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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 March 31, 2024

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 April 24, 2024, there were 1,883,860 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 March 31, 2024 and December 31, 2023
 
 
Consolidated Statements of Operations For the Three Months Ended March 31, 2024 and 2023
 
 
Consolidated Statements of Comprehensive Income For the Three Months Ended March 31, 2024 and 2023
 
 
Consolidated Statements of Stockholders’ Equity For the Three Months Ended March 31, 2024 and 2023
 
 
Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2024 and 2023
 
 
  
  
  
  
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 March 31, 2024 and December 31, 2023
(in thousands)
(unaudited)
 March 31,
2024
December 31,
2023
Assets  
Cash and cash equivalents$21,613 $24,031 
Investments:  
Fixed maturity securities, available-for-sale, at fair value (amortized cost: March 31, 2024: $62,277; December 31, 2023: $63,106)
62,647 63,847 
Equity securities, at fair value (cost: March 31, 2024: $22,647; December 31, 2023: $22,981)
36,708 37,212 
Short-term investments
113,379 110,224 
Other investments
21,758 17,385 
Total investments
234,492 228,668 
Premiums and fees receivable 12,911 13,338 
Accrued interest and dividends1,090 978 
Prepaid expenses and other receivables8,843 13,525 
Property, net25,325 23,886 
Goodwill and other intangible assets, net15,910 16,249 
Lease assets6,679 6,303 
Other assets2,631 2,500 
Current income taxes recoverable 1,081 
Total Assets
$329,494 $330,559 
Liabilities and Stockholders’ Equity  
Liabilities:  
Reserve for claims
$37,316 $37,147 
Accounts payable and accrued liabilities
27,732 31,864 
Lease liabilities6,828 6,449 
Current income taxes payable
282  
Deferred income taxes, net
3,374 3,546 
Total liabilities
75,532 79,006 
Commitments and Contingencies  
Stockholders’ Equity:  
Preferred stock (1,000 authorized shares; no shares issued)
  
Common stock – no par value (10,000 authorized shares; 1,884 and 1,891 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively, excluding in each period 292 shares of common stock held by the Company)
  
Retained earnings
253,616 250,915 
Accumulated other comprehensive income 346 638 
Total stockholders' equity
253,962 251,553 
Total Liabilities and Stockholders’ Equity
$329,494 $330,559 

Refer to notes to the Consolidated Financial Statements.
1


Investors Title Company and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended March 31, 2024 and 2023
(in thousands, except per share amounts)
(unaudited)
 Three Months Ended
March 31,
 20242023
Revenues:
Net premiums written$40,180 $38,966 
Escrow and other title-related fees3,723 3,655 
Non-title services4,304 5,312 
Interest and dividends2,520 2,074 
Other investment income 111 753 
Net investment gains 2,422 443 
Other199 140 
Total Revenues53,459 51,343 
Operating Expenses:
Commissions to agents19,870 19,326 
Provision for claims910 1,068 
Personnel expenses18,582 20,820 
Office and technology expenses4,465 4,400 
Other expenses3,835 4,168 
Total Operating Expenses47,662 49,782 
Income before Income Taxes5,797 1,561 
Provision for Income Taxes1,272 380 
Net Income $4,525 $1,181 
Basic Earnings per Common Share$2.40 $0.62 
Weighted Average Shares Outstanding – Basic1,888 1,897 
Diluted Earnings per Common Share$2.40 $0.62 
Weighted Average Shares Outstanding – Diluted1,889 1,897 

Refer to notes to the Consolidated Financial Statements.
2


Investors Title Company and Subsidiaries
Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31, 2024 and 2023
(in thousands)
(unaudited)
 Three Months Ended
March 31,
 20242023
Net income $4,525 $1,181 
Other comprehensive (loss) income, before income tax:
Accumulated postretirement benefit obligation adjustment 141 
Net unrealized (losses) gains on investments arising during the period(424)233 
Reclassification adjustment for write-down of securities included in net income 53 82 
Other comprehensive (loss) income, before income tax(371)456 
Income tax expense related to postretirement health benefits 30 
Income tax (benefit) expense related to net unrealized (losses) gains on investments arising during the period(91)47 
Income tax expense related to reclassification adjustment for write-down of securities included in net income 12 19 
Net income tax (benefit) expense on other comprehensive (loss) income(79)96 
Other comprehensive (loss) income(292)360 
Comprehensive Income $4,233 $1,541 

Refer to notes to the Consolidated Financial Statements.
3


Investors Title Company and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the Three Months Ended March 31, 2024 and 2023
(in thousands, except per share amounts)
(unaudited)


