Other comprehensive loss
 

 
 

 
 

 
(487
)
 
 
 
(487
)
Distribution of equity to noncontrolling interests
 
 
 
 
 
 
 
 
(52
)
 
(52
)
Net loss attributable to noncontrolling interests
 
 
 
 
 
 
 
 
(1
)
 
(1
)
Balance, September 30, 2018
1,887

 
$

 
$
195,220

 
$
319

 
$
2

 
$
195,541

 
 
 
 
 
 
 
 
 
 
 
 
Balance, July 1, 2019
1,889

 
$

 
$
185,441

 
$
2,854

 
$

 
$
188,295

Net income attributable to the Company
 

 
 

 
7,952

 
 

 
 
 
7,952

Dividends paid ($0.40 per share)
 

 
 

 
(755
)
 
 

 
 
 
(755
)
Repurchases of common stock

 
 

 

 
 

 
 
 

Exercise of stock appreciation rights

 
 

 

 
 

 
 
 

Share-based compensation expense related to stock appreciation rights
 

 
 

 
57

 
 

 
 
 
57

Other comprehensive income
 

 
 

 
 

 
341

 
 
 
341

Balance, September 30, 2019
1,889

 
$

 
$
192,695

 
$
3,195

 
$

 
$
195,890



4



Consolidated Statements of Stockholders' Equity, continued

 
Common Stock
 
Retained Earnings

 
Accumulated
Other
Comprehensive
Income

 
Noncontrolling
Interests

 
Total
Stockholders’
Equity

 
Shares
 
Amount
 
 
 
 
Balance, January 1, 2018
1,886

 
$

 
$
161,891

 
$
15,945

 
$
85

 
$
177,921

Net income attributable to the Company
 

 
 

 
21,757

 
 

 
 
 
21,757

Dividends paid ($1.20 per share)
 

 
 

 
(2,264
)
 
 

 
 
 
(2,264
)
Repurchases of common stock

 
 

 
(29
)
 
 

 
 
 
(29
)
Exercise of stock appreciation rights
1

 
 

 
(1
)
 
 

 
 
 
(1
)
Share-based compensation expense related to stock appreciation rights
 

 
 

 
239

 
 

 
 
 
239

Cumulative effect adjustment for adoption of new accounting standards
 
 
 
 
13,627

 
(13,627
)
 
 
 

Other comprehensive loss
 

 
 

 
 

 
(1,999
)
 
 
 
(1,999
)
Distribution of equity to noncontrolling interests
 
 
 
 
 
 
 
 
(52
)
 
(52
)
Net loss attributable to noncontrolling interests
 
 
 
 
 
 
 
 
(31
)
 
(31
)
Balance, September 30, 2018
1,887

 
$

 
$
195,220

 
$
319

 
$
2

 
$
195,541

 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2019
1,887

 
$

 
$
174,690

 
$
949

 
$

 
$
175,639

Net income attributable to the Company
 

 
 

 
20,078

 
 

 
 
 
20,078

Dividends paid ($1.20 per share)
 

 
 

 
(2,266
)
 
 

 
 
 
(2,266
)
Repurchases of common stock

 
 

 
(11
)
 
 

 
 
 
(11
)
Exercise of stock appreciation rights
2

 
 

 

 
 

 
 
 

Share-based compensation expense related to stock appreciation rights
 

 
 

 
204

 
 

 
 
 
204

Other comprehensive income
 

 
 

 
 
 
2,246

 
 
 
2,246

Balance, September 30, 2019
1,889

 
$

 
$
192,695

 
$
3,195

 
$

 
$
195,890



Refer to notes to the Consolidated Financial Statements.

