Investors Title Co 10-Q for FY2022 Q2

Investors Title Co (ITIC)

10-Q 2022-08-09 For: 2022-06-30

Added on April 07, 2026

About this 10-Q

Investors Title Co filed this 10-Q on August 9, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).

Headline figures

Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $70.9M; down 16.5% from $84.96M a year earlier
Net income: $2.28M; down 88.5% from net income of $19.78M a year earlier
Diluted EPS: $1.20; down 88.5% from $10.42 a year earlier

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PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	1

	Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2022 and 2021	2

	Consolidated Statements of Comprehensive Income For the Three and Six Months Ended June 30, 2022 and 2021	3

	Consolidated Statements of Stockholders’ Equity For the Three and Six Months Ended June 30, 2022 and 2021	4

	Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2022 and 2021	5

	Notes to Consolidated Financial Statements	7

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	37

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	39

SIGNATURE		40


	June 30, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	35,486	$	37,168
Investments:
Fixed maturity securities, available-for-sale, at fair value (amortized cost: June 30, 2022: $60,874; December 31, 2021: $75,511)	61,385		79,791
Equity securities, at fair value (cost: June 30, 2022: $25,613; December 31, 2021: $29,478)	54,901		76,853
Short-term investments	71,319		45,930
Other investments	19,693		20,298
Total investments	207,298		222,872

Premiums and fees receivable	25,377		22,953
Accrued interest and dividends	733		817
Prepaid expenses and other receivables	13,002		11,721
Property, net	15,698		13,033
Goodwill and other intangible assets, net	18,325		15,951
Operating lease right-of-use assets	6,561		5,202
Other assets	2,322		1,771
Current income taxes receivable	390		—
Total Assets	$	325,192	$	331,488

Liabilities and Stockholders’ Equity
Liabilities:
Reserve for claims	$	36,603	$	36,754
Accounts payable and accrued liabilities	40,044		43,868
Operating lease liabilities	6,704		5,329
Current income taxes payable	—		3,329
Deferred income taxes, net	8,662		13,121
Total liabilities	92,013		102,401

Commitments and Contingencies	—		—

Stockholders’ Equity:
Preferred stock (1,000 authorized shares; no shares issued)	—		—
Common stock – no par value (10,000 authorized shares; 1,897 and 1,895 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively, excluding in each period 292 shares of common stock held by the Company)	—		—
Retained earnings	232,759		225,861
Accumulated other comprehensive income	420		3,226
Total stockholders' equity	233,179		229,087
Total Liabilities and Stockholders’ Equity	$	325,192	$	331,488


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenues:
Net premiums written	$	69,626	$	67,527	$	132,751	$	129,004
Escrow and other title-related fees	6,209		3,487		11,273		6,285
Non-title services	2,836		2,408		5,262		4,486
Interest and dividends	911		898		1,826		1,914
Other investment income	1,106		1,483		2,443		2,424
Net realized investment gains	2,038		182		3,785		503
Changes in the estimated fair value of equity security investments	(12,172)		4,829		(18,087)		8,068
Other	348		4,147		647		4,355
Total Revenues	$	70,902	$	84,961	$	139,900	$	157,039

Operating Expenses:
Commissions to agents	33,826		34,346		63,683		64,888
Provision for claims	1,310		1,436		1,486		3,027
Personnel expenses	20,898		15,914		42,152		32,067
Office and technology expenses	4,288		3,211		8,656		5,953
Other expenses	7,627		4,766		13,177		8,501
Total Operating Expenses	67,949		59,673		129,154		114,436

Income before Income Taxes	2,953		25,288		10,746		42,603

Provision for Income Taxes	674		5,506		2,282		8,998

Net Income	$	2,279	$	19,782	$	8,464	$	33,605

Basic Earnings per Common Share	$	1.20	$	10.44	$	4.46	$	17.74

Weighted Average Shares Outstanding – Basic	1,897		1,894		1,897		1,894

Diluted Earnings per Common Share	$	1.20	$	10.42	$	4.45	$	17.70

Weighted Average Shares Outstanding – Diluted	1,899		1,899		1,900		1,898


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	2,279	$	19,782	$	8,464	$	33,605
Other comprehensive (loss) income, before income tax:
Accumulated postretirement benefit obligation adjustment	(8)		—		211		—
Net unrealized (losses) gains on investments arising during the period	(1,178)		59		(3,942)		(691)
Reclassification adjustment for sale of securities included in net income	46		53		46		30
Reclassification adjustment for write-down of securities included in net income	127		—		127		—
Other comprehensive (loss) income, before income tax	(1,013)		112		(3,558)		(661)
Income tax (benefit) expense related to postretirement health benefits	(2)		—		44		—
Income tax (benefit) expense related to net unrealized (losses) gains on investments arising during the period	(252)		12		(835)		(146)
Income tax expense related to reclassification adjustment for sale of securities included in net income	10		11		10		6
Income tax expense related to reclassification adjustment for write-down of securities included in net income	29		—		29		—
Net income tax (benefit) expense on other comprehensive (loss) income	(215)		23		(752)		(140)
Other comprehensive (loss) income	(798)		89		(2,806)		(521)
Comprehensive Income	$	1,481	$	19,871	$	5,658	$	33,084


	Common Stock			Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	Shares	Amount
Balance, March 31, 2021	1,894	$	—	$	209,157	$	3,716	$	212,873
Net income				19,782				19,782
Dividends paid ($0.46 per share)				(873)				(873)
Share-based compensation expense related to stock appreciation rights				67				67
Net unrealized gain on investments						89		89
Balance, June 30, 2021	1,894	$	—	$	228,133	$	3,805	$	231,938

Balance, March 31, 2022	1,897	$	—	$	231,274	$	1,218	$	232,492
Net income				2,279				2,279
Dividends paid ($0.46 per share)				(872)				(872)
Share-based compensation expense related to stock appreciation rights				78				78
Accumulated postretirement benefit obligation adjustment						(6)		(6)
Net unrealized loss on investments						(792)		(792)
Balance, June 30, 2022	1,897	$	—	$	232,759	$	420	$	233,179


☒			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,
	2022		2021
Supplemental Disclosures:
Cash Paid During the Year for:
Income tax payments, net	$	9,709	$	7,423
Non-Cash Investing and Financing Activities:
Non-cash net unrealized loss on investments, net of deferred tax benefit of $835 and $140 for June 30, 2022 and 2021, respectively	$	2,973	$	521
Adjustments to postretirement benefits obligation, net of deferred tax expense of $(44) and $0 for June 30, 2022 and 2021, respectively	$	(167)	$	—
Changes in Financial Statement Amounts Related to Purchase of Subsidiaries, Net of Cash Received:
Goodwill and other intangibles acquired	$	(3,028)	$	—
Title plant acquired	(500)		—
Prepaid and other assets acquired	(77)		—
Fixed assets acquired	(1,322)		—
Purchase of subsidiary, net of cash received	$	(4,927)	$	—


(in thousands)	June 30, 2022		December 31, 2021
Balance, beginning of period	$	36,754	$	33,584
Provision charged to operations	1,486		5,686
Payments of claims, net of recoveries	(1,637)		(2,516)
Balance, end of period	$	36,603	$	36,754


(in thousands, except percentages)	June 30, 2022		%	December 31, 2021		%
Known title claims	$	3,380	9.2	$	3,317	9.0
IBNR	33,223		90.8	33,437		91.0
Total reserve for claims	$	36,603	100.0	$	36,754	100.0


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2022		2021		2022		2021
Net income	$	2,279	$	19,782	$	8,464	$	33,605
Weighted average common shares outstanding – Basic	1,897		1,894		1,897		1,894
Incremental shares outstanding assuming the exercise of dilutive SARs (share-settled)	2		5		3		4
Weighted average common shares outstanding – Diluted	1,899		1,899		1,900		1,898
Basic earnings per common share	$	1.20	$	10.44	$	4.46	$	17.74
Diluted earnings per common share	$	1.20	$	10.42	$	4.45	$	17.70


(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, 2021	36	$	139.16	4.38	$	903
SARs granted	5	184.26
SARs exercised	(6)	106.71
Outstanding as of December 31, 2021	35	$	150.36	3.96	$	1,643
SARs granted	5	166.90
SARs exercised	(4)	89.23
Outstanding as of June 30, 2022	36	$	159.32	4.16	$	407

Exercisable as of June 30, 2022	27	$	161.95	3.65	$	324

Unvested as of June 30, 2022	9	$	151.27	5.73	$	83


	2022	2021
Expected Life in Years	7.0	7.0
Volatility	35.0%	33.9%
Interest Rate	2.9%	1.3%
Yield Rate	0.1%	1.1%