Common StockRetained EarningsAccumulated Other Comprehensive Income Total
Stockholders’
Equity
SharesAmount
Balance, December 31, 2022
1,897 $ $240,811 $200 $241,011 
Net income1,181 1,181 
Dividends paid ($0.46 per share)
(873)(873)
Exercise of stock appreciation rights
1   
Share-based compensation expense related to stock appreciation rights
159 159 
Accumulated postretirement benefit obligation adjustment111 111 
Net unrealized gain on investments249 249 
Balance, March 31, 2023
1,898 $ $241,278 $560 $241,838 
Balance, December 31, 2023
1,891 $ $250,915 $638 $251,553 
Net income4,525 4,525 
Dividends paid ($0.46 per share)
(867)(867)
Shares of common stock repurchased and retired(7)(1,053)(1,053)
Share-based compensation expense related to stock appreciation rights
96 96 
Net unrealized loss on investments(292)(292)
Balance, March 31, 2024
1,884 $ $253,616 $346 $253,962 

Refer to notes to the Consolidated Financial Statements.
4


Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2024 and 2023
(in thousands)
(unaudited)
 Three Months Ended
March 31,
 20242023
Operating Activities  
Net income$4,525 $1,181 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
Depreciation787 639 
Accretion of investments, net(1,232)(865)
Amortization of other intangible assets, net339 332 
Share-based compensation expense related to stock appreciation rights96 159 
Net (gain) loss on disposals of property(13)50 
Net investment gains(2,422)(443)
Net losses (earnings) from other investments14 (568)
Provision for claims910 1,068 
Benefit for deferred income taxes(92)(1,910)
Changes in assets and liabilities:  
Decrease in premium and fees receivable427 2,220 
Decrease (increase) in other assets3,354 (265)
(Increase) decrease in lease assets(376)36 
Decrease in current income taxes receivable1,081 1,174 
Decrease in accounts payable and accrued liabilities(5,881)(15,693)
Increase (decrease) in lease liabilities379 (13)
Increase in current income taxes payable282 1,148 
Payments of claims, net of recoveries(741)(1,342)
Net cash provided by (used in) operating activities1,437 (13,092)
Investing Activities  
Purchases of fixed maturity securities(757)(2,705)
Purchases of equity securities(2,470)(3,627)
Purchases of short-term investments(32,751)(18,800)
Purchases of other investments(5,178)(970)
Proceeds from sales and maturities of fixed maturity securities1,625 4,712 
Proceeds from sales of equity securities5,323 13,090 
Proceeds from sales and maturities of short-term investments31,107 17,654 
Proceeds from sales and distributions of other investments3,379 913 
Purchases of property(2,230)(2,301)
Proceeds from the sale of property17 243 
Net cash (used in) provided by investing activities(1,935)8,209 
Financing Activities  
Repurchases of common stock(1,053) 
Dividends paid(867)(873)
Net cash used in financing activities(1,920)(873)
Net Decrease in Cash and Cash Equivalents(2,418)(5,756)
Cash and Cash Equivalents, Beginning of Period24,031 35,311 
Cash and Cash Equivalents, End of Period$21,613 $29,555 
5


Consolidated Statements of Cash Flows, continued 
 Three Months Ended
March 31,
 20242023
Supplemental Disclosures:  
Cash Paid During the Year for:  
Income tax payments (refunds), net$1 $(32)
Non-Cash Investing and Financing Activities:
Non-cash net unrealized loss (gain) on investments, net of deferred tax benefit (provision) of $79 and $(66) for March 31, 2024 and 2023, respectively
$292 $(249)
Adjustments to postretirement benefits obligation, net of deferred tax expense of $0 and $(30) for March 31, 2024 and 2023, respectively
$ $(111)
    


Refer to notes to the Consolidated Financial Statements.
6


INVESTORS TITLE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2024
(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, 2023 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-month period ended March 31, 2024 are not necessarily indicative of the financial condition and results that may be expected for the year ending December 31, 2024 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 through the date of this filing 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 three-month period ended March 31, 2024 and the year ended December 31, 2023 is summarized as follows:
 (in thousands)March 31, 2024December 31, 2023
Balance, beginning of period$37,147 $37,192 
Provision charged to operations910 4,762 
Payments of claims, net of recoveries(741)(4,807)
Balance, end of period
$37,316 $37,147 

The total reserve for all reported and unreported losses the Company incurred through March 31, 2024 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 March 31, 2024. 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.

7


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)March 31, 2024%December 31, 2023%
Known title claims$3,216 8.6 $2,855 7.7 
IBNR34,100 91.4 34,292 92.3 
Total reserve for claims
$37,316 100.0 $37,147 100.0 

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-month periods ended March 31:
Three Months Ended
March 31,
(in thousands, except per share amounts)
20242023
Net income $4,525 $1,181 
Weighted average common shares outstanding – Basic1,888 1,897 
Incremental shares outstanding assuming the exercise of dilutive SARs (share-settled)
1  
Weighted average common shares outstanding – Diluted
1,889 1,897 
Basic earnings per common share$2.40 $0.62 
Diluted earnings per common share$2.40 $0.62 

There were 23 thousand and 24 thousand potential shares excluded from the computation of diluted earnings per share for the three-month periods ended March 31, 2024 and 2023, 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 and one legacy plan under which equity awards remain outstanding. 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 March 31, 2024, 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.

