Investors Title Co 10-Q for FY2020 Q3

Investors Title Co (ITIC)

10-Q 2020-11-09 For: 2020-09-30

Added on April 07, 2026

About this 10-Q

Investors Title Co filed this 10-Q on November 9, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).

Headline figures

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

Revenue: $67.63M; up 41.1% from $47.94M a year earlier
Net income: $15.3M; up 92.4% from net income of $7.95M a year earlier
Diluted EPS: $8.07; up 92.1% from $4.20 a year earlier

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PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements:

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

	Consolidated Statements of Operations For the Three and Nine Months Ended September 30, 2020 and 2019	2

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

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

	Consolidated Statements of Cash Flows For the Nine Months Ended September 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


	September 30, 2020		December 31, 2019
Assets
Cash and cash equivalents	$	41,534	$	25,949
Investments:
Fixed maturity securities, available-for-sale, at fair value (amortized cost: September 30, 2020: $92,912; December 31, 2019: $100,667)	98,428		104,638
Equity securities, at fair value (cost: September 30, 2020: $34,180; December 31, 2019: $33,570)	58,851		61,108
Short-term investments	22,516		13,134
Other investments	14,829		13,982
Total investments	194,624		192,862

Premium and fees receivable	17,291		12,523
Accrued interest and dividends	1,187		1,033
Prepaid expenses and other receivables	9,185		5,519
Property, net	10,669		9,776
Goodwill and other intangible assets, net	9,897		10,275
Operating lease right-of-use assets	3,798		4,469
Other assets	1,560		1,487
Total Assets	$	289,745	$	263,893

Liabilities and Stockholders’ Equity
Liabilities:
Reserve for claims	$	33,532	$	31,333
Accounts payable and accrued liabilities	31,565		28,318
Operating lease liabilities	3,937		4,502
Current income taxes payable	813		1,340
Deferred income taxes, net	6,971		7,038
Total liabilities	76,818		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 September 30, 2020 and December 31, 2019, respectively, excluding in each period 292 shares of common stock held by the Company)	—		—
Retained earnings	208,647		188,262
Accumulated other comprehensive income	4,280		3,100
Total stockholders' equity	212,927		191,362
Total Liabilities and Stockholders’ Equity	$	289,745	$	263,893


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenues:
Net premiums written	$	57,205	$	40,169	$	143,311	$	103,942
Escrow and other title-related fees	2,154		2,393		6,014		5,616
Non-title services	1,954		2,539		6,476		7,444
Interest and dividends	1,060		1,156		3,342		3,605
Other investment income	1,270		708		2,236		2,044
Net realized investment gains	186		423		327		1,199
Changes in the estimated fair value of equity security investments	3,619		406		(2,867)		6,218
Other	185		145		443		550
Total Revenues	67,633		47,939		159,282		130,618

Operating Expenses:
Commissions to agents	29,068		19,928		73,344		51,261
Provision for claims	1,552		987		4,452		3,610
Personnel expenses	12,575		11,576		36,632		34,871
Office and technology expenses	2,456		2,350		7,328		6,803
Other expenses	3,125		3,079		9,276		8,821
Total Operating Expenses	48,776		37,920		131,032		105,366

Income before Income Taxes	18,857		10,019		28,250		25,252

Provision for Income Taxes	3,556		2,067		5,465		5,174

Net Income	$	15,301	$	7,952	$	22,785	$	20,078

Basic Earnings per Common Share	$	8.09	$	4.21	$	12.04	$	10.63

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

Diluted Earnings per Common Share	$	8.07	$	4.20	$	12.02	$	10.59

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income	$	15,301	$	7,952	$	22,785	$	20,078
Other comprehensive income, before tax:
Accumulated postretirement benefit obligation adjustment	—		—		(41)		—
Net unrealized gain on investments arising during the period	61		431		1,093		2,847
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	61		431		1,504		2,847
Income tax benefit related to postretirement health benefits	—		—		(9)		—
Income tax expense related to net unrealized gain on investments arising during the period	11		90		229		601
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	11		90		324		601
Other comprehensive income	50		341		1,180		2,246
Comprehensive Income	$	15,351	$	8,293	$	23,965	$	22,324