5



Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2019 and 2018
(in thousands)
(unaudited)
 
 
Nine Months Ended
September 30,
 
 
2019
 
2018
Operating Activities
 
 
 
 
Net income
 
$
20,078

 
$
21,726

Adjustments to reconcile net income to net cash provided by operating activities:
 
 

 
 

Depreciation
 
1,298

 
1,234

Amortization of investments, net
 
492

 
617

Amortization of other intangible assets, net
 
379

 
451

Share-based compensation expense related to stock appreciation rights
 
204

 
239

Net (gain) loss on disposals of property
 
(28
)
 
12

Net realized investment gains
 
(1,199
)
 
(629
)
Net change in estimated fair value of equity security investments
 
(6,218
)
 
(2,626
)
Net earnings from other investments
 
(1,286
)
 
(1,471
)
Provision for claims
 
3,610

 
155

Provision for deferred income taxes
 
1,340

 
3,134

Changes in assets and liabilities:
 
 

 
 

Increase in premium and fees receivables
 
(502
)
 
(2,557
)
Decrease (increase) in other assets
 
360

 
(69
)
Increase in operating lease right-of-use assets
 
(4,619
)
 

Increase in current income taxes receivable
 

 
(2,190
)
Decrease in accounts payable and accrued liabilities
 
(205
)
 
(128
)
Increase in operating lease liabilities
 
4,622

 

Decrease in current income taxes payable
 
(4,839
)
 

Payments of claims, net of recoveries
 
(3,534
)
 
(2,581
)
Net cash provided by operating activities
 
9,953

 
15,317

 
 
 
 
 
Investing Activities
 
 

 
 

Purchases of fixed maturities
 
(1,235
)
 

Purchases of equity securities
 
(3,921
)
 
(2,484
)
Purchases of short-term investments
 
(89,519
)
 
(44,403
)
Purchases of other investments
 
(1,456
)
 
(730
)
Proceeds from sales and maturities of fixed maturity securities
 
7,280

 
8,155

Proceeds from sales of equity securities
 
4,040

 
1,728

Proceeds from sales and maturities of short-term investments
 
100,821

 
40,697

Proceeds from sales and distributions of other investments
 
2,490

 
2,238

Proceeds from sales of other assets
 
2

 
3

Purchases of property
 
(1,020
)
 
(1,580
)
Proceeds from the sale of property
 
140

 
53

Net cash provided by investing activities
 
17,622

 
3,677

 
 
 
 
 
Financing Activities
 
 

 
 

Repurchases of common stock
 
(11
)
 
(29
)
Exercise of stock appreciation rights
 

 
(1
)
Distribution of equity for noncontrolling interest
 

 
(52
)
Dividends paid
 
(2,266
)
 
(2,264
)
Net cash used in financing activities
 
(2,277
)
 
(2,346
)
 
 
 
 
 
Net Increase in Cash and Cash Equivalents
 
25,298

 
16,648

Cash and Cash Equivalents, Beginning of Period
 
18,694

 
20,214

Cash and Cash Equivalents, End of Period
 
$
43,992

 
$
36,862


6




Consolidated Statements of Cash Flows, continued
 
 
 
 
Nine Months Ended
September 30,
 
 
2019
 
2018
Supplemental Disclosures:
 
 
 
 
Cash Paid During the Year for:
 
 
 
 
Income tax payments, net
 
$
9,150

 
$
5,477

Non Cash Investing and Financing Activities:
 
 
 
 
Non cash net unrealized (gain) loss on investments, net of deferred tax (provision) benefit
of $(601) and $537 for September 30, 2019 and 2018, respectively
 
$
(2,246
)
 
$
1,999


Refer to notes to the Consolidated Financial Statements.

7



INVESTORS TITLE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2019
(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, 2018 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 financial statements have been condensed or omitted. Earnings attributable to noncontrolling interests in majority-owned title insurance agencies are recorded in the Consolidated Statements of Income. 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 nine-month periods ended September 30, 2019 are not necessarily indicative of the financial condition and results that may be expected for the year ending December 31, 2019 or any other interim period.

Use of Estimates and Assumptions – The preparation of the Company’s 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 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 Consolidated Financial Statements.