8


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, 2023
39 $159.39 4.10$243 
SARs granted5 142.88   
SARs exercised(2)93.87   
Outstanding as of December 31, 202342 $160.83 3.69$428 
SARs granted    
SARs exercised    
Outstanding as of March 31, 202442 $160.83 3.44$451 
Exercisable as of March 31, 202436 $163.77 3.22$331 
Unvested as of March 31, 20246 $143.79 4.70$120 

During the first quarter of 2024, the Company did not issue share-settled SARs to key employees or directors of the Company. During the first quarter of 2023, there was an issuance of 1 thousand share-settled SARs to a director of the Company. The fair value of each SAR 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.

There was approximately $96 thousand and $159 thousand of compensation expense relating to SARs vesting on or before March 31, 2024 and 2023, respectively, included in personnel expenses in the unaudited Consolidated Statements of Operations. As of March 31, 2024, there was $311 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 two reportable segments, title insurance and exchange 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.

The tax-deferred exchange services segment acts as an intermediary in tax-deferred exchanges of property held for productive use in a trade or business or for investments and serves as exchange accommodation titleholder, holding property for exchangers in reverse exchange transactions.

9


Provided below is selected financial information about the Company's operations by segment for the periods ended March 31, 2024 and 2023:

Three Months Ended
March 31, 2024 (in thousands)
Title
Insurance
Exchange ServicesAll
Other
Intersegment EliminationsTotal
Insurance and other services revenues$47,728 $2,780 $1,910 $(4,012)$48,406 
Net investment income3,652 68 1,333  5,053 
Total revenues
$51,380 $2,848 $3,243 $(4,012)$53,459 
Operating expenses48,560 670 2,272 (3,840)47,662 
Income before income taxes$2,820 $2,178 $971 $(172)$5,797 
Total assets$215,375 $7,523 $106,596 $ $329,494 
Three Months Ended
March 31, 2023 (in thousands)
Title
Insurance
Exchange ServicesAll
Other
Intersegment EliminationsTotal
Insurance and other services revenues$46,166 $3,854 $1,889 $(3,836)$48,073 
Net investment income2,527 34 709  3,270 
Total revenues
$48,693 $3,888 $2,598 $(3,836)$51,343 
Operating expenses50,724 608 2,115 (3,665)49,782 
(Loss) income before income taxes$(2,031)$3,280 $483 $(171)$1,561 
Total assets$231,894 $5,903 $86,000 $ $323,797 

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 $15.2 million as of March 31, 2024 and December 31, 2023. The executive employee benefits include health, dental, vision and life insurance and are unfunded. These amounts are classified as accounts payable and accrued liabilities in the unaudited Consolidated Balance Sheets. The following sets forth the net periodic benefit cost for the executive benefits for the periods ended March 31, 2024 and 2023:
Three Months Ended
March 31,
 (in thousands)20242023
Service cost – benefits earned during the year$ $ 
Interest cost on the projected benefit obligation11 10 
Amortization of unrecognized gain (7)
Net periodic benefit cost$11 $3 

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 March 31, 2024 (in thousands)Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
Fixed maturity securities, available-for-sale, at fair value:    
 Government obligations$738 $ $ $738 
General obligations of U.S. states, territories and political subdivisions
9,389 17 (55)9,351 
Special revenue issuer obligations of U.S. states, territories and political subdivisions
24,833 100 (67)24,866 
Corporate debt securities27,317 430 (55)27,692 
Total
$62,277 $547 $(177)$62,647 
As of December 31, 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$2,220 $2 $(2)$2,220 
General obligations of U.S. states, territories and political subdivisions
9,419 64 (24)9,459 
Special revenue issuer obligations of U.S. states, territories and political subdivisions
24,908 145 (66)24,987 
Corporate debt securities26,559 655 (33)27,181 
Total
$63,106 $866 $(125)$63,847 

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

The scheduled maturities of fixed maturity securities at March 31, 2024 are as follows:
 Available-for-Sale
(in thousands)Amortized
Cost
Estimated Fair
Value
Due in one year or less$8,180 $8,202 
Due one year through five years27,601 27,617 
Due five years through ten years18,216 18,306 
Due after ten years8,280 8,522 
Total
$62,277 $62,647 

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

11


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 March 31, 2024 and December 31, 2023, respectively:
 Less than 12 Months12 Months or LongerTotal
As of March 31, 2024 (in thousands)Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
General obligations of U.S. states, territories and political subdivisions$3,276 $(18)$2,692 $(37)$5,968 $(55)
Special revenue issuer obligations of U.S. states, territories and political subdivisions
11,709 (26)2,844 (41)14,553 (67)
Corporate debt securities5,832 (46)1,230 (9)7,062 (55)
Total $20,817 $(90)$6,766 $(87)$27,583 $(177)
 Less than 12 Months12 Months or LongerTotal
As of December 31, 2023 (in thousands)Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair
Value
Unrealized
Losses
Government obligations$1,488 $(2)$ $ $1,488 $(2)
General obligations of U.S. states, territories and political subdivisions5,925 (23)101 (1)6,026 (24)
Special revenue issuer obligations of U.S. states, territories and political subdivisions
7,124 (16)3,085 (50)10,209 (66)
Corporate debt securities
6,052 (29)296 (4)6,348 (33)
Total$20,589 $(70)$3,482 $(55)$24,071 $(125)

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 59 and 51 fixed maturity securities had unrealized losses at March 31, 2024 and December 31, 2023, 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.