	Common Stock			Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	Shares	Amount
Balance, June 30, 2019	1,889	$	—	$	185,441	$	2,854	$	188,295
Net income				7,952				7,952
Dividends paid ($0.40 per share)				(755)				(755)
Exercise of stock appreciation rights	—			—				—
Share-based compensation expense related to stock appreciation rights				57				57
Net unrealized gain on investments						341		341
Balance, September 30, 2019	1,889	$	—	$	192,695	$	3,195	$	195,890

Balance, June 30, 2020	1,892	$	—	$	194,235	$	4,230	$	198,465
Net income				15,301				15,301
Dividends paid ($0.44 per share)				(833)				(833)
Exercise of stock appreciation rights	—			—				—
Share-based compensation expense related to stock appreciation rights				38				38
Net unrealized gain on investments						50		50
Other				(94)				(94)
Balance, September 30, 2020	1,892	$	—	$	208,647	$	4,280	$	212,927


☒			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
	Nine Months Ended September 30,
	2020		2019
Supplemental Disclosures:
Cash Paid During the Year for:
Income tax payments, net	$	6,889	$	9,150
Non-Cash Investing and Financing Activities:
Non-cash net unrealized gain on investments, net of deferred tax provision of $(333) and $(601) for September 30, 2020 and 2019, respectively	$	(1,212)	$	(2,246)
Adjustments to postretirement benefits obligation, net of deferred tax benefit of $9 and $0 for September 30, 2020 and 2019, respectively	$	32	$	—
Adjustments to operating lease right-of-use assets for September 30, 2020 and 2019, respectively	$	94	$	—


(in thousands)	September 30, 2020		December 31, 2019
Balance, beginning of period	$	31,333	$	31,729
Provision charged to operations	4,452		3,532
Payments of claims, net of recoveries	(2,253)		(3,928)
Balance, end of period	$	33,532	$	31,333


(in thousands, except percentages)	September 30, 2020		%	December 31, 2019		%
Known title claims	$	3,993	11.9	$	3,799	12.1
IBNR	29,539		88.1	27,534		87.9
Total reserve for claims	$	33,532	100.0	$	31,333	100.0


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2020		2019		2020		2019
Net income	$	15,301	$	7,952	$	22,785	$	20,078
Weighted average common shares outstanding – Basic	1,892		1,889		1,892		1,888
Incremental shares outstanding assuming the exercise of dilutive SARs (share-settled)	3		6		4		8
Weighted average common shares outstanding – Diluted	1,895		1,895		1,896		1,896
Basic earnings per common share	$	8.09	$	4.21	$	12.04	$	10.63
Diluted earnings per common share	$	8.07	$	4.20	$	12.02	$	10.59


(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 September 30, 2020	33	$	138.55	4.41	$	496

Exercisable as of September 30, 2020	26	$	140.02	3.83	$	480

Unvested as of September 30, 2020	7	$	133.21	6.52	$	16


	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 September 30, 2020 (in thousands)	Title Insurance		All Other		Intersegment Eliminations		Total
Insurance and other services revenues	$	61,809	$	2,176	$	(2,487)	$	61,498
Investment income	5,627		322		—		5,949
Net realized (loss) gain on investments	(263)		449		—		186
Total revenues	$	67,173	$	2,947	$	(2,487)	$	67,633
Operating expenses	49,260		1,858		(2,342)		48,776
Income before income taxes	$	17,913	$	1,089	$	(145)	$	18,857
Total assets	$	213,152	$	76,593	$	—	$	289,745


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


As of September 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	$	24,060	$	152	$	—	$	24,212
General obligations of U.S. states, territories and political subdivisions	17,569		1,245		—		18,814
Special revenue issuer obligations of U.S. states, territories and political subdivisions	47,305		3,098		3		50,400
Corporate debt securities	3,978		1,024		—		5,002
Total	$	92,912	$	5,519	$	3	$	98,428


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	$	31,052	$	31,253
Due one year through five years	42,795		46,050
Due five years through ten years	18,250		19,741
Due after ten years	815		1,384
Total	$	92,912	$	98,428


	Less than 12 Months				12 Months or Longer				Total
As of September 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	$	—	$	—	$	1,103	$	(3)	$	1,103	$	(3)
Total temporarily impaired securities	$	—	$	—	$	1,103	$	(3)	$	1,103	$	(3)


