Investors Title Co 10-Q for FY2020 Q2

Investors Title Co (ITIC)

10-Q 2020-08-07 For: 2020-06-30

Added on April 07, 2026

About this 10-Q

Investors Title Co filed this 10-Q on August 7, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).

Headline figures

Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $61.75M; up 44.5% from $42.73M a year earlier
Net income: $14.5M; up 163.5% from net income of $5.5M a year earlier
Diluted EPS: $7.65; up 163.8% from $2.90 a year earlier

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PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	1

	Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2020 and 2019	2

	Consolidated Statements of Comprehensive Income For the Three and Six Months Ended June 30, 2020 and 2019	3

	Consolidated Statements of Stockholders’ Equity For the Three and Six Months Ended June 30, 2020 and 2019	4

	Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2020 and 2019	6

	Notes to Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	38

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	40

Item 4.	Mine Safety Disclosures	40

Item 5.	Other Information	40

Item 6.	Exhibits	41

SIGNATURE		42


	June 30, 2020		December 31, 2019
Assets
Cash and cash equivalents	$	29,709	$	25,949
Investments:
Fixed maturity securities, available-for-sale, at fair value (amortized cost: June 30, 2020: $96,661; December 31, 2019: $100,667)	102,115		104,638
Equity securities, at fair value (cost: June 30, 2020: $34,778; December 31, 2019: $33,570)	55,830		61,108
Short-term investments	24,723		13,134
Other investments	14,880		13,982
Total investments	197,548		192,862

Premium and fees receivable	15,258		12,523
Accrued interest and dividends	1,005		1,033
Prepaid expenses and other receivables	10,486		5,519
Property, net	10,263		9,776
Goodwill and other intangible assets, net	10,023		10,275
Operating lease right-of-use assets	4,055		4,469
Other assets	1,561		1,487
Total Assets	$	279,908	$	263,893

Liabilities and Stockholders’ Equity
Liabilities:
Reserve for claims	$	32,694	$	31,333
Accounts payable and accrued liabilities	37,469		28,318
Operating lease liabilities	4,093		4,502
Current income taxes payable	1,121		1,340
Deferred income taxes, net	6,066		7,038
Total liabilities	81,443		72,531

Commitments and Contingencies	—		—

Stockholders’ Equity:
Preferred stock (1,000 authorized shares; no shares issued)	—		—
Common stock – no par value (10,000 authorized shares; 1,892 and 1,889 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively, excluding in each period 292 shares of common stock held by the Company)	—		—
Retained earnings	194,235		188,262
Accumulated other comprehensive income	4,230		3,100
Total stockholders' equity	198,465		191,362
Total Liabilities and Stockholders’ Equity	$	279,908	$	263,893


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenues:
Net premiums written	$	47,479	$	34,978	$	86,106	$	63,773
Escrow and other title-related fees	2,018		1,901		3,860		3,223
Non-title services	1,975		2,517		4,522		4,905
Interest and dividends	1,105		1,193		2,282		2,449
Other investment income	526		926		966		1,336
Net realized investment gains (losses)	553		(14)		141		776
Changes in the estimated fair value of equity security investments	7,972		1,142		(6,486)		5,812
Other	120		90		258		405
Total Revenues	61,748		42,733		91,649		82,679

Operating Expenses:
Commissions to agents	24,089		16,275		44,276		31,333
Provision for claims	1,994		2,397		2,900		2,623
Personnel expenses	12,248		11,683		24,057		23,295
Office and technology expenses	2,457		2,230		4,872		4,453
Other expenses	3,038		3,228		6,151		5,742
Total Operating Expenses	43,826		35,813		82,256		67,446

Income before Income Taxes	17,922		6,920		9,393		15,233

Provision for Income Taxes	3,427		1,420		1,909		3,107

Net Income	$	14,495	$	5,500	$	7,484	$	12,126

Basic Earnings per Common Share	$	7.66	$	2.91	$	3.96	$	6.42

Weighted Average Shares Outstanding – Basic	1,892		1,889		1,891		1,888

Diluted Earnings per Common Share	$	7.65	$	2.90	$	3.95	$	6.40

Weighted Average Shares Outstanding – Diluted	1,895		1,896		1,895		1,896


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net income	$	14,495	$	5,500	$	7,484	$	12,126
Other comprehensive income, before tax:
Accumulated postretirement benefit obligation adjustment	—		—		(41)		—
Net unrealized gain on investments arising during the period	1,423		966		1,032		2,416
Reclassification adjustment for sale of securities included in net income	—		—		(30)		—
Reclassification adjustment for write-down of securities included in net income	—		—		482		—
Other comprehensive income, before tax	1,423		966		1,443		2,416
Income tax benefit related to postretirement health benefits	—		—		(9)		—
Income tax expense related to net unrealized gain on investments arising during the period	305		204		218		511
Income tax benefit related to reclassification adjustment for sale of securities included in net income	—		—		(6)		—
Income tax expense related to reclassification adjustment for write-down of securities included in net income	—		—		110		—
Net income tax expense on other comprehensive income	305		204		313		511
Other comprehensive income	1,118		762		1,130		1,905
Comprehensive Income	$	15,613	$	6,262	$	8,614	$	14,031


