INVESTORS TITLE CO

Previous wording

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”). Through ITIC and NITIC, the Company underwrites land title insurance for owners and mortgagees as a primary insurer. Total revenues from the title segment accounted for 90.3% of the Company's revenues for the six-month period ended June 30, 2024.

Current wording

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”). Through ITIC and NITIC, the Company underwrites land title insurance for owners and mortgagees as a primary insurer. Total revenues from the title segment accounted for 90.9% of the Company's revenues for the nine-month period ended September 30, 2024.

Previous wording

A recent period of inflation, as well as ongoing geopolitical and military conflicts, have created additional volatile market conditions and uncertainties in the global economy. These events have impacted and could continue to impact the Company in a number of ways including, but not limited to, future fluctuations in the Company's investment portfolio and potential decreases in net premiums written. The Federal Open Market Committee (“FOMC”) of the Federal Reserve has been highly attentive to the risks that these events have created, and in response raised the target federal funds rate at several meetings held during 2022 and 2023. Although the federal funds rate does not directly impact mortgage interest rates, it can have a significant influence as lenders pass on the costs of rate increases to consumers. Higher mortgage interest rates have impacted the demand and pricing of real estate.

Current wording

A recent period of inflation, as well as ongoing geopolitical and military conflicts, have created additional volatile market conditions and uncertainties in the global economy. These events have impacted and could continue to impact the Company in a number of ways including, but not limited to, future fluctuations in the Company's investment portfolio and potential decreases in net premiums written. The Federal Open Market Committee (“FOMC”) of the Federal Reserve has been highly attentive to the risks that these events have created, and in response adjusted the target federal funds rate at several meetings held during 2022 through 2024. Although the federal funds rate does not directly impact mortgage interest rates, it can have a significant influence as lenders pass on the costs of rate increases to consumers. Higher mortgage interest rates have impacted the demand and pricing of real estate.

Previous wording

The FOMC issues disclosures on a periodic basis that include projections of the federal funds rate and expected actions. The FOMC maintained a target range between 0.00% and 0.25% from March 2020 until March 2022. Starting at the March 2022 meeting of the FOMC, the FOMC consistently raised the target federal funds rate range through July 2023, when the FOMC increased the target range to between 5.25% and 5.50%. No additional changes to the target federal funds rate have been made since the July 2023 meeting. In normal economic situations, future adjustments to the FOMC’s stance of monetary policy are expected to be based on realized and expected economic developments to achieve maximum employment and inflation near the FOMC 's symmetric long-term 2.0% objective.

Current wording

The FOMC issues disclosures on a periodic basis that include projections of the federal funds rate and expected actions. The FOMC maintained a target range between 0.00% and 0.25% from March 2020 until March 2022. Starting at the March 2022 meeting of the FOMC, the FOMC consistently raised the target federal funds rate range through July 2023, when the FOMC increased the target range to between 5.25% and 5.50%. At the September 2024 meeting of the FOMC, the FOMC lowered the target rate by 0.50% to a range between 4.75% and 5.00%. At the November 2024 meeting of the FOMC, the FOMC lowered the target rate by 0.25% to a range between 4.50% and 4.75%. In normal economic situations, future adjustments to the FOMC’s stance of monetary policy are expected to be based on realized and expected economic developments to achieve maximum employment and inflation near the FOMC 's symmetric long-term 2.0% objective.

Previous wording

The Mortgage Bankers Association's ("MBA") June 24, 2024 Mortgage Finance Forecast (“MBA Forecast”) projects 2024 purchase activity to increase 3.7% to $1,374 billion and mortgage refinance activity to increase 34.4% to $422 billion, resulting in a net increase in total mortgage originations of 9.6% to $1,796 billion, all from 2023 levels. In 2023, purchase activity accounted for 80.8% of all mortgage originations and is projected in the MBA Forecast to represent 76.5% of all mortgage originations in 2024. According to data published by Freddie Mac, the average 30-year fixed mortgage interest rates in the United States were 6.9% and 6.4% for the six-month periods ended June 30, 2024 and 2023, respectively. Per the MBA Forecast, mortgage interest rates are projected to decrease in subsequent periods, declining to 5.8% in 2026. Due to the rapidly changing environment brought on by inflationary pressures, inventory constraints, and geopolitical and military conflicts, these projections and the impact of actual future developments on the Company could be subject to material change.