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 $53 thousand and $82 thousand in impairment charges related to fixed maturity securities for the three-month periods ended March 31, 2024, and 2023, respectively. Expenses related to impairments are recorded in net investment gains 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 March 31, 2024 (in thousands)
CostEstimated Fair
Value
Equity securities, at fair value:  
Common stocks$22,647 $36,708 
Total
$22,647 $36,708 
12


As of December 31, 2023 (in thousands)
CostEstimated Fair
Value
Equity securities, at fair value:  
Common stocks$22,981 $37,212 
Total
$22,981 $37,212 

Unrealized holding gains and losses are reported in the unaudited Consolidated Statements of Operations as net investment gains.

Net Investment Gains

Gross investment gains and losses for the three-month periods ended March 31, 2024 and 2023 are summarized as follows:
Three Months Ended
March 31,
(in thousands)20242023
Gross realized gains from securities:  
Common stocks
$2,807 $7,483 
Total
$2,807 $7,483 
Gross realized losses from securities:  
Common stocks
$(162)$(121)
Write-down of securities (53)(82)
Total
$(215)$(203)
Net realized gains from securities$2,592 $7,280 
Gross realized losses on other investments:
    Losses on other investments$ $(47)
Total
$ $(47)
Net realized investment gains $2,592 $7,233 
Changes in the estimated fair value of equity security investments$(170)$(6,790)
Net investment gains$2,422 $443 

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

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 March 31, 2024:
(in thousands)Balance Sheet ClassificationCarrying ValueEstimated Fair ValueMaximum Potential Loss (a)
Real estate LLCs or LPsOther investments$12,751 $14,000 $18,060 
Small business investment LPsOther investments197 197 80 
Total
$12,948 $14,197 $18,140 
(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.

13


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 March 31, 2024 and December 31, 2023, 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.
 
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 and are included in prepaid expenses and other receivables in the unaudited Consolidated Balance Sheets. The amortized cost 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.
14


 
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 March 31, 2024 and December 31, 2023:
As of March 31, 2024 (in thousands)Level 1Level 2 *Level 3Total
Fixed maturity securities:    
Obligations of U.S. states, territories and political subdivisions$738 $34,217 $ $34,955 
Corporate debt securities 27,692  27,692 
Total
$738 $61,909 $ $62,647 
As of December 31, 2023 (in thousands)Level 1Level 2 *Level 3Total
Fixed maturity securities:
Obligations of U.S. states, territories and political subdivisions$2,220 $34,446 $ $36,666 
Corporate debt securities 27,181  27,181 
Total
$2,220 $61,627 $ $63,847 

*Denotes fair market value obtained from pricing services.

The following table presents, by level, estimated fair values of equity investments and other financial instruments as of March 31, 2024 and December 31, 2023:
As of March 31, 2024 (in thousands)Level 1Level 2Level 3Total
Financial assets:
Cash and cash equivalents
$21,613 $ $ $21,613 
Accrued interest and dividends
1,090   1,090 
Equity securities, at fair value:
Common stocks
36,708   36,708 
Short-term investments: 
Money market funds and U.S. Treasury bills113,379   113,379 
Total
$172,790 $ $ $172,790 
As of December 31, 2023 (in thousands)Level 1Level 2Level 3Total
Financial assets:
Cash and cash equivalents
$24,031 $ $ $24,031 
Accrued interest and dividends
978   978 
Equity securities, at fair value:
Common stocks
37,212   37,212 
Short-term investments:
Money market funds and U.S. Treasury bills110,224   110,224 
Total
$172,445 $ $ $172,445 

The Company did not hold any Level 3 category debt or marketable equity investment securities as of March 31, 2024 or December 31, 2023.

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

15


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 measurement alternative equity investments 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 three-month period ended March 31, 2024 or the twelve-month period ended December 31, 2023. The following table presents assets measured at fair value on a non-recurring basis as of March 31, 2024 and December 31, 2023:
As of March 31, 2024 (in thousands)Level 1Level 2Level 3Total
Financial assets:
Equity investments in unconsolidated affiliates, measurement alternative $ $ $9,316 $9,316 
Notes receivable  641 641 
Total
$ $ $9,957 $9,957 
As of December 31, 2023 (in thousands)Level 1Level 2Level 3Total
Financial assets:
Equity investments in unconsolidated affiliates, measurement alternative$ $ $9,300 $9,300 
Notes receivable  2,201 2,201 
Total$ $ $11,501 $11,501 

Note 7 – Commitments and Contingencies

Legal Proceedings: The Company and its subsidiaries are involved in legal proceedings that are incidental to their business. In the Company’s opinion, based on the present status of these proceedings, any potential liability of the Company or its subsidiaries with respect to these legal proceedings is not expected to, in the aggregate, be material to the Company’s consolidated financial condition or operations.

Regulation: The Company’s title insurance and trust subsidiaries are regulated by various federal, state and local governmental agencies and are subject to various audits and inquiries. It is the opinion of management based on its present expectations that these audits and inquiries will not have a material impact on the Company’s consolidated financial condition or operations.