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). ASU 2016-02 updated guidance to improve financial reporting for leasing transactions. The core principle of the guidance is that lessees will be required to recognize assets and liabilities on the balance sheet for all leases with terms of more than twelve months. A lessee will recognize a liability to make lease payments and a right-of-use ("ROU") asset representing its right to use the underlying asset for the lease term. Disclosures are required by lessees to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. In transition, lessees are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, with certain practical expedients available. The update was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this update on January 1, 2019 with no material impact on the Company's Consolidated Statements of Income or the Consolidated Statements of Cash Flows. The update did have a material impact on the Company's Consolidated Balance Sheets, which included the recognition of operating lease ROU assets and operating lease liabilities. Refer to Note 12 and the Significant Accounting Policies section, below, for further information regarding the Company's accounting for leases.

In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. ASU 2017-08 is intended to enhance the accounting for the amortization of premiums for purchased callable debt securities. Specifically, the ASU shortens the amortization period for certain investments in callable debt securities purchased at a premium by requiring that the premium be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The update was effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. The Company adopted this update on January 1, 2019 with no impact on the Company's financial position and results of operations.


8



Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). ASU 2016-13 is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The update broadens the information that an entity must consider in developing its expected credit loss estimates, and is meant to better reflect an entity’s current estimate of all expected credit losses. In addition, this update amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The update is effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years.  Early adoption is permitted as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact that the recently issued accounting standard will have on the Company's financial position and results of operations, but does not expect it to have a material impact. Currently, the Company's potential credit losses under this accounting standard relate to fixed maturity securities. The Company does not believe that the risk of credit losses, based on current fixed maturity securities holdings, is material to the Company's financial statements as a whole. Refer to Note 6 for further information about the Company's investments.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350). This update removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under the ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, the ASU clarifies that an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The update is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. None of these amendments are expected to have a material impact on the Company's financial position or results of operations.

Significant Accounting Policies – The Company has updated the following accounting policies due to the adoption of ASU 2016-02, Leases (Topic 842):

At inception, the Company determines if an arrangement is a lease. The Company enters into lease agreements that are primarily used for office space, and all current leases are accounted for as operating leases. Amounts related to operating leases are included in operating lease ROU assets and operating lease liabilities on the Company's Consolidated Balance Sheets. Operating lease ROU assets represent the Company’s right to use an underlying asset for the stated lease term. Operating lease liabilities represent the Company’s obligation to make lease payments arising from an operating lease. Operating lease ROU assets and liabilities are recognized at the date of the lease commencement, and are based on the present value of lease payments over the lease term. In addition, the Company elected certain practical expedients and therefore (a) chose not to reassess whether any expired or existing contracts are, or contain, leases, (b) chose not to reassess the lease classification for any expired or existing leases, and (c) chose not to reassess initial direct costs for any expired or existing leases. The Company's current leases do not provide an implicit interest rate, thus the Company utilized the average rate over a 10-year term based upon the Moody's seasoned Aaa corporate bond yields in determining the present value of lease payments. A portion of the Company's current leases includes an option to extend or cancel the lease term. The exercise of such an option is solely at the Company's discretion. The operating lease liability recorded in the Consolidated Balance Sheets includes lease payments related to options to extend or cancel the lease term if the Company determined at the date of adoption that the lease was expected to be renewed or extended. A lease expense is recognized on a straight-line basis over the lease term. Adjustments for straight-line rental expense for the periods presented are not material and as such, the lease expense recognized was reflected in cash used in operating activities for the respective periods. Refer to Note 12 for further information about the Company's leases.

Note 2 – Reserve for Claims

Activity in the reserve for claims for the nine-month period ended September 30, 2019 and the year ended December 31, 2018 are summarized as follows:
 (in thousands)
September 30, 2019
 
December 31, 2018
Balance, beginning of period
$
31,729

 
$
34,801

Provision (benefit), charged to operations
3,610

 
(332
)
Payments of claims, net of recoveries
(3,534
)
 
(2,740
)
Balance, end of period
$
31,805

 
$
31,729



9



The total reserve for all reported and unreported losses the Company incurred through September 30, 2019 is represented by the reserve for claims on the 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 September 30, 2019. 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.