	Common Stock					Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	Shares	Amount
Balance, March 31, 2019	1,889	$	—	$	180,637	$	2,092	$	182,729
Net income				5,500				5,500
Dividends paid ($0.40 per share)				(756)				(756)
Exercise of stock appreciation rights	—			1				1
Share-based compensation expense related to stock appreciation rights				59				59
Net unrealized gain on investments						762		762
Balance, June 30, 2019	1,889	$	—	$	185,441	$	2,854	$	188,295

Balance, March 31, 2020	1,891	$	—	$	180,535	$	3,112	$	183,647
Net income				14,495				14,495
Dividends paid ($0.44 per share)				(832)				(832)
Exercise of stock appreciation rights	1			—				—
Share-based compensation expense related to stock appreciation rights				37				37
Net unrealized gain on investments						1,118		1,118
Balance, June 30, 2020	1,892	$	—	$	194,235	$	4,230	$	198,465


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Consolidated Statements of Cash Flows, continued
	Six Months Ended June 30,
	2020		2019
Supplemental Disclosures:
Cash Paid During the Year for:
Income tax payments, net	$	3,413	$	7,972
Non-Cash Investing and Financing Activities:
Non-cash net unrealized gain on investments, net of deferred tax provision of $(322) and $(511) for June 30, 2020 and 2019, respectively	$	(1,162)	$	(1,905)
Adjustments to postretirement benefits obligation, net of deferred tax benefit of $9 and $0 for June 30, 2020 and 2019, respectively	$	32	$	—


(in thousands)	June 30, 2020		December 31, 2019
Balance, beginning of period	$	31,333	$	31,729
Provision charged to operations	2,900		3,532
Payments of claims, net of recoveries	(1,539)		(3,928)
Balance, end of period	$	32,694	$	31,333


(in thousands, except percentages)	June 30, 2020		%	December 31, 2019		%
Known title claims	$	4,037	12.3	$	3,799	12.1
IBNR	28,657		87.7	27,534		87.9
Total reserve for claims	$	32,694	100.0	$	31,333	100.0


	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share amounts)	2020		2019		2020		2019
Net income	$	14,495	$	5,500	$	7,484	$	12,126
Weighted average common shares outstanding – Basic	1,892		1,889		1,891		1,888
Incremental shares outstanding assuming the exercise of dilutive SARs (share-settled)	3		7		4		8
Weighted average common shares outstanding – Diluted	1,895		1,896		1,895		1,896
Basic earnings per common share	$	7.66	$	2.91	$	3.96	$	6.42
Diluted earnings per common share	$	7.65	$	2.90	$	3.95	$	6.40


(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, 2019	28	$	110.27	3.64	$	2,019
SARs granted	4	162.81
SARs exercised	(2)	50.50
Outstanding as of December 31, 2019	30	$	124.13	3.53	$	1,352
SARs granted	11	135.05
SARs exercised	(8)	75.75
Outstanding as of June 30, 2020	33	$	138.55	4.66	$	385

Exercisable as of June 30, 2020	25	$	140.79	3.96	$	385

Unvested as of June 30, 2020	8	$	131.81	6.78	$	—


	2020					2019
Expected Life in Years	6.2	-	7.0	7.0	-	7.0
Volatility	28.5%					30.2%
Interest Rate	0.7%					2.3%
Yield Rate	1.2%					1.0%


Three Months Ended June 30, 2020 (in thousands)	Title Insurance		All Other		Intersegment Eliminations		Total
Insurance and other services revenues	$	51,158	$	2,168	$	(1,734)	$	51,592
Investment income	8,358		1,245		—		9,603
Net realized gain on investments	527		26		—		553
Total revenues	$	60,043	$	3,439	$	(1,734)	$	61,748
Operating expenses	43,074		2,340		(1,588)		43,826
Income before income taxes	$	16,969	$	1,099	$	(146)	$	17,922
Total assets	$	204,523	$	75,385	$	—	$	279,908