Escrow and Trust Deposits: As a service to its customers, the Company, through ITIC, administers escrow and trust deposits representing earnest money received under real estate contracts, escrowed funds received under escrow agreements, undisbursed amounts received for settlement of mortgage loans and indemnities against specific title risks. These amounts are not considered assets of the Company and, therefore, are excluded from the accompanying unaudited Consolidated Balance Sheets; however, the Company remains contingently liable for the disposition of these deposits.

Like-Kind Exchange Proceeds: In administering tax-deferred like-kind exchanges pursuant to § 1031 of the Internal Revenue Code, the Company’s wholly owned subsidiary, Investors Title Exchange Corporation (“ITEC”), serves as a qualified intermediary, holding the net sales proceeds from relinquished property to be used for purchase of replacement property. Another wholly owned subsidiary of the Company, Investors Title Accommodation Corporation (“ITAC”), serves as exchange accommodation titleholder and, through LLCs that are wholly owned subsidiaries of ITAC, holds property in reverse exchange transactions. Like-kind exchange deposits and reverse exchange property totaled approximately $220.6 million and $263.7 million as of March 31, 2024 and December 31, 2023, respectively. These amounts are not considered assets of the Company and, therefore, are excluded from the accompanying unaudited Consolidated Balance Sheets; however, the Company remains contingently liable for the disposition of the transfers of property, disbursements of proceeds and the return on the proceeds at the agreed upon rate. Exchange services revenue includes earnings on these deposits; therefore, investment income is shown as non-title services rather than investment income. These like-kind exchange funds are primarily invested in money market funds and other short-term investments.
16



Note 8 – Related Party Transactions

The Company does business with, and has investments in, unconsolidated LLCs that are primarily title insurance agencies. The Company utilizes the equity method to account for its investment in these LLCs. The following table sets forth the approximate values by year found within each financial statement classification:
Financial Statement Classification,
Consolidated Balance Sheets (unaudited)
(in thousands)
As of
March 31, 2024
As of
December 31, 2023
Other investments$4,934 $5,561 
Premium and fees receivable$3,227 $627 
Financial Statement Classification,
Consolidated Statements of Operations (unaudited)
(in thousands)
Three Months Ended
March 31,
20242023
Net premiums written$5,207 $4,133 
Non-title services and other investment income$196 $750 
Commissions to agents$3,687 $2,753 

Note 9 – Intangible Assets, Goodwill and Title Plants

Intangible Assets

The estimated fair values of intangible assets recognized as the result of title insurance agency acquisitions are principally based on values obtained from an independent third-party valuation service and are all Level 3 inputs. Management determined that no events or changes in circumstances occurred during the three-month periods ended March 31, 2024 and 2023 that would indicate the carrying amounts may not be recoverable, and therefore, determined that no identifiable intangible assets were impaired.

Identifiable intangible assets consist of the following:
(in thousands)As of
March 31, 2024
As of
December 31, 2023
Referral relationships$8,898 $8,898 
Non-compete agreements3,155 3,155 
Tradename747 747 
Total
12,800 12,800 
Accumulated amortization(6,514)(6,176)
Identifiable intangible assets, net
$6,286 $6,624 

The following table provides the estimated aggregate amortization expense, as of March 31, 2024, for each of the five succeeding fiscal years:
Year Ended (in thousands)
2024$840 
20251,095 
20261,095 
2027679 
2028650 
Thereafter1,740 
Total
$6,099 

17


Goodwill and Title Plants

As of March 31, 2024, the Company recognized $9.6 million in goodwill and $1.6 million in title plants, net of impairments, as the result of title insurance agency acquisitions.  The title plants are included with other assets in the unaudited Consolidated Balance Sheets. The fair values of goodwill and the title plants as of the date of acquisition, both Level 3 inputs, were principally based on values obtained from an independent third-party valuation service. In accordance with FASB's Accounting Standards Codification ("ASC") 350, the Company determined that no events or changes in circumstances occurred during the three-month periods ended March 31, 2024 and 2023 that would indicate the carrying amounts may not be recoverable, and therefore, determined that there were no goodwill or title plant impairments.

Note 10 – Accumulated Other Comprehensive Income

The following table provides changes in the balances of each component of accumulated other comprehensive income, net of tax, for the three-month periods ended March 31, 2024 and 2023:

Three Months Ended
March 31, 2024 (in thousands)
Unrealized Gains
and Losses
On Available-for-Sale
Securities
Postretirement
Benefits Plans
 
Total
Beginning balance at January 1$583 $55 $638 
Other comprehensive (loss) income before calculations(333) (333)
Amounts reclassified from accumulated other comprehensive income
41  41 
Net current-period other comprehensive (loss) income (292) (292)
Ending balance$291 $55 $346 
Three Months Ended
March 31, 2023 (in thousands)
Unrealized Gains
and Losses
On Available-for-Sale
Securities
Postretirement
Benefits Plans
Total
Beginning balance at January 1$164 $36 $200 
Other comprehensive income before calculations186 111 297 
Amounts reclassified from accumulated other comprehensive income
63  63 
Net current-period other comprehensive income 249 111 360 
Ending balance
$413 $147 $560 