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)
September 30, 2019
 
%
 
December 31, 2018
 
%
Known title claims
$
3,587

 
11.3
 
$
3,007

 
9.5
IBNR
28,218

 
88.7
 
28,722

 
90.5
Total reserve for claims
$
31,805

 
100.0
 
$
31,729

 
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 attributable to the Company by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed by dividing net income attributable to the Company 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, as share-based awards are 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 nine-month periods ended September 30:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(in thousands, except per share amounts)
 
2019
 
2018
 
2019
 
2018
Net income attributable to the Company
 
$
7,952

 
$
10,634

 
$
20,078

 
$
21,757

Weighted average common shares outstanding – Basic
 
1,889

 
1,887

 
1,888

 
1,886

Incremental shares outstanding assuming the exercise of dilutive SARs (share-settled)
 
6

 
10

 
8

 
10

Weighted average common shares outstanding – Diluted
 
1,895

 
1,897

 
1,896

 
1,896

Basic earnings per common share
 
$
4.21

 
$
5.64

 
$
10.63

 
$
11.53

Diluted earnings per common share
 
$
4.20

 
$
5.61

 
$
10.59

 
$
11.47


There were 14 thousand potential shares excluded from the computation of diluted earnings per share for the three- and nine-month periods ended September 30, 2019, respectively. There were 9 thousand and 4 thousand potential shares excluded from the computation of diluted earnings per share for the three- and nine-month periods ended September 30, 2018, respectively.

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.

As of September 30, 2019, the only outstanding awards under the plans were SARs, which expire seven years from the date of grant, and all of which vest and are exercisable within one year of the date of grant. 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.


10



There was approximately $205 thousand and $239 thousand of compensation expense relating to SARs vesting on or before September 30, 2019 and 2018, respectively, included in personnel expenses in the Consolidated Statements of Income. As of September 30, 2019, there was $117 thousand of unrecognized compensation expense related to unvested share-based compensation arrangements granted under the Company’s stock award plans.

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, 2018
25

 
$
93.40

 
3.98
 
2,624

SARs granted
4

 
188.71

 
 
 
 

SARs exercised
(1
)
 
41.50

 
 
 
 

Outstanding as of December 31, 2018
28

 
$
110.27

 
3.64
 
2,019

SARs granted
4

 
162.81

 
 
 
 

SARs exercised
(2
)
 
50.50

 
 
 
 

Outstanding as of September 30, 2019
30

 
$
124.13

 
3.78
 
1,367

 
 
 
 
 
 
 
 
Exercisable as of September 30, 2019
28

 
$
120.99

 
3.55
 
1,367

 
 
 
 
 
 
 
 
Unvested as of September 30, 2019
2

 
$
162.81

 
6.63
 


During the second quarters of 2019 and 2018, the Company issued 4 thousand share-settled SARs, respectively, to the directors of the Company.  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.  The fair value of each award is estimated on the date of grant using the Black-Scholes option valuation model with the weighted average assumptions noted in the table shown below. 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 values for the SARs issued during 2019 and 2018 were $51.88 and $78.61, respectively, and were estimated using the weighted average assumptions shown in the table below.
 
2019
 
2018
Expected Life in Years
7.0
 
7.0
Volatility
30.2%
 
39.0%
Interest Rate
2.3%
 
3.1%
Yield Rate
1.0%
 
0.8%


11



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.

Provided below is selected financial information about the Company's operations by segment for the periods ended September 30, 2019 and 2018:
Three Months Ended September 30, 2019 (in thousands)
Title
Insurance
 
All
Other
 
Intersegment
Eliminations
 
Total
Insurance and other services revenues
$
44,079

 
$
2,851

 
$
(1,684
)
 
$
45,246

Investment income
1,879

 
391

 

 
2,270

Net realized gain on investments
346

 
77

 

 
423

Total revenues
$
46,304

 
$
3,319

 
$
(1,684
)
 
$
47,939

Operating expenses
37,201

 
2,269

 
(1,550
)
 
37,920

Income before income taxes
$
9,103

 
$
1,050

 
$
(134
)
 
$
10,019

Total assets
$
191,436

 
$
74,678

 
$

 
$
266,114

Three Months Ended September 30, 2018 (in thousands)
Title
Insurance
 
All
Other
 
Intersegment
Eliminations
 
Total
Insurance and other services revenues
$
42,891

 
$
2,120

 
$
(1,825
)
 