Current wording

The Mortgage Bankers Association's ("MBA") September 23, 2024 Mortgage Finance Forecast (“MBA Forecast”) projects 2024 purchase activity to increase 5.6% to $1,309 billion and mortgage refinance activity to increase 134.2% to $513 billion, resulting in a net increase in total mortgage originations of 25.0% to $1,822 billion, all from 2023 levels. In 2023, purchase activity accounted for 85.0% of all mortgage originations and is projected in the MBA Forecast to represent 71.8% of all mortgage originations in 2024. According to data published by Freddie Mac, the average 30-year fixed mortgage interest rates in the United States were 6.8% and 6.6% for the nine-month periods ended September 30, 2024 and 2023, respectively. Per the MBA Forecast, mortgage interest rates are projected to decrease in subsequent periods, declining to 5.8% in 2026. Due to the rapidly changing environment brought on by inflationary pressures, inventory constraints, and geopolitical and military conflicts, these projections and the impact of actual future developments on the Company could be subject to material change.

Previous wording

The preparation of the Company's unaudited Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures regarding contingencies and commitments. Actual results could differ from these estimates. During the six-month period ended June 30, 2024, the Company did not make any material changes to its critical accounting policies as previously disclosed in Management's Discussion and Analysis in the 2023 Form 10-K.

Current wording

The preparation of the Company's unaudited Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures regarding contingencies and commitments. Actual results could differ from these estimates. During the nine-month period ended September 30, 2024, the Company did not make any material changes to its critical accounting policies as previously disclosed in Management's Discussion and Analysis in the 2023 Form 10-K.

Previous wording

The following table presents certain unaudited Consolidated Statements of Operations data for the three- and six-month periods ended June 30, 2024 and 2023:

Current wording

The following table presents certain unaudited Consolidated Statements of Operations data for the three- and nine-month periods ended September 30, 2024 and 2023:

Previous wording

Title insurance companies typically issue title insurance policies directly or through title agencies. Following is a breakdown of premiums generated by direct and agency operations for the three- and six-month periods ended June 30, 2024 and 2023:

Current wording

Title insurance companies typically issue title insurance policies directly or through title agencies. Following is a breakdown of premiums generated by direct and agency operations for the three- and nine-month periods ended September 30, 2024 and 2023:

Previous wording

Direct Net Premiums – The Company's direct business consists of operations at the home office, branch offices, and wholly owned title insurance agencies. In the Company's direct operations, the Company issues a title insurance policy and retains the entire premium, as no commissions are recognized in connection with these policies. Net premiums written from direct operations decreased 1.6% and increased 1.3% for the three- and six-month periods ended June 30, 2024, respectively, compared with the same prior year periods. The decrease for the three-month period ended June 30, 2024 was primarily the result of the Company making the strategic decision to close less profitable offices of a wholly owned title insurance agency. The increase for the six-month period ended June 30, 2024 was primarily driven byhigher activity levels in certain markets and continued increases in average home prices.

Current wording

Direct Net Premiums – The Company's direct business consists of operations at the home office, branch offices, and wholly owned title insurance agencies. In the Company's direct operations, the Company issues a title insurance policy and retains the entire premium, as no commissions are recognized in connection with these policies. Net premiums written from direct operations decreased 7.0% and 1.9% for the three- and nine-month periods ended September 30, 2024, respectively, compared with the same prior year periods. The decreases for the three- and nine-month periods ended September 30, 2024 were primarily the result of the Company making the strategic decision to close less profitable offices of a wholly owned title insurance agency and lower activity levels in certain markets where the Company issues title insurance policies directly.

Previous wording

Agency Net Premiums– When a policy is written through a non-wholly owned title agency, the premium is shared between the agency and the Company. 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. Agency net premiums written increased 27.1% and 15.2% for the three- and six-month periods ended June 30, 2024, compared with the same prior year periods. The increases for the three- and six-month periods ended June 30, 2024 were primarily driven byhigher activity levels in certain markets and continued increases in average home prices.