18


The following table provides significant amounts reclassified out of each component of accumulated other comprehensive income for the three-month periods ended March 31, 2024 and 2023:

Three Months Ended
March 31, 2024 (in thousands)
Details about Accumulated Other Comprehensive Income Components
Amount Reclassified
from Accumulated
Other Comprehensive
Income
Affected Line Item
in the Consolidated
Statements of
Operations
Unrealized gains and losses on available-for-sale securities:
Net realized gain on investments$ 
Write-down of securities(53)
Total$(53)Net investment gains
Tax12Provision for income taxes
Net of Tax$(41)
Reclassifications for the period$(41)

Three Months Ended
March 31, 2023 (in thousands)
Details about Accumulated Other Comprehensive Income Components
Amount Reclassified
from Accumulated
Other Comprehensive
Income
Affected Line Item
in the Consolidated
Statements of
Operations
Unrealized gains and losses on available-for-sale securities:
Net realized gain on investments$ 
Write-down of securities(82)
Total$(82)Net investment gains
Tax19 Provision for income taxes
Net of Tax$(63)
Reclassifications for the period$(63)

Note 11 – Revenue from Contracts with Customers

ASC 606, Revenue from Contracts with Customers, requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance does not apply to revenue associated with insurance contracts (including title insurance policies), financial instruments and lease contracts; and therefore is primarily applicable to the following Company revenue categories.

Escrow and other title-related fees: The Company’s title segment recognizes commission revenue and fees related to items such as searches, settlements, commitments and other ancillary services. Escrow and other title-related fees are recognized as revenue at the time of the related transactions as the earnings process, or performance obligation, is then considered to be complete.

Non-title services: Through various subsidiaries, the Company offers management services, tax-deferred real property exchange services, investment management and trust services. Nonrefundable exchange fees are recognized as revenue upon receipt of the funds, which is at the time of closing of the initial sale of property. All other non-title service fees are recognized as revenue as performance obligations are completed.

Other: The Company occasionally recognizes revenue from other miscellaneous contracts which can include, but is not limited to seminar and education registration fees and software licensing contracts. These revenue streams are deemed immaterial to the operations of the Company, and revenue is recognized when, or as, performance obligations are completed.

19


The following table provides a breakdown of the Company’s revenue by major business activity:
Three Months Ended
March 31,
 (in thousands)20242023
Revenue from contracts with customers:
Escrow and other title-related fees$3,723 $3,655 
Non-title services4,304 5,312 
Total revenue from contracts with customers8,027 8,967 
Other sources of revenue:
Net premiums written40,180 38,966 
Investment-related revenue5,053 3,270 
Other199 140 
Total revenues
$53,459 $51,343 

Note 12 – Leases

The Company enters into lease agreements that are primarily for office space. These leases are accounted for as operating leases, with lease expense recognized on a straight-line basis over the term of the lease. The Company occasionally assumes equipment lease agreements through business acquisitions. These leases are accounted for as finance leases.

Included in a portion of the Company's current leases is an option to extend or cancel the lease term. The exercise of such an option is solely at the Company's discretion. The lease liability recorded in the unaudited Consolidated Balance Sheets includes lease payments related to options to extend or cancel the lease term if the Company determines at the inception date that the lease is expected to be renewed or extended. The Company, in determining the present value of lease payments, utilizes the average rate over a 10-year term based upon the Moody's seasoned Aaa corporate bond yields, as explicit rates of interest are not readily determinable in the lease contracts. The Company does not carry debt; thus no incremental borrowing rate was available to the Company.

Lease expense is included in office and technology expenses in the unaudited Consolidated Statements of Operations. Information regarding the Company’s leases follows:
Three Months Ended
March 31,
(in thousands)20242023
Operating leases$658 $731 
Finance leases:
Amortization of lease assets71 54 
Lease expense$729 $785 
Sub-lease income(52) 
Lease cost$677 $785 
(b)Leases with an initial term of twelve months or less are not recorded on the unaudited Consolidated Balance Sheets.

Components of the lease liability presented on the unaudited Consolidated Balance Sheets are as follows:
(in thousands)As of
March 31, 2024
As of
December 31, 2023
Current:
Operating lease liabilities$1,755 $2,201 
Finance lease liabilities177 170 
Non-current:
Operating lease liabilities4,299 3,792 
Finance lease liabilities597 286 
Total lease liabilities$6,828 $6,449 

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The future minimum lease payments for leases that have initial or remaining noncancelable lease terms in excess of one year as of March 31, 2024, are summarized as follows:
Year Ended (in thousands)Operating LeasesFinance LeasesTotal
2024$1,904 $199 $2,103 
20252,179 241 2,420 
20261,332 203 1,535 
2027424 136 560 
2028183 56 239 
Thereafter433  433 
Total undiscounted payments$6,455 $835 $7,290 
Less: present value adjustment(401)(61)(462)
Lease liabilities$6,054 $774 $6,828 

Supplemental lease information is as follows:
As of
March 31, 2024
As of
December 31, 2023
Weighted average remaining lease term (years)  
    Operating Leases3.343.07
    Finance Leases3.492.93
Weighted average discount rate  
    Operating Leases3.9 %3.8 %
    Finance Leases4.3 %3.7 %

The Company does not have any material pending operating or financing lease agreements that become effective in future periods.
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Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations

Investors Title Company's (the "Company") Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Form 10-K") as filed with the Securities and Exchange Commission (the "SEC") should be read in conjunction with the following discussion since it contains information which is important for evaluating the Company's operating results and financial condition.

