Note 1 - Basis of Presentation and Significant Accounting Policies
Note 2 - Reserve for Claims
Note 3 - Earnings per Common Share and Share Awards
Note 4 - Segment Information
Note 5 - Retirement Agreements and Other Postretirement Benefits
Note 6 - Investments and Estimated Fair Value
Note 7 - Commitments and Contingencies
Note 8 - Related Party Transactions
Note 9 - Intangible Assets and Goodwill
Note 10 - Accumulated Other Comprehensive Income
Note 11 - Revenue From Contracts with Customers
Note 12 - Leases
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
Exhibits
EX-31.1
itic_20190331xex-311.htm
EX-31.2
itic_20190331xex-312.htm
EX-32
itic_20190331xex-32.htm
Investors Title Earnings 2019-03-31
ITIC 10Q Quarterly Report
Balance Sheet
Income Statement
Cash Flow
10-Q 1 itic20190331-10q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission File Number: 0-11774
INVESTORS TITLE COMPANY
(Exact name of registrant as specified in its charter)
North Carolina
56-1110199
(State of incorporation)
(I.R.S. Employer Identification No.)
121 North Columbia Street, Chapel Hill, North Carolina 27514
(Address of principal executive offices) (Zip Code)
(919) 968-2200
(Registrant’s telephone number, including area code)
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 X 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 X 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
X
Non-accelerated filer
(Do not check if a smaller reporting company)
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 X
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
As of April 22, 2019, there were 1,888,682 common shares of the registrant outstanding.
Fixed maturity securities, available-for-sale, at fair value (amortized cost: March 31, 2019: $86,539; December 31, 2018: $87,714)
89,232
88,957
Equity securities, at fair value (cost: March 31, 2019: $32,055; December 31, 2018: $31,255)
53,959
48,489
Short-term investments
29,696
32,787
Other investments
11,577
12,436
Total investments
184,464
182,669
Premium and fees receivable
10,744
12,128
Accrued interest and dividends
1,368
946
Prepaid expenses and other receivables
7,216
7,288
Property, net
10,092
10,304
Goodwill and other intangible assets, net
10,654
10,780
Operating lease right-of-use assets
4,925
—
Other assets
1,475
1,459
Total Assets
$
252,990
$
244,268
Liabilities and Stockholders’ Equity
Liabilities:
Reserve for claims
$
31,384
$
31,729
Accounts payable and accrued liabilities
22,791
27,735
Operating lease liabilities
4,927
—
Current income taxes payable
5,840
4,981
Deferred income taxes, net
5,319
4,184
Total liabilities
70,261
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 March 31, 2019 and December 31, 2018, respectively, excluding in each period 292 shares of common stock held by the Company)
—
—
Retained earnings
180,637
174,690
Accumulated other comprehensive income
2,092
949
Total stockholders' equity
182,729
175,639
Total Liabilities and Stockholders’ Equity
$
252,990
$
244,268
Refer to notes to the Consolidated Financial Statements.