$
43,186

Investment income
4,247

 
640

 

 
4,887

Net realized gain on investments
141

 
47

 

 
188

Total revenues
$
47,279

 
$
2,807

 
$
(1,825
)
 
$
48,261

Operating expenses
35,359

 
2,033

 
(1,691
)
 
35,701

Income before income taxes
$
11,920

 
$
774

 
$
(134
)
 
$
12,560

Total assets
$
212,181

 
$
54,395

 
$

 
$
266,576

Nine Months Ended September 30, 2019 (in thousands)
Title
Insurance
 
All
Other
 
Intersegment
Eliminations
 
Total
Insurance and other services revenues
$
113,999

 
$
8,373

 
$
(4,820
)
 
$
117,552

Investment income
9,780

 
2,087

 

 
11,867

Net realized gain on investments
1,102

 
97

 

 
1,199

Total revenues
$
124,881

 
$
10,557

 
$
(4,820
)
 
$
130,618

Operating expenses
102,792

 
6,991

 
(4,417
)
 
105,366

Income before income taxes
$
22,089

 
$
3,566

 
$
(403
)
 
$
25,252

Total assets
$
191,436

 
$
74,678

 
$

 
$
266,114

Nine Months Ended September 30, 2018 (in thousands)
Title
Insurance
 
All
Other
 
Intersegment
Eliminations
 
Total
Insurance and other services revenues
$
113,992

 
$
6,006

 
$
(4,940
)
 
$
115,058

Investment income
6,986

 
1,300

 

 
8,286

Net realized gain on investments
548

 
81

 

 
629

Total revenues
$
121,526

 
$
7,387

 
$
(4,940
)

$
123,973

Operating expenses
95,575

 
6,337

 
(4,538
)
 
97,374

Income before income taxes
$
25,951

 
$
1,050

 
$
(402
)
 
$
26,599

Total assets
$
212,181

 
$
54,395

 
$

 
$
266,576



12



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 $12.1 million and $10.9 million as of September 30, 2019 and December 31, 2018, 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 Consolidated Balance Sheets. The following sets forth the net periodic benefit cost for the executive benefits for the periods ended September 30, 2019 and 2018:
 
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
 (in thousands)
 
2019
 
2018
2019
 
2018
Service cost – benefits earned during the year
 
$

 
$

$

 
$

Interest cost on the projected benefit obligation
 
8

 
8

25

 
24

Amortization of unrecognized losses
 

 


 

Net periodic benefit cost
 
$
8

 
$
8

$
25

 
$
24


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 September 30, 2019 (in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated Fair
Value
Fixed maturity securities, available-for-sale, at fair value:
 
 
 
 
 
 
 
Government obligations
$
1,008

 
$

 
$
2

 
$
1,006

General obligations of U.S. states, territories and political subdivisions
19,946

 
859

 

 
20,805

Special revenue issuer obligations of U.S. states, territories and political subdivisions
53,240

 
2,626

 
13

 
55,853

Corporate debt securities
6,753

 
620

 

 
7,373

Total
$
80,947

 
$
4,105

 
$
15

 
$
85,037

As of December 31, 2018 (in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated Fair
Value
Fixed maturity securities, available-for-sale, at fair value:
 
 
 
 
 
 
 
Government obligations
$
1,023

 
$

 
$
7

 
$
1,016

General obligations of U.S. states, territories and political subdivisions
19,518

 
229

 
143

 
19,604

Special revenue issuer obligations of U.S. states, territories and political subdivisions
56,675

 
1,237

 
329

 
57,583

Corporate debt securities
10,498

 
303

 
47

 
10,754

Total
$
87,714

 
$
1,769

 
$
526

 
$
88,957


The special revenue category for both periods presented includes approximately 60 individual fixed maturity securities with revenue sources from a variety of industry sectors.