In addition, the Company may make forward-looking statements in the following discussion and analysis. Forward looking statements are based on certain assumptions and expectations of future events that are subject to a number of risks and uncertainties. Actual results may vary. See "Safe Harbor for Forward-Looking Statements" at the end of this discussion and analysis, as well as the sections titled "Risk Factors" in Part I, Item 1A of the 2023 Form 10-K for factors that could affect forward-looking statements.

Overview

Title Insurance

The Company is a holding company that engages primarily in issuing title insurance through two subsidiaries, Investors Title Insurance Company (“ITIC”) and National Investors Title Insurance Company (“NITIC”). Through ITIC and NITIC, the Company underwrites land title insurance for owners and mortgagees as a primary insurer. Total revenues from the title segment accounted for 89.2% of the Company's revenues for the three-month period ended March 31, 2024.

Title insurance protects against loss or damage resulting from title defects that affect real property and customarily arising prior to the policy date. When real property is conveyed from one party to another, occasionally there is an undisclosed defect in the title or a mistake or omission in a prior deed, will or mortgage that may give a third party a legal claim against such property. If a covered claim is made against real property, title insurance provides indemnification against insured defects.

There are two basic types of title insurance policies – one for the mortgage lender and one for the real property owner. A lender often requires the property owner to purchase a lender’s title insurance policy to protect its position as a holder of a mortgage loan, but the lender’s title insurance policy does not protect the property owner. The property owner has to purchase a separate owner’s title insurance policy to protect its investment.

The Company issues title insurance policies directly and through a network of agents. Issuing agents are typically real estate attorneys, independent agents or subsidiaries of community and regional mortgage lending institutions, depending on local customs and regulations and the Company’s marketing strategy in a particular territory. The ability to attract and retain issuing agents is a key determinant of the Company’s growth in title insurance premiums written.

Revenues for the title insurance segment primarily result from purchases of new and existing residential and commercial real estate, refinance activity and certain other types of mortgage lending such as home equity lines of credit.

Title insurance premiums vary from state to state and are subject to extensive regulation. Statutes generally provide that rates must not be excessive, inadequate or unfairly discriminatory. The process of implementing a rate change in most states involves pre-approval by the applicable state insurance regulator.

Volume is a factor in the Company’s profitability due to fixed operating costs that are incurred by the Company regardless of title insurance premium volume. The resulting operating leverage tends to amplify the impact of changes in volume on the Company’s profitability. The Company’s profitability also depends, in part, upon its ability to manage its investment portfolio to maximize investment returns and to minimize risks such as interest rate changes, defaults and impairments of assets.

The Company’s volume of title insurance premiums is affected by the overall level of residential and commercial real estate activity, which includes property sales, mortgage financing and mortgage refinancing. Real estate activity, home sales and mortgage lending are cyclical in nature. Real estate activity is affected by a number of factors, including the availability of mortgage credit, the cost of real estate, consumer confidence, employment and family income levels, and general United States economic conditions. Interest rate volatility is also an important factor in the level of residential and commercial real estate activity.

The Company’s title insurance premiums in future periods are likely to fluctuate due to these and other factors which are beyond management’s control.

Historically, the title insurance business tends to be seasonal as well as cyclical. Because home sales are typically strongest in periods of favorable weather, the first calendar quarter tends to have the lowest activity levels, while the spring and summer quarters tend to be more active. Mortgage refinance activity tends to be influenced less by seasonality and more by economic cycles, with activity levels increasing during times of falling interest rates.
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Exchange Services

The Company’s exchange services division, consisting of the operations of Investors Title Exchange Corporation (“ITEC”) and Investors Title Accommodation Corporation (“ITAC”), provides customer services in connection with tax-deferred real property exchanges. ITEC acts as a qualified intermediary in tax-deferred exchanges of real property held for productive use in a trade or business or for investment, and its income is derived from fees for handling exchange transactions and a portion of the interest earned on client deposits held by the Company. In its role as qualified intermediary, ITEC coordinates the exchange aspects of the real estate transaction, and its duties include drafting standard exchange documents, holding the exchange funds between the time the old property is sold and the new property is purchased, and accepting the formal identification of the replacement property within the required identification period. ITAC provides services as an exchange accommodation titleholder for accomplishing “parking transactions” as set forth in the safe harbor contained in Internal Revenue Procedure 2000-37.  These transactions include reverse exchanges when taxpayers decide to acquire replacement property before selling the relinquished property, or “build to suit” exchanges, when improvements must be made to the replacement property before the taxpayer acquires the improved replacement property. The services provided by the Company’s exchange services division, ITEC and ITAC, are pursuant to provisions in the Internal Revenue Code. From time to time, these laws are subject to review and changes, which may negatively affect the demand for tax-deferred exchanges in general, and consequently, the revenues and profitability of the Company’s exchange services division.