1
Investors Title Company and Subsidiaries
Consolidated Statements of Income
For the Three Months Ended March 31, 2019 and 2018
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
March 31,
2019
2018
Revenues:
Net premiums written
$
28,795
$
29,559
Escrow and other title-related fees
1,322
1,504
Non-title services
2,388
1,592
Interest and dividends
1,256
1,118
Other investment income
410
269
Net realized investment gains
790
153
Net unrealized gain (loss) on equity investments
4,670
(642
)
Other
315
223
Total Revenues
39,946
33,776
Operating Expenses:
Commissions to agents
15,058
14,025
Provision (benefit) for claims
226
(1,406
)
Personnel expenses
11,612
11,340
Office and technology expenses
2,223
2,069
Other expenses
2,514
2,523
Total Operating Expenses
31,633
28,551
Income before Income Taxes
8,313
5,225
Provision for Income Taxes
1,687
1,052
Net Income
6,626
4,173
Net Loss Attributable to Noncontrolling Interests
—
3
Net Income Attributable to the Company
$
6,626
$
4,176
Basic Earnings per Common Share
$
3.51
$
2.21
Weighted Average Shares Outstanding – Basic
1,887
1,886
Diluted Earnings per Common Share
$
3.49
$
2.20
Weighted Average Shares Outstanding – Diluted
1,896
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, 2019 and 2018
(in thousands)
(unaudited)
Three Months Ended
March 31,
2019
2018
Net income
$
6,626
$
4,173
Other comprehensive income (loss), before tax:
Net unrealized gain (loss) on investments arising during the period*
1,450
(1,660
)
Other comprehensive income (loss), before tax
1,450
(1,660
)
Income tax expense (benefit) related to net unrealized gain (loss) on investments arising during the period*
307
(351
)
Net income tax expense (benefit) on other comprehensive income (loss)
307
(351
)
Other comprehensive income (loss)
1,143
(1,309
)
Comprehensive Income
$
7,769
$
2,864
Comprehensive loss attributable to noncontrolling interests
—
3
Comprehensive Income Attributable to the Company
$
7,769
$
2,867
* Amounts relate to fixed maturity securities only.
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, 2019 and 2018
(in thousands, except per share amounts)
(unaudited)
Common Stock
Retained Earnings
Accumulated
Other
Comprehensive
Income
Noncontrolling
Interests
Total
Stockholders’
Equity
Shares
Amount
Balance, January 1, 2018
1,886
$
—
$
161,891
$
15,945
$
85
$
177,921
Net income attributable to the Company
4,176
4,176
Dividends paid ($0.40 per share)
(755
)
(755
)
Repurchases of common stock
—
(29
)
(29
)
Exercise of stock appreciation rights
1
(1
)
(1
)
Share-based compensation expense related to stock appreciation rights
62
62
Cumulative effect adjustment for adoption of new accounting standards
13,627
(13,627
)
—
Net unrealized loss on investments
(1,309
)
(1,309
)
Net loss attributable to noncontrolling interests
(3
)
(3
)
Balance, March 31, 2018
1,887
$
—
$
178,971
$
1,009
$
82
$
180,062
Balance, January 1, 2019
1,887
$
—
$
174,690
$
949
$
—
$
175,639
Net income attributable to the Company
6,626
6,626
Dividends paid ($0.40 per share)
(755
)
(755
)
Repurchases of common stock
—
(11
)
(11
)
Exercise of stock appreciation rights
2
(1
)
(1
)
Share-based compensation expense related to stock appreciation rights
88
88
Net unrealized gain on investments
1,143
1,143
Balance, March 31, 2019
1,889
$
—
$
180,637
$
2,092
$
—
$
182,729
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, 2019 and 2018
(in thousands)
(unaudited)
Three Months Ended March 31,
2019
2018
Operating Activities
Net income
$
6,626
$
4,173
Adjustments to reconcile net income to net cash used in by operating activities:
Depreciation
433
400
Amortization of investments, net
133
235
Amortization of other intangible assets, net
126
181
Share-based compensation expense related to stock appreciation rights
88
62
Net gain on disposals of property
(3
)
(9
)
Net realized investment gains
(790
)
(153
)
Net unrealized (gain) loss on equity investments
(4,670
)
642
Net earnings from other investments
(208
)
(109
)
Provision (benefit) for claims
226
(1,406
)
Provision for deferred income taxes
828
484
Changes in assets and liabilities:
Decrease in premium and fees receivables
1,384
142
Increase in other assets
(366
)
(447
)
Increase in operating lease right-of-use assets
(4,925
)
—
Decrease in current income taxes receivable