Nine Months Ended September 30, 2020 (in thousands)	Title Insurance		All Other		Intersegment Eliminations		Total
Insurance and other services revenues	$	154,820	$	7,149	$	(5,725)	$	156,244
Investment income	2,525		186		—		2,711
Net realized gain on investments	327		—		—		327
Total revenues	$	157,672	$	7,335	$	(5,725)	$	159,282
Operating expenses	129,777		6,543		(5,288)		131,032
Income before income taxes	$	27,895	$	792	$	(437)	$	28,250
Total assets	$	213,152	$	76,593	$	—	$	289,745


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


As of September 30, 2020 (in thousands)	Cost		Estimated Fair Value
Equity securities, at fair value:
Common stocks	$	34,180	$	58,851
Total	$	34,180	$	58,851


(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	5,090		6,680		6,675
Small business investment LPs	Other investments	7,125		6,667		12,955
Total		$	12,482	$	13,614	$	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 September 30, 2020 (in thousands)	Level 1		Level 2 *		Level 3		Total
Fixed maturity securities:
Obligations of U.S. states, territories and political subdivisions	$	24,212	$	69,214	$	—	$	93,426
Corporate debt securities	—		5,002		—		5,002
Total	$	24,212	$	74,216	$	—	$	98,428


As of September 30, 2020 (in thousands)	Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	41,534	$	—	$	—	$	41,534
Accrued interest and dividends	1,187		—		—		1,187
Equity securities, at fair value:
Common stocks	58,851		—		—		58,851
Short-term investments:
Money market funds, Treasury bills and certificates of deposit	22,516		—		—		22,516
Other investments:
Equity investments in unconsolidated affiliates, equity method	—		—		6,541		6,541
Equity investments in unconsolidated affiliates, measurement alternative	—		—		8,288		8,288
Total	$	124,088	$	—	$	14,829	$	138,917


(in thousands)	Balance, December 31, 2019		Amounts Impaired		Observable Changes		Purchases and Additional Commitments Paid		Sales, Returns of Capital and Other Reductions		Balance, September 30, 2020
Other investments:
Equity investments in unconsolidated affiliates, measurement alternative	$	7,899	$	—	$	—	$	642	$	(253)	$	8,288
Total	$	7,899	$	—	$	—	$	642	$	(253)	$	8,288


(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 September 30, 2020		As of December 31, 2019
Other investments	$	6,541	$	6,083
Premium and fees receivable	$	635	$	410


Year Ended (in thousands)
2020	$	126
2021	562
2022	525
2023	525
2024	473
Thereafter	3,336
Total	$	5,547


Three Months Ended September 30, 2020 (in thousands)	Unrealized Gains and Losses On Available-for-Sale Securities		Postretirement Benefits Plans		Total
Beginning balance at June 30	$	4,294	$	(64)	$	4,230
Other comprehensive income before reclassifications	50		—		50
Amounts reclassified from accumulated other comprehensive income	—		—		—
Net current-period other comprehensive income	50		—		50
Ending balance	$	4,344	$	(64)	$	4,280


Three Months Ended September 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
Tax	—		Provision for income taxes
Net of Tax	$	—
Reclassifications for the period	$	—


Nine Months Ended September 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
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 September 30, 2020		As of December 31, 2019
Weighted average remaining lease term (years)	4.40		4.84
Weighted average discount rate	4.6	%	4.6	%


	Three Months Ended September 30,				Nine Months Ended September 30,
State (in thousands)	2020		2019		2020		2019
North Carolina	$	21,524	$	16,129	$	53,565	$	40,790
Texas	10,956		7,579		26,935		19,929
Georgia	6,347		4,535		15,751		11,306
South Carolina	4,646		3,212		12,285		9,551
Virginia	2,122		1,686		5,725		4,316
All Others	11,782		7,113		29,421		18,385
Premiums Written	57,377		40,254		143,682		104,277
Reinsurance Assumed	—		—		3		—
Reinsurance Ceded	(172)		(85)		(374)		(335)
Net Premiums Written	$	57,205	$	40,169	$	143,311	$	103,942


	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 (1)
Beginning of period					428,186
July 1 through July 31, 2020	—	$	—	—	428,186
August 1 through August 31, 2020	—	—		—	428,186
September 1 through September 30, 2020	—	—		—	428,186
Total	—	$	—	—	428,186


3.1			Amended and Restated Bylaws, dated November 9, 2020

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

101.INS			Inline XBRL Instance Document*

101.SCH			Inline XBRL Taxonomy Extension Schema Document

101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document

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

* - The instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document


			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)