Current wording

Agency Net Premiums– When a policy is written through a non-wholly owned title agency, the premium is shared between the agency and the Company. 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. Agency net premiums written increased 19.3% and 16.7% for the three- and nine-month periods ended September 30, 2024, compared with the same prior year periods. The increases for the three- and nine-month periods ended September 30, 2024 were primarily due to expansion efforts in the Company's Texas and Florida markets, in addition to appreciation in average home prices and higher activity levels for the three-month period ended September 30, 2024 related to lower average mortgage interest rates.

Previous wording

Following is a schedule of net premiums written for the three- and six-month periods ended June 30, 2024 and 2023 in select states in which the Company's two insurance subsidiaries, ITIC and NITIC, currently underwrite title insurance:

Current wording

Following is a schedule of net premiums written for the three- and nine-month periods ended September 30, 2024 and 2023 in select states in which the Company's two insurance subsidiaries, ITIC and NITIC, currently underwrite title insurance:

Previous wording

Escrow and other title-related fees consists primarily of commission income, escrow and other various fees associated with the issuance of title insurance policies including settlement, examination and closing fees. Escrow and other title-related fee revenues were $4.8 million and $8.5 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $4.6 million and $8.3 million for the same prior year periods. The increases for the three- and six-month periods ended June 30, 2024 were mainly due to increases in real estate transaction volume.

Current wording

Escrow and other title-related fees consists primarily of commission income, escrow and other various fees associated with the issuance of title insurance policies including settlement, examination and closing fees. Escrow and other title-related fee revenues remained relatively consistent with the prior year periods at $4.6 million and $13.1 million for the three- and nine-month periods ended September 30, 2024, respectively, compared with $4.7 million and $12.9 million for the same prior year periods.

Previous wording

Revenue from non-title services includes trust services, agency management services and exchange services income. Non-title service revenues were $4.3 million and $8.6 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $4.6 million and $9.9 million for the same prior year periods. The decreases for the three- and six-month periods ended June 30, 2024 were primarily related to decreases in like-kind exchange revenues.

Current wording

Revenue from non-title services includes trust services, agency management services and exchange services income. Non-title service revenues were $4.3 million and $12.9 million for the three- and nine-month periods ended September 30, 2024, respectively, compared with $4.6 million and $14.5 million for the same prior year periods. The decreases for the three- and nine-month periods ended September 30, 2024 were primarily related to decreases in like-kind exchange revenues.

Previous wording

Investment-related revenues include interest and dividends, other investment income, and net investment gains.

Current wording

Investment-related revenues include interest and dividends, other investment income, and net investment gains (losses).

Previous wording

The Company’s investment strategy emphasizes after-tax income and principal preservation. The Company’s investments are primarily in short-term investments, fixed maturity securities and equity securities. The average effective maturity of the majority of the fixed maturity securities at June 30, 2024 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.

Current wording

The Company’s investment strategy emphasizes after-tax income and principal preservation. The Company’s investments are primarily in fixed maturity securities, short-term investments and equity securities. The average effective maturity of the majority of the fixed maturity securities at September 30, 2024 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.

Previous wording

Interest and dividends were $2.6 million and $5.1 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $2.2 million and $4.2 million for the same prior year periods. Interest and dividend levels are primarily a function of general market performance, interest rates and the amount of cash available for investments that meet the Company's investment policy. The increases for the three- and six-month periods ended June 30, 2024 were primarily related to elevated levels of interest income, predominantly influenced by interest rates, general market performance, and the amount of investments and cash held.

Current wording

Interest and dividends were $2.7 million and $7.8 million for the three- and nine-month periods ended September 30, 2024, respectively, compared with $2.3 million and $6.5 million for the same prior year periods. Interest and dividend levels are primarily a function of general market performance, interest rates and the amount of cash available for investments that meet the Company's investment policy. The increases for the three- and nine-month periods ended September 30, 2024 were primarily related to elevated levels of interest income, predominantly influenced by interest rates, general market performance, and the amount of investments and cash held.

Previous wording

Other investment income was $890 thousand and $1.0 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $1.6 million and $2.4 million for the same prior year periods. Changes in other investment income are impacted by fluctuations in the carrying value of the underlying investment and distributions received.