—
385
Decrease in accounts payable and accrued liabilities
(4,944
)
(4,689
)
Increase in operating lease liabilities
4,927
—
Increase in current income taxes payable
859
215
Payments of claims, net of recoveries
(571
)
(625
)
Net cash used in operating activities
(847
)
(519
)
Investing Activities
Purchases of equity securities
(1,572
)
(815
)
Purchases of short-term investments
(50,015
)
(2,457
)
Purchases of other investments
(776
)
(145
)
Proceeds from sales and maturities of fixed maturity securities
925
1,005
Proceeds from sales of equity securities
1,561
441
Proceeds from sales and maturities of short-term investments
53,224
5,143
Proceeds from sales and distributions of other investments
1,843
686
Purchases of property
(225
)
(609
)
Proceeds from the sale of property
7
15
Net cash provided by investing activities
4,972
3,264
Financing Activities
Repurchases of common stock
(11
)
(29
)
Exercise of stock appreciation rights
(1
)
(1
)
Dividends paid
(755
)
(755
)
Net cash used in financing activities
(767
)
(785
)
Net Increase in Cash and Cash Equivalents
3,358
1,960
Cash and Cash Equivalents, Beginning of Period
18,694
20,214
Cash and Cash Equivalents, End of Period
$
22,052
$
22,174
5
Consolidated Statements of Cash Flows, continued
Three Months Ended March 31,
2019
2018
Supplemental Disclosures:
Cash Paid During the Year for:
Income tax payments, net
$
—
$
(32
)
Non Cash Investing and Financing Activities:
Non cash net unrealized (gain) loss on investments, net of deferred tax (provision) benefit of $(307) and $351 for March 31, 2019 and 2018, respectively
$
(1,143
)
$
1,309
Refer to notes to the Consolidated Financial Statements.
6
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 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 quarter ended March 31, 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.
7
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 did not reassess whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases and 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 include 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 three-month period ended March 31, 2019 and the year ended December 31, 2018 are summarized as follows:
(in thousands)
March 31, 2019
December 31, 2018
Balance, beginning of period
$
31,729
$
34,801
Provision (benefit), charged to operations
226
(332
)
Payments of claims, net of recoveries
(571
)
(2,740
)
Balance, end of period
$
31,384
$
31,729
8
The total reserve for all reported and unreported losses the Company incurred through March 31, 2019 is represented by the reserve for claims. 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, 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)
March 31, 2019
%
December 31, 2018
%
Known title claims
$
3,074
9.8
$
3,007
9.5
IBNR
28,310
90.2
28,722
90.5
Total reserve for claims
$
31,384
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-month periods ended March 31:
Three Months Ended March 31,
(in thousands, except per share amounts)
2019
2018
Net income attributable to the Company
$
6,626
$
4,176
Weighted average common shares outstanding – Basic
1,887
1,886
Incremental shares outstanding assuming the exercise of dilutive SARs (share-settled)
9
11
Weighted average common shares outstanding – Diluted
1,896
1,897
Basic earnings per common share
$
3.51
$
2.21
Diluted earnings per common share
$
3.49
$
2.20
There were 9 thousand potential shares excluded from the computation of diluted earnings per share for the three-month period ended March 31, 2019. There were no potential shares excluded from the computation of diluted earnings per share for the three-month period ended March 31, 2018.
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 are currently no active plans from which the Company may grant share-based awards.
As of March 31, 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 $88 thousand and $62 thousand of compensation expense relating to SARs vesting on or before March 31, 2019 and 2018, respectively, included in personnel expenses in the Consolidated Statements of Income. As of March 31, 2019, there was no unrecognized compensation expense related to unvested share-based compensation arrangements granted under the Company’s stock award plans.