Three Months Ended June 30, 2019 (in thousands)	Title Insurance		All Other		Intersegment Eliminations		Total
Insurance and other services revenues	$	38,601	$	2,831	$	(1,946)	$	39,486
Investment income	2,471		790		—		3,261
Net realized loss on investments	(8)		(6)		—		(14)
Total revenues	$	41,064	$	3,615	$	(1,946)	$	42,733
Operating expenses	35,139		2,485		(1,811)		35,813
Income before income taxes	$	5,925	$	1,130	$	(135)	$	6,920
Total assets	$	187,754	$	68,740	$	—	$	256,494


As of June 30, 2020 (in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturity securities, available-for-sale, at fair value:
Government obligations	$	24,093	$	231	$	—	$	24,324
General obligations of U.S. states, territories and political subdivisions	18,507		1,227		—		19,734
Special revenue issuer obligations of U.S. states, territories and political subdivisions	50,102		3,001		4		53,099
Corporate debt securities	3,959		999		—		4,958
Total	$	96,661	$	5,458	$	4	$	102,115


As of December 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	$	25,161	$	6	$	4	$	25,163
General obligations of U.S. states, territories and political subdivisions	18,887		843		—		19,730
Special revenue issuer obligations of U.S. states, territories and political subdivisions	51,188		2,530		20		53,698
Corporate debt securities	5,431		621		5		6,047
Total	$	100,667	$	4,000	$	29	$	104,638


	Available-for-Sale
(in thousands)	Amortized Cost		Estimated Fair Value
Due in one year or less	$	33,153	$	33,434
Due one year through five years	40,527		43,423
Due five years through ten years	22,167		23,897
Due after ten years	814		1,361
Total	$	96,661	$	102,115


	Less than 12 Months						12 Months or Longer						Total
As of June 30, 2020 (in thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Special revenue issuer obligations of U.S. states, territories and political subdivisions	$	—	$	—	$	1,106	$	(4)	$	1,106	$	(4)
Total temporarily impaired securities	$	—	$	—	$	1,106	$	(4)	$	1,106	$	(4)


Six Months Ended June 30, 2020 (in thousands)	Title Insurance		All Other		Intersegment Eliminations		Total
Insurance and other services revenues	$	93,011	$	4,973	$	(3,238)	$	94,746
Investment loss	(3,102)		(136)		—		(3,238)
Net realized gain (loss) on investments	590		(449)		—		141
Total revenues	$	90,499	$	4,388	$	(3,238)	$	91,649
Operating expenses	80,517		4,685		(2,946)		82,256
Income (loss) before income taxes	$	9,982	$	(297)	$	(292)	$	9,393
Total assets	$	204,523	$	75,385	$	—	$	279,908


Six Months Ended June 30, 2019 (in thousands)	Title Insurance		All Other		Intersegment Eliminations		Total
Insurance and other services revenues	$	69,920	$	5,522	$	(3,136)	$	72,306
Investment income	7,901		1,696		—		9,597
Net realized gain on investments	756		20		—		776
Total revenues	$	78,577	$	7,238	$	(3,136)	$	82,679
Operating expenses	65,591		4,722		(2,867)		67,446
Income before income taxes	$	12,986	$	2,516	$	(269)	$	15,233
Total assets	$	187,754	$	68,740	$	—	$	256,494


As of June 30, 2020 (in thousands)	Cost		Estimated Fair Value
Equity securities, at fair value:
Common stocks	$	34,778	$	55,830
Total	$	34,778	$	55,830


(in thousands)	Balance Sheet Classification	Carrying Value		Estimated Fair Value		Maximum Potential Loss (a)
Tax credit LPs	Other investments	$	267	$	267	$	1,768
Real estate LLCs or LPs	Other investments	5,406		7,356		6,675
Small business investment LPs	Other investments	6,648		6,257		12,955
Total		$	12,321	$	13,880	$	21,398


(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.