Three Months Ended June 30, 2022 (in thousands)	Title Insurance		All Other		Intersegment Eliminations		Total
Insurance and other services revenues	$	83,478	$	3,242	$	(7,701)	$	79,019
Investment loss	(9,544)		(611)		—		(10,155)
Net realized gain (loss) on investments	2,460		(422)		—		2,038
Total revenues	$	76,394	$	2,209	$	(7,701)	$	70,902
Operating expenses	72,234		3,265		(7,550)		67,949
Income (loss) before income taxes	$	4,160	$	(1,056)	$	(151)	$	2,953
Total assets	$	249,160	$	76,032	$	—	$	325,192


Three Months Ended June 30, 2021 (in thousands)	Title Insurance		All Other		Intersegment Eliminations		Total
Insurance and other services revenues	$	74,599	$	6,655	$	(3,685)	$	77,569
Investment income	6,504		706		—		7,210
Net realized gain on investments	161		21		—		182
Total revenues	$	81,264	$	7,382	$	(3,685)	$	84,961
Operating expenses	60,521		2,686		(3,534)		59,673
Income before income taxes	$	20,743	$	4,696	$	(151)	$	25,288
Total assets	$	239,572	$	77,367	$	—	$	316,939


As of June 30, 2022 (in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturity securities, available-for-sale, at fair value:
General obligations of U.S. states, territories and political subdivisions	$	13,731	$	97	$	43	$	13,785
Special revenue issuer obligations of U.S. states, territories and political subdivisions	38,164		305		325		38,144
Corporate debt securities	8,979		527		50		9,456
Total	$	60,874	$	929	$	418	$	61,385


As of December 31, 2021 (in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturity securities, available-for-sale, at fair value:
General obligations of U.S. states, territories and political subdivisions	$	16,669	$	922	$	—	$	17,591
Special revenue issuer obligations of U.S. states, territories and political subdivisions	41,753		2,453		2		44,204
Corporate debt securities	17,089		955		48		17,996
Total	$	75,511	$	4,330	$	50	$	79,791


	Available-for-Sale
(in thousands)	Amortized Cost		Estimated Fair Value
Due in one year or less	$	13,766	$	13,811
Due one year through five years	43,360		43,538
Due five years through ten years	1,304		1,343
Due after ten years	2,444		2,693
Total	$	60,874	$	61,385


	Less than 12 Months				12 Months or Longer				Total
As of June 30, 2022 (in thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
General obligations of U.S. states, territories and political subdivisions	$	5,582	$	(43)	$	—	$	—	$	5,582	$	(43)
Special revenue issuer obligations of U.S. states, territories and political subdivisions	14,083		(322)		1,101		(3)		$	15,184	$	(325)
Corporate debt securities	650		(7)		2,746		(43)		3,396		(50)
Total temporarily impaired securities	$	20,315	$	(372)	$	3,847	$	(46)	$	24,162	$	(418)


Six Months Ended June 30, 2022 (in thousands)	Title Insurance		All Other		Intersegment Eliminations		Total
Insurance and other services revenues	$	156,543	$	5,979	$	(12,589)	$	149,933
Investment loss	(11,172)		(2,646)		—		(13,818)
Net realized gain on investments	2,511		1,274		—		3,785
Total revenues	$	147,882	$	4,607	$	(12,589)	$	139,900
Operating expenses	135,422		6,018		(12,286)		129,154
Income (loss) before income taxes	$	12,460	$	(1,411)	$	(303)	$	10,746
Total assets	$	249,160	$	76,032	$	—	$	325,192


Six Months Ended June 30, 2021 (in thousands)	Title Insurance		All Other		Intersegment Eliminations		Total
Insurance and other services revenues	$	141,120	$	8,993	$	(5,983)	$	144,130
Investment income	10,900		1,506		—		12,406
Net realized gain on investments	393		110		—		503
Total revenues	$	152,413	$	10,609	$	(5,983)	$	157,039
Operating expenses	115,051		5,071		(5,686)		114,436
Income before income taxes	$	37,362	$	5,538	$	(297)	$	42,603
Total assets	$	239,572	$	77,367	$	—	$	316,939


As of June 30, 2022 (in thousands)	Cost		Estimated Fair Value
Equity securities, at fair value:
Common stocks	$	25,613	$	54,901
Total	$	25,613	$	54,901


(in thousands)	Balance Sheet Classification	Carrying Value		Estimated Fair Value		Maximum Potential Loss (a)
Real estate LLCs or LPs	Other investments	$	3,528	$	4,648	$	5,408
Small business investment LPs	Other investments	9,019		9,107		14,320
Total		$	12,547	$	13,755	$	19,728


(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, 2022 (in thousands)	Level 1		Level 2 *		Level 3		Total
Fixed maturity securities:
Obligations of U.S. states, territories and political subdivisions	$	—	$	51,929	$	—	$	51,929
Corporate debt securities	—		9,456		—		9,456
Total	$	—	$	61,385	$	—	$	61,385


As of June 30, 2022 (in thousands)	Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	35,486	$	—	$	—	$	35,486
Accrued interest and dividends	733		—		—		733
Equity securities, at fair value:
Common stocks	54,901		—		—		54,901
Short-term investments:
Money market funds and US treasury bills	71,319		—		—		71,319
Other investments:
Equity investments in unconsolidated affiliates, measurement alternative	—		—		9,273		9,273
Total	$	162,439	$	—	$	9,273	$	171,712


(in thousands)	Balance, January 1, 2022		Amounts Impaired		Observable Changes		Purchases and Additional Commitments Paid		Sales, Returns of Capital and Other Reductions		Balance, June 30, 2022
Other investments:
Real Estate	$	4,987	$	—	$	—	$	—	$	—	$	4,987
Equity investments in unconsolidated affiliates, measurement alternative	8,688		—		—		722		(137)		9,273
Total	$	13,675	$	—	$	—	$	722	$	(137)	$	14,260


(in thousands)	Balance, January 1, 2021		Amounts Impaired		Observable Changes		Purchases and Additional Commitments Paid		Sales, Returns of Capital and Other Reductions		Balance, December 31, 2021
Other investments:
Real Estate	$	—	$	—	$	—	$	5,000	$	(13)	$	4,987
Equity investments in unconsolidated affiliates, measurement alternative	8,741		—		—		1,543		(1,596)		8,688
Total	$	8,741	$	—	$	—	$	6,543	$	(1,609)	$	13,675


Financial Statement Classification, Consolidated Balance Sheets (unaudited) (in thousands)	As of June 30, 2022		As of December 31, 2021
Other investments	$	5,433	$	6,623
Premium and fees receivable	$	860	$	882


Year Ended (in thousands)
2022	$	656
2023	1,345
2024	1,162
2025	1,079
2026	1,079
Thereafter	3,134
Total	$	8,455


Three Months Ended June 30, 2022 (in thousands)	Unrealized Gains and Losses On Available-for-Sale Securities		Postretirement Benefits Plans		Total
Beginning balance at March 31	$	1,189	$	29	$	1,218
Other comprehensive loss before reclassifications	(926)		(6)		(932)
Amounts reclassified from accumulated other comprehensive income	134		—		134
Net current-period other comprehensive loss	(792)		(6)		(798)
Ending balance	$	397	$	23	$	420


Three Months Ended June 30, 2022 (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 and losses on available-for-sale securities:
Net realized loss on investments	$	(46)
Other-than-temporary impairments	(127)
Total	$	(173)	Net realized investment gains
Tax	39		Provision for income taxes
Net of Tax	$	(134)
Reclassifications for the period	$	(134)


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


Year Ended (in thousands)
2022	$	1,305
2023	1,967
2024	1,582
2025	1,105
2026	933
Thereafter	316
Total undiscounted payments	$	7,208
Less: present value adjustment	(504)
Operating lease liabilities	$	6,704


	As of June 30, 2022		As of December 31, 2021
Weighted average remaining lease term (years)	3.87		4.13
Weighted average discount rate	3.9	%	4.2	%


	Three Months Ended June 30,				Six Months Ended June 30,
State (in thousands)	2022		2021		2022		2021
North Carolina	$	23,431	$	24,162	$	47,770	$	49,409
Texas	23,614		12,886		39,376		24,238
Georgia	5,753		10,971		12,725		17,860
South Carolina	5,554		5,333		10,942		10,682
All Others	11,542		14,289		22,436		27,061
Premiums Written	69,894		67,641		133,249		129,250
Reinsurance Assumed	—		—		—		—
Reinsurance Ceded	(268)		(114)		(498)		(246)
Net Premiums Written	$	69,626	$	67,527	$	132,751	$	129,004


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)


Dated:	August 9, 2022	/s/ J. Allen Fine
		J. Allen Fine
		Chief Executive Officer