9
A summary of share-based award transactions for all share-based award plans follows:
(in thousands, except weighted average exercise price and average remaining contractual term)
Number
Of Shares
Weighted
Average
Exercise Price
Average Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
Outstanding as of January 1, 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
—
—
SARs exercised
(3
)
50.50
Outstanding as of March 31, 2019
25
$
117.30
3.78
1,331
Exercisable as of March 31, 2019
25
$
117.30
3.78
1,331
Unvested as of March 31, 2019
—
$
—
0.00
—
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 three-month periods ended March 31, 2019 and 2018:
Three Months Ended March 31, 2019 (in thousands)
Title Insurance
All Other
Intersegment Eliminations
Total
Insurance and other services revenues
$
31,319
$
2,691
$
(1,190
)
$
32,820
Investment income
5,430
906
—
6,336
Net realized gain on investments
764
26
—
790
Total revenues
$
37,513
$
3,623
$
(1,190
)
$
39,946
Operating expenses
30,452
2,237
(1,056
)
31,633
Income before income taxes
$
7,061
$
1,386
$
(134
)
$
8,313
Total assets
$
200,187
$
52,803
$
—
$
252,990
Three Months Ended March 31, 2018 (in thousands)
Title Insurance
All Other
Intersegment Eliminations
Total
Insurance and other services revenues
$
32,421
$
1,890
$
(1,433
)
$
32,878
Investment income
614
131
—
745
Net realized gain on investments
143
10
—
153
Total revenues
$
33,178
$
2,031
$
(1,433
)
$
33,776
Operating expenses
27,792
2,058
(1,299
)
28,551
Income (loss) before income taxes
$
5,386
$
(27
)
$
(134
)
$
5,225
Total assets
$
191,396
$
53,285
$
—
$
244,681
10
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 March 31, 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 March 31, 2019 and 2018:
Three Months Ended March 31,
(in thousands)
2019
2018
Service cost – benefits earned during the year
$
—
$
—
Interest cost on the projected benefit obligation
8
8
Amortization of unrecognized losses
—
—
Net periodic benefit cost
$
8
$
8
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, 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
$
1,018
$
—
$
4
$
1,014
General obligations of U.S. states, territories and political subdivisions
21,627
527
11
22,143
Special revenue issuer obligations of U.S. states, territories and political subdivisions
53,894
1,827
73
55,648
Corporate debt securities
10,000
444
17
10,427
Total
$
86,539
$
2,798
$
105
$
89,232
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.
11
The scheduled maturities of fixed maturity securities at March 31, 2019 are as follows:
Available-for-Sale
(in thousands)
Amortized
Cost
Estimated Fair Value
Due in one year or less
$
13,200
$
13,216
Due one year through five years
31,881
32,984
Due five years through ten years
40,650
41,872
Due after ten years
808
1,160
Total
$
86,539
$
89,232
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 March 31, 2019 and December 31, 2018:
Less than 12 Months
12 Months or Longer
Total
As of March 31, 2019 (in thousands)
Estimated
Fair
Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Government obligations
$
—
$
—
$
1,014
$
(4
)
$
1,014
$
(4
)
General obligations of U.S. states, territories and political subdivisions
1,559
(2
)
1,076
(9
)
2,635
(11
)
Special revenue issuer obligations of U.S. states, territories and political subdivisions
1,464
(1
)
5,828
(72
)
7,292
(73
)
Corporate debt securities
6,234
(17
)
—
—
6,234
(17
)
Total temporarily impaired securities
$
9,257
$
(20
)
$
7,918
$
(85
)
$
17,175
$
(105
)
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 19 and 51 fixed maturity securities had unrealized losses at March 31, 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 three-month periods ended March 31, 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.
12
Investments in Equity Securities
The cost and estimated fair value of equity securities are as follows:
As of March 31, 2019 (in thousands)
Cost
Estimated Fair Value
Equity securities, at fair value:
Common stocks
$
32,055
$
53,959
Total
$
32,055
$
53,959
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 net unrealized gain (loss) on equity securities.
Net Realized Investment Gains
Gross realized gains and losses on sales of investments for the three-month periods ended March 31 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
831
164
Total
$
831
$
164
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
(41
)
(11
)
Other-than-temporary impairment of securities
—
—
Total
$
(41
)
$
(11
)
Net realized gains from securities
$
790
$
153
Net realized gains on other investments:
Gains on other investments
$
—
$
—
Total
$
—
$
—
Net realized investment gains
$
790
$
153
Realized gains and losses are determined on the specific identification method.
