Investors Title Earnings 2019-09-30

ITIC 10Q Quarterly Report

Balance Sheet	Income Statement	Cash 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



☐	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	1

	Consolidated Statements of Income For the Three and Nine Months Ended September 30, 2019 and 2018	2

	Consolidated Statements of Comprehensive Income For the Three and Nine Months Ended September 30, 2019 and 2018	3

	Consolidated Statements of Stockholders’ Equity For the Three and Nine Months Ended September 30, 2019 and 2018	4

	Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2019 and 2018	6

	Notes to Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1a.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults Upon Senior Securities	37

Item 4.	Mine Safety Disclosures	37

Item 5.	Other Information	37

Item 6.	Exhibits	38

SIGNATURE		39

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.

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.

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.

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		Retained Earnings			Accumulated Other Comprehensive Income			Noncontrolling Interests			Total Stockholders’ Equity
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

Consolidated Statements of Stockholders' Equity, continued



	Common Stock			Retained Earnings			Accumulated Other Comprehensive Income			Noncontrolling Interests			Total Stockholders’ Equity
	Shares	Amount		Retained Earnings			Accumulated Other Comprehensive Income			Noncontrolling Interests			Total Stockholders’ Equity
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.

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



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.

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.

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

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.

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%

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

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.

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.

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.

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:

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

EX-31.1	itic_20190930xex-311.htm
EX-31.2	itic_20190930xex-312.htm
EX-32	itic_20190930xex-32.htm