As of June 30, 2020 (in thousands)	Level 1		Level 2		Level 3		Total
Fixed maturity securities:
Obligations of U.S. states, territories and political subdivisions*	$	24,324	$	72,834	$	—	$	97,158
Corporate debt securities*	—		4,957		—		4,957
Total	$	24,324	$	77,791	$	—	$	102,115


(in thousands)	Balance, December 31, 2019		Amounts Impaired		Observable Changes		Purchases and Additional Commitments Paid		Sales, Returns of Capital and Other Reductions		Balance, June 30, 2020
Other investments:
Equity investments in unconsolidated affiliates, measurement alternative	$	7,899	$	—	$	—	$	642	$	(32)	$	8,509
Total	$	7,899	$	—	$	—	$	642	$	(32)	$	8,509


(in thousands)	Balance, December 31, 2018		Amounts Impaired		Observable Changes		Purchases and Additional Commitments Paid		Sales, Returns of Capital and Other Reductions		Balance, December 31, 2019
Other investments:
Equity investments in unconsolidated affiliates, measurement alternative	$	6,589	$	—	$	—	$	2,241	$	(931)	$	7,899
Total	$	6,589	$	—	$	—	$	2,241	$	(931)	$	7,899


Financial Statement Classification, Consolidated Balance Sheets (in thousands)	As of June 30, 2020		As of December 31, 2019
Other investments	$	6,371	$	6,083
Premium and fees receivable	$	531	$	410


Year Ended (in thousands)
2020	$	252
2021	562
2022	525
2023	525
2024	473
Thereafter	3,337
Total	$	5,674


Three Months Ended June 30, 2020 (in thousands)	Unrealized Gains and Losses On Available-for-Sale Securities		Postretirement Benefits Plans		Total
Beginning balance at March 31	$	3,176	$	(64)	$	3,112
Other comprehensive income before reclassifications	1,118		—		1,118
Amounts reclassified from accumulated other comprehensive income	—		—		—
Net current-period other comprehensive income	1,118		—		1,118
Ending balance	$	4,294	$	(64)	$	4,230


Three Months Ended June 30, 2019 (in thousands)	Unrealized Gains and Losses On Available-for-Sale Securities		Postretirement Benefits Plans		Total
Beginning balance at March 31	$	2,124	$	(32)	$	2,092
Other comprehensive income before reclassifications	762		—		762
Amounts reclassified from accumulated other comprehensive income	—		—		—
Net current-period other comprehensive income	762		—		762
Ending balance	$	2,886	$	(32)	$	2,854


Three Months Ended June 30, 2020 (in thousands)
Details about Accumulated Other Comprehensive Income Components (in thousands)	Amount Reclassified from Accumulated Other Comprehensive Income		Affected Line Item in the Consolidated Statements of Operations
Unrealized gains (losses) on available-for-sale securities:
Net realized gain on investments	$	—
Other-than-temporary impairments	—
Total	$	—	Net realized investment gains (losses)
Tax	—		Provision for income taxes
Net of Tax	$	—
Reclassifications for the period	$	—


Six Months Ended June 30, 2020 (in thousands)
Details about Accumulated Other Comprehensive Income Components (in thousands)	Amount Reclassified from Accumulated Other Comprehensive Income		Affected Line Item in the Consolidated Statements of Operations
Unrealized gains (losses) on available-for-sale securities:
Net realized gain on investments	$	30
Other-than-temporary impairments	(482)
Total	$	(452)	Net realized investment gains (losses)
Tax	104		Provision for income taxes
Net of Tax	$	(348)
Reclassifications for the period	$	(348)


(b)						Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets.


	As of June 30, 2020		As of December 31, 2019
Weighted average remaining lease term (years)	4.48		4.84
Weighted average discount rate	4.6	%	4.6	%


	Three Months Ended June 30,						Six Months Ended June 30,
State (in thousands)	2020		2019		2020		2019
North Carolina	$	18,098	$	14,456	$	32,041	$	24,661
Texas	8,462		6,235		15,979		12,350
Georgia	4,899		3,572		9,404		6,771
South Carolina	4,158		3,068		7,639		6,339
Virginia	1,951		1,452		3,603		2,630
All Others	9,990		6,290		17,639		11,272
Premiums Written	47,558		35,073		86,305		64,023
Reinsurance Assumed	—		—		3		—
Reinsurance Ceded	(79)		(95)		(202)		(250)
Net Premiums Written	$	47,479	$	34,978	$	86,106	$	63,773


	Issuer Purchases of Equity Securities (unrounded)
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan	Maximum Number of Shares that May Yet Be Purchased Under the Plan
Beginning of period					428,186
April 2020	—	$	—	—	428,186
May 2020	—	—		—	428,186
June 2020	—	—		—	428,186
Total	—	$	—	—	428,186


31(i)			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31(ii)			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32			Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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104			Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

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			INVESTORS TITLE COMPANY

			By:			/s/ James A. Fine, Jr.
						James A. Fine, Jr., President, Treasurer, Chief
						Financial Officer, Chief Accounting Officer and
						Director (Principal Financial Officer and
						Principal Accounting Officer)