13
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 March 31, 2019:
Type of Investment (in thousands)
Balance Sheet Classification
Carrying Value
Estimated Fair Value
Maximum Potential Loss (a)
Tax credit LPs
Other investments
$
1,162
$
1,129
$
2,010
Real estate LLCs or LPs
Other investments
4,739
6,319
9,250
Small business investment LPs
Other investments
3,732
6,500
7,225
Total
$
9,633
$
13,948
$
18,485
(a)
Maximum potential loss is calculated as the total investment in the LLC or LP, including any capital commitments that may have not yet been called. The Company is not exposed to any loss beyond the total commitment of its investment.
Valuation of Financial Assets
The 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 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 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 ASC 820, Fair Value Measurements and Disclosures. Generally, quotes obtained from the pricing service for instruments classified as Level 2 are not adjusted and are not binding. As of March 31, 2019 and December 31, 2018, 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, ASC 820 excludes from its scope certain financial instruments, including those related to insurance contracts, pension and other postretirement benefits, and equity method investments.
14
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 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.
Accrued interest and dividends
The carrying amount for accrued dividends and interest 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 measured as of March 31, 2019 and December 31, 2018:
As of March 31, 2019 (in thousands)
Level 1
Level 2
Level 3
Total
Fixed maturity securities:
Obligations of U.S. states, territories and political subdivisions*
$
—
$
78,805
$
—
$
78,805
Corporate debt securities*
—
10,427
—
10,427
Total
$
—
$
89,232
$
—
$
89,232
As of December 31, 2018 (in thousands)
Level 1
Level 2
Level 3
Total
Fixed maturity securities:
Obligations of U.S. states, territories and political subdivisions*
$
—
$
78,203
$
—
$
78,203
Corporate debt securities*
—
10,754
—
10,754
Total
$
—
$
88,957
$
—
$
88,957
*Denotes fair market value obtained from pricing services.
The estimated fair values of equity investments and other financial instruments as of March 31, 2019 and December 31, 2018 are presented in the following table:
As of March 31, 2019 (in thousands)
Level 1
Level 2
Level 3
Total
Financial assets:
Cash and cash equivalents
$
22,052
$
—
$
—
$
22,052
Accrued interest and dividends
1,368
—
—
1,368
Equity securities, at fair value:
Common stocks
53,959
—
—
53,959
Short-term investments:
Commercial paper and money market funds
29,696
—
—
29,696
Other investments:
Equity investments in unconsolidated affiliates, equity method
—
—
5,393
5,393
Equity investments in unconsolidated affiliates, measurement alternative
—
—
6,184
6,184
Total
$
107,075
$
—
$
11,577
$
118,652
15
As of December 31, 2018 (in thousands)
Level 1
Level 2
Level 3
Total
Financial assets:
Cash and cash equivalents
$
18,694
$
—
$
—
$
18,694
Accrued interest and dividends
946
—
—
946
Equity securities, at fair value:
Common stocks
48,489
—
—
48,489
Short-term investments:
Commercial paper and money market funds
32,787
—
—
32,787
Other investments:
Equity investments in unconsolidated affiliates, equity method
—
—
5,847
5,847
Equity investments in unconsolidated affiliates, measurement alternative
—
—
6,589
6,589
Total
$
100,916
$
—
$
12,436
$
113,352
The Company did not hold any Level 3 category debt or marketable equity investment securities as of March 31, 2019 or December 31, 2018.
There were no transfers into or out of Levels 1, 2 or 3 during the periods presented.
To help ensure that estimated fair value determinations are consistent with ASC 820, 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. The Company believes that these processes and inputs result in appropriate classifications and estimated fair values consistent with ASC 820.