13



The scheduled maturities of fixed maturity securities at September 30, 2019 are as follows:
 
Available-for-Sale
(in thousands)
Amortized
Cost
 
Estimated Fair
Value
Due in one year or less
$
12,677

 
$
12,728

Due one year through five years
34,842

 
36,646

Due five years through ten years
32,505

 
34,274

Due after ten years
923

 
1,389

Total
$
80,947

 
$
85,037


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 September 30, 2019 and December 31, 2018:
 
Less than 12 Months
 
12 Months or Longer
 
Total
As of September 30, 2019 (in thousands)
Estimated
Fair
Value
 
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
Losses
Government obligations
$
1,006

 
$
(2
)
 
$

 
$

 
$
1,006

 
$
(2
)
Special revenue issuer obligations of U.S. states, territories and political subdivisions
2,160

 
(12
)
 
1,126

 
(1
)
 
3,286

 
(13
)
Total temporarily impaired securities
$
3,166

 
$
(14
)
 
$
1,126

 
$
(1
)
 
$
4,292

 
$
(15
)
 
Less than 12 Months
 
12 Months or Longer
 
Total
As of December 31, 2018 (in thousands)
Estimated
Fair
Value
 
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
Losses
 
Estimated
Fair
Value
 
Unrealized
Losses
Government obligations
$
1,016

 
$
(7
)
 
$

 
$

 
$
1,016

 
$
(7
)
General obligations of U.S. states, territories and political subdivisions
4,888

 
(32
)
 
6,469

 
(111
)
 
11,357

 
(143
)
Special revenue issuer obligations of U.S. states, territories and political subdivisions
12,326

 
(100
)
 
9,720

 
(229
)
 
22,046

 
(329
)
Corporate debt securities
4,490

 
(28
)
 
3,733

 
(19
)
 
8,223

 
(47
)
Total temporarily impaired securities
$
22,720

 
$
(167
)
 
$
19,922

 
$
(359
)
 
$
42,642

 
$
(526
)

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. Because the Company does not have the intent to sell these securities and will likely not be compelled to sell them before it can recover its cost basis, the Company does not consider these investments to be other-than-temporarily impaired.

Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been below cost, the financial condition and prospects of the issuer (including credit ratings and analyst reports) and macro-economic changes. A total of 6 and 51 fixed maturity securities had unrealized losses at September 30, 2019 and December 31, 2018, respectively. Reviews of the values of 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 no other-than-temporary impairment charges related to fixed maturity securities for the nine-month periods ended September 30, 2019 and 2018. In the event the Company determines an other-than-temporary impairment charge is necessary, the expense would be recorded in net realized investment gains in the Consolidated Statements of Income when recognized.


14



Investments in Equity Securities

The cost and estimated fair value of equity securities are as follows:
As of September 30, 2019 (in thousands)
Cost
 
Estimated Fair
Value
Equity securities, at fair value:
 

 
 

Common stocks
$
32,332

 
$
55,785

Total
$
32,332

 
$
55,785

As of December 31, 2018 (in thousands)
Cost
 
Estimated Fair
Value
Equity securities, at fair value:
 

 
 

Common stocks
$
31,255

 
$
48,489

Total
$
31,255

 
$
48,489


Unrealized holding gains and losses are reported in the Consolidated Statements of Income as changes in the estimated fair value of equity security investments.

Net Realized Investment Gains

Gross realized gains and losses on sales of investments for the nine-month periods ended September 30 are summarized as follows:
(in thousands)
2019
 
2018
Gross realized gains from securities:
 

 
 

Special revenue issuer obligations of U.S. states, territories and political subdivisions
$

 
$

Corporate debt securities

 

Common stocks
1,385

 
688

Total
$
1,385

 
$
688

Gross realized losses from securities:
 

 
 

General obligations of U.S. states, territories and political subdivisions
$

 
$

Special revenue issuer obligations of U.S. states, territories and political subdivisions

 

Common stocks
(188
)
 
(63
)
Other-than-temporary impairment of securities

 

Total
$
(188
)
 
$
(63
)
Net realized gains from securities
$
1,197

 
$
625

Net realized gains on other investments:
 
 
 
Gains on other investments
$
2

 
$
4

Total
$
2

 
$
4

Net realized investment gains
$
1,199

 
$
629


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


15



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. 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 September 30, 2019: