UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from __to __
Commission file number 0-11774
INVESTORS TITLE COMPANY
(Exact name of registrant as specified in its charter)
North Carolina
(State or other jurisdiction of
incorporation or organization)
56-1110199
(I.R.S. Employer
Identification No.)
121 North Columbia Street
Chapel Hill, North Carolina 27514
(919) 968-2200
(Address and telephone number of principal executive office)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered:
Common Stock, no par value
ITIC
Rights to Purchase Series A Junior Participating Preferred Stock
The NASDAQ Stock Market LLC
The NASDAQ Stock Market LLC
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the shares held by non-affiliates of the registrant as of June 30, 2019 was $230,808,529 based on the closing price on the NASDAQ
Stock Market LLC.
As of February 17, 2020, there were 1,890,065 common shares of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Investors Title Company’s definitive proxy statement for the Annual Meeting of Shareholders to be held May 20, 2020 are incorporated by reference in
Part III hereof.
Safe Harbor and Forward-Looking Statements
This Annual Report on Form 10-K, as well as information included in future filings by the Company with the Securities and Exchange
Commission (“SEC”) and information contained in written material, press releases and oral statements issued by or on behalf of the
Company, contains, or may contain, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, that reflect management’s current outlook for future periods. These statements may
be identified by the use of words such as “plan,” “expect,” “aim,” “believe,” “project,” “anticipate,” “intend,” “estimate,” “should,”
“could,” “would” and other expressions that indicate future events and trends. All statements that address expectations or projections
about the future, including statements about the Company’s strategy for growth, product and service development, market share position,
claims, expenditures, financial results and cash requirements, are forward-looking statements. Without limitation, projected developments
in mortgage interest rates and the overall economic environment set forth in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Business Trends and Recent Conditions” constitute forward-looking statements. Forward-looking
statements are based on certain assumptions and expectations of future events that are subject to a number of risks and uncertainties. For
a description of factors that may cause actual results to differ materially from such forward-looking statements, refer to Item 1A, “Risk
Factors” of this Annual Report on Form 10-K.
Actual future results and trends may differ materially from historical results or those projected in any such forward-looking statements
depending on a variety of factors, including, but not limited to, the following:
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changes in interest rates and real estate values;
changes in general economic, business, and political conditions, including the performance of the financial and real estate
markets;
potential reform of government-sponsored entities;
the level of real estate transaction volumes, the level of mortgage origination volumes (including refinancing), the mix of title
insurance between markets with varying real estate values, changes to the insurance requirements of the participants in the
secondary mortgage market, and the effect of these factors on the demand for title insurance;
the possible inadequacy of provisions for claims to cover actual claim losses;
the incidence of fraud-related losses;
unanticipated adverse changes in securities markets could result in material losses to the Company’s investments;
significant competition that the Company’s operating subsidiaries face, including the Company’s ability to develop and offer
products and services that meet changing industry standards in a timely and cost-effective manner and expansion into new
geographic locations;
the Company’s reliance upon the North Carolina, Texas, Georgia and South Carolina markets for a significant portion of its
premiums, comprising approximately 39.1%, 18.2%, 11.2% and 9.4% of premiums written, respectively;
compliance with government regulation, including pricing regulation, and significant changes to applicable regulations or in
their application by regulators;
the impact of governmental oversight of compliance of the Company’s service providers, including the application of financial
regulation designed to protect consumers;
possible downgrades from a rating agency, which could result in a loss of underwriting business;
the inability of the Company to manage, develop and implement technological advancements and prevent system interruptions
or unauthorized system intrusions;
statutory requirements applicable to the Company’s insurance subsidiaries that require them to maintain minimum levels of
capital, surplus and reserves and that restrict the amount of dividends they may pay to the Company without prior regulatory
approval;
the desire to maintain capital above statutory minimum requirements for competitive, marketing and other reasons;
heightened regulatory scrutiny and investigations of the title insurance industry;
the Company’s dependence on key management and marketing personnel, the loss of whom could have a material adverse effect
on the Company’s business;
difficulty managing growth, whether organic or through acquisitions;
unfavorable economic or other conditions could cause the Company to record impairment charges for all or a portion of its
goodwill and other intangible assets;
policies and procedures for the mitigation of risks may be insufficient to prevent losses;
the shareholder rights plan could discourage transactions involving actual or potential changes of control; and
other risks detailed elsewhere in this document and in the Company’s other filings with the SEC.
These and other risks and uncertainties may be described from time to time in the Company’s other reports and filings with the SEC.
The Company is not under any obligation (and expressly disclaims any such obligation) and does not undertake to update or alter any
forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. You
should consider the possibility that actual results may differ materially from our forward-looking statements.
2 INVESTORS TITLE COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11,
Item 12.
Item 13.
Item 14.
Business
Information About Our Executive Officers
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Shares
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15.
Item 16.
Exhibits, Financial Statement Schedules
Form 10-K Summary
PART IV
Signatures
Index to Exhibits
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9
14
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3 ITEM 1. BUSINESS
GENERAL
PART I
Investors Title Company (the “Company”) is a holding company that operates through its subsidiaries and was incorporated in the
state of North Carolina in 1973. The Company became operational in 1976, when it acquired Investors Title Insurance Company (“ITIC”),
which had itself been operating since 1972, as a wholly owned subsidiary under a plan of exchange of shares of common stock. In 1983,
the Company acquired National Investors Title Insurance Company (“NITIC”), formerly Northeast Investors Title Insurance Company,
which had itself been operating since 1973, as a wholly owned subsidiary under a plan of exchange of shares of common stock. The
Company’s executive offices are located at 121 North Columbia Street, Chapel Hill, North Carolina 27514 and its telephone number is
(919) 968-2200. The Company maintains a website at www.invtitle.com.
OVERVIEW OF THE BUSINESS
The Company’s primary business activity, and its only reportable operating segment, is the issuance of residential and commercial
title insurance through ITIC and NITIC. Additionally, the Company provides tax-deferred real property exchange services through its
subsidiaries, Investors Title Exchange Corporation (“ITEC”) and Investors Title Accommodation Corporation (“ITAC”); investment
management and trust services to individuals, trusts and other entities through its subsidiary Investors Trust Company (“Investors Trust”);
and management services to title insurance agencies through its subsidiary, Investors Title Management Services (“ITMS”). Refer to
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 12 of the Notes to
Consolidated Financial Statements in this Annual Report on Form 10-K for additional information related to the revenues, income and
assets attributable to the Company’s primary operating segment.
Title Insurance
Through its two wholly owned title underwriting subsidiaries, ITIC and NITIC, the Company underwrites title insurance for owners
and mortgagees as a primary insurer. ITIC and NITIC offer primary title insurance coverage to owners and mortgagees of real estate
and assume reinsurance of title insurance risks from other title insurance companies. The commitments and policies are predominantly
issued using standard forms approved by the American Land Title Association (“ALTA”).
Title insurance protects against losses resulting from title defects affecting real property. Upon a real estate closing, the seller of real
property executes a deed to the new owner, and typically, the property is encumbered with a new mortgage. When real property is
conveyed from one party to another, occasionally there is an undisclosed or undiscovered defect in the title or a mistake or omission in
a prior deed or mortgage that may give a third party a legal claim against such property or result in the invalidity or unenforceability of
the insured mortgage. If a claim is made against the title to real property, title insurance provides indemnification against covered defects.
Numerous types of defects could jeopardize the property owner’s or mortgagee’s interest in the property for which a title policy may
provide coverage. Such risks include title being vested in an individual or entity other than the insured, lack of a right of access to the
property, invalidity or unenforceability of the insured mortgage, or other liens or encumbrances that make the property unmarketable.
The policy may provide coverage for defects arising from prior unsatisfied mortgages, judgments, tax liens or confirmed assessments,
or encumbrances against the property arising through easements, restrictions or other existing covenants. Title insurance may also protect
against deeds or mortgages that were forged or improperly acknowledged or delivered, that were executed by spouses without the other
spouse’s signature or that were conveyed by minors or other persons who lack legal capacity.
Title Insurance Policies. The Company issues title insurance policies based on a search of public records. The title search documents
the current status of title to the property. There are two basic types of title insurance policies – one for the mortgage lender and one for
the real property owner. A lender often requires property owners to purchase title insurance to protect the priority of its mortgage loan,
but the lender’s title insurance policy does not protect the property owner. The property owner has to purchase a separate owner’s title
insurance policy to protect its investment.
Insured Risk on Policies in Force. Generally, the amount of the insured risk under a title insurance policy is equal to the purchase
price, the loan amount or the fair market value of the insured property. If a claim is made against an insured property’s title, the insurer
can choose to pay the cost of eliminating the covered title defects or to defend the insured party against the covered title defects affecting
the property. In the alternative, the insurer may opt to pay the policy limits to the insured or, if the loss is less than the policy limits, the
amount of the insured’s actual loss due to such title defects, at which time the insurer’s duty to defend the claim and all other obligations
of the insurer with respect to the claim are satisfied.
4 At any given time, the insurer’s actual risk of monetary loss under outstanding policies is only a portion of the aggregate insured
risk, or total face amount, of all policies in force. The lower risk results primarily from the reissuance of title insurance policies for the
same property by other underwriters over time when such property is subsequently conveyed or refinanced. The coverage on a lender’s
title insurance policy is reduced and eventually terminated as the mortgage loan is paid. An owner’s policy is effective as long as the
insured has an ownership interest in the property or has liability under warranties of title. Due to the variability of these factors, the
aggregate contingent liability of the Company’s title underwriters on outstanding policies cannot be determined with precision.
Losses and Reserves. While most other forms of insurance provide for the assumption of risk of loss arising from unforeseen events,
title insurance is based upon a process of loss avoidance. Title insurance generally serves to protect the policyholder from the risk of
loss from events that predate the issuance of the policy. Losses on policies typically occur when a title defect is not discovered during
the examination and settlement process or upon the occurrence of certain hidden risks which cannot be determined from an accurate
search of public land records. The maximum amount of liability under a title insurance policy is generally the face amount of the policy
plus the cost of defending the insured’s title against an adverse claim, if agreed to by the insurer prior to payment of loss under the policy,
and any inflation protection clause associated with the policy. The reserve for claim losses is established from known claims, as well as
estimated losses incurred but not yet reported to the Company based upon historical experience and other factors.
Title claims can often be complex, vary greatly in dollar amounts, are affected by economic and market conditions and may involve
uncertainties as to ultimate exposure. Therefore, reserve estimates are subject to variability. For a more complete description of the
Company’s reserve for claims, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”
in this Annual Report on Form 10-K.
Title Insurance Underwriting Operations. ITIC and NITIC issue title insurance through the Company’s home and branch offices
and through a network of agents. Issuing agents are typically real estate attorneys, independent agents or subsidiaries of community and
regional mortgage lending institutions, depending on local customs and regulations and the Company’s marketing strategy in a particular
territory. The Company’s title insurance subsidiaries determine the terms and conditions upon which they will insure title to real property
according to the Company’s underwriting standards, policies and procedures. Title insurance premiums written reflect a one-time premium
payment, with no recurring premiums.
Generally, premiums for title insurance are recorded and recognized as revenue at the closing of the related transaction, when the
earnings process is considered complete. When the policy is issued directly through a home or branch office, the premiums collected
are retained by the Company. When the policy is issued through a title insurance agent, the agent retains a majority of the premium as
a commission and remits the net amount to the Company. Title insurance commissions earned by the Company’s agents are recognized
as expenses concurrently with premium recognition. The percentage of the premium retained by agents varies by region and is sometimes
regulated by the states where the property is located.
For a description of the level of net premiums written by direct and agency operations, refer to “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
Geographic Operations. ITIC was incorporated in North Carolina in 1972, and is licensed to write title insurance in 44 states and
the District of Columbia. ITIC currently writes title insurance as a primary insurer in 23 states and the District of Columbia, primarily
located in the eastern half of the United States, and as a reinsurer for NITIC and third-party title insurance companies.
NITIC was incorporated in South Carolina in 1973, and is licensed to write title insurance in 20 states and the District of Columbia.
In November 2014, NITIC redomesticated to Texas. NITIC currently writes title insurance as a primary insurer in Texas, and as a reinsurer
for ITIC.
Premiums from title insurance written on properties located in North Carolina, Texas, Georgia and South Carolina represent the
largest source of revenue for the title insurance segment. In North Carolina, a majority of the Company’s title insurance commitments
and policies are issued through branch offices. In Texas, Georgia, South Carolina and other states, title policies are primarily issued
through issuing agents. For a description of the level of net premiums written geographically for significant states, refer to “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
Each state license authorizing ITIC or NITIC to write title insurance must be renewed annually. These licenses are necessary for
the companies to operate as a title insurer in each state in which they write premiums.
Ratings. The Company’s title insurance subsidiaries are regularly assigned ratings by independent agencies designed to indicate
their financial condition and/or their claims paying ability. The rating agencies determine ratings primarily by analyzing financial data.
5 Reinsurance. The Company assumes and cedes reinsurance with other insurance companies in the normal course of business.
Reinsurance is a contractual arrangement whereby one insurer assumes some or all of the risk exposure written by another insurer. Ceded
reinsurance is comprised of excess of loss treaties, which outline the conditions in which the reinsurance company will pay claims and
protect the ceding insurer against losses over certain agreed amounts.
In the ordinary course of business, ITIC and NITIC reinsure certain risks with other title insurers to limit their risk exposure and to
comply with state insurance regulations. They also assume reinsurance for certain risks of other title insurers for which they receive
additional income in the form of reinsurance premiums. For each of the last three years, revenues from reinsurance activities accounted
for less than 1% of total premium volume.
Exchange Services, Investment Management and Trust Services, and Management Services
The Company’s other lines of business include services offered by wholly owned subsidiaries ITEC, ITAC, Investors Trust, and
ITMS.
In 1988, the Company established ITEC to provide services in connection with tax-deferred exchanges of like-kind property pursuant
to Section 1031 of the Internal Revenue Code of 1986, as amended. ITEC acts as a qualified intermediary in tax-deferred exchanges of
property held for productive use in a trade or business or for investment, and its income is derived from fees for handling exchange
transactions and interest earned on client deposits held by the Company. In its role as qualified intermediary, ITEC coordinates the
exchange aspects of the real estate transaction, and its duties include drafting standard exchange documents, holding the exchange funds
between the time the old property is sold and the new property is purchased, and accepting the formal identification of the replacement
property within the required identification period. ITAC provides services as an exchange accommodation titleholder for accomplishing
“parking transactions” as set forth in the safe harbor contained in Internal Revenue Procedure 2000-37. These transactions include reverse
exchanges when taxpayers decide to acquire replacement property before selling the relinquished property, or “build to suit” exchanges,
when improvements must be made to the replacement property before the taxpayer acquires the improved replacement property. The
services provided by the Company’s exchange services division, ITEC and ITAC, are pursuant to provisions in the Internal Revenue
Code. From time to time, these laws are subject to review and changes, which may negatively affect the demand for tax-deferred exchanges
in general, and consequently, the revenues and profitability of the Company’s exchange services division.
Investors Trust provides investment management and trust services to individuals, companies, banks and trusts.
ITMS offers various consulting and management services to provide clients with the technical expertise to start and successfully
operate a title insurance agency.
None of these other lines of business is currently a reportable segment for which separate financial information is presented; instead,
they are collectively included and reported in the category “All Other” in the segment information in Note 12 of the Notes to the
Consolidated Financial Statements in this Annual Report on Form 10-K.
CYCLICALITY AND SEASONALITY
Real estate activity, home sales and mortgage lending are cyclical in nature. Title insurance premiums are closely related to the level
of real estate activity and the average price of real estate sales. The availability of funds to finance purchases directly affects real estate
sales. Other factors include mortgage interest rates, consumer confidence, economic conditions, supply, demand and family income
levels. The Company’s premiums in future periods are likely to fluctuate due to these and other factors which are beyond management’s
control.
Historically, the title insurance business tends to be seasonal as well as cyclical. Because home sales are typically strongest in periods
of favorable weather, the first calendar quarter tends to have the lowest activity levels, while the spring and summer quarters tend to be
more active. Refinance activity is generally less seasonal, but is subject to interest rate fluctuations.
MARKETING
The Company markets its title insurance services to a broad range of customers in the residential and commercial market sectors of
the real estate industry. Issuing agents are typically real estate attorneys, independent agents or subsidiaries of community and regional
mortgage lending institutions, depending on local customs and regulations and the Company’s marketing strategy in a particular territory.
ITIC and NITIC strive to provide superior service to their customers and consider this an important factor in attracting and retaining
customers. Branch and corporate personnel strive to develop new business and agency relationships to increase market share while ITIC’s
Commercial Services Division focuses on services provided to commercial clients.
6 REGULATION
Any material change in the Company’s regulatory environment may have an adverse effect on its business.
Title Insurance
The Company is an insurance holding company and therefore, it is subject to regulation in the states in which its insurance subsidiaries
do business. These regulations, among other things, require insurance holding companies to register and file certain reports, and require
prior regulatory approval of the payment of extraordinary dividends and other intercompany distributions or transfers.
Title insurance companies are extensively regulated under applicable state laws. All states have requirements for admission to do
business as an insurance company, including minimum levels of capital, surplus and reserves. State regulatory authorities monitor the
stability and service of insurance companies and possess broad powers with respect to the licensing of title insurers and agents, approving
rate schedules and policy forms, financial reporting and accounting practices, reserve requirements, investments and dividend restrictions,
approving related party transactions, as well as examining and auditing title insurers. At December 31, 2019, both ITIC and NITIC met
the statutory premium reserve requirements and the minimum capital and surplus requirements of the states where they are licensed. A
substantial portion of the assets of the Company’s title insurance subsidiaries consists of their portfolios of investment securities. Both
of these subsidiaries are required by various state laws to maintain assets of a defined minimum quality and amount.
The Company’s insurance subsidiaries are subject to examination at any time by the insurance regulators in the states where they
are licensed as well as required periodic examinations. These and other governmental authorities have the power to enforce state and
federal laws to which the title insurance subsidiaries are subject. These governmental authorities include, but are not limited to, the
Consumer Financial Protection Bureau (“CFPB”), which enforces the Real Estate Settlement Procedures Act (“RESPA”), the primary
federal regulatory guidance governing the real estate settlement industry. The CFPB has the authority to identify and address, through
regulation, unfair, deceptive and abusive practices in the mortgage industry and certain other settlement service industries.
In recent years, the CFPB, Office of the Comptroller of Currency and the Federal Reserve have issued memorandums to banks that
communicated those agencies’ heightened focus on vetting third-party providers. Such increased regulatory involvement may affect the
Company's agents and approved providers. Further proposals to change regulations governing insurance holding companies and the title
insurance industry are often introduced in Congress, in state legislatures and before various insurance regulatory agencies. Although the
Company regularly monitors such proposals, the likelihood and timing of passage of any such regulation, and the possible effects of any
such regulation on the Company and its subsidiaries, cannot be determined at this time.
Exchange Services, Investment Management and Trust Services, and Management Services
Investors Trust is regulated by the North Carolina Commissioner of Banks.
COMPETITION
The title insurance industry is highly competitive. The four largest title insurance companies typically maintain greater than 85%
of the market for title insurance in the United States, with smaller regional companies holding the balance of the market. The number
and size of competing companies varies in the respective geographic areas in which the Company conducts business. Key competitive
factors in the title insurance industry are the financial strength and size of the insurer, timeliness and quality of service, price and expertise
in certain transactions. Title insurance underwriters also compete for agents based upon service and commission levels. Some title
insurers currently have greater financial resources, larger distribution networks and more extensive computerized databases of property
records and related information than the Company. In addition, there are numerous industry-related regulations and statutes that set out
conditions and requirements to conduct business. Changes to or the removal of such regulations and statutes could result in additional
competition from alternative title insurance products or new entrants into the industry that could materially affect the Company’s business
operations and financial condition.
CUSTOMER AND LENDER CONCENTRATION
The Company is not dependent upon any single title insurance customer or a few customers, and the loss of any single customer
would not have a material adverse effect on the Company.
Lending institutions benefit from title insurance policies that are purchased by borrowers on the lending institutions’ behalf as a
condition to the making of loans. Refusal by major market lenders to accept our product offerings could have a material adverse effect
on the Company.
7 INVESTMENT POLICIES
The Company and its subsidiaries derive a substantial portion of their income from investments in municipal government securities
and investment grade corporate fixed maturity securities and equity securities. The Company’s fixed maturity securities are classified
as available for sale and carried at estimated fair value. Equity securities are also carried at estimated fair value. The Company’s
investment policy is designed to maintain a high quality portfolio and maximize income. Some state laws impose restrictions upon the
types and amounts of investments that can be made by the Company’s insurance subsidiaries. The Company’s investment portfolio is
managed internally and via a wholly owned subsidiary. The securities in the Company’s portfolio are subject to economic conditions
and normal market risks. Equity securities at December 31, 2019 and 2018 consisted of investments in various industry groups. The
Company’s investment portfolio did not include any significant investments in banks, trust or insurance companies at December 31, 2019
or 2018. Short-term investments, which consist primarily of commercial paper, money market instruments and certificates of deposit
which have an original maturity of one year or less, are carried at cost, which approximates fair value due to the short duration to maturity.
In addition, at December 31, 2019 and 2018, the Company held investments that are accounted for using the equity method and
measurement alternative method (refer to Note 1 of the Notes to the Consolidated Financial Statements in this Annual Report on Form
10-K).
Refer to Note 3 of the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for the major categories
of investments, scheduled maturities, fair values of investment securities and earnings by category.
ENVIRONMENTAL MATTERS
The title insurance policies ITIC and NITIC currently issue exclude any liability for environmental risks and contamination unless
a notice of violation relating to an environmental protection law, ordinance or regulation is recorded prior to the date of such policy or
the Company issues a specific policy endorsement providing coverage for environmental liens recorded prior to the date of such policy.
The Company has not experienced, and does not anticipate that it or its subsidiaries will incur, any significant expenses related to
environmental claims.
In connection with tax-deferred exchanges of like-kind property, ITAC may temporarily hold title to property pursuant to an
accommodation titleholder agreement. In order for ITAC to enter into such arrangements, each person or entity for which title is being
held must (a) execute an indemnification agreement under which it agrees to indemnify ITAC for any environmental or other claims
which may arise as a result of the arrangement, and (b) provide due diligence materials regarding any known environmental issues, in
the form of an environmental questionnaire and/or applicable environmental engineering studies, if indicated for review by ITAC, as
applicable.
EMPLOYEES
The Company and its subsidiaries had 340 full-time employees and 62 part-time employees as of December 31, 2019. None of the
employees are covered by any collective bargaining agreements. Management considers its relationship with its employees to be favorable.
ADDITIONAL INFORMATION
The Company files annual, quarterly and current reports and other information with the Securities and Exchange Commission
(“SEC”). The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.
The Company’s internet address is www.invtitle.com. The contents of the Company’s website are not and shall not be deemed to
be a part of this document or any other SEC filing. The Company makes available free of charge through its internet website its annual
reports on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K, and all amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such materials
are electronically filed with, or furnished to, the SEC, and also makes available the Section 16 reports on Forms 3, 4 and 5 of its insiders
no later than the end of the business day following such filings. The information is free of charge and may be reviewed and downloaded
from the website at any time. The “Investor Relations” section of the Company’s website also includes its Code of Business Conduct
and Ethics and the charters of the Audit, Compensation and Nominating Committees of its Board of Directors.
Information About Our Executive Officers
Following is information regarding the executive officers of the Company as of February 21, 2020. Each officer is appointed at the
annual meeting of the Board of Directors to serve until the next annual meeting of the Board or until his or her respective successor has
been elected and qualified.
8 Name
J. Allen Fine
James A. Fine, Jr.
W. Morris Fine
Age Position with Registrant
85
57
53
Chief Executive Officer and Chairman of the Board
President, Treasurer, Chief Financial Officer, Chief Accounting Officer and Director
Executive Vice President, Secretary and Director
J. Allen Fine has been Chief Executive Officer and Chairman of the Board of the Company since its incorporation in 1973. He also
served as President of the Company until May 1997. He is the father of James A. Fine, Jr. and W. Morris Fine.
James A. Fine, Jr. was named Vice President of the Company in 1987. In 1997, he was named President and Treasurer and appointed
as a Director of the Company. In 2002, he was appointed as Chief Financial Officer and Chief Accounting Officer. He is the son of J.
Allen Fine and the brother of W. Morris Fine.
W. Morris Fine was named Vice President of the Company in 1992. In 1993, he was named Treasurer of the Company and served
in that capacity until 1997. In 1997, he was named Executive Vice President and Secretary of the Company. In 1999, he was appointed
as a Director of the Company. He is the son of J. Allen Fine and the brother of James A. Fine, Jr.
ITEM 1A. RISK FACTORS
The risk factors listed in this section and other factors noted herein could cause actual results to differ materially from those
contained in any forward-looking statements or could result in a significant or material adverse effect on the Company’s results of
operations.
Adverse changes in economic conditions, especially those related to real estate activity, may negatively impact the
Company’s results of operations and financial condition.
The demand for the Company’s title insurance and other real estate transaction products and services varies from year to year
and is dependent upon, among other factors, the volume of residential and commercial real estate transactions and mortgage financing
transactions. The volume of these transactions has historically been influenced by factors such as the overall state of the economy,
the average price level of real estate sales, housing inventory, and the availability and pricing of mortgage financing. Real estate
activity generally decreases when the economy is weak or uncertain, home prices are increasing, housing inventory is limited, the
availability of mortgage credit is limited, or mortgage interest rates are increasing. The cyclical nature of the Company’s business
has caused volatility in revenue and profitability in the past and could do so in the future.
Demand for title insurance also depends in part upon the requirement by mortgage lenders and other participants in the secondary
mortgage market that title insurance policies be obtained on residential and commercial real property.
The Company may experience material losses resulting from fraud, defalcation or misconduct.
Underwriting agents and approved settlement providers, which can include issuing agents and approved attorneys, perform a
significant portion of the work necessary to issue the Company’s title insurance policies. These agents and providers operate with a
substantial degree of independence from the Company, and while they are subject to certain contractual limitations designed to mitigate
the Company’s risk, there is no guarantee that these limitations will eliminate all associated risks. As a result, the Company’s use of
title agents and approved providers could result in claims on the Company’s policies and other expenses due to fraud and negligence.
Fraud, defalcation, errors and other misconduct by the Company’s agents, approved attorneys and employees are risks inherent in the
Company’s business. Agents and approved attorneys typically handle large sums of money in trust pursuant to the closing of real
estate transactions. Misappropriation of funds by any of these parties could result in title claims, some of which could be large and
have a material negative impact on the Company’s results of operations and financial condition.
The Company relies upon the North Carolina, Texas, Georgia and South Carolina markets for a significant portion of its
premiums. Changes in the economic or regulatory environments in these states could have an adverse impact on the
Company.
North Carolina, Texas, Georgia and South Carolina are the largest sources of premium revenue for the Company’s title insurance
subsidiaries. In 2019, these states represented 39.1%, 18.2%, 11.2% and 9.4% of total premiums written by the Company, respectively.
A decrease in the level of real estate activity in these states, whether driven by weak economic conditions, changes in regulatory
environments or other factors that influence demand, could have a negative impact on the Company’s financial results.
9 Adverse deviation of actual claims experience from expected claims experience will result in lower net earnings.
The Company’s net income is affected by the extent to which its actual claims experience differs from the assumptions used in
establishing the reserve for claims. The reserve for claims is established based on actuarial estimates of future payments for reported
claims, as well as claims which have been incurred but not yet reported. In addition, management considers factors such as the
Company’s historical claims experience, case reserve estimates on reported claims, large claims and other relevant factors in
determining loss provision rates and the aggregate recorded expected liability for claims.
Due to the nature of the underlying risks and the high degree of uncertainty associated with the estimation of the reserve for
claims, the Company cannot determine precisely the amounts which it will ultimately pay to settle its claims. Factors contributing
to the complexity in establishing reserves can include varying loss potentials, timing, unfavorable market or economic conditions and
the legal environment. The timing of claims is difficult to estimate as payments may not occur until well into the future. Higher
levels of defaults and foreclosures upon insured properties are more prevalent in times of unfavorable economic conditions and can
lead to an increase in title insurance claims. The Company may also incur higher than normal claim payment experience or large
losses. To the extent that actual claims experience is greater than estimated, the Company could be required to increase the reserve.
Breaches and failures of, and other disruptions to, the Company’s information technology systems may disrupt the
Company’s operations, result in monetary losses and harm the Company’s reputation.
The Company relies on information technology (“IT”) systems for a wide range of activities involved in the delivery of its products
and services, including, but not limited to the following:
•
•
•
•
•
•
process title insurance applications and policy issuances;
perform due diligence on land titles;
manage substantial cash, investment assets, bank deposits, trust assets and escrow account balances on behalf of the
Company and its customers;
manage billing, collections and payables, including insurance premiums and agent commissions;
manage accounting and financial reporting; and
manage payroll and human resources information.
The Company’s IT systems may be disrupted or fail, and information stolen or otherwise misappropriated, for a number of reasons,
including:
•
•
•
•
hacking, computer viruses, malware, ransomware or other cyberattacks;
software “bugs”, hardware defects or human error;
natural disasters, like fires, or pandemics; or
power loss.
Any of these events could disrupt operations both internally and externally, which may result in the loss of revenues. These
events could also result in the unauthorized release of proprietary and/or non-public information, or even defalcation of corporate or
client funds.
Like all companies, the Company’s IT systems have been, and likely will continue to be the target of computer viruses, cyberattacks,
phishing attacks and other malicious activity. To date, the Company has not experienced a known material breach; however, the
occurrence or scope of such events is not always immediately apparent. The Company invests resources in maintaining the security
of its systems and adapting to evolving security threats. There is, however, no guarantee that its security measures will be adequate
to prevent all cyberattacks. There is similarly no guarantee that the Company’s backup systems or disaster recovery procedures will
be adequate to mitigate losses due to IT system disruptions in a timely fashion, and the Company may incur significant expense in
correcting IT system emergencies. The Company’s reputation may also be damaged in the event of a serious IT breach or failure.
Furthermore, as technology develops, and as cybercriminals become more capable, the difficulty and expense of maintaining IT
security and redundancy may increase.
To the extent the Company’s IT systems store non-public personal information, and information about its employees, security
breaches may expose the Company to other serious liabilities and reputational harm if such data is misappropriated. Non-public
personal information may include, but is not limited to, names, addresses, social security numbers, and banking information.
10 Furthermore, the Company is required by law and by certain contracts, particularly contracts with financial institutions, to notify
various parties, consumers and customers in the event that confidential or personal information may have been or was accessed by
unauthorized third parties. Such an event could potentially result in a breach of contract, and any required notifications could result
in, among other things, the loss of customers, negative publicity, distraction of management, fines, lawsuits for breach of contract,
regulatory inquiries or involvement and a decline in sales.
The Company seeks to mitigate the financial risk associated with unauthorized disclosure of non-public information by maintaining
cyber liability insurance coverage. As cybercriminals continue to become more sophisticated, the costs to insure against cyberattacks
may rise.
The Company’s insurance subsidiaries are subject to complex government regulations. Changes in regulations may have
an adverse effect on the Company’s results of operations.
The Company’s title insurance subsidiaries are subject to extensive regulations that are intended to protect policyholders and
consumers.
The Company’s title insurance subsidiaries are subject to regulations by the CFPB, created by the Dodd-Frank Act. The CFPB
has extensive regulatory and enforcement authority over real estate and mortgage markets, including RESPA, the primary federal
regulatory guidance governing the real estate settlement industry. The manner and extent to which the CFPB will implement new
regulations is not fully known; however, any new regulations implemented could result in changes to internal processes, including
changes to systems and forms.
In addition to federal regulation, title insurance subsidiaries are subject to state regulations. The nature and extent of state
regulations, which vary from state to state, typically involve, among other matters, licensing and renewal requirements and trade and
marketing practices, including, but not limited to the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
licensing of insurers and agents;
capital and surplus requirements;
approval, regulation or establishment of premium rates for insurance;
limitations on types and amounts of investments;
limitations on the size of risks that may be insured by a single company;
filing of annual and other reports with respect to financial condition;
the amount of dividends and other payments made by insurance subsidiaries;
establishing reserves;
accounting and financing practices;
deposits of securities for the benefit of policyholders;
trade and marketing practices;
regulation of reinsurance;
approval of policy forms; and
use of personal information, including cybersecurity regulations.
Insurance holding companies are subject to periodic examinations and the regulation of acquisitions, intercompany transactions
and changes in control, among other regulations, by state regulators.
The Company and its subsidiaries are also subject to certain federal regulations established by the Office of the Comptroller of
Currency, the Federal Reserve and various other governmental agencies.
The Company’s other businesses also operate within state and federal guidelines. Any changes in the regulatory environment
could restrict its existing or future operations and could possibly make it more burdensome and costly to conduct them.
New regulations, or differing interpretations of existing laws, could change business processes, products and services and have
a negative impact on the Company’s results of operations and financial condition.
11 Competition affects the Company’s results of operations.
The title insurance industry is highly competitive with only a few insurers comprising a large percentage of the market. Key
competitive factors are quality of service, price within regulatory parameters, expertise, timeliness and the financial strength and size
of the insurer. Title insurance underwriters compete for premiums by choosing various distribution channels which may include
company-owned operations, independent agents and agency relationships with real estate attorneys, subsidiaries of community and
regional lending institutions, realtors, builders and other settlement service providers. Title insurance underwriters compete for agents
on the basis of service, technology and commission levels. Some title insurers currently have greater financial resources, larger
distribution networks and more extensive computerized databases of property records and information than the Company. The number
and size of competing companies varies in the different geographic areas in which the Company operates, and any reductions to
current regulatory barriers within any of the different geographic areas could increase the number of competitors entering into the
title insurance market. Competition among the major providers of title insurance or the acceptance of alternative products to traditional
title products by the regulatory authorities and the marketplace could adversely affect the Company’s operations and financial condition.
Deterioration in financial markets may cause a decline in the performance of the Company’s investments and could have
a material adverse impact on net income.
The Company derives a substantial portion of its income from its investment portfolio that primarily includes fixed maturity
securities and equity securities. The Company’s investment policy is designed to comply with regulatory requirements and to balance
the competing objectives of asset quality and investment returns. The Company’s investment portfolio is subject to risk from changes
in general economic conditions, prices of marketable fixed maturity securities and equity securities, interest rates, liquidity, credit
markets, and other external factors. The risk of loss is increased during periods of economic uncertainty and tight credit markets as
these factors could limit the ability of some issuers to repay their debt obligations.
Fixed maturity securities and equity securities are carried at estimated fair value on the Company’s Consolidated Balance Sheets.
Changes in the estimated fair value of securities in the Company’s investment portfolio could have a material adverse effect on the
Company’s results of operations and financial condition.
Changes in the estimated fair value of fixed maturity securities are recorded as a component of accumulated other comprehensive
income. If the carrying value of the Company’s fixed maturity securities exceeds the estimated fair value, and the decline in estimated
fair value is deemed to be other-than-temporary, the Company will be required to write down the value of its investments.
Effective January 1, 2018, unrealized holding gains and losses are reported in the Consolidated Statements of Income as changes
in the estimated fair value of equity security investments, without regard as to whether a decline in value is deemed to be temporary
or other-than-temporary. The Company’s net income may in turn experience more volatility as changes in fair value will more
immediately affect the Consolidated Statement of Income.
A downgrade from a rating agency could result in a loss of underwriting business.
The competitive positions of title insurance companies rely partly on ratings published by independent rating services.
Government-sponsored entities and lending institutions utilize these ratings, among other items, to evaluate a title insurer’s strength
and stability. The Company’s title insurance subsidiaries are currently rated by A.M. Best Company, Kroll Bond Rating Agency and
Demotech, Inc. The ratings issued by independent rating agencies are not credit ratings, but represent the opinion of the individual
rating agency regarding the title insurance subsidiaries’ financial strength, operating performance, and ability to meet policyholder
obligations. These insurer ratings are subject to periodic review and there can be no assurance that the Company’s insurance subsidiaries
will maintain their current respective ratings. A significant downgrade in the ratings of either of the Company’s insurance subsidiaries
could negatively impact the ability to compete for new business, retain existing business and maintain the necessary licenses to operate
as title insurance companies in various states.
Title insurance rate regulation could have an adverse impact on the Company’s results of operations.
Rates for title insurance vary by state and are subject to extensive regulation. Statutes generally provide that rates must not be
excessive, inadequate or unfairly discriminatory. The process of implementing a rate change in most states involves pre-approval by
the applicable state insurance regulator. This regulation could impact the Company’s ability to adjust prices in the face of rapidly
changing market conditions, which could adversely affect results of operations.
12 The Company may encounter difficulties managing system or technological changes, which could adversely affect its
financial and operating results.
Technological changes in the title insurance industry are driven primarily by evolution in technology, competitive factors and
regulatory changes. These changes have resulted in faster information delivery and efficient, highly automated production processes.
The inability of the Company to manage, develop or successfully implement new systems or technological changes could negatively
impact profitability.
Financial institution failures could adversely affect the Company.
The Company has substantial deposits with financial institutions, including fiduciary deposits that are owned by third parties.
There is no guarantee the Company, whether through the Federal Deposit Insurance Corporation or otherwise, would recover the
funds it has deposited should one or more of the financial institutions at which the Company maintains deposits fail.
The Company may encounter difficulties managing growth, which could adversely affect its operating results.
The Company’s future growth plans involve expansion into new geographic locations and further penetration into established
markets through new or existing agents, or through acquisitions. Such growth may subject the Company to associated risks, such as
diverting management’s attention, incurring unanticipated liabilities from an acquired business, difficulty integrating an acquired
entity, or retaining its employees or customers and realization of synergies. The occurrence of any of these risks may deprive the
Company of some or all of the anticipated value of an acquisition or other growth initiatives, resulting in lower returns on investments
and result in a negative impact on the Company’s results of operations. These risks could be particularly significant if the Company
incurs significant costs in pursuing an acquisition or other initiatives.
The Company depends on its ability to attract and retain key personnel and agents, and its inability to do so could adversely
affect its business.
Competition for skilled and experienced personnel in the Company’s industry is high, and the success of the Company is
substantially dependent on its ability to attract and retain such personnel. The Company may have difficulty hiring and retaining the
necessary marketing and management personnel to support future growth plans. Also, the Company’s results of operations and
financial condition could be adversely affected if it is unsuccessful in attracting and retaining new agents.
Policies and procedures for the mitigation of risk may not be sufficient.
The Company has policies and procedures in place to help identify, analyze, and measure the risks associated with the issuance
of title insurance policies, investment risks, interest rate risks and legal risks, among others. In evaluating risks, the Company considers
enterprise risk management, information technology risk management, disaster recovery, business continuity, and vendor risk
management. Because a significant degree of judgment is involved with the establishment of policies and processes as well as the
measurement of risks, it is possible not all risks have been identified or anticipated. Misidentified or unanticipated risks could adversely
impact the Company and its results of operations.
Regulatory investigations of the title insurance industry by governmental entities could adversely impact the Company’s
results of operations.
The title insurance industry is subject to scrutiny by both federal and state regulators focusing on violations of state insurance
codes, RESPA and similar state and federal laws, among others. The Company’s insurance subsidiaries occasionally receive inquiries
from regulators involving market conduct. Future inquiries could lead to fines for violations, settlements with regulating authorities
that could result in fines or requirements to pay claims, and the potential for further regulation. The results of future inquiries could
adversely affect the Company’s results of operations and financial condition.
Mortgage lending is highly concentrated and changes in relationships with lenders or reform of government-sponsored
entities could adversely affect the Company.
Refusal by major market lenders to accept our product offerings could have a material adverse effect on the Company. Furthermore,
government-sponsored entities, the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage
Corporation (“Freddie Mac”), often require the purchase of title insurance for home loans they securitize. The federal government
has had discussions about the possible reform of Fannie Mae and Freddie Mac. Changes to these entities could impact the entire
mortgage loan process and as a result, could impact the demand for title insurance. The timing and results of reform are currently
unknown; however, changes to these entities could adversely impact the Company and its results of operations.
13 The Company relies on distributions from its insurance subsidiaries.
The Company is an insurance holding company and it has no substantial operations of its own. Its principal assets are investments
in its operating subsidiaries, primarily its insurance subsidiaries. The Company’s ability to pay dividends and meet its obligations is
dependent, among other factors, on the ability of its subsidiaries to pay dividends or repay intercompany loans. The Company’s
insurance subsidiaries are subject to regulations that limit the amount of dividends, loans or advances they may make to the Company.
The restriction on these amounts is based on the amount of the insurance subsidiaries’ unassigned surplus and net income, with certain
adjustments. Additionally, these subsidiaries are required to maintain minimum amounts of capital, surplus and reserves. As of
December 31, 2019, approximately $103.5 million of consolidated stockholders’ equity represented the net assets of the Company’s
subsidiaries that cannot be transferred in the form of dividends, loans or advances to the Company. In general, dividends in excess
of prescribed limits are deemed “extraordinary” and require prior approval by the appropriate regulatory body. In addition, the
Company’s ability to pay dividends may be constrained by business considerations, such as the impact of dividends on insurer ratings
or competitive position. These dividend restrictions could limit the Company’s ability to pay dividends to its shareholders or fund
growth opportunities.
Unfavorable economic or other conditions could cause the Company to record impairment charges for all or a portion of
its goodwill and other intangible assets.
As a result of acquisition activity, the Company has goodwill and other intangible assets that comprise approximately 3.9% of
total assets as of December 31, 2019. Quarterly, the Company performs an impairment analysis that reviews changes in events or
circumstances that could lead to the carrying value not being recoverable. Economic downturns or poor performance of the acquisitions
could result in the Company recognizing an impairment of a portion or all of the goodwill and intangible assets on the Company’s
books and could have a material adverse effect on the Company’s results of operations.
Certain provisions of the Company’s shareholder rights plan may deter or discourage a takeover of the Company.
The Company has adopted a shareholder rights plan. The rights set forth in the plan are not intended to prevent a takeover of the
Company, and we believe the rights would be beneficial to the Company and its shareholders in the event of negotiations with a
potential acquirer. However, the shareholder rights plan could discourage transactions involving actual or potential changes of control,
including transactions that may involve payment of a premium over prevailing market prices to the Company’s common shareholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
The Company owns two adjacent office buildings and property located on the corner of North Columbia and West Rosemary streets
in Chapel Hill, North Carolina, which serve as the Company’s corporate headquarters. The main building contains approximately 23,000
square feet and has on-site parking facilities. The Company’s subsidiaries, principally ITIC and NITIC, lease office space in 37 locations
throughout North Carolina, South Carolina, Texas, Michigan and Nebraska. The Company believes that each of the office facilities
occupied by the Company and its subsidiaries are in good condition, adequately insured and sufficient for its present operations.
ITEM 3. 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.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
14 PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Common Stock Data and Dividends
The Common Stock of the Company is traded under the symbol “ITIC” on the NASDAQ Stock Market LLC. The number of record
holders of common stock at December 31, 2019 was 235. The number of record holders is based upon the actual number of holders
registered on the books of the Company at such date and does not include holders of shares in “street name” or persons, partnerships,
associations, corporations or other entities identified in security position listings maintained by securities depositories.
The Company’s current dividend policy anticipates the payment of quarterly dividends in the future. The declaration and payment
of dividends will be at the discretion of the Board of Directors and will be dependent upon the Company’s future earnings, financial
condition and capital requirements. The Company’s ability to pay dividends is also subject to certain regulatory restrictions on the
payment of dividends by its insurance subsidiaries as described in the “Liquidity and Capital Resources” section of “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” and Note 2 to the Consolidated Financial Statements included
in Item 8 of this Annual Report on Form 10-K.
The following table provides information about purchases by the Company (and all affiliated purchasers) during the quarter ended
December 31, 2019 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:
Issuer Purchases of Equity Securities
Total
Number
of Shares
Purchased
Average
Price Paid
per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plan
Additional Shares
Approved For
Repurchase Under
the Plan
Maximum Number of
Shares that May Yet Be
Purchased Under the
Plan
10
—
33
43
$
$
160.30
—
159.68
159.82
10
—
33
43
—
—
—
—
428,229
428,219
428,219
428,186
428,186
Period
Beginning of period
October 2019
November 2019
December 2019
Total
For the quarter ended December 31, 2019, the Company purchased 43 shares of the Company’s common stock at an average price
of $159.82 pursuant to the Company’s ongoing purchase program that was initially announced on June 5, 2000. On November 9, 2015,
the Board of Directors of the Company approved the purchase of an additional 163,335 shares pursuant to the Company’s repurchase
plan, such that there was authority remaining under the plan to purchase up to an aggregate of 500,000 shares of the Company’s common
stock pursuant to the plan immediately after this approval. During the year ended December 31, 2019, the Company purchased a total
of 109 shares of the Company’s common stock at an average per share price of $165.08 under the Company’s repurchase plan. As of
December 31, 2019, there was authority remaining under the plan to purchase up to an aggregate of 428,186 shares of the Company’s
common stock. Unless terminated earlier by resolution of the Board of Directors, the plan will expire when all shares authorized for
purchase under the plan (as such number may be amended by the Board from time to time) have been purchased. The Company anticipates
making further purchases under this plan from time to time in the future, depending on such factors as the prevailing market price of the
Company’s common stock, the Company’s available cash and then existing alternative uses for such cash.
15 Common Stock Performance Graph
Presented below is a line graph comparing the yearly percentage change in the cumulative total return on the Company’s common
stock to the cumulative return of the NASDAQ Composite Index and a peer group consisting of certain companies in the title insurance
industry (SIC Code 6361) for the period commencing December 31, 2014 and ending December 31, 2019. The graph assumes that $100
was invested in the Company’s common stock, the NASDAQ Composite Index and the peer group on December 31, 2014 and that all
dividends were reinvested on a quarterly basis. Returns for the companies included in the peer group have been weighted on the basis
of the total market capitalization for each company.
The performance graph above and the related information shall not be deemed “soliciting material” or to be “filed” with the SEC,
nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the
Exchange Act, as amended, except to the extent that the Company specifically incorporates it by reference into such filing.
16 ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data, which was derived from our Consolidated Financial Statements.
Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial
Statements and Supplementary Data” of this Annual Report on Form 10-K.
(in thousands, except per share amounts and
percentages)
For the Year
Results of Operations:
Operating revenues
Investment-related revenues
Total revenues
Net income attributable to the Company
Per Share Data:
Basic earnings per common share
Weighted average shares outstanding – Basic
Diluted earnings per common share
Weighted average shares outstanding – Diluted
Cash dividends per share
Financial Position:
Total assets
Total investments
Stockholders’ equity attributable to the Company
Book value per share attributable to the Company
Performance Ratios:
Net income attributable to the Company to:
Average stockholders’ equity attributable to the
Company
Total revenues
2019
2018
2017
2016
2015
$ 163,916
$
152,773
$
153,982
$
131,142
$
120,345
19,586
183,502
31,458
3,486
156,259
21,892
7,645
161,627
25,707
7,346
138,488
19,523
6,854
127,199
12,534
$
$
$
16.66
1,888
16.59
1,896
9.60
$
$
$
11.60
1,887
11.54
1,897
12.20
$
$
$
13.63
1,886
13.56
1,896
3.75
$
$
$
10.23
1,908
10.19
1,915
0.72
$
$
$
6.32
1,984
6.30
1,990
0.40
$ 263,893
$
244,268
$
248,913
$
228,938
$
211,522
192,862
191,362
101.32
182,669
175,639
93.10
186,520
177,836
94.29
160,854
155,045
82.28
160,552
142,670
73.17
17.14%
17.14%
12.39%
14.01%
15.44%
15.90%
13.12%
14.10%
8.95%
9.85%
17 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes in this
report. Forward-looking statements are based on certain assumptions and expectations of future events that are subject to a number of
risks and uncertainties. Actual results may vary.
Overview
Investors Title Company (the “Company”) is a holding company that engages primarily in issuing title insurance through two
subsidiaries, Investors Title Insurance Company (“ITIC”) and National Investors Title Insurance Company (“NITIC”). Total revenues
from the title segment accounted for 92.8% of the Company’s revenues in 2019. Through ITIC and NITIC, the Company underwrites
land title insurance for owners and mortgagees as a primary insurer.