Certain equity investments under the measurement alternative 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 other-than-temporarily impaired, an impairment charge is recorded against such investment and reflected in the Consolidated Statements of Income. There were no impairments of such investments made during the three-month period ended March 31, 2019 or the twelve-month period ended December 31, 2018. The following table presents a rollforward of equity investments under the measurement alternative as of March 31, 2019 and December 31, 2018:
(in thousands)
Balance,
January 1, 2019
Amounts Impaired
Observable Changes
Purchases and Additional Commitments Paid
Sales, Returns of Capital and Other Reductions
Balance,
March 31, 2019
Other investments:
Equity investments in unconsolidated affiliates, measurement alternative
$
6,589
$
—
$
—
$
613
$
(1,018
)
$
6,184
Total
$
6,589
$
—
$
—
$
613
$
(1,018
)
$
6,184
16
(in thousands)
Balance,
January 1, 2018
Amounts Impaired
Observable Changes
Purchases and Additional Commitments Paid
Sales, Returns of Capital and Other Reductions
Balance,
December 31, 2018
Other investments:
Equity investments in unconsolidated affiliates, measurement alternative
$
5,439
$
—
$
—
$
1,486
$
(336
)
$
6,589
Total
$
5,439
$
—
$
—
$
1,486
$
(336
)
$
6,589
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, will not, 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, examinations, and inquiries. It is the opinion of management based on its present expectations that these audits, examinations, and inquiries will not have a material impact on the Company’s consolidated financial condition or results of 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, 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 Consolidated Balance Sheets; however, the Company remains contingently liable for the disposition of these deposits.
Like-Kind Exchanges Proceeds – In administering tax-deferred property exchanges, the Company’s subsidiary, Investors Title Exchange Corporation (“ITEC”), serves as a qualified intermediary for exchanges, holding the net sales proceeds from relinquished property to be used for purchase of replacement property. Another Company subsidiary, Investors Title Accommodation Corporation (“ITAC”), serves as exchange accommodation titleholder and, through limited liability companies that are wholly owned subsidiaries of ITAC, holds property for exchangers in reverse exchange transactions. Like-kind exchange deposits and reverse exchange property totaled approximately $269.4 million and $308.7 million as of March 31, 2019 and December 31, 2018, respectively. These amounts are not considered assets of the Company and, therefore, are excluded from the accompanying Consolidated Balance Sheets; however, the Company remains contingently liable for transfers of property, disbursements of proceeds and the return on the proceeds at the agreed upon rate. Exchange services revenues include earnings on these deposits; therefore, investment income is shown as non-title services on the Consolidated Statements of Income rather than investment income. These like-kind exchange funds are primarily invested in money market and other short-term investments.
Note 8 – Related Party Transactions
The Company does business with, and has investments in, unconsolidated limited liability companies that are primarily title insurance agencies. The Company utilizes the equity method to account for its investment in these limited liability companies. The following tables set forth the approximate values by year found within each financial statement classification:
Financial Statement Classification,
Consolidated Balance Sheets
(in thousands)
As of March 31, 2019
As of December 31, 2018
Other investments
$
5,393
$
5,847
Premium and fees receivable
$
422
$
409
Financial Statement Classification,
Consolidated Statements of Income
(in thousands)
Three Months Ended March 31,
2019
2018
Net premiums written
$
3,119
$
3,191
Non-title services and other investment income
$
473
$
243
Commissions to agents
$
2,073
$
2,115
17
Note 9 – Intangible Assets and Goodwill
Intangible Assets
The estimated fair values of intangible assets recognized as the result of title insurance agency acquisitions, all Level 3 inputs, are principally based on values obtained from an independent third-party valuation service. In accordance with ASC 350, Intangibles – Goodwill and Other, management determined that no events or changes in circumstances occurred during the three-month periods ended March 31, 2019 and 2018 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, 2019
As of December 31, 2018
Referral relationships
$
6,416
$
6,416
Non-compete agreements
1,406
1,406
Tradename
560
560
Total
8,382
8,382
Accumulated amortization
(2,078
)
(1,952
)
Identifiable intangible assets, net
$
6,304
$
6,430
The following table provides the estimated aggregate amortization expense for each of the five succeeding fiscal years:
Year Ended (in thousands)
2019
$
378
2020
569
2021
562
2022
525
2023
525
Thereafter
3,745
Total
$
6,304
Goodwill and Title Plant
As of March 31, 2019, the Company recognized $4.4 million in goodwill and $690 thousand in a title plant, net of impairments, as the result of title insurance agency acquisitions. The title plant is included with other assets in the Consolidated Balance Sheets. The fair values of goodwill and the title plant, both Level 3 inputs, are principally based on values obtained from an independent third-party valuation service. In accordance with ASC 350, Intangibles – Goodwill and Other, management determined that no events or changes in circumstances occurred during the three-month periods ended March 31, 2019 and 2018 that would indicate the carrying amounts may not be recoverable, and therefore determined that neither goodwill nor the title plant were impaired.