Current wording

Other investment income was $995 thousand and $2.0 million for the three- and nine-month periods ended September 30, 2024, respectively, compared with $514 thousand and $2.9 million for the same prior year periods. Changes in other investment income are impacted by fluctuations in the carrying value of the underlying investment and distributions received.

Previous wording

The net realized investment gains were $1.8 million and $4.4 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $5.9 million and $13.1 million for the same prior year periods. The Company recorded impairment charges of $21 thousand and $74 thousand on certain fixed maturity securities where the intent to hold has changed in the three- and six-month periods ended June 30, 2024, respectively, compared with $30 thousand and $112 thousand for the same prior year periods. Management believes unrealized losses on the remaining fixed maturity securities at June 30, 2024 are temporary in nature.

Current wording

The net realized investment gains were $235 thousand and $4.7 million for the three- and nine-month periods ended September 30, 2024, respectively, compared with $1.6 million and $14.7 million for the same prior year periods. The Company recorded impairment charges of $309 thousand and $383 thousand on certain fixed maturity securities and other investments where the intent to hold has changed in the three- and nine-month periods ended September 30, 2024, respectively, compared with $96 thousand and $208 thousand for the same prior year periods. Management believes unrealized losses on the remaining fixed maturity securities at September 30, 2024 are temporary in nature.

Previous wording

Changes in the Estimated Fair Value of Equity Security Investments – Changes in the estimated fair value of equity security investments were $(589) thousand and $(759) thousand for the three- and six-month periods ended June 30, 2024, respectively, compared with $(4.8) million and $(11.6) million for the same prior year periods. Such fluctuations are typically the result of changes in general market conditions during the respective periods, however, the sale of appreciated investment securities can result in a reduction in unrealized gains as they are reclassified to net realized investment gains, which is not indicative of a decline in estimated fair value.

Current wording

Changes in the Estimated Fair Value of Equity Security Investments – Changes in the estimated fair value of equity security investments were $741 thousand and $(18) thousand for the three- and nine-month periods ended September 30, 2024, respectively, compared with $(2.4) million and $(14.0) million for the same prior year periods. Such fluctuations are typically the result of changes in general market conditions during the respective periods, however, the sale of appreciated investment securities can result in a reduction in unrealized gains as they are reclassified to net realized investment gains (losses), which is not indicative of a decline in estimated fair value.

Previous wording

Other revenues primarily include miscellaneous income and gains and losses on the disposal of fixed assets and real estate. Other revenues were $161 thousand and $360 thousand for the three- and six-month periods ended June 30, 2024, respectively, compared with $250 thousand and $390 thousand for the same prior year periods.

Current wording

Other revenues primarily include miscellaneous income and gains and losses on the disposal of fixed assets and real estate. Other revenues remained relatively consistent with the prior year periods at $388 thousand and $748 thousand for the three- and nine-month periods ended September 30, 2024, respectively, compared with $257 thousand and $647 thousand for the same prior year periods.

Previous wording

The Company's operating expenses consist primarily of commissions to agents, personnel expenses, office and technology expenses and the provision for claims. Operating expenses increased 11.7% and 3.6% for the three- and six-month periods ended June 30, 2024, compared with the same prior year periods. The increases for the three- and six-month periods ended June 30, 2024 were primarily due to increases in commissions to agents and other expenses, partially offset by decreases in personnel expenses.

Current wording

The Company's operating expenses consist primarily of commissions to agents, personnel expenses, office and technology expenses and the provision for claims. Operating expenses increased 8.4% and 5.3% for the three- and nine-month periods ended September 30, 2024, compared with the same prior year periods. The increases for the three- and nine-month periods ended September 30, 2024 were primarily due to increases in commissions to agents, partially offset by decreases in personnel expenses.

Previous wording

Following is a summary of the Company's operating expenses for the three- and six-month periods ended June 30, 2024 and 2023. Inter-segment eliminations have been netted; therefore, the individual segment amounts will not agree to Note 4 to the unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Current wording

Following is a summary of the Company's operating expenses for the three- and nine-month periods ended September 30, 2024 and 2023. Inter-segment eliminations have been netted; therefore, the individual segment amounts will not agree to Note 4 to the unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Previous wording

On a combined basis, the after-tax profit margins were 13.6% and 11.3% for the three- and six-month periods ended June 30, 2024, respectively, compared with 13.0% and 8.0% for the same prior year periods. The increases for the three- and six-month periods ended June 30, 2024 were primarily due to growth in net premiums written, Company expense reduction initiatives, and higher levels of investment earnings. The Company continually strives to enhance its competitive strengths and market position, including ongoing initiatives to manage its operating expenses.

Current wording

On a combined basis, the after-tax profit margins were 13.5% and 12.1% for the three- and nine-month periods ended September 30, 2024, respectively, compared with 11.5% and 9.3% for the same prior year periods. The increases for the three- and nine-month periods ended September 30, 2024 were primarily due to growth in net premiums written, decreases in personnel expenses and other Company expense reduction initiatives, and higher levels of earnings and gains on investments. The Company continually strives to enhance its competitive strengths and market position, including ongoing initiatives to manage its operating expenses.

Previous wording

Personnel Expenses– Personnel expenses include base salaries, benefits and payroll taxes, bonuses paid to employees and contract labor expenses. Personnel expenses were $18.2 million and $36.7 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $18.5 million and $39.4 million for the same prior year periods. On a consolidated basis, personnel expenses as a percentage of total revenues were 27.8% and 30.9% for the three- and six-month periods ended June 30, 2024, respectively, compared with 31.8% and 35.9% for the same prior year periods. The decreases in personnel expenses for the three- and six-month periods ended June 30, 2024 were primarily due to lower staffing levels.

Current wording

Personnel Expenses– Personnel expenses include base salaries, benefits and payroll taxes, bonuses paid to employees and contract labor expenses. Personnel expenses were $18.1 million and $54.8 million for the three- and nine-month periods ended September 30, 2024, respectively, compared with $19.1 million and $58.5 million for the same prior year periods. On a consolidated basis, personnel expenses as a percentage of total revenues were 26.2% and 29.2% for the three- and nine-month periods ended September 30, 2024, respectively, compared with 31.1% and 34.2% for the same prior year periods. The decreases in personnel expenses for the three- and nine-month periods ended September 30, 2024 were primarily due to lower staffing levels and other impacts from Company expense reduction initiatives.

Previous wording

Office and Technology Expenses– Office and technology expenses primarily include facilities expenses, software and hardware expenses, depreciation expense, telecommunications expenses, and business insurance. Office and technology expenses remained relatively consistent with the prior year period at $4.3 million and $8.8 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $4.5 million and $8.9 million for the same prior year periods.

Current wording

Office and Technology Expenses– Office and technology expenses primarily include facilities expenses, software and hardware expenses, depreciation expense, telecommunications expenses, and business insurance. Office and technology expenses remained relatively consistent with the prior year periods at $4.4 million and $13.2 million for the three- and nine-month periods ended September 30, 2024, respectively, compared with $4.2 million and $13.1 million for the same prior year periods.

Previous wording

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 $4.2 million and $8.0 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $3.8 million and $8.0 million for the same prior year periods. The increase for the three-month period June 30, 2024 was mainly due to expenses associated with higher title insurance revenues.

Current wording

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 remained relatively consistent with the prior year periods at $4.0 million and $12.1 million for the three- and nine-month periods ended September 30, 2024, respectively, compared with $3.9 million and $11.8 million for the same prior year periods.

Previous wording

Commissions to Agents– Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts. Commissions to agents increased 28.9% and 16.3% for the three- and six-month periods ended June 30, 2024, respectively, compared with the same prior year periods. Commission expense as a percentage of net premiums written by agents was 74.0% and 74.0% for the three- and six-month periods ended June 30, 2024, respectively, compared with 73.0% and 73.3% for the same prior year periods. The changes in commission expense, and commission expense as a percentage of net premiums written, were commensurate with the increases in agent premium volume. Commission rates vary by market due to local practice, competition and state regulations.

Current wording

Commissions to Agents– Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts. Commissions to agents increased 22.2% and 18.5% for the three- and nine-month periods ended September 30, 2024, respectively, compared with the same prior year periods. Commission expense as a percentage of net premiums written by agents was 75.4% and 74.5% for the three- and nine-month periods ended September 30, 2024, respectively, compared with 73.6% and 73.4% for the same prior year periods. The changes in commission expense, and commission expense as a percentage of net premiums written, were commensurate with the increases in agent premium volume. Commission rates vary by market due to local practice, competition and state regulations.

Previous wording

Provision for Claims– The provision for claims decreased 8.7% and 11.9% for thethree- and six-month periods ended June 30, 2024, respectively, compared with the same prior year periods. The provision for claims as a percentage of net premiums written was 1.8% and 2.0% for thethree- and six-month periods ended June 30, 2024, respectively, compared with 2.3% and 2.5% for the same prior year periods. The decreases in the provision for claims as a percentage of net premiums written for the three- and six-month periods ended June 30, 2024 were primarily due to favorable loss development.

Current wording

Provision for Claims– The provision for claims decreased 9.2% and 10.6% for thethree- and nine-month periods ended September 30, 2024, respectively, compared with the same prior year periods. The provision for claims as a percentage of net premiums written was 3.0% and 2.4% for thethree- and nine-month periods ended September 30, 2024, respectively, compared with 3.7% and 2.9% for the same prior year periods. The decreases in the provision for claims as a percentage of net premiums written for the three- and nine-month periods ended September 30, 2024 were primarily due to higher levels of favorable loss development and fewer incurred claims losses in the current year periods.

Previous wording

Title claims are typically reported and paid within the first several years of policy issuance. The provision 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 $1.8 million and $2.4 million for the six-month periods ended June 30, 2024 and 2023, respectively.

Current wording

Title claims are typically reported and paid within the first several years of policy issuance. The provision 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 $3.6 million for both the nine-month periods ended September 30, 2024 and 2023.

Previous wording

At June 30, 2024, the total reserve for claims was $37.2 million. Of that total, approximately $3.3 million was reserved for specific claims, and approximately $33.9 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 claims may not materialize for several years, reserve estimates are subject to variability.

Current wording

At September 30, 2024, the total reserve for claims was $37.0 million. Of that total, approximately $2.7 million was reserved for specific claims, and approximately $34.3 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 claims may not materialize for several years, reserve estimates are subject to variability.

Previous wording

The provision for income taxes was $2.4 million and $3.7 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $2.3 million and $2.6 million for the same prior year periods. Income tax expense, including federal and state taxes, as a percentage of income before income taxes was 21.3% and 21.5% for the three- and six-month periods ended June 30, 2024, respectively, compared with 23.0% and 23.2% for the same prior year periods. The effective income tax rates for both 2024 and 2023 differ from the U.S. federal statutory income tax rate of 21% primarily due to the effect of tax-exempt income and state taxes. Tax-exempt income lowers the effective tax rate.

Current wording

The provision for income taxes was $2.3 million and $5.9 million for the three- and nine-month periods ended September 30, 2024, respectively, compared with $1.5 million and $4.2 million for the same prior year periods. Income tax expense, including federal and state taxes, as a percentage of income before income taxes was 19.6% and 20.7% for the three- and nine-month periods ended September 30, 2024, respectively, compared with 17.7% and 20.8% for the same prior year periods. The effective income tax rates for both 2024 and 2023 differ from the U.S. federal statutory income tax rate of 21% primarily due to the effect of tax-exempt income and state taxes. Tax-exempt income lowers the effective tax rate.

Previous wording

Cash Flows– Net cash flows provided by (used in) operating activities were $9.9 million and $(7.4) million for the six-month periods ended June 30, 2024 and 2023, respectively. Cash flows provided by (used in) operating activities differ from net income due to adjustments for non-cash items, such as gains and losses on investments and property, the timing of disbursements for taxes, claims and other accrued liabilities, and collections or changes in receivables and other assets.

Current wording

Cash Flows– Net cash flows provided by (used in) operating activities were $17.7 million and $(6.7) million for the nine-month periods ended September 30, 2024 and 2023, respectively. Cash flows provided by (used in) operating activities differ from net income due to adjustments for non-cash items, such as gains and losses on investments and property, the timing of disbursements for taxes, claims and other accrued liabilities, and collections or changes in receivables and other assets.

Previous wording

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. Net cash was used in investing activities for the six-month period ended June 30, 2024, compared with net cash being provided by investing activities in the prior year period. Net cash was used in financing activities for the six-month periods ended June 30, 2024 and 2023.

Current wording

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. Net cash was used in investing activities for the nine-month period ended September 30, 2024, compared with net cash being provided by investing activities in the prior year period. Net cash was used in financing activities for the nine-month periods ended September 30, 2024 and 2023.

Previous wording

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 June 30, 2024, the Company held cash and cash equivalents of $26.7 million, short-term investments of $84.5 million, available-for-sale fixed maturity securities of $93.5 million and equity securities of $36.8 million. The net effect of all activities on total cash and cash equivalents was an increase of $2.7 million in 2024.

Current wording

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 September 30, 2024, the Company held cash and cash equivalents of $25.5 million, short-term investments of $87.4 million, available-for-sale fixed maturity securities of $103.4 million and equity securities of $37.8 million. The net effect of all activities on total cash and cash equivalents was an increase of $1.4 million in 2024.

Previous wording

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 7,039 shares in the six-month period ended June 30, 2024 and 7,000 shares in the corresponding period in 2023. 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.

Current wording

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 7,039 shares in the nine-month period ended September 30, 2024 and 7,000 shares in the corresponding period in 2023. 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.

Previous wording

Capital Expenditures– Capital expenditures were approximately $4.3 million for the six-month period ended June 30, 2024. In 2024, the Company has plans for various capital improvement projects, including 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.

Current wording

Capital Expenditures– Capital expenditures were approximately $6.1 million for the nine-month period ended September 30, 2024. In 2024, the Company has plans for various capital improvement projects, including 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.

Previous wording

Contractual Obligations -As of June 30, 2024, the Company had a claims reserve totaling $37.2 million. The amounts and timing of these obligations are estimated and not set contractually. 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.

Current wording

Contractual Obligations -As of September 30, 2024, the Company had a claims reserve totaling $37.0 million. The amounts and timing of these obligations are estimated and not set contractually. 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.

Previous wording

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. The Company occasionally assumes equipment lease agreements through business acquisitions. These leases are accounted for as finance leases. Included in a portion of the Company's current leases is an option to extend or cancel the lease term, and the exercise of such an option is solely at the Company's discretion. The total of undiscounted future minimum lease payments under operating leases that have initial or remaining noncancelable lease terms in excess of one year after 2024 is $4.1 million, which 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. Information about leases can be found in Note 12 to the unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Current wording

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. The Company occasionally assumes equipment lease agreements through business acquisitions. These leases are accounted for as finance leases. Included in a portion of the Company's current leases is an option to extend or cancel the lease term, and the exercise of such an option is solely at the Company's discretion. The total of undiscounted future minimum lease payments under operating leases that have initial or remaining noncancelable lease terms in excess of one year after 2024 is $3.8 million, which 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. Information about leases can be found in Note 12 to the unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Previous wording

In addition, in administering tax-deferred like-kind exchanges pursuant to § 1031 of the Internal Revenue Code, 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 LLCs 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 $203.8 million and $263.7 million as of June 30, 2024 and December 31, 2023, 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 unaudited 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 non-title services rather than investment income. These like-kind exchange funds are primarily invested in money market funds and other short-term investments.

Current wording

In addition, in administering tax-deferred like-kind exchanges pursuant to § 1031 of the Internal Revenue Code, 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 LLCs 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 $264.2 million and $263.7 million as of September 30, 2024 and December 31, 2023, 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 unaudited 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 non-title services rather than investment income. These like-kind exchange funds are primarily invested in money market funds and other short-term investments.

Previous wording

•the Company’s reliance upon the North Carolina, Texas, South Carolina, Georgia and Florida markets for a significant portion of its premiums;

Current wording

•the Company’s reliance upon the North Carolina, Texas, South Carolina, Florida and Georgia markets for a significant portion of its premiums;