Management Services, Investment Management and Trust Services

Other services provided by operating divisions of the Company are not reported separately, but rather are reported collectively in a category called “All Other.”  These other services include those offered by the Company and by its wholly owned subsidiaries, Investors Title Management Services, Inc. (“ITMS”) and Investors Trust Company (“Investors Trust”).

ITMS offers various consulting and management services to provide clients with the technical expertise to start and successfully operate a title insurance agency.

The Company’s trust services division, Investors Trust, provides investment management and trust services to individuals, companies, banks and trusts. 

Business Trends and Recent Conditions
The housing market is heavily influenced by government policies and overall economic conditions. Regulatory reform and initiatives by various governmental agencies, including the Federal Reserve's monetary policy and other regulatory changes, could impact lending standards or the processes and procedures used by the Company. The current real estate environment, including interest rates and general economic activity, typically influence the demand for real estate. Changes in either of these areas, in addition to any inventory constraints or volatility in the cost and availability of building materials, could impact the Company's results of operations in future periods.

A recent period of inflation, as well as ongoing geopolitical and military conflicts, have created additional volatile market conditions and uncertainties in the global economy. These events have impacted and could continue to impact the Company in a number of ways including, but not limited to, future fluctuations in the Company's investment portfolio and potential decreases in net premiums written. The Federal Open Market Committee (“FOMC”) of the Federal Reserve has been highly attentive to the risks that these events have created, and in response raised the target federal funds rate at several meetings held during 2022 and 2023. Although the federal funds rate does not directly impact mortgage interest rates, it can have a significant influence as lenders pass on the costs of rate increases to consumers. Higher mortgage interest rates have impacted the demand and pricing of real estate.

Regulatory Environment

The FOMC issues disclosures on a periodic basis that include projections of the federal funds rate and expected actions. The FOMC maintained a target range between 0.00% and 0.25% from March 2020 until March 2022. Starting at the March 2022 meeting of the FOMC, the FOMC consistently raised the target federal funds rate range through July 2023, when the FOMC increased the target range to between 5.25% and 5.50%. No additional changes to the target federal funds rate have been made since the July 2023 meeting. In normal economic situations, future adjustments to the FOMC’s stance of monetary policy are expected to be based on realized and expected economic developments to achieve maximum employment and inflation near the FOMC 's symmetric long-term 2.0% objective.

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Real Estate Environment

The Mortgage Bankers Association's ("MBA") April 18, 2024 Mortgage Finance Forecast (“MBA Forecast”) projects 2024 purchase activity to increase 5.1% to $1,393 billion and mortgage refinance activity to increase 34.4% to $422 billion, resulting in a net increase in total mortgage originations of 10.7% to $1,815 billion, all from 2023 levels. In 2023, purchase activity accounted for 80.8% of all mortgage originations and is projected in the MBA Forecast to represent 76.7% of all mortgage originations in 2024. According to data published by Freddie Mac, the average 30-year fixed mortgage interest rates in the United States were 6.7% and 6.4% for the three-month periods ended March 31, 2024 and 2023, respectively. Per the MBA Forecast, mortgage interest rates are projected to decrease in subsequent periods, reaching 5.5% in 2026. Due to the rapidly changing environment brought on by inflationary pressures, inventory constraints, and geopolitical and military conflicts, these projections and the impact of actual future developments on the Company could be subject to material change.
    
Historically, activity in real estate markets has varied over the course of market cycles by geographic region and in response to evolving economic factors. Operating results can vary from year to year based on cyclical market conditions and do not necessarily indicate the Company's future operating results and cash flows.

Critical Accounting Estimates and Policies

The preparation of the Company's unaudited Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures regarding contingencies and commitments. Actual results could differ from these estimates. During the three-month period ended March 31, 2024, the Company did not make any material changes to its critical accounting policies as previously disclosed in Management's Discussion and Analysis in the 2023 Form 10-K.

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Results of Operations

The following table presents certain unaudited Consolidated Statements of Operations data for the three-month periods ended March 31, 2024 and 2023:

Three Months Ended
March 31,
(in thousands)20242023
Revenues:
Net premiums written$40,180 $38,966 
Escrow and other title-related fees3,723 3,655 
Non-title services4,304 5,312 
Interest and dividends2,520 2,074 
Other investment income 111 753 
Net investment gains 2,422 443 
Other199 140 
Total Revenues
53,459 51,343 
Operating Expenses:
Commissions to agents19,870 19,326 
Provision for claims910 1,068 
Personnel expenses18,582 20,820 
Office and technology expenses4,465 4,400 
Other expenses3,835 4,168 
Total Operating Expenses
47,662 49,782 
Income before Income Taxes5,797 1,561 
Provision for Income Taxes1,272