Title insurance protects against loss or damage resulting from title defects that affect real property. When real property is conveyed
from one party to another, occasionally there is an undisclosed defect in the title or a mistake or omission in a prior deed, will or mortgage
that may give a third party a legal claim against such property. If a covered claim is made against real property, title insurance provides
indemnification against insured defects.
There are two basic types of title insurance policies – one for the mortgage lender and one for the real property owner. A lender
often requires the property owner to purchase a lender’s title insurance policy to protect its position as a holder of a mortgage loan, but
the lender’s title insurance policy does not protect the property owner. The property owner has to purchase a separate owner’s title
insurance policy to protect its investment.
The Company issues title insurance policies through its home and branch offices and through a network of agents. Issuing agents
are typically real estate attorneys, independent agents or subsidiaries of community and regional mortgage lending institutions, depending
on local customs and regulations and the Company’s marketing strategy in a particular territory. The ability to attract and retain issuing
agents is a key determinant of the Company’s growth in title insurance premiums written.
Revenues for the title insurance segment primarily result from purchases of new and existing residential and commercial real estate,
refinance activity and certain other types of mortgage lending such as home equity lines of credit.
Title insurance premiums vary from state to state and are subject to extensive regulation. Statutes generally provide that rates must
not be excessive, inadequate or unfairly discriminatory. The process of implementing a rate change in most states involves pre-approval
by the applicable state insurance regulator.
Volume is a factor in the Company’s profitability due to fixed operating costs that are incurred by the Company regardless of title
insurance premium volume. The resulting operating leverage tends to amplify the impact of changes in volume on the Company’s
profitability. The Company’s profitability also depends, in part, upon its ability to manage its investment portfolio to maximize investment
returns and to minimize risks such as interest rate changes, defaults and impairments of assets.
The Company’s volume of title insurance premiums is affected by the overall level of residential and commercial real estate activity,
which includes property sales, mortgage financing and mortgage refinancing. Real estate activity, home sales and mortgage lending are
cyclical in nature. Real estate activity is affected by a number of factors, including the availability of mortgage credit, the cost of real
estate, consumer confidence, employment and family income levels, and general United States economic conditions. Interest rate volatility
is also an important factor in the level of residential and commercial real estate activity.
The Company’s title insurance premiums in future periods are likely to fluctuate due to these and other factors which are beyond
management’s control.
Services other than title insurance provided by operating divisions of the Company are not reported separately, but rather are reported
collectively in a category called “All Other”. These other services include those offered by the Company and by its wholly owned
subsidiaries, Investors Title Exchange Corporation (“ITEC”), Investors Title Accommodation Corporation (“ITAC”), Investors Trust
Company (“Investors Trust”) and Investors Title Management Services, Inc. (“ITMS”).
18 The Company’s exchange services division, consisting of the operations of ITEC and ITAC, provides customer services in connection
with tax-deferred real property exchanges. ITEC acts as a qualified intermediary in tax-deferred exchanges of property held for productive
use in a trade or business or for investment, and its income is derived from fees for handling exchange transactions and interest earned
on client deposits held by the Company. In its role as qualified intermediary, ITEC coordinates the exchange aspects of the real estate
transaction, and its duties include drafting standard exchange documents, holding the exchange funds between the time the old property
is sold and the new property is purchased, and accepting the formal identification of the replacement property within the required
identification period. ITAC provides services as an exchange accommodation titleholder for accomplishing “parking transactions” as
set forth in the safe harbor contained in Internal Revenue Procedure 2000-37. These transactions include reverse exchanges when taxpayers
decide to acquire replacement property before selling the relinquished property, or “build to suit” exchanges, when improvements must
be made to the replacement property before the taxpayer acquires the improved replacement property. The services provided by the
Company’s exchange services division, ITEC and ITAC, are pursuant to provisions in the Internal Revenue Code. From time to time,
these laws are subject to review and changes, which may negatively affect the demand for tax-deferred exchanges in general, and
consequently, the revenues and profitability of the Company’s exchange services division.
The Company’s trust services division, Investors Trust, provides investment management and trust services to individuals, companies,
banks and trusts.
ITMS offers various consulting and management services to provide clients with the technical expertise to start and successfully
operate a title insurance agency.
Business Trends and Recent Conditions
The housing market is heavily influenced by government policies and overall economic conditions. Regulatory reform and initiatives
by various governmental agencies, including the Federal Reserve's monetary policy and other regulatory changes, could impact lending
standards or the processes and procedures used by the Company. The current real estate environment, including interest rates and general
economic activity, typically influence the demand for real estate. Changes in either of these areas would likely impact the Company's
results of operations.
Regulatory Environment
In efforts to provide transparency, the Federal Open Market Committee (“FOMC”) of the Federal Reserve issues disclosures on a
periodic basis that include projections of the federal funds rate and expected actions. At the December 2015 meeting, the FOMC voted
to raise the federal funds rate for the first time since December 2008 to a target range between 0.25% and 0.50%. Since December 2015,
the FOMC has voted on several occasions to increase the federal funds rate, most recently at the December 2018 meeting to a target range
between 2.25% and 2.50%. However, due to developments impacting the economic outlook, as well as muted inflation pressures, at the
July 2019 meeting, the FOMC reversed course and decided to lower the target range for the federal funds rate to between 2.00% and
2.25%. The FOMC has elected to lower the target rate at subsequent meetings, most recently to a target range between 1.00% and 1.25%.
Any future adjustments to the rate are expected to be based on realized and expected economic developments to achieve maximum
employment and inflation near the FOMC’s symmetric 2.0% objective.
In 2008, the federal government took control of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home
Loan Mortgage Corporation (“Freddie Mac”) in an effort to keep these government-sponsored entities from failing. The primary functions
of Fannie Mae and Freddie Mac are to provide liquidity to the nation's mortgage finance system by purchasing mortgages on the secondary
market, pooling them and selling them as mortgage-backed securities. In order to securitize, Fannie Mae and Freddie Mac typically
require the purchase of title insurance for loans they acquire. Since the federal takeover, there have been various discussions and proposals
regarding their reform. Changes to these entities could impact the entire mortgage loan process and, as a result, could affect the demand
for title insurance. The timing and results of reform are currently unknown; however, any changes to these entities could affect the
Company and its results of operations.
In recent years, the Consumer Financial Protection Bureau (“CFPB”), Office of the Comptroller of Currency and the Federal Reserve
have issued memorandums to banks that communicated those agencies’ heightened focus on vetting third-party providers. Such increased
regulatory involvement may affect the Company's agents and approved providers. Further proposals to change regulations governing
insurance holding companies and the title insurance industry are often introduced in Congress, in state legislatures and before various
insurance regulatory agencies. Although the Company regularly monitors such proposals, the likelihood and timing of passage of any
such regulation, and the possible effects of any such regulation on the Company and its subsidiaries, cannot be determined at this time.
In recent periods, both the President and certain members of Congress have indicated a desire for reform of the CFPB. The timing
and nature of any reforms are currently unknown; however, any changes to the CFPB could affect the Company and its results of operations.
19
Real Estate Environment
The Mortgage Bankers Association's (“MBA”) January 17, 2020 Mortgage Finance Forecast (“MBA Forecast”) projects 2020
purchase activity to increase 2.6% to $1,305 billion and refinance activity to decrease 23.5% to $609 billion, resulting in a decrease in
total mortgage originations of 7.4% to $1,914 billion, all from 2019 levels. In 2019, purchase activity accounted for 61.5% of all mortgage
originations and is projected to represent 68.2% of all mortgage originations in 2020.
According to data published by Freddie Mac, the average 30-year fixed mortgage interest rate in the United States was 3.9%, 4.5%
and 4.0% for the years ended December 31, 2019, 2018 and 2017, respectively. Per the MBA Forecast, refinancing is expected to be
lower over the next 3-year period as mortgage interest rates gradually climb to a projected 4.1% by the fourth quarter of 2022.
Historically, activity in real estate markets has varied over the course of market cycles by geographic region and in response to
evolving economic factors. Operating results can vary from year to year based on cyclical market conditions and do not necessarily
indicate the Company's future operating results and cash flows.
Critical Accounting Estimates and Policies
This discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s
accompanying Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted
in the United States. The Company’s management makes various estimates and judgments when applying policies affecting the preparation
of the Consolidated Financial Statements. Actual results could differ from those estimates. Significant accounting policies of the Company
are discussed in Note 1 to the accompanying Consolidated Financial Statements. Following are the accounting estimates and policies
considered critical to the Company.
Reserve for Claim Losses
The Company’s reserve for claims is established using estimates of amounts required to settle claims for which notice has been
received (reported) and the amount estimated to be required to satisfy incurred claims of policyholders which may be reported in the
future (incurred but not reported, or “IBNR”). The total reserve for all losses incurred but unpaid as of December 31, 2019 is represented
by the reserve for claims totaling $31.3 million in the accompanying Consolidated Balance Sheets. Of that total, approximately $3.8
million was reserved for specific claims which have been reported to the Company, and approximately $27.5 million was reserved for
IBNR claims.
A provision for estimated future claims payments is recorded at the time the related policy revenue is recorded. The Company records
the claims provision as a percentage of net premiums written. This loss provision rate is set to provide for losses on current year policies.
By their nature, title claims can often be complex, vary greatly in dollar amounts, vary in number due to economic and market conditions
such as an increase in mortgage foreclosures, and involve uncertainties as to ultimate exposure. In addition, some claims may require a
number of years to settle and determine the final liability for indemnity and loss adjustment expense. The payment experience may
extend for more than 20 years after the issuance of a policy. Events such as fraud, defalcation and multiple property defects can substantially
and unexpectedly cause increases in estimates of losses. Due to the length of time over which claim payments are made and regularly
occurring changes in underlying economic and market conditions, these estimates are subject to variability.
Management considers factors such as the Company’s historical claims experience, case reserve estimates on reported claims, large
claims, actuarial projections and other relevant factors in determining its loss provision rates and the aggregate recorded expected liability
for claims. In establishing the reserve, actuarial projections are compared with recorded reserves to evaluate the adequacy of such recorded
claims reserves and any necessary adjustments are then recorded in the current period’s income statement. As the most recent claims
experience develops and new information becomes available, the loss reserve estimate related to prior periods will change to more
accurately reflect updated and improved emerging data. The Company reflects any adjustments to the reserve in the results of operations
in the period in which new information (principally claims experience) becomes available.
The Company initially reserves for each known claim based upon an assessment of specific facts and updates the reserve amount as
necessary over the course of administering each claim. Loss ratios for earlier years tend to be more reliable than recent policy years, as
those years are more fully developed. In making loss estimates, management determines a loss provision rate, which it then applies to
net premiums written.
20
The Company assumes the reported liability for known claims and IBNR, in the aggregate, will be comparable to its historical claims
experience unless factors, such as loss experience and charged premium rates, change significantly. Also affecting the Company’s
assumptions are large losses related to fraud and defalcation, as these can cause significant variances in loss emergence patterns.
Management defines a large loss as one where incurred losses exceed $500,000. Due to the small volume of large claims, the long-tail
nature of title insurance claims and the inherent uncertainty in loss emergence patterns, large claim activity can vary significantly between
policy years. The estimated development of large claims by policy year is therefore subject to significant changes as experience develops.
The loss provision rate is set to provide for losses on current year policies and changes in prior year estimates.
Management also considers actuarial analyses in evaluating the claims reserve. The actuarial methods used to evaluate the reserve
are loss development methods, Bornhuetter-Ferguson methods and Cape Cod methods, all of which are accepted actuarial methods for
estimating ultimate losses and, therefore, loss reserves. In the loss development method, each policy year’s paid or incurred losses are
projected to an ultimate level using loss development factors. In the Bornhuetter-Ferguson method, a type of expected loss method,
losses for each policy year are estimated based on an expected loss ratio derived directly from a previous estimate of ultimate loss for
each policy year plus an additional provision for losses that have not been reported or paid as of the evaluation date. Bornhuetter-Ferguson
methods produce more stable ultimate loss estimates than do loss development methods, which are more responsive to the current loss
data but can lead to volatile results. The Cape Cod method, a special case of the Bornhuetter-Ferguson method, blends the results of the
loss development and expected loss methods. For more recent policy years, the Cape Cod methods give more weight to the results of
the expected loss methods; for older policy years, more weight is given to the loss development method results.
The key actuarial assumptions are principally loss development factors and expected loss ratios. The selected loss development
factors are based on a combination of the Company’s historical loss experience and title industry loss experience. Expected loss ratios
are estimated for each policy year based on the Company’s own experience and title industry loss ratios. When updated data is incorporated
into the actuarial models, the resulting loss development factors and expected loss ratios will likely change from the prior values. Changes
in these values for historical policy years have generally been the result of actual Company and industry experience during the calendar
years.
If one or more of the variables or assumptions used changed such that the Company’s recorded loss ratio, or loss provision as a
percentage of net title premiums, increased or decreased three loss ratio percentage points, the impact on after-tax income for the year
ended December 31, 2019 would be as follows:
(in thousands)
Increase in loss ratio of three percentage points
Decrease in loss ratio of three percentage points
$
$
3,456
(3,456)
Company management believes that using a sensitivity of three loss percentage points for the loss ratio provides a reasonable
benchmark for analysis of the calendar year loss provision of the Company based on historical loss ratios by year.
Despite the variability of such estimates, management believes that, based on historical claims experience and actuarial analysis, the
Company’s reserve for claims is adequate to cover claim losses resulting from pending and future claims for policies issued through
December 31, 2019. The ultimate settlement of claims will likely vary from the reserve estimates included in the Company’s Consolidated
Financial Statements. The Company continually reviews and adjusts its reserve estimates to reflect its loss experience and any new
information that becomes available. There are no known claims that are expected to have a material adverse effect on the Company’s
financial position or operating results.
Premiums Written and Commissions to Agents
Generally, title insurance premiums are recognized at the time of settlement of the related real estate transaction, as the earnings
process is then considered complete, irrespective of the timing of the issuance of a title insurance policy or commitment. Expenses
typically associated with premiums, including agent commissions, premium taxes, and a provision for future claims are recognized
concurrent with recognition of related premium revenue.
Premium revenues from certain agency operations include accruals for transactions which have settled but have not been reported
as of the balance sheet date. These accruals are based on estimates of the typical lag time between settlement of real estate transactions
and the agent’s reporting of these transactions to the Company. Reporting lag times vary by market. In certain markets, the lag time may
be very short, but in others, can be as high as 100 days. The Company reviews and adjusts lag time estimates periodically, using historical
experience and other factors, and reflects any adjustments in the result of operations in the period in which new information becomes
available.
21 Quarterly, the Company evaluates the collectability of receivables. Premiums not collected within seven months are fully reserved.
Write-offs of receivables have not been material to the Company.
Valuation and Impairment of Investments in Securities
Investments in Fixed Maturity Securities – Fixed maturity securities are classified as available-for-sale and reported at estimated fair
value with unrealized gains and losses, net of tax and adjusted for other-than-temporary declines in fair value, and reported as accumulated
other comprehensive income. Securities are regularly reviewed for differences between the cost and estimated fair value of each security
for factors that may indicate that a decline in fair value is other-than-temporary. Some factors considered in evaluating whether or not
a decline in fair value is other-than-temporary include the duration and extent to which the fair value has been less than cost and the
Company’s ability and intent to retain the investment for a period of time sufficient to allow for a recovery in value. Such reviews are
inherently uncertain and the value of the investment may not fully recover or may decline in future periods resulting in a realized loss.
Realized gains and losses are determined on the specific identification method. Refer to Note 3 to the Consolidated Financial Statements
included in this Annual Report on Form 10-K for further information about the Company’s investments in fixed maturity securities.
Investments in Equity Securities – Equity securities represent ownership interests held by the Company in entities for investment
purposes. Prior to January 1, 2018, these equity securities were classified as available-for-sale and were carried at estimated fair value
on the Company’s Consolidated Balance Sheets. Unrealized holding gains and losses from changes in the estimated fair values of
available-for-sale equity securities were reported in accumulated other comprehensive income. Effective January 1, 2018, unrealized
holding gains and losses are reported in the Consolidated Statements of Income as changes in the estimated fair value of equity security
investments. As a result, other-than-temporary impairments will no longer be considered for equity securities. Realized investment gains
and losses from sales are recorded on the trade date and are determined using the specific identification method. Refer to Note 3 to the
Consolidated Financial Statements included in this Annual Report on Form 10-K for further information about the Company’s investments
in equity securities.
Other Investments – Other investments consist of investments in unconsolidated affiliated entities, typically structured as limited
liability companies ("LLC's"), without readily determinable fair values. Other investments are accounted for under either the equity
method or the measurement alternative method. The measurement alternative method is used when an investment does not qualify for
the equity method or the practical expedient in Accounting Standards Codification Topic 820, which estimates fair value using the net
asset value per share. Under the measurement alternative method, investments are recorded at cost, less any impairment and plus or
minus any changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same
issuer. The Company monitors any events or changes in circumstances that may have had a significant adverse effect on the estimated
fair value of these investments and makes any necessary adjustments.
Securities are regularly evaluated and reviewed for differences between the cost and estimated fair value of each security for factors
that may indicate that a decline in estimated fair value is other-than-temporary. When, in the opinion of management, a decline in the
estimated fair value of an investment is considered to be other-than-temporary, such investment is written down to its estimated fair value.
Some factors considered in evaluating whether or not a decline in estimated fair value is other-than-temporary include, but are not limited
to:
•
•
•
the duration and extent to which the fair value has been less than cost;
whether the Company’s ability and intent to retain the investment for a period of time is sufficient to allow for a recovery in
value; and
whether the Company has the intent to sell or will more likely than not be required to sell a particular security before recovery
in value.
These factors are reviewed quarterly and any material degradation in the prospect for recovery will be considered in the other-than-
temporary impairment analysis. Such reviews 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 fair values of the majority of the Company’s investments are based on quoted
market prices from independent pricing services. Refer to Note 3 to the Consolidated Financial Statements included in this Annual Report
on Form 10-K for further information about the Company’s valuation techniques.
Deferred Taxes
The Company recorded net deferred tax liabilities at December 31, 2019 and 2018. The deferred tax liabilities recorded during both
periods primarily relate to net unrealized gains on investments, the excess of tax over book depreciation, intangible assets, and the recorded
reserve for claims, net of statutory premium reserves. Refer to Note 8 to the Consolidated Financial Statements in this Annual Report
on Form 10-K for further information on the Company’s deferred taxes.
22 Cyclicality and Seasonality
Real estate activity, home sales and mortgage lending are cyclical in nature. Title insurance premiums are closely related to the level
of real estate activity and the average price of real estate sales. Real estate activity is affected by a number of factors, including the
availability of mortgage credit, the cost of real estate, consumer confidence, employment and family income levels, and general United
States economic conditions. Interest rate volatility is also an important factor in the level of residential and commercial real estate activity.
The Company’s premiums in future periods are likely to fluctuate due to these and other factors which are beyond management’s control.
Historically, the title insurance business tends to be seasonal as well as cyclical. Because home sales are typically strongest in periods
of favorable weather, the first calendar quarter tends to have the lowest activity levels, while the spring and summer seasons tend to be
more active. Refinance activity is generally less seasonal, but is subject to interest rate fluctuations.
Results of Operations
The following table presents certain income statement data for the years ended December 31, 2019, 2018 and 2017:
For the Years Ended December 31, (in thousands)
Revenues:
Net premiums written
Escrow and other title-related fees
Non-title services
Interest and dividends
Other investment income
Net realized investment gains (losses)
Changes in the estimated fair value of equity security investments
Other
Total Revenues
Operating Expenses:
Commissions to agents
Provision (benefit) for claims
Personnel expenses
Office and technology expenses
Other expenses
Total Operating Expenses
Income before Income Taxes
Provision for Income Taxes
$
2019
2018
2017
$
145,842
7,474
9,922
4,752
3,191
1,340
10,303
678
183,502
72,780
3,532
46,058
9,254
12,055
143,679
$
138,125
7,096
7,082
4,619
3,107
(110)
(4,130)
470
156,259
65,775
(332)
43,552
8,813
11,382
129,190
140,502
6,892
6,128
4,445
2,159
1,041
—
460
161,627
68,643
3,311
39,937
8,172
11,293
131,356
39,823
27,069
30,271
8,365
5,210
4,570
Net Income Attributable to the Company
$
31,458
$
21,892
$
25,707
Insurance Revenues
Insurance revenues include net premiums written and other title-related income that includes escrow and settlement fees. Non-title
services revenue, investment-related revenues and other revenues are discussed separately below. The following is a summary of the
Company’s total revenue broken out between the title insurance segment and all other revenues with intersegment eliminations netted
with each segment; therefore, the individual segment amounts will not agree to Note 12 in the accompanying Consolidated Financial
Statements.
(in thousands, except percentages)
2019
Title Insurance
All Other
Total
$
$
170,374
13,128
183,502
%
92.8% $
7.2%
100.0% $
147,980
8,279
156,259
94.7% $
154,524
5.3%
7,103
100.0% $
161,627
100.0%
%
95.6%
4.4%
2018
%
2017
23 Net Premiums Written
Net premiums written increased 5.6% in 2019 to $145.8 million, compared with $138.1 million in 2018, and decreased 1.7% in 2018,
compared with $140.5 million in 2017. The increase in 2019, compared with 2018, was primarily due to favorable interest rates, higher
home prices, and higher levels of both refinance and refinance activity. The decrease in 2018, compared with 2017, was primarily due
to a decline in refinance activity, partially offset by an increase in purchase activity and higher real estate values.
Title insurance companies typically issue title insurance policies directly through home and branch offices or through title agencies.
Following is a breakdown of premiums generated by branch and agency operations for the years ended December 31:
(in thousands, except percentages)
2019
Home and Branch
Agency
Total
$
$
40,638
105,204
145,842
%
27.9% $
72.1%
100.0% $
2018
%
2017
41,305
96,820
29.9% $
70.1%
138,125
100.0% $
40,405
100,097
140,502
%
28.8%
71.2%
100.0%
Home and Branch Office Net Premiums: In the Company’s home and branch operations, the Company issues the insurance policy
and retains the entire premium, as no commissions are paid in connection with these policies. Net premiums written from home and
branch operations decreased 1.6% in 2019 to $40.6 million, compared with $41.3 million in 2018, and increased 2.2% in 2018, compared
with $40.4 million in 2017. The decrease in net premiums written from home and branch operations for 2019, compared with 2018, was
primarily due to a shift in market mix from purchase transactions to refinance transactions. The increase in net premiums written from
home and branch operations for 2018, compared with 2017, was primarily due to an increase in purchase activity and higher real estate
values, partially offset by a decline in refinance activity.
All of the Company’s home office operations and the majority of branch offices are located in North Carolina; as a result, the home
and branch office net premiums written are primarily for North Carolina title insurance policies.
Agency Net Premiums: When a policy is written through a title agency, the premium is shared between the agency and the underwriter.
Total premiums include an estimate of premiums for policies that have been issued by agents, but not reported to the Company as of the
balance sheet date. To determine the estimated premiums, the Company uses historical experience, as well as other factors, to make
certain assumptions about the average elapsed time between the policy effective date and the date the policies are reported. From time
to time, the Company adjusts the inputs to the estimation process as agents report transactions and new information becomes available.
In addition to estimating revenues, the Company also estimates and accrues agent commissions, claims provision, premium taxes, income
taxes, and other expenses associated with the estimated revenues that have been accrued. The Company reflects any adjustments to the
accruals in the results of operations in the period in which new information becomes available.
Agency net premiums written increased 8.7% in 2019 to $105.2 million, compared with $96.8 million in 2018, and decreased 3.3%
in 2018, compared with $100.1 million in 2017. The increase in 2019, compared with 2018, was primarily the result of favorable interest
rates increasing refinancing levels. The decrease in 2018, compared with 2017, was primarily attributable to lower levels of refinance
activity following increases in mortgage interest rates.
The following is a schedule of net premiums written in select states in which the Company’s two insurance subsidiaries, ITIC and
NITIC, currently underwrite title insurance:
State (in thousands)
North Carolina
Texas
Georgia
South Carolina
Virginia
All Others
Premiums Written
Reinsurance Assumed
Reinsurance Ceded
Net Premiums Written
2019
2018
2017
$
57,132
$
55,772
$
26,652
16,422
13,796
5,753
26,496
146,251
2
(411)
145,842
$
25,574
13,592
14,172
5,849
23,489
138,448
4
(327)
138,125
$
53,169
26,546
13,166
14,732
6,227
26,923
140,763
3
(264)
$
140,502
24 Escrow and Other Title-Related Fees
Escrow and other title-related fees consists primarily of commission income, escrow and other various fees associated with the
issuance of a title insurance policy including settlement, examination and closing fees. In 2019, escrow and other title-related fee revenue
increased 5.3% to $7.5 million, compared with $7.1 million in 2018, primarily due to an increase in fee income, partially offset by a
decline in commission income. In 2018, escrow and other title-related fees increased 3.0%, from $6.9 million in 2017, primarily due to
an increase in fee income, partially offset by a decline in commission income.
Revenue from Non-Title Services
Revenue from non-title services includes trust services, agency management services and exchange services income. Non-title
service revenues increased 40.1% in 2019 to $9.9 million, compared with $7.1 million in 2018, and increased 15.6% in 2018, compared
with $6.1 million in 2017. The increases in 2019 and 2018, compared with the respective prior years, related to increases in all major
components of non-title services, particularly exchange services revenue.
Investment Related Revenues
Investment related revenues include interest and dividends, other investment income, net realized investment gains (losses) and
changes in the estimated fair value of equity security investments.
Interest and Dividends
The Company derives a substantial portion of its income from investments in fixed maturity securities, which are primarily municipal
and corporate fixed maturity securities, and equity securities. The Company’s investment policy is designed to comply with regulatory
requirements and to balance the competing objectives of asset quality and investment returns. The Company’s title insurance subsidiaries
are required by statute to maintain minimum levels of investments in order to protect the interests of policyholders. Fixed maturity
securities totaling approximately $7.1 million and $6.7 million at December 31, 2019 and 2018, respectively, were deposited with the
insurance departments of the states in which business is conducted.
The Company’s investment strategy emphasizes after-tax income and principal preservation. The Company’s investments are
primarily in fixed maturity securities and, to a lesser extent, equity securities. The average effective maturity of the majority of the fixed
maturity securities is less than 10 years. The Company’s invested assets are managed to fund its obligations and evaluated to ensure long
term stability of capital accounts.
As the Company generates cash from operations, it is invested in accordance with the Company’s investment policy and corporate
goals. The Company’s investment policy has been designed to balance multiple goals, including the assurance of a stable source of
income from interest and dividends, the preservation of principal, and the provision of liquidity sufficient to meet insurance underwriting
and other obligations as they become payable in the future. Securities purchased may include a combination of taxable or tax-exempt
fixed maturity securities and equity securities. The Company also invests in short-term investments that include commercial paper and
money market funds. The Company strives to maintain a high quality investment portfolio. Interest and investment income levels are
primarily a function of general market performance, interest rates and the amount of cash available for investment.
Interest and dividends were $4.8 million in 2019, compared with $4.6 million in 2018 and $4.4 million in 2017. The increases in
2019 and 2018, compared with the respective prior years, were primarily due to increases in dividends received from equity securities
due to higher portfolio balances. Refer to Note 3 in the accompanying Consolidated Financial Statements for the major categories of
investments, scheduled maturities, amortized costs, estimated fair values of investment securities and earnings by security category.
Other Investment Income
Other investment income consists primarily of income related to investments in unconsolidated affiliates, typically structured as
limited liability companies ("LLC's"), accounted for under either the equity method of accounting or the measurement alternative for
investments that do not have readily determinable fair values. The measurement alternative method requires investments without readily
determinable fair values to be recorded at cost, less impairments, and 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 values of these
investments and makes any necessary adjustments.
25 Other investment income was $3.2 million in 2019, compared with $3.1 million in 2018 and $2.2 million in 2017. Changes in other
investment income are impacted by fluctuations in the carrying value of the underlying investment and or distributions received.
Net Realized Investment Gains (Losses)
Dispositions of equity securities at a realized gain or loss reflect such factors as industry sector allocation decisions, ongoing
assessments of issuers’ business prospects and tax planning considerations. As a result of the interaction of these factors and considerations,
the net realized investment gain or loss can vary significantly from period to period.
The net realized investment gains (losses) were $1.3 million for 2019, $(110) thousand for 2018 and $1.0 million for 2017. The net
realized investment gains (losses) in 2017 included impairment charges of $208 thousand, on certain equity investments and other assets
that were deemed to be other-than-temporarily impaired , offset by a net realized gain on the sales of investments and other assets of $1.2
million. There were no impairments recorded in 2019 and 2018. Management believes unrealized losses on remaining fixed maturity
securities at December 31, 2019 are temporary in nature.
The securities in the Company’s investment portfolio are subject to economic conditions and market risks. The Company considers
relevant facts and circumstances in evaluating whether a credit or interest-related impairment of a fixed maturity security is other-than-
temporary. Relevant facts and circumstances include the extent and length of time the fair value of an investment has been below cost.
There are a number of risks and uncertainties inherent in the process of monitoring impairments and determining if an impairment
is other-than-temporary. These risks and uncertainties include the risk that the economic outlook will be worse than expected or have
more of an impact on the issuer than anticipated; the risk that the Company’s assessment of an issuer’s ability to meet all of its contractual
obligations will change based on changes in the characteristics of that issuer; the risk that information obtained by the Company or
changes in other facts and circumstances leads management to change its intent to sell the fixed maturity security; and the risk that
management is making decisions based on misstated information in the financial statements provided by issuers.
Changes in the Estimated Fair Value of Equity Security Investments
The Company adopted Accounting Standards Update 2016-01, Financial Instruments, on January 1, 2018. Among other provisions,
the update requires all changes in the estimated fair value of equity securities to be recognized in the Consolidated Statement of Income,
without regard as to whether a decline in value is deemed to be temporary or other-than-temporary. The Company’s net income may in
turn experience more variation as changes in the estimated fair value will impact the Consolidated Statement of Income.
The changes in estimated fair value of equity security investments were $10.3 million in 2019 and $(4.1) million in 2018. Fluctuations
are the result of changes in general market conditions during the respective periods.
Other Revenues
Other revenues primarily include state tax credit income, gains and losses on the disposal of fixed assets and miscellaneous revenues.
Other revenues were $678 thousand in 2019, compared with $470 thousand for 2018, and $460 thousand for 2017.
Expenses
The Company's operating expenses consist primarily of commissions to agents, personnel expenses, office and technology expenses
and the provision (benefit) for claims. Operating expenses increased 11.2% in 2019, compared with 2018, primarily due to increases in
commissions to agents, the provision (benefit) for claims and personnel expenses. Operating expenses decreased 1.6% in 2018, compared
with 2017, due to decreases in the provision (benefit) for claims and commissions to agents, partially offset by increases in personnel,
office and technology, and other expenses.
Following is a summary of the Company’s operating expenses for 2019, 2018 and 2017. Intersegment eliminations have been netted;
therefore, the individual segment amounts will not agree to Note 12 in the accompanying Consolidated Financial Statements.
(in thousands, except percentages)
2019
Title Insurance
All Other
Total
$
$
134,667
9,012
143,679
%
93.7% $
6.3%
100.0% $
120,875
8,315
129,190
93.6% $
123,536
6.4%
7,820
100.0% $
131,356
100.0%
%
94.0%
6.0%
2018
%
2017
On a combined basis, the after-tax profit margins were 17.1%, 14.0% and 15.9% in 2019, 2018 and 2017, respectively. The Company
continually strives to enhance its competitive strengths and market position, including ongoing initiatives to manage its operating expenses.
26 Total Company
Personnel Expenses: Personnel expenses include base salaries, benefits and payroll taxes, bonuses paid to employees and contract
labor expenses. Personnel expenses were $46.1 million, $43.6 million and $39.9 million for 2019, 2018 and 2017, respectively. Personnel
expenses increased by approximately 5.8% in 2019, from 2018, and 9.1% in 2018, from 2017. The increases in 2019, compared with
2018, and 2018, compared with 2017, were primarily related to normal inflationary increases in salaries and benefits, growth in staffing
levels associated with higher activity levels and targeted investments in key areas of our business, and continued support of multi-year
technology initiatives. On a consolidated basis, personnel expenses as a percentage of total revenues were 25.1%, 27.9%, and 24.7% in
2019, 2018 and 2017, respectively.
Office and Technology Expenses: Office and technology expenses primarily include facilities expenses, software and hardware
expenses, depreciation expenses, telecommunications expenses, and business insurance. Office and technology expenses were $9.3
million, $8.8 million and $8.2 million for 2019, 2018 and 2017, respectively. The increases in office and technology expenses in 2019
and 2018, compared with their respective prior years, were primarily related to increases in software, depreciation and increased facilities
expenses.
Other Expenses: Other expenses primarily include business development expenses, premium-related taxes and licensing, professional
services, title and service fees, amortization of intangible assets and other general expenses. Other expenses were $12.1 million, $11.4
million and $11.3 million for 2019, 2018 and 2017, respectively. The increase in 2019, compared with 2018, was primarily related to an
increase in title and service fees associated with the increase in insurance revenues. In 2018, there were marginal increases, compared
with 2017, in several miscellaneous expense categories, partially offset by a decline in the amortization of intangible assets.
Title Insurance
After-Tax Profit Margin: The Company’s title insurance after-tax profit margin varies according to a number of factors, including
the volume and type of real estate activity. After-tax profit margins for the title insurance segment were 16.7%, 14.9% and 16.9% in
2019, 2018 and 2017, respectively. The increase in after-tax margin in 2019, compared with 2018, was primarily related to increases in
revenues from changes in the estimated fair value of equity security investments and net premiums written, partially offset by increases
in commissions to agents, the provision (benefit) for claims and personnel expenses. The decrease in after-tax margin in 2018, compared
with 2017, was primarily related to a decrease in revenues from changes in the estimated fair value of equity security investments, slightly
lower premiums and increased personnel expenses, partially offset by a decrease in commissions to agents and a benefit for claims.
Commissions to Agents: Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their
respective agency contracts. In 2019, commissions to agents increased 10.6% to $72.8 million, compared with $65.8 million in 2018,
and decreased 4.2% in 2018, compared with $68.6 million in 2017. Commission expense as a percentage of net premiums written by
agents was 69.2%, 67.9% and 68.6% in 2019, 2018 and 2017, respectively. Commission expense for 2019 and 2018, when compared
to the respective prior year periods, moved commensurate with agent net premiums written. Commissions expense as a percentage of
net premiums changed in 2019 and 2018, when compared to the respective prior year periods, primarily due to changes in geographic
mix. Commission rates vary by market due to local practice, competition and state regulations.
Provision (Benefit) for Claims: The provision (benefit) for claims as a percentage of net premiums written was 2.4%, (0.2)% and
2.4% in 2019, 2018 and 2017, respectively. The increase in the provision (benefit) for claims in 2019, compared with 2018, was due to
less favorable loss development and higher incurred claims in the current year period. A benefit for claims was recorded in 2018, primarily
due to favorable loss experience, which resulted in the decrease in the provision (benefit) for claims in 2018, compared with 2017.
The increase in the loss provision rate in 2019, from the 2018 level, resulted in approximately $3.9 million more in reserves than
would have been recorded at the lower 2018 level. Loss provision rates are subject to variability and are reviewed and adjusted as
experience develops.
Title claims are typically reported and paid within the first several years of policy issuance. The provision (benefit) for claims reflects
actual payments of claims, net of recovery amounts, plus adjustments to the specific and incurred but not reported claims reserves, the
latter of which are actuarially determined based on historical claims experience. Actual payments of claims, net of recoveries, were $3.9
million, $2.7 million and $3.8 million in 2019, 2018 and 2017, respectively.
Reserve for Claims: At December 31, 2019, the total reserve for claims was $31.3 million. Of that total, approximately $3.8 million
was reserved for specific claims, and approximately $27.5 million was reserved for claims for which the Company had no notice. Because
of the uncertainty of future claims, changes in economic conditions and the fact that many claims do not materialize for several years,
reserve estimates are subject to variability.
27 Changes from prior periods in the expected liability for claims reflect the uncertainty of the claims environment, as well as the limited
predictive power of historical data. The Company continually updates and refines its reserve estimates as current experience develops
and credible data emerges. Such data includes payments on claims closed during the quarter, new details that emerge on open cases that
cause claims adjusters to increase or decrease the case reserves, and the impact that these types of changes have on the Company’s total
loss provision (benefit). Adjustments may be required as new information develops which often varies from past experience.
Income Taxes
The provision for income taxes was $8.4 million, $5.2 million and $4.6 million for 2019, 2018 and 2017, respectively. Income tax
expense as a percentage of earnings before income taxes was 21.0%, 19.2% and 15.1% for 2019, 2018 and 2017, respectively. The U.S.
federal statutory tax rate for 2019 and 2018 was 21%, and 35% for 2017. On December 22, 2017, the TCJA, was enacted into law. That
legislation, among other changes, reduced the federal corporate income tax rate from 35% to 21%, effective January 1, 2018. As required
under generally accepted accounting principles, the Company’s deferred tax assets and liabilities were revalued at the newly enacted U.S.
corporate income tax rate, and the impact was recognized in the provision for income taxes in the fourth quarter of 2017. The revaluation
resulted in a benefit of approximately $5.3 million recorded for the year ended December 31, 2017.
The effective income tax rates for 2019 and 2018 were primarily impacted by changes in tax-exempt income, as tax exempt lowers
the effective tax rate. The effective income tax rate for 2017 was below the federal statutory tax rate primarily due to the revaluation of
deferred tax assets and liabilities, as well as tax-exempt income.
The Company believes it is more likely than not that the tax benefits associated with recognized impairments and unrecognized
losses recorded through December 31, 2019 will be realized. However, this judgment could be impacted by further market fluctuations.
Information regarding the components of income tax expense and the items included in the reconciliation of the effective rate with the
federal statutory rate can be found in Note 8 to the accompanying Consolidated Financial Statements.
Liquidity and Capital Resources
The Company’s current cash requirements primarily include general operating expenses (including the payment of title claims),
income taxes, capital expenditures and dividends on its common stock. Cash flows from operations have historically been the primary
source of financing for expanding operations, whether through organic growth or outside investments.
The Company evaluates nonorganic growth opportunities, such as mergers and acquisitions, from time to time in the ordinary course
of business. Because of the episodic nature of these events, related incremental liquidity and capital resource needs can be difficult to
predict.
The Company’s operating results and cash flows are heavily dependent on the real estate market. The Company’s business has
certain fixed costs such as personnel; therefore, changes in the real estate market are monitored closely, and operating expenses such as
staffing levels are managed and adjusted accordingly. The Company believes that its significant working capital position and management
of operating expenses will aid its ability to manage cash resources through fluctuations in the real estate market.
Cash Flows: Net cash flows provided by operating activities were $20.9 million, $24.4 million and $19.9 million for 2019, 2018
and 2017, respectively. Cash flows from operating activities decreased in 2019, from 2018, primarily due to net income declining when
adjusted for non-cash items, such as changes in the estimated fair value of equity security investments, and the timing of income tax
disbursements, partially offset by an increase in the provision for claims, net of payments of claims. Cash flows from operating activities
increased in 2018, from 2017, primarily due to the timing of tax payments and changes in the estimated fair value of equity security
investments, partially offset by a lower net income and a benefit for claims.
Cash flows from non-operating activities have historically consisted of purchases and proceeds from investing activities, the issuance
of dividends and repurchases of common stock. In 2019, the Company had higher levels of proceeds received from investments and
investment purchase activity, with less dividends paid, compared with 2018. In 2018, the Company had higher levels of proceeds received
from investments, investment purchase activity and dividends paid, compared with 2017. In the fourth quarters of 2019, 2018 and 2017,
the Company paid special cash dividends in the amounts of $8.00, $10.60 and $2.40 per share, respectively, in addition to regular cash
dividends. Total dividends paid per share were $9.60, $12.20 and $3.75 in 2019, 2018 and 2017, respectively.
The Company maintains a high degree of liquidity within its investment portfolio in the form of cash, short-term investments, and
other readily marketable securities. As of December 31, 2019, the Company held cash and cash equivalents of $25.9 million, short-term
investments of $13.1 million, available-for-sale fixed maturity securities of $104.6 million and equity securities of $61.1 million. The
net effect of all activities on total cash and cash equivalents was an increase of $7.3 million for 2019, a decrease of $1.5 million for 2018,
and a decrease of $7.7 million for 2017.
28 Capital Resources: The amount of capital resources the Company maintains is influenced by state regulation, the need to maintain
superior financial ratings from third-party rating agencies and other marketing and operational considerations.
The Company's significant sources of funds are dividends and distributions from its subsidiaries, primarily its two title insurance
subsidiaries. Cash is received from its subsidiaries in the form of dividends and as reimbursements for operating and other administrative
expenses that it incurs. The reimbursements are executed within the guidelines of management agreements between the Company and
its subsidiaries.
The ability of the Company's title insurance subsidiaries to pay dividends to the Company is subject to state regulation from their
respective states of domicile. Each state regulates the extent to which title underwriters can pay dividends or make distributions and
requires prior regulatory approval of the payment of dividends and other intercompany transfers. The maximum dividend permitted by
law is not necessarily indicative of an insurer’s actual ability to pay dividends. Depending on regulatory conditions, the Company may
in the future need to retain cash in its title insurance subsidiaries in order to maintain their statutory capital position. As of December 31,
2019, both ITIC and NITIC met the minimum capital, surplus and reserve requirements for each state in which they are licensed.
As of December 31, 2019, approximately $103.5 million of the consolidated stockholders’ equity represented net assets of the
Company’s subsidiaries that are restricted by regulation from being transferred in the form of dividends, loans or advances to the parent
company without prior approval from the respective state insurance department. The Company believes, however, that amounts available
for transfer from the insurance and other subsidiaries are adequate to meet the Company’s current operating needs.
During 2020, the maximum distributions the insurance subsidiaries can make to the Company without prior approval from applicable
regulators total approximately $20.4 million.
While state regulations and the need to cover risks may set a minimum level for capital requirements, other factors necessitate
maintaining capital resources in excess of the required minimum amounts. For instance, the Company’s capital resources help it maintain
high ratings from insurance company rating agencies. Superior ratings strengthen the Company's ability to compete with larger, well
known title insurers with national footprints.
A strong financial position provides the necessary flexibility to fund potential acquisition activity, to invest in the Company's core
business, and to minimize the financial impact of potential adverse developments. Adverse developments that generally require additional
capital include adverse financial results, changes in statutory accounting requirements by regulators, reserve charges, investment losses
or costs incurred to adapt to a changing regulatory environment, including costs related to CFPB regulation of the real estate industry.
The Company bases its capitalization levels in part on net coverage retained. Since the Company's geographical focus has been and
continues to be concentrated in states with average premium rates typically lower than the national average, capitalization relative to
premiums will usually appear higher than industry averages.
Due to the Company’s historical ability to consistently generate positive cash flows from its consolidated operations and investment
income, management believes that funds generated from operations will enable the Company to adequately meet its current operating
needs for the foreseeable future. However, there can be no assurance that future experience will be similar to historical experience, since
it is influenced by such factors as the interest rate environment, real estate activity, the Company’s claims-paying ability and its financial
strength ratings. In addition to operational and investment considerations, taking advantage of opportunistic external growth opportunities
may necessitate obtaining additional capital resources. The Company is unaware of any trend that is likely to result in material adverse
liquidity changes, but continually assesses its capital allocation strategy, including decisions relating to repurchasing the Company’s stock
and/or conserving cash.
Purchase of Company Stock: On November 9, 2015, the Board of Directors of the Company approved the purchase of an additional
163,335 shares pursuant to the Company’s repurchase plan, such that there was authority remaining under the plan to purchase up to an
aggregate of 500,000 shares of the Company’s common stock pursuant to the plan immediately after this approval. Unless terminated
earlier by resolution of the Board of Directors, the plan will expire when all shares authorized for purchase under the plan have been
purchased. Pursuant to the Company’s ongoing purchase program, the Company purchased 109 shares in the twelve months ended
December 31, 2019, 149 shares in the twelve months ended December 31, 2018, and 1,333 shares in the twelve months ended December 31,
2017, at average per share prices of $165.08, $195.87 and $183.67, respectively. The Company anticipates making further purchases
under this plan from time to time in the future, depending on such factors as the prevailing market price of the Company’s common stock,
the Company’s available cash and then existing alternative uses for such cash.
Capital Expenditures: Capital expenditures were approximately $1.5 million, $1.9 million and $2.9 million during 2019, 2018 and
2017, respectively. The Company has plans for various capital improvement projects, including increased investment in a number of
technology and system development initiatives and hardware purchases which are anticipated to be funded via cash flows from operations.
All material anticipated capital expenditures are subject to periodic review and revision and may vary depending on a number of factors.
29 Off-Balance Sheet Arrangements
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.
Cash held by the Company for these purposes was approximately $21.5 million and $31.6 million as of December 31, 2019 and 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 the disposition of these deposits.
In addition, in administering tax-deferred property exchanges, ITEC serves as a qualified intermediary for exchanges, holding the
net sales proceeds from relinquished property to be used for purchase of replacement property. 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 held by the Company for the purpose of completing
such transactions totaled approximately $214.6 million and $308.7 million as of December 31, 2019 and 2018, respectively. These
exchange deposits are held at third-party financial institutions. Exchange deposits 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 the transfers of property, disbursements of proceeds and the return on the proceeds at the agreed upon rate. Exchange services revenue
includes earnings on these deposits; therefore, investment income is shown as other revenue rather than investment income. These like-
kind exchange funds are primarily invested in money market and other short-term investments.
External assets under management of Investors Trust Company totaled approximately $568.6 million and $474.4 million as of
December 31, 2019 and 2018, respectively. These amounts are not considered assets of the Company and, therefore, are excluded from
the accompanying Consolidated Balance Sheets.
It is not the general practice of the Company to enter into off-balance sheet arrangements or issue guarantees to third parties. The
Company does not have any material source of liquidity or financing that involves off-balance sheet arrangements. Other than items
noted above, off-balance sheet arrangements are generally limited to the future payments due under various agreements with third-party
service providers.
The following table summarizes the Company’s future estimated cash payments under existing contractual obligations at
December 31, 2019, including, payments due by period:
Contractual Obligations Including
Off-Balance Sheet Arrangements
(in thousands)
Reserve for claims
Obligations under executive
employment plans and
agreements
Operating lease obligations
Other obligations
Total
Payments due by period
Total
Less than 1
year
1-3 years
3-5 years
More than 5
years
$
31,333
$
6,047
$
8,429
$
4,637
$
12,220
12,676
5,022
3,035
$
52,066
$
128
1,229
1,588
8,992
39
2,089
929
60
1,127
518
12,449
577
—
$
11,486
$
6,342
$
25,246
As of December 31, 2019, the Company had a claims reserve totaling $31.3 million. The amounts and timing of these obligations
are estimated and not set contractually. Nonetheless, based on historical insurance claims experience, the Company anticipates the
payments shown in the Contractual Obligations table. Events such as fraud, defalcation, and multiple property title defects can substantially
and unexpectedly cause increases in both the amount and timing of estimated title insurance loss payments and loss cost trends whereby
increases or decreases in inflationary factors (including the value of real estate) will influence the ultimate amount of title insurance loss
payments and could increase total obligations and influence claim payout patterns. Due to the length of time over which claim payments
are made and regularly occurring changes in underlying economic and market conditions, claim estimates are subject to variability and
future payments could increase or decrease from these estimated amounts in the future.
30 Recent Accounting Standards
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 1 and Note 9 to the accompanying
Consolidated Financial Statements for further information regarding the Company's accounting for leases.
In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium
Amortization on Purchased Callable Debt Securities. ASU 2017-08 is intended to enhance the accounting for the amortization of premiums
for purchased callable debt securities. Specifically, the ASU shortens the amortization period for certain investments in callable debt
securities purchased at a premium by requiring that the premium be amortized to the earliest call date. The amendments do not require
an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The update was effective for
annual periods beginning after December 15, 2018, and interim periods within those fiscal years. The Company adopted this update on
January 1, 2019 with no impact on the Company's financial position and results of operations.
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). ASU 2016-13 is intended to
provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and
other commitments to extend credit held by a reporting entity at each reporting date. The update broadens the information that an entity
must consider in developing its expected credit loss estimates, and is meant to better reflect an entity’s current estimate of all expected
credit losses. In addition, this update amends the accounting for credit losses on available-for-sale debt securities and purchased financial
assets with credit deterioration. The update is effective for annual periods beginning after December 15, 2019, and interim periods within
those fiscal years. Early adoption is permitted as of fiscal years beginning after December 15, 2018, including interim periods within
those fiscal years. The Company has evaluated the impact that the recently issued accounting standard will have on the Company's
financial position and results of operations, and 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 consolidated financial statements as a whole. Refer to
Note 3 to the accompanying Consolidated Financial Statements 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. The Company has evaluated the impact that the recently issued accounting standard
will have on the Company's financial position and results of operations, and does not expect it to have a material impact.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to reduce
the complexity in accounting for income taxes during interim and annual periods and is expected to provide clarity on income tax situations
where a diversity in practice has developed. The update is effective for annual and interim periods in fiscal years beginning after December
15, 2020. Early adoption is permitted for interim or annual periods for which financial statements have not yet been issued. None of
these amendments are expected to have a material impact on the Company's financial position or results of operations.
31 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company’s primary exposure to market risk relates to the impact of adverse changes in the fair value of financial instruments
as a result of changes in interest rates and equity market prices of its investment portfolio. Increases in interest rates diminish the
value of fixed maturity securities and preferred stock, and decreases in stock market values diminish the value of common stocks
held. The fair value of the majority of marketable securities is determined based on quoted market prices.
Although the Company monitors its risks associated with fluctuations in interest rates, it does not currently use derivative financial
instruments to hedge these risks.
There were no material changes in the Company’s market risk or market strategy during the year ended December 31, 2019.
Credit Risk
Credit risk is the risk that the Company will incur economic losses due to an issuer’s inability to repay a contractual obligation.
The Company’s investment portfolio, primarily municipal and corporate fixed maturity securities, and to a lesser extent, equity
securities, is subject to credit risk. The Company mitigates this risk by actively monitoring changes in credit ratings, security pricing
and financial reports.
The Company’s average credit quality for fixed maturity securities is AA-, determined by using the lower rating reported by the
credit reporting agencies.
Interest Rate Risk
Interest rate risk is the risk that the Company will incur economic losses due to adverse changes in interest rates. This risk arises
from the Company’s investments in interest-sensitive fixed maturity securities. These securities are primarily fixed-rate municipal
and corporate fixed maturity securities. The Company typically does not purchase such securities for trading purposes. At
December 31, 2019, the Company had approximately $104.6 million in fixed maturity securities. The Company manages the interest
rate risk inherent in its assets by monitoring its liquidity needs and by targeting a specific range for the portfolio’s duration or weighted
average maturity.
To determine the potential effect of interest rate risk on interest-sensitive assets, the Company calculates the effect of a 100 basis
point shock in prevailing interest rates (“rate shock”) on the fair market value of these securities considering stated interest rates and
time to maturity. Based upon the information and assumptions the Company uses in its calculation, management estimates that a 100
basis point increase in prevailing interest rates would decrease the net fair market value of its fixed maturity securities by approximately
$3.3 million.
The selection of a 100 basis point increase in prevailing interest rates should not be construed as a prediction by the Company’s
management of future market events, but rather, to illustrate the potential impact of such an event. To the extent that actual results
differ from the assumptions utilized, the Company’s rate shock measures could be significantly impacted. Additionally, the Company’s
calculation assumes that the current relationship between short-term and long-term interest rates (the term structure of interest rates)
will remain constant over time. As a result, these calculations may not fully capture the impact of nonparallel changes in the term
structure of interest rates and/or large changes in interest rates.
Equity Price Risk
The Company also holds investments in marketable equity securities, which exposes it to market volatility, as discussed in Note
3 to the accompanying Consolidated Financial Statements. The sensitivity analysis presented does not consider the effects that such
adverse changes may have on overall economic activity, nor does it consider additional actions the Company may take to mitigate its
exposure. Equity price risk is the risk that the Company will incur economic losses due to adverse changes in a particular common
stock or stock index. The Company had approximately $61.1 million in equity securities at December 31, 2019. Equity price risk is
addressed in part by varying the specific allocation of equity investments over time pursuant to management’s assessment of market
and business conditions and ongoing liquidity needs analysis. The Company’s equity exposure is a decline in market prices. Based
upon the information and assumptions the Company used in its calculation, management estimates that an immediate decrease in
market prices of 10% would decrease the net fair value of the Company’s assets identified above by approximately $6.1 million at
December 31, 2019.
32 The selection of a 10% immediate decrease should not be construed as a prediction by the Company’s management of future
market events, but rather, to illustrate the potential impact of such an event. The Company’s exposure will change as a result of
changes in its mix of common stocks. Since this calculation is based on historical performance, projecting future price volatility using
this method involves an inherent assumption that historical volatility and correlation relationships will remain stable. Therefore, the
results may not reflect the Company’s actual experience if future volatility and correlation relationships differ from such historical
relationships.
33 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1.
Report of Independent Registered Public Accounting Firm
2. Management's Report on Internal Control Over Financial Reporting
3.
4.
5.
6.
7.
8.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
9. Notes to Consolidated Financial Statements
35
36
37
39
40
41
42
43
45
The financial statement schedules meeting the requirements of Regulation S-X are attached hereto as Schedules I, II, III, IV and
V.
Selected Quarterly Financial Data (unaudited)
2019 (in thousands)
Net premiums written
Net income
Net income attributable to the Company
Basic earnings per common share
Diluted earnings per common share
2018 (in thousands)
Net premiums written
Net income
Net income attributable to the Company
Basic earnings per common share
Diluted earnings per common share
2017 (in thousands)
Net premiums written
Net income
Net income attributable to the Company
Basic earnings per common share
Diluted earnings per common share
March 31
June 30
September 30
December 31
$
28,795
$
34,978
$
40,169
$
6,626
6,626
3.51
3.49
5,500
5,500
2.91
2.90
7,952
7,952
4.21
4.20
41,900
11,380
11,380
6.03
6.00
March 31
June 30
September 30
December 31
$
$
29,559
4,173
4,176
2.21
2.20
$
35,142
6,920
6,947
3.68
3.66
$
39,422
10,633
10,634
5.64
5.61
34,002
133
135
0.07
0.07
March 31
June 30
September 30
December 31
$
32,738
$
34,672
$
37,428
$
35,664
4,466
4,476
2.37
2.36
5,674
5,675
3.01
2.99
5,927
5,927
3.14
3.13
9,634
9,629
5.11
5.08
34 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Investors Title Company
Chapel Hill, North Carolina
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Investors Title Company and
Subsidiaries (the Company) as of December 31, 2019 and 2018, and the related consolidated statements
of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the
period ended December 31, 2019 and the related consolidated notes and schedules (collectively referred
to as the "financial statements"). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2019, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control-Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated
March 11, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on the Company's financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud. Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
We have served as the Company’s auditor since 2004.
High Point, North Carolina
March 11, 2020
35 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Investors Title Company and Subsidiaries is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f) and 15(d)-15(f). The Company’s internal control over
financial reporting has been designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and
the preparation of published financial statements in accordance with generally accepted accounting principles.
The Company’s internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorization
of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s Consolidated
Financial Statements.
Because of its inherent limitation, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the
framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) and concluded that the Company’s internal control over financial reporting was effective as of December 31,
2019.
36 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Investors Title Company
Chapel Hill, North Carolina
Opinion on Internal Control Over Financial Reporting
We have audited Investors Title Company and Subsidiaries’ (the Company’s) internal control over
financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated
Framework (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States) (PCAOB), the consolidated financial statements of the Company as of
December 31, 2019 and 2018, and for each of the three years in the period ended December 31, 2019,
and our report dated March 11, 2020, expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
37 Board of Directors and Stockholders
Investors Title Company
March 11, 2020
Page 2
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
High Point, North Carolina
March 11, 2020
38 Investors Title Company and Subsidiaries
Consolidated Balance Sheets
(in thousands)
As of December 31,
Assets
Cash and cash equivalents
Investments:
2019
2018
$
25,949
$
18,694
Fixed maturity securities, available-for-sale, at fair value (amortized cost: December 31, 2019:
$100,667; December 31, 2018: $87,714)
104,638
88,957
Equity securities, at fair value (cost: December 31, 2019: $33,570; December 31, 2018:
$31,255)
Short-term investments
Other investments
Total investments
Premium and fees receivable
Accrued interest and dividends
Prepaid expenses and other receivables
Property, net
Goodwill and other intangible assets, net
Operating lease right-of-use assets
Other assets
Total Assets
Liabilities and Stockholders’ Equity
Liabilities:
Reserve for claims
Accounts payable and accrued liabilities
Operating lease liabilities
Current income taxes payable
Deferred income taxes, net
Total liabilities
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 December 31, 2019 and 2018, respectively, excluding in each period 292
shares of common stock held by the Company)
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
Total Liabilities and Stockholders’ Equity
Refer to the Notes to the Consolidated Financial Statements.
$
$
61,108
13,134
13,982
192,862
12,523
1,033
5,519
9,776
10,275
4,469
1,487
48,489
32,787
12,436
182,669
12,128
946
7,288
10,304
10,780
—
1,459
263,893
$
244,268
31,333
$
28,318
4,502
1,340
7,038
72,531
—
—
—
188,262
3,100
191,362
31,729
27,735
—
4,981
4,184
68,629
—
—
—
174,690
949
175,639
244,268
$
263,893
$
39 Investors Title Company and Subsidiaries
Consolidated Statements of Income
(in thousands, except per share amounts)
For the Years Ended December 31,
2019
2018
2017
Revenues:
Net premiums written
Escrow and other title-related fees
Non-title services
Interest and dividends
Other investment income
Net realized investment gains (losses)
Changes in the estimated fair value of equity security investments
Other
Total Revenues
Operating Expenses:
Commissions to agents
Provision (benefit) for claims
Personnel expenses
Office and technology expenses
Other expenses
Total Operating Expenses
Income before Income Taxes
Provision for Income Taxes
$
145,842
$
138,125
$
140,502
7,474
9,922
4,752
3,191
1,340
10,303
678
183,502
72,780
3,532
46,058
9,254
12,055
7,096
7,082
4,619
3,107
(110)
(4,130)
470
6,892
6,128
4,445
2,159
1,041
—
460
156,259
161,627
65,775
(332)
43,552
8,813
11,382
68,643
3,311
39,937
8,172
11,293
143,679
129,190
131,356
39,823
27,069
30,271
8,365
5,210
4,570
Net Income
31,458
21,859
25,701
Net Loss Attributable to Noncontrolling Interests
—
33
6
Net Income Attributable to the Company
Basic Earnings per Common Share
Weighted Average Shares Outstanding – Basic
Diluted Earnings per Common Share
$
$
$
$
$
31,458
16.66
1,888
$
$
21,892
11.60
1,887
25,707
13.63
1,886
16.59
$
11.54
$
13.56
Weighted Average Shares Outstanding – Diluted
1,896
1,897
1,896
Refer to the Notes to the Consolidated Financial Statements.
40 Investors Title Company and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands)
For the Years Ended December 31,
Net income
Other comprehensive income (loss), before tax:
Amortization of unrecognized loss
Accumulated postretirement expense obligation adjustment
Unrealized gains (losses) on investments arising during the period
Reclassification adjustment for sale of securities included in net income
Reclassification adjustment for write-down of securities included in net
income
Other comprehensive income (loss), before tax
Income tax expense related to postretirement health benefits
Income tax expense (benefit) related to unrealized gains (losses) on
investments arising during the year
Income tax expense (benefit) related to reclassification adjustment for sale of
securities included in net income
Income tax expense related to reclassification adjustment for write-down of
securities included in net income
Net income tax expense (benefit) on other comprehensive income (loss)
Other comprehensive income (loss)
Comprehensive Income
Comprehensive loss attributable to noncontrolling interests
Comprehensive Income Attributable to the Company
Refer to the Notes to the Consolidated Financial Statements.
2019
2018
2017
$
31,458
$
21,859
$
25,701
—
—
2,727
—
—
2,727
—
576
—
—
576
2,151
33,609
—
33,609
$
$
$
$
—
46
(1,900)
117
—
(1,737)
9
(401)
24
—
(368)
(1,369)
20,490
33
20,523
$
$
9
70
7,478
(1,227)
26
6,356
27
2,556
(419)
8
2,172
4,184
29,885
6
29,891
41 Investors Title Company and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(in thousands, except per share amounts)
Balance, January 1, 2017
1,884
$
— $
143,284
$
11,761
$
91
$
155,136
Common Stock
Shares
Amount
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Noncontrolling
Interests
Total
Stockholders’
Equity
Net income attributable to the Company
Dividends paid ($3.75 per share)
Repurchases of common stock
Exercise of stock appreciation rights
Share-based compensation expense
related to stock appreciation rights
Amortization related to postretirement
health benefits
Accumulated postretirement benefit
obligation adjustment
Net unrealized gain on investments
Net loss attributable to noncontrolling
interests
(1)
3
25,707
(7,073)
(246)
—
219
6
46
4,132
Balance, December 31, 2017
1,886
$
— $
161,891
$
15,945
$
Net income attributable to the Company
Dividends paid ($12.20 per share)
Repurchases of common stock
Exercise of stock appreciation rights
Share-based compensation expense
related to stock appreciation rights
Cumulative-effect adjustment for
adoption of new accounting standards
Accumulated postretirement benefit
obligation adjustment
Net unrealized loss on investments
Distribution of equity to noncontrolling
interest
Net loss attributable to noncontrolling
interests
—
1
21,892
(23,017)
(29)
(1)
327
13,627
(13,627)
37
(1,406)
25,707
(7,073)
(246)
—
219
6
46
4,132
(6)
177,921
21,892
(23,017)
(29)
(1)
327
—
37
(1,406)
(52)
(33)
(6)
85
$
(52)
(33)
Balance, December 31, 2018
1,887
$
— $
174,690
$
949
$
— $
175,639
Net income attributable to the
Company
Dividends paid ($9.60 per share)
Repurchases of common stock
Exercise of stock appreciation rights
Share-based compensation expense
related to stock appreciation rights
Net unrealized gain on investments
—
2
31,458
(18,131)
(19)
—
264
Balance, December 31, 2019
1,889
$
— $
188,262
$
Refer to the Notes to the Consolidated Financial Statements.
31,458
(18,131)
(19)
—
264
2,151
— $
191,362
2,151
3,100
$
42 Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the Years Ended December 31,
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
2019
2018
2017
$
31,458
$
21,859
$
25,701
Depreciation
Amortization of investments, net
Amortization of other intangible assets, net
Amortization related to postretirement benefits obligation
Share-based compensation expense related to stock appreciation rights
Net (gain) loss on disposals of property
Net realized (gain) loss on securities
Net realized loss (gain) on other investments
Net realized loss on impairments of other assets and other investments
Changes in the estimated fair value of equity security investments
Net earnings from other investments
Provision (benefit) for claims
Provision (benefit) for deferred income taxes
Changes in assets and liabilities:
Increase in receivables
Decrease in other assets
Increase in operating lease right-of-use assets
Decrease (increase) in current income taxes receivable
Increase in operating lease liabilities
Increase in accounts payable and accrued liabilities
(Decrease) increase in current income taxes payable
Payments of claims, net of recoveries
Net cash provided by operating activities
Investing Activities
Purchases of fixed maturity securities
Purchases of equity securities
Purchases of short-term investments
Purchases of other investments
Proceeds from sales and maturities of fixed maturity securities
Proceeds from the sale of equity securities
Proceeds from sales and maturities of short-term investments
Proceeds from sales and distributions of other investments
Proceeds from sales of other assets
Purchase of subsidiary, net of cash received
Purchases of property, equipment and software
Proceeds from disposals of property
Net cash provided by (used in) investing activities
1,759
712
505
—
264
(46)
(1,343)
3
—
(10,303)
(2,209)
3,532
2,278
(395)
1,654
(4,469)
—
4,502
583
(3,641)
(3,928)
20,916
(26,431)
(6,374)
(98,476)
(2,536)
12,530
5,402
118,364
3,192
3
—
(1,486)
301
4,489
1,657
748
577
—
327
12
117
(7)
—
4,130
(1,913)
(332)
(4,074)
(2,097)
540
—
385
—
216
4,981
(2,740)
24,386
—
(13,954)
(94,781)
(1,544)
11,520
8,585
86,105
3,055
7
—
(1,859)
59
(2,807)
1,435
788
917
9
219
(23)
(1,201)
(22)
182
—
(1,673)
3,311
(4,664)
(1,505)
388
—
(385)
—
1,463
(1,232)
(3,815)
19,893
(18,420)
(4,646)
(26,414)
(1,873)
17,445
4,682
9,228
2,696
22
(175)
(2,884)
51
(20,288)
43 Consolidated Statements of Cash Flows, continued
Financing Activities
Repurchases of common stock
Exercise of stock appreciation rights
Distribution of equity for noncontrolling interest
Dividends paid
Net cash used in financing activities
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Period
Cash and Cash Equivalents, End of Period
Supplemental Disclosures:
Cash Paid During the Year for:
Income tax payments, net
Non Cash Investing and Financing Activities
Non cash net unrealized (gain) loss on investments, net of deferred tax
(provision) benefit of $(576), $377 and $(2,145) for December 31, 2019,
2018 and 2017, respectively
Adjustments to postretirement benefits obligation, net of deferred tax
provision of $0, $(9) and $(24) for December 31, 2019, 2018 and 2017,
respectively
Changes in Financial Statement Amounts Related to Purchase of
Subsidiaries, Net of Cash Received
Goodwill and other intangibles acquired
Accounts payable and accrued liabilities assumed
Purchase of subsidiary, net of cash received
Refer to the Notes to the Consolidated Financial Statements.
2019
2018
2017
(19)
—
—
(18,131)
(18,150)
7,255
18,694
(29)
(1)
(52)
(23,017)
(23,099)
(1,520)
20,214
25,949
$
18,694
$
(246)
—
—
(7,073)
(7,319)
(7,714)
27,928
20,214
9,734
$
5,462
$
11,539
(2,151) $
1,406
$
(4,132)
— $
(37) $
(46)
— $
—
— $
— $
—
— $
(237)
62
(175)
$
$
$
$
$
$
44 Investors Title Company and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation and Summary of Significant Accounting Policies
Description of Business: Investors Title Company’s (the “Company”) primary business, and only reportable segment, is title insurance.
The title insurance segment, through its two subsidiaries, Investors Title Insurance Company (“ITIC”) and National Investors Title
Insurance Company (“NITIC”), is licensed to insure titles to residential, institutional, commercial and industrial properties. The Company
issues title insurance policies primarily through approved attorneys from underwriting offices and through independent issuing agents in
23 states and the District of Columbia, primarily in the eastern half of the United States. The majority of the Company’s business is
concentrated in North Carolina, Texas, Georgia and South Carolina.
Principles of Consolidation and Basis of Presentation: The accompanying 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”). Earnings attributable to noncontrolling interests in majority-owned insurance agencies are
recorded in the Consolidated Statements of Income. All intercompany balances and transactions have been eliminated in consolidation.
Significant Accounting Policies: The significant accounting policies of the Company are summarized below.
Cash and Cash Equivalents
For the purpose of presentation in the Company’s Consolidated Statements of Cash Flows, cash equivalents are highly liquid
instruments with remaining original maturities of three months or less. The carrying amount of cash and cash equivalents is a reasonable
estimate of fair value due to the short-term maturity at purchase of these instruments.
Investments in Securities
Investments in Fixed Maturity Securities: Fixed maturity securities are classified as available-for-sale and reported at estimated fair
value with unrealized gains and losses, net of tax and adjusted for other-than-temporary declines in fair value, reported in accumulated
other comprehensive income. Securities are regularly reviewed for differences between the cost and estimated fair value for factors that
may indicate that a decline in fair value is other-than-temporary. Some factors considered in evaluating whether or not a decline in fair
value is other-than-temporary include the duration and extent to which the fair value has been less than cost and the Company’s ability
and intent to retain the investment for a period of time sufficient to allow for a recovery in value. Such reviews are inherently uncertain
and the value of the investment may not fully recover or may decline in future periods resulting in a realized loss. Realized gains and
losses are determined on the specific identification method. Refer to Note 3 for further information about the Company’s investments
in fixed maturity securities.
Investments in Equity Securities: Equity securities represent ownership interests held by the Company in entities for investment
purposes. Prior to January 1, 2018, these equity securities were classified as available-for-sale and were carried at estimated fair value
on the Company’s Consolidated Balance Sheets. Unrealized holding gains and losses from changes in the fair values of available-for-
sale equity securities were reported in accumulated other comprehensive income. Effective January 1, 2018, changes in the estimated
fair value of equity security investments are reported in the Consolidated Statements of Income. As a result, other-than-temporary
impairments will no longer be considered for equity securities. Realized investment gains and losses from sales are recorded on the trade
date and are determined using the specific identification method. Refer to Note 3 for further information about the Company’s investments
in equity securities.
Other Investments
Other investments consist of investments in unconsolidated affiliated entities, typically structured as limited liability companies
("LLC's"), without readily determinable fair values. Other investments are accounted for under either the equity method or the measurement
alternative method. The measurement alternative method is used when an investment does not qualify for the equity method or the
practical expedient in Accounting Standards Codification (“ASC”) Topic 820, which estimates fair value using the net asset value per
share. Under the measurement alternative method, investments are recorded at cost, less any impairment and plus or minus any changes
resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. The aggregate
cost of the Company’s cost method investments totaled $7.9 million and $6.6 million at December 31, 2019 and 2018, respectively. 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.
45 Short-term Investments
Short-term investments are comprised of money market accounts which are invested in short-term funds, commercial paper,
certificates of deposit, and other investments expected to have maturities or redemptions greater than three months and less than twelve
months. The Company monitors any events or changes in circumstances that may have a significant adverse effect on the fair value of
these investments.
Property Acquired in Settlement of Claims
Property acquired in settlement of claims is held for sale and valued at the lower of cost or market. Adjustments to reported estimated
realizable values and realized gains or losses on dispositions are recorded as increases or decreases in claim costs. Properties acquired
in settlement of claims are included in other assets in the Consolidated Balance Sheets.
Property and Equipment
Property and equipment are recorded at cost and are depreciated principally under the straight-line method over the estimated useful
lives (3 to 25 years) of the respective assets. Maintenance and repairs are charged to operating expenses and improvements are capitalized.
Reserve for Claims
The total reserve for all reported and unreported losses the Company incurred through December 31, 2019 is represented by the
reserve for claims. The Company’s reserve for unpaid losses and loss adjustment expenses is established using estimated amounts required
to settle claims for which notice has been received (reported) and the amount estimated to be required to satisfy incurred claims of
policyholders which may be reported in the future (incurred but not reported, or “IBNR”). Despite the variability of such estimates,
management believes that the reserve is adequate to cover claims losses resulting from pending and future claims for policies issued
through December 31, 2019. The Company continually reviews and adjusts its reserve estimates as necessary to reflect its loss experience
and any new information that becomes available. Adjustments resulting from such reviews may be significant.
Claims 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 acquiring company
carries assets at the lower of cost or estimated realizable value, net of any indebtedness on the property.
Income Taxes
The Company makes certain estimates and judgments in determining income tax expense (benefit) for financial statement purposes.
These estimates and judgments occur in the calculation of certain tax assets and liabilities which arise from differences in the timing of
recognition of revenue and expense for tax and financial statement purposes. The Company provides for deferred income taxes (benefits)
for the tax consequences in future years of temporary differences between the financial statements’ carrying values and the tax bases of
assets and liabilities using currently enacted tax rates. The Company establishes a valuation allowance if it believes that it is more likely
than not that some or all of its deferred tax assets will not be realized. Refer to Note 8 for further information regarding income taxes.
Premiums Written and Commissions to Agents
Generally, title insurance premiums are recognized at the time of settlement of the related real estate transaction, as the earnings
process is then considered complete, irrespective of the timing of issuance of a title insurance policy or commitment. Expenses typically
associated with premiums, including agent commissions, premium taxes, and a provision for future claims are recognized concurrent
with recognition of related premium revenue.
Allowance for Doubtful Accounts
Company management continually evaluates the collectability of receivables and provides an allowance for doubtful accounts equal
to estimated losses expected to be incurred in the collection of premiums and fees receivable. Changes to the allowance for doubtful
accounts are reflected within net premiums written in the Consolidated Statements of Income. Amounts are charged off in the period
they are deemed to be uncollectible.
Quarterly, the Company evaluates the collectability of receivables. Premiums not collected within 7 months are fully reserved.
Write-offs of receivables have not been material to the Company.
46 Exchange Services Revenue
Fees are recognized at the signing of a binding agreement and investment earnings are recognized as they are earned. Exchange
services revenue is included in non-title services in the Consolidated Statements of Income.
Fair Values of Financial Instruments
The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, short-term investments, premium
and fees receivable, accrued interest and dividends, accounts payable, commissions payable, reinsurance payable and current income
taxes recoverable/payable approximate fair value due to the short-term nature of these assets and liabilities. Estimated fair values for the
majority of investment securities are based on quoted market prices. Refer to Note 3 for further information regarding investments in
securities and fair value.
Comprehensive Income
The Company’s accumulated other comprehensive income is comprised of unrealized holding gains or losses on available-for-sale
securities, net of tax, and unrealized gains or losses associated with postretirement benefit liabilities, net of tax. Accumulated other
comprehensive income as of December 31, 2019 consists of $3.1 million of unrealized holding gains on available-for-sale securities and
$32 thousand of unrecognized actuarial losses associated with postretirement benefit liabilities. Accumulated other comprehensive income
as of December 31, 2018 consists of $981 thousand of unrealized holding gains on available-for-sale securities and $32 thousand of
unrecognized actuarial losses associated with postretirement benefit liabilities. Accumulated other comprehensive income as of
December 31, 2017 consists of $16.0 million of unrealized holding gains on available-for-sale securities and $58 thousand of unrecognized
actuarial losses associated with postretirement benefit liabilities.
Share-Based Compensation
The Company accounts for share-based compensation in accordance with the fair value based principles required by the Financial
Accounting Standards Board (“FASB”). Share-based compensation cost is generally measured at the grant date, based on the estimated
fair value of the award, and is recognized as an expense over the employee’s requisite service period.
As the share-based compensation expense recognized in the Consolidated Statements of Income is based on awards ultimately
expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates.
Goodwill
Goodwill represents the excess of cost over fair value of identifiable net assets acquired and assumed in a business combination.
The fair value of the Company’s goodwill at acquisition is principally based on values obtained from a third-party valuation service.
Goodwill is reviewed for impairment at least annually, or when events or changes in circumstances indicate the carrying value may
not be recoverable. When evaluating whether goodwill is impaired, the Company determines through qualitative analysis whether relevant
events and circumstances indicate that it is more likely than not that goodwill balances are impaired as of the testing date. If the qualitative
analysis does not indicate that an impairment of goodwill is more likely than not, then no other specific quantitative impairment testing
is required. If it is determined that it is more likely than not that an impairment exists, the Company performs a quantitative assessment
whereby a discounted cash flow analysis is utilized to determine an estimated fair value. The estimated fair value is compared to the
carrying value of goodwill as of the measurement date. The discounted cash flows used in estimating fair value are dependent on a
number of significant assumptions, and therefore estimated fair value measurements are subject to change given the inherent uncertainty
in predicting future results and cash flows.
Other Intangible Assets
The Company’s other intangible assets consist of non-compete agreements, referral relationships and a tradename resulting from
agency acquisitions; all of which are recorded at the acquisition date fair value. The fair value of the Company’s other intangible assets
is principally based on values obtained from a third-party valuation service. These assets are amortized on a straight-line basis over their
useful lives, which range from 1 to 30 years; noting that the amortization of certain non-compete contracts will start at a future date when
the related employment agreements are terminated. Other intangible assets are reviewed for impairment at least annually or when events
or changes in circumstances indicate the carrying value may not be recoverable.
47 Title Plants
Title plants represent a historical record of matters affecting title to parcels of land in a particular geographic area. Title plants are
recorded at the cost incurred to construct or obtain and organize historical title information to the point it can be used to perform title
searches. Costs incurred to maintain, update and operate title plants are expensed as incurred. Title plants are not amortized as they are
considered to have an indefinite life with no diminishment of value if properly maintained; but are subject to impairment evaluation,
which the Company performs on at least an annual basis.
Leases
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 right-of-use ("ROU") assets and operating lease liabilities on the Company's Consolidated Balance Sheets. Operating
lease ROU assets represent the Company’s right to use an underlying asset for the stated lease term. Operating lease liabilities represent
the Company’s obligation to make lease payments arising from an operating lease. Operating lease ROU assets and liabilities are
recognized at the date of the lease commencement, and are based on the present value of lease payments over the lease term. In addition,
the Company elected certain practical expedients and therefore (a) chose not to reassess whether any expired or existing contracts are,
or contain, leases, (b) chose not to reassess the lease classification for any expired or existing leases, and (c) chose not to reassess initial
direct costs for any expired or existing leases. The Company's current leases do not provide an implicit interest rate, thus the Company
utilized the average rate over a 10-year term based upon the Moody's seasoned Aaa corporate bond yields in determining the present
value of lease payments. A portion of the Company's current leases includes an option to extend or cancel the lease term. The exercise
of such an option is solely at the Company's discretion. The operating lease liability recorded in the Consolidated Balance Sheets includes
lease payments related to options to extend or cancel the lease term if the Company determined at the date of adoption that the lease was
expected to be renewed or extended. A lease expense is recognized on a straight-line basis over the lease term. Adjustments for straight-
line rental expense for the periods presented are not material and as such, the lease expense recognized was reflected in cash used in
operating activities for the respective periods. Refer to Note 9 for further information about the Company's leases.
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 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 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 9 and the Significant Accounting Policies section, above, 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.
48 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 has evaluated the impact that the recently issued accounting standard will have on the Company's
financial position and results of operations, and 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 consolidated financial statements as a whole. Refer to
Note 3 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. The Company has evaluated the impact that the recently issued accounting standard
will have on the Company's financial position and results of operations, and does not expect it to have a material impact.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. ASU 2019-12 is intended to reduce
the complexity in accounting for income taxes during interim and annual periods and is expected to provide clarity on income tax situations
where a diversity in practice has developed. The update is effective for annual and interim periods in fiscal years beginning after December
15, 2020. Early adoption is permitted for interim or annual periods for which financial statements have not yet been issued. None of
these amendments are expected to have a material impact on the Company's financial position or results of operations.
Use of Estimates and Assumptions
The preparation of 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
consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period and accompanying
consolidated notes. Actual results could differ materially from those estimates and assumptions used. The more significant of these
estimates and assumptions include the following:
Claims: The Company’s reserve for claims is established using estimated amounts required to settle claims for which notice has been
received (reported) and the amount estimated to be required to satisfy incurred claims of policyholders which have been incurred but not
reported. A provision for estimated future claims payments is recorded at the time policy revenue is recorded as a percentage of net
premiums written. By their nature, title claims can often be complex, vary greatly in dollar amounts, vary in number due to economic
and market conditions such as an increase in mortgage foreclosures, and involve uncertainties as to ultimate exposure. In addition, some
claims may require a number of years to settle and determine the final liability for indemnity and loss adjustment expense. The payment
experience may extend for more than 20 years after the issuance of a policy. Events such as fraud, defalcation and multiple property
defects can substantially and unexpectedly cause increases in estimates of losses. Due to the length of time over which claim payments
are made and regularly occurring changes in underlying economic and market conditions, these estimates are subject to variability.
Management considers factors such as the Company’s historical claims experience, case reserve estimates on reported claims, large
claims, actuarial projections and other relevant factors in determining its loss provision rates and the aggregate recorded expected liability
for claims. In establishing the reserve, actuarial projections are compared with recorded reserves to evaluate the adequacy of such recorded
claims reserves and any necessary adjustments are then recorded in the current period’s income statement. As the most recent claims
experience develops and new information becomes available, the loss reserve estimate related to prior periods will change to more
accurately reflect updated and improved emerging data. The Company reflects any adjustments to the reserve in the results of operations
in the period in which new information (principally claims experience) becomes available.
49 Premiums written: Premium revenues from certain agency operations include accruals for transactions which have settled but have
not been reported as of the balance sheet date. These accruals are based on estimates of the typical lag time between settlement of real
estate transactions and the agent’s reporting of these transactions to the Company. Reporting lag times vary by market. In certain markets,
the lag time may be very short, but in others, can be as high as 100 days. The Company reviews and adjusts lag time estimates periodically,
using historical experience and other factors, and reflects any adjustments in the result of operations in the period in which new information
becomes available.
Impairments: Securities are regularly evaluated and reviewed for differences between the cost and estimated fair value of each
security for factors that may indicate that a decline in estimated fair value is other-than-temporary. When, in the opinion of management,
a decline in the estimated fair value of an investment is considered to be other-than-temporary, such investment is written down to its
estimated fair value. Some factors considered in evaluating whether or not a decline in estimated fair value is other-than-temporary
include the duration and extent to which the estimated fair value has been less than cost; the probability that the Company will be unable
to collect all amounts due under the contractual terms of the security; whether the Company has the intent to sell or will more likely than
not be required to sell a particular security before recovery in value; and the financial condition and prospects of the issuer (including
credit ratings). These factors are reviewed quarterly and any material degradation in the prospect for recovery will be considered in the
other-than-temporary impairment analysis. Such reviews 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 estimated fair values of the majority of the Company’s investments are
based on quoted market prices from independent pricing services.
2. Statutory Accounting and Restrictions on Consolidated Stockholders’ Equity and Investments
The Consolidated Financial Statements have been prepared in conformity with GAAP, which differ in some respects from statutory
accounting practices prescribed or permitted in the preparation of financial statements for submission to insurance regulatory authorities.
Combined capital and surplus on a statutory basis was $194.0 million and $180.2 million as of December 31, 2019 and 2018,
respectively. Net income on a statutory basis was $21.3 million, $41.0 million and $18.8 million for the years ended December 31, 2019,
2018 and 2017, respectively.
The Company has designated approximately $37.3 million and $35.9 million of retained earnings as of December 31, 2019 and 2018,
respectively, as appropriated to reflect the required statutory premium and supplemental reserves. Refer to Note 8 for the tax treatment
of the statutory premium reserve.
As of December 31, 2019 and 2018, approximately $103.5 million and $81.8 million, respectively, of consolidated stockholders’
equity represents net assets of the Company’s subsidiaries that cannot be transferred in the form of dividends, loans or advances to the
parent company under statutory regulations without prior insurance department approval. During 2020, the maximum distributions the
insurance subsidiaries can make to the Company without prior approval from applicable regulators total approximately $20.4 million.
Fixed maturity securities totaling approximately $7.1 million and $6.7 million at December 31, 2019 and 2018, respectively, are
deposited with the insurance departments of the states in which business is conducted.
3. 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 December 31, 2019 (in thousands)
Fixed maturity securities, available-for-sale, at fair value:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Government obligations
$
25,161
$
6
$
4
$
25,163
General obligations of U.S. states, territories and political
subdivisions
Special revenue issuer obligations of U.S. states, territories
and political subdivisions
Corporate debt securities
Total
18,887
51,188
5,431
843
2,530
621
$
100,667
$
4,000
$
—
20
5
29
19,730
53,698
6,047
$
104,638
50 As of December 31, 2018 (in thousands)
Fixed maturity securities, available-for-sale, at fair value:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
Governmental obligations
$
1,023
$
— $
7
$
1,016
General obligations of U.S. states, territories and political
subdivisions
Special revenue issuer obligations of U.S. states, territories and
political subdivisions
Corporate debt securities
Total
19,518
56,675
10,498
229
1,237
303
143
329
47
$
87,714
$
1,769
$
526
$
19,604
57,583
10,754
88,957
The special revenue category for both periods presented includes approximately 60 individual fixed maturity securities with revenue
sources from a variety of industry sectors.
The scheduled maturities of fixed maturity securities at December 31, 2019 were as follows:
(in thousands)
Due in one year or less
Due after one year through five years
Due five years through ten years
Due after ten years
Total
Available-for-Sale
Amortized
Cost
Fair
Value
$
9,695
$
62,699
27,461
812
9,740
64,756
28,847
1,295
$
100,667
$
104,638
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
December 31, 2019 and 2018, respectively.
As of December 31, 2019 (in
thousands)
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Less than 12 Months
12 Months or Longer
Total
$
12,045
$
(4) $
— $
— $
12,045
$
(4)
Government obligations
Special revenue issuer obligations of
U.S. states, territories and political
subdivisions
Corporate debt securities
Total temporarily impaired securities
$
13,559
$
1,101
413
(17)
(5)
(26) $
1,118
—
1,118
$
(3)
—
(3) $
2,219
413
14,677
$
(20)
(5)
(29)
51 General obligations of U.S. states,
territories and political subdivisions
Special revenue issuer obligations of
U.S. states, territories and political
subdivisions
Corporate debt securities
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)
Less than 12 Months
12 Months or Longer
Total
4,888
(32)
6,469
(111)
11,357
(143)
Total temporarily impaired securities
$
22,720
$
12,326
4,490
(100)
(28)
(167) $
9,720
3,733
19,922
$
(229)
(19)
(359) $
22,046
8,223
42,642
$
(329)
(47)
(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 the estimated fair value
has been below cost, the financial condition and prospects of the issuer (including credit ratings and analyst reports) and macro-economic
changes. A total of 6 and 51 fixed maturity securities had unrealized losses at December 31, 2019 and 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. During 2019, 2018 and 2017, the Company recorded no other-than-temporary impairment charges related to
fixed maturity securities. If the Company determines an other-than-temporary impairment charge is necessary, the expense would be
recorded in net realized investment gains (losses) in the Consolidated Statements of Income when recognized.
Investments in Equity Securities
The cost and estimated fair value of equity securities are as follows:
As of December 31, 2019 (in thousands)
Equity securities, at fair value:
Common stocks
Total
As of December 31, 2018 (in thousands)
Equity securities, at fair value:
Common stocks
Total
Estimated
Fair
Value
Cost
$
$
$
$
33,570
33,570
$
$
61,108
61,108
Estimated
Fair
Value
Cost
31,255
31,255
$
$
48,489
48,489
Unrealized holding gains and losses are reported in the Consolidated Statements of Income as changes in the estimated fair value of
equity security investments.
52 Interest and Dividends
Earnings on investments for the years ended December 31 were as follows:
(in thousands)
Fixed maturity securities
Equity securities
Invested cash and other short-term investments
Miscellaneous interest
Investment income
Net Realized Investment Gains (Losses)
2019
2018
2017
$
$
2,540
$
2,809
$
1,586
624
2
1,308
492
10
4,752
$
4,619
$
3,037
1,203
202
3
4,445
Gross realized gains and losses on sales of investments for the years ended December 31 are summarized as follows:
(in thousands)
Gross realized gains from securities:
Common stocks
Total
Gross realized losses from securities:
Common stocks
Other-than-temporary impairment of securities
Total
Net realized gains (losses) from securities
Net realized other investment (losses) gains:
Impairments on other investments
Gains on other investments
Losses on other investments
Total
Net realized investment gains (losses)
2019
2018
2017
$
$
$
$
$
$
$
$
1,725
1,725
$
$
(382) $
—
(382) $
1,343
$
— $
3
(6)
(3) $
$
1,340
1,030
1,030
$
$
(1,147) $
—
(1,147) $
(117) $
— $
7
—
$
7
(110) $
1,487
1,487
(260)
(26)
(286)
1,201
(182)
22
—
(160)
1,041
Realized gains and losses are determined on the specific identification method.
Variable Interest Entities
The Company holds investments in variable interest entities (“VIEs”) that are not consolidated in the Company's financial statements
as the Company is not the primary beneficiary. These entities are considered VIEs as the equity investors at risk, including the Company,
do not have the power over the activities that most significantly impact the economic performance of the entities; this power resides with
a third-party general partner or managing member that cannot be removed except for cause. The following table sets forth details about
the Company's variable interest investments in VIEs, which are structured either as limited partnerships ("LPs") or limited liability
companies ("LLCs"), as of December 31, 2019:
Type of Investment (in thousands)
Tax credit LPs
Real estate LLCs or LPs
Small business investment LLCs or LPs
Balance Sheet Classification
Other investments
Other investments
Other investments
Total
Carrying
Value
Estimated
Fair Value
Maximum
Potential
Loss (a)
$
$
228
$
228
$
5,405
6,183
5,898
5,984
1,325
7,075
8,955
11,816
$
12,110
$
17,355
(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.
53 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 and U.S. Treasury 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 December 31, 2019 and 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.
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 interest and dividends is a reasonable estimate of fair value due to the short-term maturity of these
assets.
54 The following table presents, by level, fixed maturity securities carried at estimated fair value as of December 31, 2019 and 2018:
As of December 31, 2019 (in thousands)
Level 1
Level 2
Level 3
Total
Fixed maturity securities:
Obligations of U.S. states, territories and political
subdivisions*
Corporate debt securities*
Total
$
$
24,160
—
24,160
$
$
74,431
6,047
80,478
As of December 31, 2018 (in thousands)
Level 1
Level 2
Fixed maturity securities:
Obligations of U.S. states, territories and political subdivisions* $
Corporate debt securities*
Total
$
— $
—
— $
78,203
10,754
88,957
$
$
$
$
— $
—
98,591
6,047
— $
104,638
Level 3
Total
— $
—
— $
78,203
10,754
88,957
*Denotes fair market value obtained from pricing services.
The following table presents, by level, equity investments and other financial instruments at estimated fair values as of December 31,
2019 and December 31, 2018:
As of December 31, 2019 (in thousands)
Financial assets:
Cash
Accrued interest and dividends
Equity securities, at fair value:
Common stocks
Short-term investments:
Money market funds and certificates of deposit
Other investments:
Equity investments in unconsolidated affiliates, equity
method
Equity investments in unconsolidated affiliates,
measurement alternative
Total
As of December 31, 2018 (in thousands)
Financial assets:
Cash
Accrued interest and dividends
Equity securities, at fair value:
Common stocks
Short-term investments:
Commercial paper and money market funds
Other investments:
Equity investments in unconsolidated affiliates, equity
method
Equity investments in unconsolidated affiliates, measurement
alternative
Total
Level 1
Level 2
Level 3
Total
$
$
$
$
25,949
1,033
— $
—
61,108
13,134
—
—
—
—
— $
—
—
—
25,949
1,033
61,108
13,134
6,083
6,083
—
101,224
$
—
— $
7,899
13,982
$
7,899
115,206
Level 1
Level 2
Level 3
Total
18,694
$
— $
— $
18,694
946
48,489
32,787
—
—
—
—
—
—
—
—
—
—
5,847
6,589
946
48,489
32,787
5,847
6,589
$
100,916
$
— $
12,436
$
113,352
The Company did not hold any Level 3 category debt or marketable equity investment securities as of December 31, 2019 or 2018.
55 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 twelve-month periods ended December 31, 2019 or 2018. The following table presents a rollforward of
equity investments under the measurement alternative as of December 31, 2019 and 2018:
Balance,
January 1,
2019
Amounts
Impaired
Observable
Changes
Purchases and
Additional
Commitments
Paid
Sales, Returns
of Capital
and Other
Reductions
Balance,
December 31,
2019
6,589
6,589
$
$
— $
— $
— $
— $
2,241
2,241
$
$
(931) $
(931) $
7,899
7,899
Balance,
January 1,
2018
Amounts
Impaired
Observable
Changes
Purchases and
Additional
Commitments
Paid
Sales, Returns
of Capital
and Other
Reductions
Balance,
December 31,
2018
5,439
5,439
$
$
— $
— $
— $
— $
1,486
1,486
$
$
(336) $
(336) $
6,589
6,589
(in thousands)
Other investments:
Equity investments in
unconsolidated affiliates,
measurement alternative
Total
(in thousands)
Other investments:
Equity investments in
unconsolidated affiliates,
measurement alternative
Total
4. Property and Equipment
$
$
$
$
Property and equipment and estimated useful lives at December 31 are summarized as follows:
(in thousands)
Land
Office buildings and improvements (25 years)
Furniture, fixtures and equipment (3 to 10 years)
Automobiles (3 years)
Total
Less accumulated depreciation
Property and equipment, net
2019
2018
$
1,413
$
4,511
14,982
1,048
21,954
(12,178)
9,776
$
$
1,413
4,492
14,148
935
20,988
(10,684)
10,304
Included within furniture, fixtures and equipment is software developed by the Company for internal use. Capitalized costs include
both direct and indirect costs, such as payroll costs of employees associated with developing software, incurred during the software
development stage.
56 5. Reinsurance
The Company assumes and cedes reinsurance with other insurance companies in the normal course of business. Premiums assumed
and ceded were approximately $2 thousand and $411 thousand, respectively, for 2019, $4 thousand and $327 thousand, respectively, for
2018, and $3 thousand and $264 thousand, respectively, for 2017. Ceded reinsurance is comprised of excess of loss treaties, which outline
the conditions in which the reinsurance company will pay claims and protect against losses over certain agreed upon amounts. The
Company remains liable to the insured for claims under ceded insurance policies in the event the assuming insurance companies are
unable to meet their obligations under these contracts. The Company has not paid or recovered any reinsured losses during the three
years ended December 31, 2019.
6. Reserve for Claims
Changes in the reserve for claims for the years ended December 31 are summarized as follows based on the year in which the policies
were written:
(in thousands)
Balance, beginning of period
Provision (benefit) related to:
Current year
Prior years
Total provision (benefit) charged to operations
Claims paid, net of recoveries, related to:
Current year
Prior years
Total claims paid, net of recoveries
Balance, end of year
$
2019
2018
2017
$
31,729
$
34,801
$
35,305
8,610
(5,078)
3,532
(2,057)
(1,871)
(3,928)
31,333
$
6,762
(7,094)
(332)
(178)
(2,562)
(2,740)
31,729
$
7,432
(4,121)
3,311
(75)
(3,740)
(3,815)
34,801
The Company continually refines its reserve estimates as current loss experience develops and credible data emerges. Movements
in the reserve related to prior periods were primarily the result of changes to estimates to better reflect the latest reported loss data. The
increase in the provision for claims in 2019, compared to 2018, primarily related to less favorable loss development and higher incurred
claims in the current period. The favorable development in 2019 was primarily related to policy years 2012 through 2018. Due to
variances between actual and expected loss payments, loss development is subject to significant variability.
The Company does not recognize claim recoveries until an actual payment has been received by the Company. The Company realized
claim recoveries of approximately $815 thousand, $1.9 million and $570 thousand during 2019, 2018 and 2017, respectively.
The provision (benefit) for claims as a percentage of net premiums written was 2.4%, (0.2)% and 2.4% in 2019, 2018 and 2017,
respectively.
A large claim is defined as a claim with incurred losses exceeding $500 thousand. Due to the small volume of large claims, the long-
tail nature of title insurance claims and the inherent uncertainty in loss emergence patterns, large claim activity can vary significantly
between policy years. The estimated development of large claims by policy year is therefore subject to significant changes as experience
develops.
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)
Known title claims
IBNR
Total reserve for claims
2019
3,799
27,534
31,333
%
12.1
87.9
100.0
$
$
2018
3,007
28,722
31,729
%
9.5
90.5
100.0
$
$
In management’s opinion, the reserve for claims is adequate to cover claims losses which might result from pending and future
claims.
57 7. 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, when 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 years ended December 31:
(in thousands, except per share amounts)
Net income attributable to the Company
Weighted average common shares outstanding – Basic
Incremental shares outstanding assuming the exercise of dilutive stock options
and SARs (share-settled)
Weighted average common shares outstanding – Diluted
Basic earnings per common share
Diluted earnings per common share
2019
2018
2017
$
31,458
$
21,892
$
1,888
8
1,896
16.66
16.59
$
$
1,887
10
1,897
11.60
11.54
$
$
$
$
25,707
1,886
10
1,896
13.63
13.56
There were 14 thousand, 9 thousand and 4 thousand potential shares excluded from the computation of diluted earnings per share
in 2019, 2018 and 2017, respectively.
The Company historically has adopted employee stock award plans under which restricted stock, and options or stock appreciation
rights ("SARs") of the Company's stock may be granted to key employees or directors of the Company at a price not less than the market
value on the date of grant. There is currently one active plan from which the Company may grant share-based awards. The awards eligible
to be granted under the active plan are limited to SARs, and the maximum aggregate number of shares of common stock of the Company
available pursuant to the plan for the grant of SARs is 250 thousand shares.
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)
Outstanding as of January 1, 2017
SARs granted
SARs exercised
Outstanding as of December 31, 2017
SARs granted
SARs exercised
Outstanding as of December 31, 2018
SARs granted
SARs exercised
Outstanding as of December 31, 2019
Exercisable as of December 31, 2019
Unvested as of December 31, 2019
Number
Of Shares
Weighted
Average
Exercise
Price
25
4
(4)
25
4
(1)
28
4
(2)
30
29
1
$
$
$
$
$
$
65.85
192.71
36.38
93.40
188.71
41.50
110.27
162.81
50.50
124.13
122.62
162.81
Average
Remaining
Contractual
Term (Years)
3.85
Aggregate
Intrinsic
Value
$
837
3.98
$
2,624
3.64
$
2,019
3.53
3.42
6.38
$
$
$
1,352
1,352
—
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price
of the Company’s common stock at December 31. The intrinsic values of SARs exercised during 2019, 2018 and 2017 were approximately
$364 thousand, $153 thousand and $473 thousand, respectively.
58 There were no options outstanding at December 31, 2019. The following table summarizes information about SARs outstanding at
December 31, 2019:
(in thousands, except exercise prices and
average remaining contractual term)
$
Range of Exercise Prices
—
—
—
—
—
60.00
70.00
90.00
150.00
60.00
$
69.99
79.99
99.99
199.99
199.99
$
$
Number
Outstanding
4
8
4
14
30
SARs Outstanding at Year-End
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
1.39
1.58
3.38
5.38
3.53
$
$
68.70
72.44
93.87
181.41
124.13
SARs Exercisable at Year-
End
Number
Exercisable
4
8
4
13
29
$
$
Weighted
Average
Exercise
Price
68.70
72.44
93.87
183.10
122.62
In 2019, 4 thousand SARs vested with a fair value of approximately $264 thousand.
During the second quarters of 2019, 2018 and 2017, the Company issued share-settled SARs to the directors of the Company. SARs
give the holder the right to receive stock equal to the appreciation in the value of shares of stock from the grant date for a specified period
of time, and as a result, are accounted for as equity instruments. The fair value of each award is estimated on the date of grant using the
Black-Scholes option valuation model with the weighted average assumptions noted in the table shown below. Expected volatilities are
based on both the implied and historical volatility of the Company’s stock. The Company uses historical data to project SAR exercises
and pre-exercise forfeitures within the valuation model. The expected term of awards represents the period of time that SARs granted
are expected to be outstanding. The interest rate assumed for the expected life of the award is based on the U.S. Treasury yield curve in
effect at the time of the grant. The weighted average fair values for the SARs issued during 2019, 2018 and 2017 were $51.88, $78.61
and $55.40, respectively, and were estimated using the weighted average assumptions shown in the table below.
Expected life in years
Volatility
Interest rate
Yield rate
2019
7.0
30.2%
2.3%
1.0%
2018
7.0
39.0%
3.1%
0.8%
2017
7.0
26.2%
2.0%
0.8%
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 $264 thousand, $327 thousand and $219 thousand of compensation expense relating to SARs vesting on
or before December 31, 2019, 2018 and 2017, respectively, included in personnel expenses in the Consolidated Statements of Income.
As of December 31, 2019, there was approximately $58 thousand of total unrecognized compensation cost related to unvested share-
based compensation arrangements granted under the Company’s stock award plans. That cost is expected to be recognized over a weighted
average period of approximately 3 months.
8. Income Taxes
The components of income tax expense for the years ended December 31 are summarized as follows:
(in thousands)
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
Total
2019
2018
2017
$
5,945
$
9,156
$
142
6,087
2,280
(2)
2,278
8,365
$
128
9,284
(4,064)
(10)
(4,074)
5,210
$
$
9,163
71
9,234
(4,649)
(15)
(4,664)
4,570
59 For state income tax purposes, ITIC and NITIC generally pay only a gross premium tax found in other expenses in the Consolidated
Statements of Income.
At December 31, the approximate tax effect of each component of deferred income tax assets and liabilities is summarized as follows:
(in thousands)
Deferred income tax assets:
Accrued benefits and retirement services
Other-than-temporary impairment of assets
Allowance for doubtful accounts
Net operating loss carryforward
Reinsurance and commission payable
Postretirement benefit obligation
Other
Total
Deferred income tax liabilities:
Net unrealized gain on investments
Intangible assets
Recorded reserve for claims, net of statutory premium reserves
Excess of tax over book depreciation
Other
Total
Net deferred income tax liabilities
2019
2018
$
3,049
$
178
91
77
36
9
1,329
4,769
6,691
1,168
1,096
947
1,905
11,807
(7,038) $
$
2,758
198
82
28
13
8
359
3,446
3,924
1,250
599
1,104
753
7,630
(4,184)
At December 31, 2019 and 2018, there were no valuation allowances recorded. Based upon the Company’s historical results of
operations, the existing financial condition of the Company and management’s assessment of all other available information, management
believes that it is more likely than not that the benefit of these deferred income tax assets will be realized.
As computed for the years ended December 31 at the U.S. federal statutory income tax rate of 21.0% for 2019, 21.0% for 2018 and
35.0% for 2017, respectively, to income tax expense follows:
(in thousands)
Anticipated income tax expense
Increase (decrease) related to:
State income taxes, net of federal income tax benefit
Tax-exempt interest income, net of amortization
Tax Cuts and Jobs Act*
Other, net
Provision for income taxes
2019
2018
2017
$
8,362
$
5,684
$
10,595
112
(900)
—
791
101
(1,026)
—
451
$
8,365
$
5,210
$
46
(1,298)
(5,342)
569
4,570
* On December 22, 2017, the TCJA, was enacted into law. This tax legislation, among other changes, reduced the federal corporate
income tax rate from 35.0% to 21.0%, effective January 1, 2018. As required under generally accepted accounting principles, the
Company’s deferred tax assets and liabilities were revalued at the newly enacted U.S. corporate income tax rate. The impact was
recognized in the Company’s provision for income taxes in the fourth quarter of 2017. The revaluation resulted in a benefit of
approximately $5.3 million, or $2.82 per diluted share.
60 In accounting for uncertainty in income taxes, the Company is required to recognize in its financial statements the impact of a tax
position if that position is more likely than not of being sustained on an audit, based on the technical merits of the position. In this regard,
an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return, or planned to be taken
in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. There were no
unrecognized tax benefits or liabilities as of December 31, 2019.
The amount of unrecognized tax benefit or liability may increase or decrease in the future for various reasons, including adding
amounts for current tax year positions, expiration of open income tax returns due to the expiration of the applicable statute of limitations,
changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the
additions or eliminations of uncertain tax positions.
The Company’s policy is to report interest and penalties related to income taxes in the other line item in the Consolidated Statements
of Income.
The Company, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction and various states. With few
exceptions, the Company is no longer subject to U.S. federal or state and local examinations by taxing authorities for years before 2016.
9. 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)
Operating leases
Short-term leases (b)
Lease expense
Sub-lease income
Lease cost
$
$
$
(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)
Current:
Operating lease liabilities
Non-current:
Operating lease liabilities
Total operating lease liabilities
$
$
2019
2019
1,273
139
1,412
—
1,412
1,048
3,454
4,502
61 The future minimum lease payments under operating leases that have initial or remaining noncancelable lease terms in excess of one
year as of December 31, 2019, are summarized as follows:
Year Ended (in thousands)
2020
2021
2022
2023
2024
Thereafter
Total undiscounted payments
Less: present value adjustment
Operating lease liabilities
Supplemental lease information is as follows:
Weighted average remaining lease term (years)
Weighted average discount rate
$
$
$
1,229
1,150
939
649
478
577
5,022
(520)
4,502
4.84
4.6%
2019
The Company does not have any material pending operating or financing lease agreements that become effective in future periods.
10. Retirement Agreements and Other Postretirement Benefit Plan
The Company has a 401(k) savings plan. In order to participate in the plan, individuals must have worked at the Company for at
least 3 months. In order to be eligible for employer contributions, individuals must be employed for one full year and work at least 1,000
hours annually. The Company makes a 3% Safe Harbor contribution and also has the option annually to make a discretionary profit share
contribution. Individuals may elect to make contributions up to the maximum deductible amount as determined by the Internal Revenue
Code. Expenses related to the 401(k) plan were approximately $1.2 million, $1.2 million and $1.6 million for 2019, 2018 and 2017,
respectively.
In November 2003, ITIC, a wholly owned subsidiary of the Company, entered into employment agreements with the Chief Executive
Officer, Chief Financial Officer and Chief Operating Officer of ITIC. These individuals also serve as the Chairman, President and
Executive Vice President, respectively, of the Company. The agreements provide compensation and life, health, dental and vision benefits
upon the occurrence of specific events, including death, disability, retirement, termination without cause or upon a change in control.
The employment agreements also prohibit each of these executives from competing with ITIC and its parent, subsidiaries and affiliates
in North Carolina while employed by ITIC and for a period of two years following termination of their employment.
In addition, during the second quarter of 2004, ITIC entered into nonqualified deferred compensation plan agreements with these
executives. The amounts accrued for all agreements at December 31, 2019 and 2018 were approximately $12.2 million and $10.9 million,
respectively, which includes postretirement compensation and health benefits, and was calculated based on the terms of the contract.
Both the 2019 and 2018 accruals are included in the accounts payable and accrued liabilities line item of the Consolidated Balance Sheets.
These executive contracts are accounted for on an individual contract basis. On December 24, 2008, the executive contracts were amended
effective January 1, 2009 to bring them into compliance with Section 409A of the Internal Revenue Code, and were amended and restated
to provide for an annual cash payment to the officers equal to the amounts the Company would have contributed to their accounts under
its 401(k) plan if such contributions were not limited by the federal tax laws, less the amount of any contributions that the Company
actually makes to their accounts under the Company’s 401(k) plan.
On November 17, 2003, ITIC entered into employment agreements with key executives that provide for the continuation of certain
employee benefits upon retirement. The executive employee benefits include health insurance, dental insurance, vision insurance and
life insurance. The benefits are unfunded. Estimated future benefit payouts expected to be paid for each of the next five years are $14
thousand in 2020, $16 thousand in 2021, $23 thousand in 2022, $32 thousand in 2023, $28 thousand in 2024 and $204 thousand in the
next five years thereafter.
62 Cost of the Company’s postretirement benefits included the following components and is presented in the personnel expenses line
of its Consolidated Statements of Income:
(in thousands)
Net periodic benefit cost
Service cost – benefits earned during the year
Interest cost on the projected benefit obligation
Amortization of unrecognized prior service cost
Amortization of unrecognized loss
Net periodic benefits cost at end of year
2019
2018
2017
$
$
— $
33
—
—
33
$
— $
32
—
—
32
$
—
37
—
9
46
The Company is required to recognize the funded status (i.e., the difference between the fair value of the assets and the accumulated
postretirement benefit obligations of its postretirement benefits) in its Consolidated Balance Sheets, with a corresponding adjustment to
accumulated other comprehensive income, net of tax. The net amount in accumulated other comprehensive income is $(82) thousand,
$(32) thousand net of tax, for December 31, 2019, and $(41) thousand, $(32) thousand net of tax, for December 31, 2018, and represents
the net unrecognized actuarial losses and unrecognized prior service costs. The effects of the funded status on the Company’s Consolidated
Balance Sheets at December 31, 2019 and 2018 are presented in the following table:
(in thousands)
Funded status
Actuarial present value of future benefits:
Fully eligible active employee
Non-eligible active employees
Plan assets
Funded status of accumulated postretirement benefit obligation, recognized in other liabilities
2019
2018
$
$
(956) $
—
—
(956) $
(882)
—
—
(882)
Development of the accumulated postretirement benefit obligation for the years ended December 31, 2019 and 2018 includes the
following:
(in thousands)
Accrued postretirement benefit obligation at beginning of year
Service cost – benefits earned during the year
Interest cost on projected benefit obligation
Actuarial (loss) gain
Accrued postretirement benefit obligation at end of year
2019
2018
$
$
(882) $
—
(33)
(41)
(956) $
The changes in amounts related to accumulated other comprehensive income, pre-tax, are as follows:
(in thousands)
Balance at beginning of year
Components of accumulated other comprehensive income:
Unrecognized prior service cost
Amortization of loss, net
Actuarial loss (gain)
Balance at end of year
2019
2018
$
$
41
$
—
—
41
82
$
(896)
—
(32)
46
(882)
87
—
—
(46)
41
63 The amounts currently in accumulated other comprehensive income, pre-tax, that will be reclassified to the Consolidated Statements
of Income and recognized as components of net periodic benefit costs in 2020 are:
(in thousands)
Amortization of unrecognized prior service cost
Amortization of unrecognized loss
Net periodic benefit cost at end of year
Projected
2020
$
$
—
—
—
Assumed health care cost trend rates do have an effect on the amounts reported for the postretirement benefit obligations. The
following illustrates the effects on the net periodic postretirement benefit cost (“NPPBC”) and the accumulated postretirement benefit
obligation (“APBO”) of a one percentage point increase and one percentage point decrease in the assumed health care cost trend rate as
of December 31, 2019:
(in thousands)
Net periodic postretirement benefit cost
Effect on the service cost component
Effect on interest cost
Total effect on the net periodic postretirement benefit cost
Accumulated postretirement benefit obligation (including active employees
who are not fully eligible)
Effect on those currently receiving benefits (retirees and spouses)
Effect on active fully eligible
Effect on actives not yet eligible
Total effect on the accumulated postretirement benefit obligation
11. Commitments and Contingencies
One
Percentage
Point
Increase
One
Percentage
Point
Decrease
$
$
$
$
— $
6
6
$
— $
191
—
191
$
—
(5)
(5)
—
(150)
—
(150)
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 and inquiries. It is the opinion of management based on its present expectations that these
audits and inquiries will not have a material impact on the Company’s consolidated financial condition or 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, escrowed funds received under escrow agreements, undisbursed amounts
received for settlement of mortgage loans and indemnities against specific title risks. Cash held by the Company for these purposes was
approximately $21.5 million and $31.6 million as of December 31, 2019 and 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 the disposition of these deposits.
64 Like-Kind Exchange 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 $214.6 million and $308.7 million as of December 31, 2019 and 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 the disposition of the transfers of property, disbursements of proceeds and the return on the
proceeds at the agreed upon rate. Exchange services revenue includes earnings on these deposits; therefore, investment income is shown
as other revenue rather than investment income. These like-kind exchange funds are primarily invested in money market and other short-
term investments.
12. Segment Information
The Company has one reportable segment, title insurance services. The remaining immaterial segments have been combined into
a group called “All Other.”
The title insurance segment primarily issues title insurance policies through approved attorneys from underwriting offices and through
independent issuing agents. Title insurance policies insure titles to real estate.
Provided below is selected financial information about the Company’s operations by segment for the periods ended December 31,
2019, 2018 and 2017:
2019 (in thousands)
Insurance and other services revenues
Investment income
Net realized gain on investments
Total revenues
Operating expenses
Income before income taxes
Total assets
2018 (in thousands)
Insurance and other services revenues
Investment income
Net realized (loss) gain on investments
Total revenues
Operating expenses
Income before income taxes
Total assets
2017 (in thousands)
Insurance and other services revenues
Investment income
Net realized gain on investments
Total revenues
Operating expenses
Income before income taxes
Total assets
$
$
$
$
$
$
$
$
$
$
$
$
Title
Insurance
All
Other
161,463
15,210
1,251
177,924
140,376
37,548
196,825
$
$
$
$
11,157
3,036
89
14,282
9,137
5,145
67,068
$
$
$
Intersegment
Eliminations
$
(8,704) $
—
—
(8,704) $
(5,834)
(2,870) $
— $
Title
Insurance
All
Other
Intersegment
Eliminations
153,687
$
8,315
$
2,542
(167)
156,062
126,367
29,695
199,531
$
$
$
1,054
57
9,426
8,424
1,002
44,737
$
$
$
(9,229) $
—
—
(9,229) $
(5,601)
(3,628) $
— $
Total
163,916
18,246
1,340
183,502
143,679
39,823
263,893
Total
152,773
3,596
(110)
156,259
129,190
27,069
244,268
Title
Insurance
All
Other
Intersegment
Eliminations
Total
153,469
$
7,307
$
5,834
932
160,235
129,073
31,162
193,828
$
$
$
770
109
8,186
7,913
273
55,085
$
$
$
(6,794) $
—
—
(6,794) $
(5,630)
(1,164) $
— $
153,982
6,604
1,041
161,627
131,356
30,271
248,913
65 13. Stockholders’ Equity
On November 12, 2002, the Company’s Board of Directors amended the Company’s Articles of Incorporation, creating a series of
preferred stock designated Series A Junior Participating Preferred Stock (the “Series A Preferred Stock”). The Series A Preferred Stock
is senior to common stock in dividends or distributions of assets upon liquidations, dissolutions or winding up of the Company. Dividends
on the Series A Preferred Stock are cumulative and accrue from the quarterly dividend payment date. Each share of Series A Preferred
Stock entitles the holder thereof to 100 votes on all matters submitted to a vote of shareholders of the Company. These shares were
reserved for issuance under the Shareholder Rights Plan (the “Plan”), which was adopted on November 21, 2002, by the Company’s
Board of Directors. Under the terms of the Plan, the Company’s common stock acquired by a person or a group buying 15% or more of
the Company’s common stock would be diluted, except in transactions approved by the Board of Directors.
In connection with the Plan, the Company’s Board of Directors declared a dividend distribution of one right (a “Right”) for each
outstanding share of the Company’s common stock paid on December 16, 2002, to shareholders of record at the close of business on
December 2, 2002. Each Right entitles the registered holder to purchase from the Company a unit (a “Unit”) consisting of one one-
hundredth of a share of Series A Preferred Stock. Under the Plan, the Rights detach and become exercisable upon the earlier of (a) 10
days following public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of the outstanding shares of the Company’s common stock, or (b) 10 business days following
the commencement of, or first public announcement of the intent of a person or group to commence, a tender offer or exchange offer that
would result in a person or group beneficially owning 15% or more of such outstanding shares of the Company’s common stock. The
exercise price, the kind and the number of shares covered by each right are subject to adjustment upon the occurrence of certain events
described in the Plan.
If any person or group of affiliated or associated persons acquires beneficial ownership of 15% or more of the outstanding common
stock, each holder of a Right (other than the acquiring person or group) will have the right to buy, at the exercise price, common stock
of the Company having a market value of twice the exercise price. If the Company is acquired in a merger or consolidation in which the
Company is not the surviving corporation, or the Company engages in a merger or consolidation in which the Company is the surviving
corporation and the Company’s common stock is changed or exchanged, or more than 50% of the Company’s assets or earning power is
sold or transferred, the Rights entitle a holder (other than the acquiring person or group) to buy, at the exercise price, stock of the acquiring
company having a market value equal to twice the exercise price. At any time after a person or group of affiliated or associated persons
has acquired beneficial ownership of 15% or more of the outstanding common stock and prior to the acquisition by such person or group
of 50% or more of the outstanding common stock, the Company’s Board of Directors may exchange the Rights (other than the Rights
owned by such person or group), in whole or in part, at an exchange ratio of one share of the Company’s common stock, or one one-
hundredth of a share of Series A Preferred Stock, per Right.
The Rights are redeemable upon action by the Board of Directors at a price of $0.01 per right at any time before they become
exercisable. Until the Rights become exercisable, they are evidenced only by the common stock certificates and are transferred with and
only with such certificates.
On October 31, 2012, the Plan was amended to, among other things, extend the expiration date of the plan from November 11, 2012
to October 31, 2022 and increase the exercise price of the stock purchase rights from $80 per unit to $220 per unit. In connection with
the amendments to the Plan, the Board of Directors of the Company also amended the Company’s Articles of Incorporation to increase
the number of shares designated under the rights plan as Series A Preferred Stock from 100 thousand shares to 200 thousand shares.
There were 1.0 million shares of Preferred Stock authorized as of December 31, 2019 and 2018, with 200 thousand being designated
Series A Preferred Stock.
14. Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash
equivalents. The Company invests its cash and cash equivalents into high credit quality security instruments. Deposits which exceed
$250 thousand at each institution are not insured by the Federal Deposit Insurance Corporation (“FDIC”). Of the $25.9 million in cash
and cash equivalents at December 31, 2019, $24.6 million was not insured by the FDIC. Of the $18.7 million in cash and cash equivalents
at December 31, 2018, $17.6 million was not insured by the FDIC. The Company mitigates the risk of having cash and cash equivalents
not insured by the FDIC by monitoring the credit quality of the financial institutions in which the funds are held.
66 15. Business Concentration
The Company generates a significant amount of title insurance premiums in North Carolina, Texas, Georgia and South Carolina.
In 2019, 2018 and 2017, these states generated the following percentage of total premiums written:
State
North Carolina
Texas
Georgia
South Carolina
16. Related Party Transactions
2019
2018
2017
39.1%
18.2%
11.2%
9.4%
40.3%
18.5%
9.8%
10.2%
37.8%
18.9%
9.4%
10.5%
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 investments in these limited liability companies. The following
table sets forth the approximate values by year found within each financial statement classification:
Financial Statement Classification, Consolidated Balance Sheets (in thousands)
2019
2018
Other investments
Premium and fees receivable
Financial Statement Classification, Consolidated Statements of Income (in
thousands)
Net premiums written
Non-title services and other investment income
Commissions to agents
17. Business Combinations, Intangible Assets and Goodwill
Intangible Assets
$
$
$
$
$
6,083
410
2018
13,960
2,444
9,259
$
$
$
$
$
5,847
409
2017
14,645
2,240
9,864
2019
16,040
2,974
10,879
$
$
$
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 a 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 periods ended December 31,
2019 and 2018 that would indicate that carrying amounts may not be recoverable, and therefore determined that no identifiable
intangible assets were impaired.
Identifiable intangible assets consist of the following as of December 31:
Year Ended (in thousands)
Referral relationships
Non-complete agreements
Tradename
Total
Accumulated amortization
Identifiable intangible assets, net
2019
2018
$
6,416
$
1,406
560
8,382
(2,456)
5,926
$
$
6,416
1,406
560
8,382
(1,952)
6,430
67 The following table provides the estimated aggregate amortization expense for each of the five succeeding fiscal years:
Year Ended (in thousands)
2020
2021
2022
2023
2024
Thereafter
Total
Goodwill and Title Plant
$
$
504
562
525
525
473
3,337
5,926
As of December 31, 2019, the Company has reported $4.4 million in goodwill and $690 thousand in a title plant, net of impairments,
as the result of title agency acquisitions. The title plant is included with other assets in the Consolidated Balance Sheets. The estimated
fair values of goodwill and the title plant, both Level 3 inputs, are principally based on values obtained from a third-party valuation
service at the time of acquisition. In accordance with ASC 350, Intangibles – Goodwill and Other, management determined that no
events or changes in circumstances occurred during the periods ended December 31, 2019 and 2018 that would indicate the carrying
amounts may not be recoverable, and therefore concluded that neither goodwill nor the title plant were impaired.
18. 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 December 31, 2019, 2018 and 2017:
2019 (in thousands)
Beginning balance at January 1
Other comprehensive income
before reclassifications
Amounts reclassified from
accumulated other
comprehensive income
Net current-period other
comprehensive income
Ending balance
$
$
Unrealized Gains and
Losses
On Available-for-Sale
Securities
Postretirement
Benefits Plans
Total
981
$
(32) $
2,151
—
2,151
3,132
$
—
—
—
(32) $
949
2,151
—
2,151
3,100
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
Other comprehensive (loss) income
before reclassifications
Amounts reclassified from
accumulated other
comprehensive income
Net current-period other
comprehensive (loss) income
Ending balance
$
(13,616)
(1,499)
93
(1,406)
981
$
(11)
37
—
37
(32) $
(13,627)
(1,462)
93
(1,369)
949
68 2017 (in thousands)
Unrealized Gains and Losses
On Available-for-Sale
Securities
Postretirement
Benefits Plans
Total
Beginning balance at January 1
$
11,871
$
(110) $
Other comprehensive income
before reclassifications
Amounts reclassified from
accumulated other
comprehensive income
Net current-period other
comprehensive income
Ending balance
$
4,922
(790)
4,132
16,003
$
46
6
52
(58) $
11,761
4,968
(784)
4,184
15,945
The following tables provide significant amounts reclassified out of each component of accumulated other comprehensive income
for the periods ended December 31, 2019, 2018 and 2017:
2019 (in thousands)
Details about Accumulated Other
Comprehensive Income Components
Unrealized gains and losses on available-for-sale securities:
Net realized gain (loss) on investment
Other-than-temporary impairments
Total
Tax
Net of Tax
Amortization related to postretirement benefit plans:
Prior year service cost
Unrecognized loss
Total
Tax
Net of Tax
Reclassifications for the period
2018 (in thousands)
Details about Accumulated Other
Comprehensive Income Components
Unrealized gains and losses on available-for-sale securities:
Net realized loss on investment
Other-than-temporary impairments
Total
Tax
Net of Tax
Amortization related to postretirement benefit plans:
Prior year service cost
Unrecognized loss
Total
Tax
Net of Tax
Reclassifications for the period
Amount Reclassified from
Accumulated Other
Comprehensive Income
Affected Line Item in the
Consolidated
Statements of Income
$
$
$
$
$
$
$
$
$
$
$
$
$
$
—
—
Net realized investment
gains (losses)
—
— Provision for Income Taxes
—
—
—
— (a)
— Provision for Income Taxes
—
—
Amount Reclassified from
Accumulated Other
Comprehensive Income
Affected Line Item in the
Consolidated
Statements of Income
(117)
—
(117)
Net realized investment gains
(losses)
24 Provision for Income Taxes
(93)
—
—
— (a)
— Provision for Income Taxes
—
(93)
69 2017 (in thousands)
Details about Accumulated Other
Comprehensive Income Components
Unrealized gains and losses on available-for-sale securities:
Net realized gain on investment
Other-than-temporary impairments
Total
Tax
Net of Tax
Amortization related to postretirement benefit plans:
Prior year service cost
Unrecognized loss
Total
Tax
Net of Tax
Reclassifications for the period
$
$
$
$
$
$
$
Amount Reclassified from
Accumulated Other
Comprehensive Income
Affected Line Item in the
Consolidated
Statements of Income
1,227
(26)
Net realized investment gains
(losses)
1,201
(411) Provision for Income Taxes
790
(a)
—
(9)
(9)
3 Provision for Income Taxes
(6)
784
(a) These accumulated other comprehensive income components are not reclassified to net income in their entirety in the same reporting
period. The amounts are presented within personnel expenses on the Consolidated Statements of Income as amortized. Amortization
related to postretirement benefit plans is included in the computation of net periodic pension costs, as discussed in Note 10.
19. Revenue Recognition
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.
70 The following table provides a breakdown of the Company’s revenue by major business activity:
(in thousands)
Revenue from contracts with customers:
Escrow and other title-related fees
Non-title services
Total revenue from contracts with customers
Other sources of revenue:
Net premiums written
Investment related revenue
Other
Total Revenues
2019
2018
2017
$
$
7,474
9,922
17,396
145,842
19,586
678
183,502
$
$
7,096
7,082
14,178
138,125
3,486
470
156,259
$
$
6,892
6,128
13,020
140,502
7,645
460
161,627
71 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company
in the reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized
and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and
procedures include controls and procedures designed to ensure that information required to be disclosed in such reports is accumulated
and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure.
No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the system
of controls are met, and no evaluation of controls can provide absolute assurance that the system of controls has operated effectively in
all cases. The Company’s disclosure controls and procedures, however, are designed to provide reasonable assurance that the objectives
of disclosure controls and procedures are met.
Pursuant to Rule 13a-15(b) under the Exchange Act, an evaluation was performed under the supervision and with the participation
of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and
Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2019 to
provide reasonable assurance that the objectives of disclosure controls and procedures are met.
Changes in Internal Control Over Financial Reporting
During the quarter ended December 31, 2019, there were no changes in the Company’s internal control over financial reporting that
have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Reports of Management and Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Management has assessed, and the Company’s independent registered public accounting firm, Dixon Hughes Goodman LLP, has
audited, the Company’s internal control over financial reporting as of December 31, 2019. The reports of management and Dixon Hughes
Goodman LLP thereon are included in Item 8 of this Annual Report on Form 10-K and are incorporated by reference herein.
ITEM 9B. OTHER INFORMATION
There was no information required to be disclosed in a report on Form 8-K during the fourth quarter of the year that has not been
reported.
72 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information called for by this item is incorporated by reference to the material under the captions “Proposals Requiring Your
Vote – Proposal 1 – Election of Directors,” “Corporate Governance – Board of Directors and Committees – The Audit Committee” and
“Corporate Governance – Code of Business Conduct and Ethics” in the Company’s definitive Proxy Statement for the Annual Meeting
of Shareholders to be held on May 20, 2020. Other information with respect to the executive officers of the Company is included at the
end of Part I of this Annual Report on Form 10-K under the separate caption “Executive Officers of the Company.”
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is set forth under the captions “Executive Compensation,” “Compensation of Directors,”
“Compensation Committee Report” and “Corporate Governance – Compensation Committee Interlocks and Insider Participation” in the
Company’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 20, 2020 and is incorporated
by reference in this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information pertaining to securities ownership of certain beneficial owners and management is set forth under the caption “Stock
Ownership of Certain Beneficial Owners and Management” in the Company’s definitive Proxy Statement relating to the Annual Meeting
of Shareholders to be held on May 20, 2020 and is incorporated by reference in this Annual Report on Form 10-K.
The following table provides information about the Company’s compensation plans under which equity securities are authorized for
issuance as of December 31, 2019. The Company does not have any equity compensation plans that have not been approved by its
shareholders.
Equity Compensation Plan Information (unrounded)
Plan Category
Number of
Securities
to be Issued
Upon
Exercise of
Outstanding
Options,
Warrants and
Rights
Equity compensation plans approved by shareholders
30,000
(a)
Equity compensation plans not approved by shareholders
Total
—
30,000
Weighted
Average
Exercise Price
of
Outstanding
Options,
Warrants and
Rights
$
$
124.13
—
124.13
Number of
Securities
Remaining
Available for
Future
Issuance Under
Equity
Compensation
Plans
245,500
(b)
—
245,500
(a)
Includes 25,500 shares issuable upon exercise of outstanding stock appreciation rights (“SARs”) under the 2009 Stock
Appreciation Rights Plan (the “2009 Plan”), and 4,500 shares issuable upon exercise of SARs under the 2019 Stock
Appreciation Rights Plan (the “2019 Plan”).
(b)
Includes shares remaining for future issuance under the 2019 Plan. The 2009 Plan expired in March 2019.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information called for by this item is set forth under the captions “Certain Relationships and Related Transactions,” “Corporate
Governance – Independent Directors” and “Proposals Requiring Your Vote – Proposal 1 – Election of Directors” set forth in the Company’s
definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 20, 2020 and is incorporated by reference
in this Annual Report on Form 10-K.
73 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information pertaining to principal accountant fees and services is set forth under the caption “Proposals Requiring Your Vote
– Proposal 2 – Ratification of Appointment of Independent Registered Public Accounting Firm” in the Company’s definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 20, 2020 and is incorporated by reference in this Annual
Report on Form 10-K.
74 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
PART IV
The following financial statements are filed under Item 8 of this Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Income for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
The following is a list of financial statement schedules filed as part of this Form 10-K Annual Report:
Schedule
Number
I
II
III
IV
V
Description
Summary of Investments – Other Than Investments in Related Parties
Condensed Financial Information of Registrant
Supplementary Insurance Information
Reinsurance
Valuation and Qualifying Accounts
All other schedules are omitted, as the required information either is not applicable, is not required, or is presented in the Consolidated
Financial Statements or the notes thereto.
(a)(3) Exhibits
The exhibits filed as a part of this report and incorporated herein by reference to other documents are listed in the Index to Exhibits
to this Annual Report on Form 10-K.
ITEM 16. FORM 10-K SUMMARY
None
75 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
INVESTORS TITLE COMPANY
(Registrant)
By:
/s/ J. Allen Fine
J. Allen Fine, Chairman and Chief Executive
Officer (Principal Executive Officer)
March 11, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated on the 11th day of March, 2020.
/s/ J. Allen Fine
J. Allen Fine, Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ W. Morris Fine
W. Morris Fine, Executive Vice President,
Secretary and Director
/s/ Tammy F. Coley
Tammy F. Coley, Director
/s/ David L. Francis
David L. Francis, Director
/s/ Richard M. Hutson II
Richard M. Hutson II, Director
/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)
/s/ James R. Morton
James R. Morton, Director
/s/ Elton C. Parker, Jr.
Elton C. Parker, Jr., Director
/s/ James H. Speed, Jr.
James H. Speed, Jr., Director
76 INVESTORS TITLE COMPANY AND SUBSIDIARIES
SUMMARY OF INVESTMENTS – OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 2019
SCHEDULE I
Type of Investment (in thousands)
Cost (3)
Market Value
Amount at
which shown
in the
Balance
Sheet (1)
Fixed maturity securities:
Government obligations
General obligations of U.S. states, territories and political subdivisions
$
$
25,161
18,682
$
25,163
19,516
Special revenue issuer obligations of U.S. states, territories and political
subdivisions
Public utilities
Corporate debt securities
Total fixed maturity securities
Equity securities:
Common stocks:
Public utilities
Banks, trusts and insurance companies
Industrial, miscellaneous and all other
Technology
Total equity securities
Other investments:
Short-term investments
Other investments (2)
Total other investments
36,293
15,100
5,431
100,667
38,235
15,677
6,047
104,638
303
3,238
27,317
2,712
33,570
13,134
12,534
25,668
480
7,113
44,815
8,700
61,108
13,134
12,534
25,668
25,163
19,516
38,235
15,677
6,047
104,638
480
7,113
44,815
8,700
61,108
13,134
12,534
25,668
Total investments (2)
$
159,905
$
191,414
$
191,414
(1) All fixed maturity securities presented are classified as available-for-sale and shown at estimated fair value. Equity securities
are shown at fair value.
(2) The above summary of investments does not include investments in related parties accounted for under the cost and equity
methods of accounting in the amount of $1,448.
(3) Fixed maturity securities are shown at amortized cost and equity securities are shown at original cost.
77 INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
AS OF DECEMBER 31, 2019 AND 2018
SCHEDULE II
(in thousands)
Assets
Cash and cash equivalents
Fixed maturity securities, available-for-sale, at fair value
Equity securities, at fair value
Short-term investments
Investments in affiliated companies
Other investments
Prepaid expenses and other receivables
Current income taxes receivable
Accrued interest and dividends
Property, net
Total Assets
Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable and accrued liabilities
Deferred income taxes, net
Total liabilities
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 December 31, 2019 and 2018, respectively, excluding in each period 292
shares of common stock held by the Company)
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
Total Liabilities and Stockholders’ Equity
Refer to the Notes to Condensed Financial Statements.
2019
2018
$
9,651
$
33,244
4,141
3,806
133,053
4,468
2,306
786
321
2,412
1,540
16,947
3,360
9,358
134,551
5,151
1,846
2,438
186
2,499
$
194,188
$
177,876
$
2,471
$
355
2,826
—
—
188,262
3,100
191,362
$
194,188
$
2,190
47
2,237
—
—
174,690
949
175,639
177,876
78 INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017
SCHEDULE II
(in thousands, except per share amounts)
2019
2018
2017
Revenues:
Interest and dividends
Net realized investment gains
Changes in the estimated fair value of equity security investments
Rental income
Miscellaneous income
Total Revenues
Operating Expenses:
Personnel expenses
Office and technology expenses
Other expenses
Total Operating Expenses
$
707
$
668
$
37
797
853
882
3,276
1,160
375
1,024
2,559
27
(384)
842
930
2,083
1,085
355
892
2,332
502
36
—
813
220
1,571
1,004
349
763
2,116
Equity in Net Income of Affiliated Companies
30,804
22,014
25,634
Income before Income Taxes
31,521
21,765
25,089
Provision (Benefit) for Income Taxes
63
(94)
(612)
Net Income
31,458
21,859
25,701
Net Loss Attributable to Noncontrolling Interests
—
33
6
Net Income Attributable to the Company
Basic Earnings per Common Share
Weighted Average Shares Outstanding – Basic
Diluted Earnings per Common Share
$
$
$
$
$
31,458
16.66
1,888
$
$
21,892
11.60
1,887
25,707
13.63
1,886
16.59
$
11.54
$
13.56
Weighted Average Shares Outstanding – Diluted
1,896
1,897
1,896
Refer to the Notes to Condensed Financial Statements.
79 INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017
SCHEDULE II
(in thousands)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating
2019
2018
2017
$
31,458
$
21,859
$
25,701
activities:
Equity in net earnings of subsidiaries
Depreciation
Amortization, net
Share-based compensation expense related to stock appreciation rights
Net loss on disposals of property
Net realized investment gains
Changes in the estimated fair value of equity security investments
Net (earnings) loss from other investments
Provision (benefit) for deferred income taxes
(Increase) decrease in receivables
Decrease (increase) in income taxes receivable
(Increase) decrease in other assets
Increase (decrease) in accounts payable and accrued liabilities
Net cash provided by (used in) operating activities
Investing Activities
Dividends received from subsidiaries
Purchases of fixed maturity and equity securities
Purchases of short-term securities
Purchases of and net earnings from other investments
Proceeds from sales and maturities of fixed maturity and equity securities
Proceeds from sales and maturities of short-term securities
Proceeds from sales and distributions of other investments
Proceeds from sales of other assets
Purchases of property
Net cash provided by investing activities
Financing Activities
Repurchases of common stock
Exercise of stock appreciation rights
Capital contribution to subsidiaries
Dividends paid
Net cash used in financing activities
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Period
Cash and Cash Equivalents, End of Period
Supplemental Disclosures:
Income tax payments, net
Refer to the Notes to Condensed Financial Statements.
(30,804)
99
139
264
—
(37)
(797)
(226)
269
(460)
1,652
(135)
281
1,703
34,925
(24,503)
(39,635)
—
8,200
45,279
904
—
(12)
25,158
(19)
—
(600)
(18,131)
(18,750)
(22,014)
98
222
327
—
(27)
384
(81)
(51)
(122)
1,441
12
274
2,322
15,125
(476)
(33,835)
(579)
5,753
30,403
669
1
(343)
16,718
(29)
(1)
(325)
(23,017)
(23,372)
8,111
1,540
9,651
$
(4,332)
5,872
1,540
$
(25,634)
98
158
219
3
(36)
—
5
(211)
362
(1,316)
(112)
(455)
(1,218)
14,816
(13,178)
(5,835)
(1,050)
6,617
3,189
196
—
(14)
4,741
(246)
—
(510)
(7,073)
(7,829)
(4,306)
10,178
5,872
9,472
$
5,448
$
11,447
$
$
80 INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017
(in thousands)
SCHEDULE II
1. The accompanying Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements
and notes thereto of Investors Title Company and Subsidiaries.
2. Cash dividends paid to Investors Title Company by its wholly owned subsidiaries were as follows:
Subsidiaries
Investors Title Insurance Company, net*
Investors Title Exchange Corporation
Investors Title Accommodation Corporation
Investors Trust Company
Investors Title Commercial Agency, LLC
National Investors Holdings, LLC
Total
2019
2018
2017
$
32,150
$
12,749
$
13,236
600
25
—
600
1,550
500
40
200
750
886
300
80
200
150
850
$
34,925
$
15,125
$
14,816
* Total dividends of $34,950, $16,307 and $14,330 paid to the Parent Company in 2019, 2018 and 2017, respectively, netted with
dividends of $2,800, $3,558 and $1,094 received from the Parent Company in 2019, 2018 and 2017, respectively.
81 INVESTORS TITLE COMPANY AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017
SCHEDULE III
Deferred
Policy
Acquisition
Cost
Segment
Future
Policy
Benefits,
Losses,
Claims and
Loss
Expenses
Other
Policy
Claims
and
Benefits
Payable
Unearned
Premiums
Year Ended December 31, 2019 (in thousands)
Premium
Revenue
Net
Investment
Income
Benefits,
Claims.
Losses and
Settlement
Expenses
Amortization
of Deferred
Policy
Acquisition
Costs
Other
Operating
Expenses
Premiums
Written
Title
Insurance
All Other
$
$
— $
31,333
$
— $
695
$
145,842
$
15,210
$
3,532
$
— $
131,134
—
—
—
—
—
3,036
—
—
9,013
— $
31,333
$
— $
695
$
145,842
$
18,246
$
3,532
$
— $
140,147
Year Ended December 31, 2018 (in thousands)
Title
Insurance
All Other
$
$
— $
31,729
$
— $
459
$
138,125
$
2,542
$
(332) $
— $
121,207
—
—
—
—
—
1,054
—
—
8,315
— $
31,729
$
— $
459
$
138,125
$
3,596
$
(332) $
— $
129,522
Year Ended December 31, 2017 (in thousands)
Title
Insurance
All Other
$
$
— $
34,801
$
— $
537
$
140,502
$
5,834
$
3,311
$
— $
120,225
—
—
—
—
—
770
—
—
7,820
— $
34,801
$
— $
537
$
140,502
$
6,604
$
3,311
$
— $
128,045
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
82 INVESTORS TITLE COMPANY AND SUBSIDIARIES
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017
SCHEDULE IV
Gross Amount
Ceded to
Other
Companies
Assumed from
Other
Companies
Net Amount
Percentages of
Amount
Assumed to
Net
Year Ended December 31, 2019 (in thousands)
Title Insurance
$
146,251
$
411
$
2
$
145,842
—%
Year Ended December 31, 2018 (in thousands)
Title Insurance
$
138,448
$
327
$
4
$
138,125
— %
Year Ended December 31, 2017 (in thousands)
Title Insurance
$
140,763
$
264
$
3
$
140,502
— %
83 SCHEDULE V
INVESTORS TITLE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017
Balance at
Beginning of
Period
Additions
Charged to
Costs and
Expenses
Additions
Charge to
Other
Accounts –
Describe
Deductions –
Describe
Balance at
End of Period
$
$
$
$
$
$
304
31,729
376
34,801
372
35,305
$
$
$
$
$
$
4,004
3,532
$
$
— $
— $
(4,047) (a)
(3,928) (b)
4,086
$
(332) $
— $
— $
(4,158) (a)
(2,740) (b)
5,784
3,311
$
$
— $
— $
(5,780) (a)
(3,815) (b)
$
$
$
$
$
$
261
31,333
304
31,729
376
34,801
Description
2019 (in thousands)
Premiums receivable:
Valuation provision
Reserves for claims
2018 (in thousands)
Premiums receivable:
Valuation provision
Reserves for claims
2017 (in thousands)
Premiums receivable:
Valuation provision
Reserves for claims
(a) Canceled premiums
(b) Payments of claims, net of recoveries
84 Exhibit
Number
Description
INDEX TO EXHIBITS
Location
3.1(a)
Articles of Incorporation dated January 22, 1973
Incorporated by reference to Exhibit 4.1 to Form S-8
filed August 10, 2009, File No. 333-161209
3.1(b)
3.1(c)
3.1(d)
3.1(e)
3.1(f)
3.2
4.1
4.2
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
Articles of Amendment to the Articles of Incorporation,
dated February 8, 1973
Incorporated by reference to Exhibit 4.2 to Form S-8
filed August 10, 2009, File No. 333-161209
Articles of Amendment to Articles of Incorporation,
dated May 14, 1987
Incorporated by reference to Exhibit 4.3 to Form S-8
filed August 10, 2009, File No. 333-161209
Articles of Amendment to Articles of Incorporation,
dated May 15, 2002
Incorporated by reference to Exhibit 3.3 to Form 10-Q
for the quarter ended June 30, 2002, File No. 11774
Articles of Amendment to Articles of Incorporation,
dated November 12, 2002
Incorporated by reference to Exhibit 3.4 to Form 10-Q
for the quarter ended March 31, 2003, File No. 11774
Articles of Amendment to Articles of Incorporation,
dated October 31, 2012
Incorporated by reference to Exhibit 3.1 to Form 8-K
filed on October 31, 2012, File No. 11774
Amended and Restated By-laws, dated November 9,
2015
Incorporated by reference to Exhibit 3.1 to Form 10-Q
filed on November 9, 2015, File No. 11774
Description of the Company’s Securities
Filed herewith
Amended and Restated Rights Agreement dated October
31, 2012, between the Company and Broadridge Issuer
Solutions, Inc., as Rights Agent, dated October 31, 2012
Incorporated by reference to Exhibit 4.1 to Form 8-K
filed on November 2, 2012, File No. 11774
Amended and Restated Employment Agreement
effective January 1, 2009 for J. Allen Fine
Incorporated by reference to Exhibit 10.7 to Form 10-K
for the year ended December 31, 2008, File No. 11774
Amended and Restated Employment Agreement
effective January 1, 2009 for James A. Fine, Jr.
Incorporated by reference to Exhibit 10.8 to Form 10-K
for the year ended December 31, 2008, File No. 11774
Amended and Restated Employment Agreement
effective January 1, 2009 for W. Morris Fine
Incorporated by reference to Exhibit 10.9 to Form 10-K
for the year ended December 31, 2008, File No. 11774
Amended and Restated Death Benefit Plan Agreement
effective January 1, 2009 for J. Allen Fine
Incorporated by reference to Exhibit 10.10 to Form 10-K
for the year ended December 31, 2008, File No. 11774
Amended and Restated Death Benefit Plan Agreement
effective January 1, 2009 for James A. Fine, Jr.
Incorporated by reference to Exhibit 10.11 to Form 10-K
for the year ended December 31, 2008, File No. 11774
Death Benefit Plan Agreement effective January 1, 2009
for W. Morris Fine
Incorporated by reference to Exhibit 10.12 to Form 10-K
for the year ended December 31, 2008, File No. 11774
Amended and Restated Nonqualified Deferred
Compensation Plan effective January 1, 2009
Incorporated by reference to Exhibit 10.13 to Form 10-K
for the year ended December 31, 2008, File No. 11774
Amended and Restated Nonqualified Supplemental
Retirement Benefit Plan effective January 1, 2009
Incorporated by reference to Exhibit 10.14 to Form 10-K
for the year ended December 31, 2008, File No. 11774
10.9(a)*
2009 Stock Appreciation Right Plan effective March 2,
2009
Incorporated by reference to Appendix A to the Proxy
Statement dated May 26, 2009, File No. 11774
10.9(b)*
Form of Stock Appreciation Rights Agreement under
2009 Stock Appreciation Right Plan
Incorporated by reference to Exhibit 10 to Form 10-Q
for the quarter ended June 30, 2011, File No. 11774
85 10.10(a)*
2019 Stock Appreciation Rights Plan effective March 11,
2019
Incorporated by reference to Exhibit 99.1 to the
Registration Statement on Form S-8 filed on May 15,
2019, File No. 333-231486
10.10(b)*
Form of Stock Appreciation Rights Agreement under
2019 Stock Appreciation Right Plan
Incorporated by reference to Exhibit 10.2 to Form 8-K
filed on May 16, 2019, File No. 11774
10.11*
Summary of Non-Employee Director Compensation
Filed herewith
21
23
31.1
31.2
32
Subsidiaries of Registrant
Consent of Independent Registered Public Accounting
Firm
Filed herewith
Filed herewith
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Furnished herewith
101.INS
XBRL Instance Document
Filed herewith
101.SCH
XBRL Taxonomy Extension Schema Document
Filed herewith
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
Document
Filed herewith
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
Filed herewith
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Document
Filed herewith
101.DEF
XBRL Taxonomy Extension Definition Linkbase
Document
Filed herewith
*
Management contract or compensatory plan or arrangement
86 BR461804-0320-10K