18
Note 10 – Accumulated Other Comprehensive Income
The following tables provide changes in the balances of each component of accumulated other comprehensive income, net of tax, for the periods ended March 31, 2019 and 2018:
Three Months Ended March 31, 2019 (in thousands)
Unrealized Gains and Losses On Available-for-Sale Securities
Postretirement Benefits Plans
Total
Beginning balance at January 1
$
981
$
(32
)
$
949
Cumulative effect adjustment for adoption of new accounting standards
—
—
—
Other comprehensive gain before reclassifications
1,143
—
1,143
Amounts reclassified from accumulated other comprehensive income
—
—
—
Net current-period other comprehensive gain
1,143
—
1,143
Ending balance
$
2,124
$
(32
)
$
2,092
Three Months Ended March 31, 2018 (in thousands)
Unrealized Gains and Losses
On Available-for-Sale
Securities
Postretirement
Benefits Plans
Total
Beginning balance at January 1
$
16,003
$
(58
)
$
15,945
Cumulative effect adjustment for adoption of new accounting standards
(13,616
)
(11
)
(13,627
)
Other comprehensive loss before reclassifications
(1,309
)
—
(1,309
)
Amounts reclassified from accumulated other comprehensive income
—
—
—
Net current-period other comprehensive loss
(1,309
)
—
(1,309
)
Ending balance
$
1,078
$
(69
)
$
1,009
There were no amounts reclassified out of each component of accumulated other comprehensive income for the three-month periods ended March 31, 2019 and 2018.
Note 11 – Revenue from Contracts with Customers
ASU 2014-09, Revenue from Contracts with Customers (Topic 606) 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)
2019
2018
Revenue from contracts with customers:
Escrow and other title-related fees
$
1,322
$
1,504
Non-title services
2,388
1,592
Total revenue from contracts with customers
3,710
3,096
Other sources of revenue:
Net premiums written
28,795
29,559
Investment-related revenue
7,126
898
Other
315
223
Total revenues
$
39,946
$
33,776
Note 12 – Leases
The Company enters into lease agreements that are primarily used 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.
A portion of the Company's current leases include 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. The Company, in determining the present value of lease payments, utilized the average rate over a 10-year term based upon the Moody's seasoned Aaa corporate bond yields, as explicit rates of interest were 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 Consolidated Statements of Income. Information regarding the Company’s operating leases is as follows:
(in thousands)
Three Months Ended March 31, 2019
Operating leases
$
314
Short-term leases (b)
34
Lease expense
$
348
Sub-lease income
—
Lease cost
$
348
(b)
Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets.
Components of the operating lease liability presented on the Consolidated Balance Sheets are as follows:
(in thousands)
As of March 31, 2019
Current:
Operating lease liabilities
$
1,056
Non-current:
Operating lease liabilities
3,871
Total operating lease liabilities
$
4,927
20
The future minimum lease payments under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of March 31, 2019, are summarized as follows: