What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-07 · 86 added, 82 removed, 318 unchanged (35% of the section changed)

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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 95.8% of the Company's revenues for the six-month period ended June 30, 2020.

Total revenues from the title segment accounted for 95.9% of the Company's revenues for the nine-month period ended September 30, 2020.

Through ITIC and NITIC, the Company underwrites land title insurance for owners and mortgagees as a primary insurer.

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The primary impact of the COVID-19 pandemic on the Company’s first quarter results of operations was a reduction in value of the investment portfolio.

In the second quarter, the Company recognized income from changes in the estimated fair value of equity securities as the Company's equity holdings partially rebounded.

Purchase volume and refinance activity strengthened in the second quarter, as lower average mortgage interest rates, a tight real estate supply and pent-up demand spurred real estate activity.

In the second and third quarters, the Company recognized income from changes in the estimated fair value of equity securities as the Company's equity holdings partially rebounded.

Purchase volume and refinance activity were strong in the third quarter, as lower average mortgage interest rates, a tight real estate supply and pent-up demand spurred real estate activity and prices.

It is unclear if real estate activity will remain as resilient in future periods.

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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%.

Starting in 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 rates at subsequent meetings.

In normal economic situations, 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.

However, in response to risk posed to economic activity by COVID-19, on March 15, 2020, the FOMC lowered the target range between 0.00% and 0.25%.

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Real Estate Environment

The Mortgage Bankers Association's ("MBA") July 15, 2020 Mortgage Finance Forecast (“MBA Forecast”), which includes COVID-19 considerations, projects 2020 purchase activity to increase 2.2% to $1,300 billion and mortgage refinance activity to increase 68.3% to $1,516 billion, resulting in a net increase in total mortgage originations of 29.6% to $2,816 billion, all from 2019 levels.

The Mortgage Bankers Association's ("MBA") October 21, 2020 Mortgage Finance Forecast (“MBA Forecast”), which includes COVID-19 considerations, projects 2020 purchase activity to increase 15.8% to $1,418 billion and mortgage refinance activity to increase 70.9% to $1,757 billion, resulting in a net increase in total mortgage originations of 40.9% to $3,175 billion, all from 2019 levels.

In 2019, purchase activity accounted for 54.4% of all mortgage originations and is projected in the MBA Forecast to represent 44.7% of all mortgage originations in 2020.

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Due to the rapidly changing environment brought on by COVID-19, these projections and the impact of actual future developments on the Company could be subject to material change.

According to data published by Freddie Mac, the average 30-year fixed mortgage interest rates in the United States were 3.4% and 4.2% for the six-month periods ended June 30, 2020 and 2019, respectively.

According to data published by Freddie Mac, the average 30-year fixed mortgage interest rates in the United States were 3.2% and 4.0% for the nine-month periods ended September 30, 2020 and 2019, respectively.

Per the MBA Forecast, mortgage interest rates are projected to be 3.0% in the fourth quarter of 2020, and then increase to 3.6% by 2022.

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Actual results could differ from these estimates.

During the six-month period ended June 30, 2020, the Company made the following changes to its critical accounting policies as previously disclosed in Management's Discussion and Analysis in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the Securities and Exchange Commission.

During the nine-month period ended September 30, 2020, the Company made the following changes to its critical accounting policies as previously disclosed in Management's Discussion and Analysis in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 as filed with the Securities and Exchange Commission.

The Company has updated the following accounting policies due to the adoption of Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326) :

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Results of Operations

The following table presents certain Consolidated Statements of Operations data for the three- and six-month periods ended June 30, 2020 and 2019:

The following table presents certain Consolidated Statements of Operations data for the three- and nine-month periods ended September 30, 2020 and 2019:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2020 2019 2020 2019

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Other investment income 1,270 708 2,236 2,044

Net realized investment gains (losses) 553 (14) 141 776

Net realized investment gains 186 423 327 1,199

Changes in the estimated fair value of equity security investments 3,619 406 (2,867) 6,218

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Net Premiums Written

Net premiums written increased 35.7% and 35.0% for the three- and six-month periods ended June 30, 2020 to $47.5 million and $86.1 million, compared with $35.0 million and $63.8 million for the same prior year periods.

The increases for the three- and six-month periods ended June 30, 2020 were primarily driven by increased refinance activity and strong purchase volume as lower average mortgage interest rates continued to spur real estate activity.

Net premiums written increased 42.4% and 37.9% for the three- and nine-month periods ended September 30, 2020 to $57.2 million and $143.3 million, compared with $40.2 million and $103.9 million for the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2020 were primarily driven by increased refinance activity and strong purchase volume, as lower average mortgage interest rates continued to spur real estate activity.

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 three- and six-month periods ended June 30, 2020 and 2019:

Following is a breakdown of premiums generated by branch and agency operations for the three- and nine-month periods ended September 30, 2020 and 2019:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except percentages) 2020 % 2019 % 2020 % 2019 %

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Agency 41,709 72.9 28,612 71.2 104,947 73.2 74,831 72.0

$ 47,479 100.0 $ 34,978 100.0 $ 86,106 100.0 $ 63,773 100.0

Total $ 57,205 100.0 $ 40,169 100.0 $ 143,311 100.0 $ 103,942 100.0

Home and Branch Office Net Premiums – In the Company's home and branch operations, the Company issues a title 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 increased 24.9% and 30.3% for the three- and six-month periods ended June 30, 2020, compared with the same prior year periods.

The increases for the three- and six-month periods ended June 30, 2020 were primarily attributable to increased refinance activity and strong purchase volume as lower average mortgage interest rates continued to spur real estate activity.

Net premiums written from home and branch operations increased 34.1% and 31.8% for the three- and nine-month periods ended September 30, 2020, compared with the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2020 were primarily attributable to increased refinance activity and strong purchase volume, as lower average mortgage interest rates continued to spur real estate activity.

All of the Company's home office operations and the majority of branch offices are located in North Carolina;

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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 40.3% and 36.8% for the three- and six-month periods ended June 30, 2020, compared with the same prior year periods.

Following is a schedule of net premiums written for the three- and six-month periods ended June 30, 2020 and 2019 in select states in which the Company's two insurance subsidiaries, ITIC and NITIC, currently underwrite title insurance:

Agency net premiums written increased 45.8% and 40.2% for the three- and nine-month periods ended September 30, 2020, compared with the same prior year periods.

Following is a schedule of net premiums written for the three- and nine-month periods ended September 30, 2020 and 2019 in select states in which the Company's two insurance subsidiaries, ITIC and NITIC, currently underwrite title insurance:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

State (in thousands) 2020 2019 2020 2019

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Premiums Written 57,377 40,254 143,682 104,277

47,558 35,073 86,305 64,023

Reinsurance Assumed — — 3 —

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Net Premiums Written $ 57,205 $ 40,169 $ 143,311 $ 103,942

$ 47,479 $ 34,978 $ 86,106 $ 63,773

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.

Escrow and other title-related fee revenues were $2.0 million and $3.9 million for the three- and six-month periods ended June 30, 2020, respectively, compared with $1.9 million and $3.2 million for the same prior year periods.

The increases in 2020 primarily related to increased fee and commission income.

Escrow and other title-related fee revenues were $2.2 million and $6.0 million for the three- and nine-month periods ended September 30, 2020, respectively, compared with $2.4 million and $5.6 million for the same prior year periods.

The decrease for the three-month period ended September 30, 2020 primarily related to lower commission income.

The increase for the nine-month period ended September 30, 2020 primarily related to higher fee 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 were $2.0 million and $4.5 million for the three- and six-month periods ended June 30, 2020, compared with $2.5 million and $4.9 million for the same prior year periods.

The decreases in 2020 related to decreased exchange services income.

Non-title service revenues were $2.0 million and $6.5 million for the three- and nine-month periods ended September 30, 2020, compared with $2.5 million and $7.4 million for the same prior year periods.

The decreases in 2020 primarily related to decreased exchange services income due to the impact of changes in the interest rate environment.

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.

Investment-related revenues include interest and dividends, other investment income, net realized investment gains and changes in the estimated fair value of equity security investments.

Interest and Dividends

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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 money market funds and certificates of deposit.

The Company also invests in short-term investments that include money market funds, certificates of deposit and Treasury bills.

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 $1.1 million and $2.3 million for the three- and six-month periods ended June 30, 2020, respectively, compared with $1.2 million and $2.4 million for the same prior year periods.

The decreases in 2020 were primarily related to less interest earned by fixed maturity securities due to lower interest rates.

Interest and dividends were $1.1 million and $3.3 million for the three- and nine-month periods ended September 30, 2020, respectively, compared with $1.2 million and $3.6 million for the same prior year periods.

The decreases in 2020 were primarily related to lower interest rates on fixed maturity securities.

Other Investment Income

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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.

Other investment income was $526 thousand and $966 thousand for the three- and six-month periods ended June 30, 2020, respectively, compared with $926 thousand and $1.3 million for the same prior year periods.

Other investment income was $1.3 million and $2.2 million for the three- and nine-month periods ended September 30, 2020, respectively, compared with $708 thousand and $2.0 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 or distributions received.

Net Realized Investment Gains (Losses)

Net Realized Investment Gains

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.

Additionally, the amounts of net realized investment gains (losses) are affected by assessments of securities’ valuation for other-than-temporary impairment.

Additionally, the amounts included in net realized investment gains are affected by assessments of securities’ valuation for other-than-temporary impairment.

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 $553 thousand and $141 thousand for the three- and six-month periods ended June 30, 2020, respectively, compared with $(14) thousand and $776 thousand for the same prior year periods.

The net realized investment gains (losses) for the six-month period ended June 30, 2020 included impairment charges of $482 thousand of certain fixed maturity securities the Company determined were other-than-temporarily impaired.

The net realized investment gains were $186 thousand and $327 thousand for the three- and nine-month periods ended September 30, 2020, respectively, compared with $423 thousand and $1.2 million for the same prior year periods.

The net realized investment gains for the nine-month period ended September 30, 2020 included impairment charges of $482 thousand for certain fixed maturity securities the Company determined were other-than-temporarily impaired.

There were no impairment charges recorded in 2019.

Management believes unrealized losses on remaining fixed maturity securities at June 30, 2020 are temporary in nature.

Management believes unrealized losses on the remaining fixed maturity securities at September 30, 2020 are temporary in nature.

The securities in the Company’s investment portfolio are subject to economic conditions and market risks.

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Changes in the Estimated Fair Value of Equity Security Investments

Changes in the estimated fair value of equity security investments were $8.0 million and $(6.5) million for the three- and six-month periods ended June 30, 2020, respectively, compared with $1.1 million and $5.8 million for the same prior year periods.

Changes in the estimated fair value of equity security investments were $3.6 million and $(2.9) million for the three- and nine-month periods ended September 30, 2020, respectively, compared with $406 thousand and $6.2 million for the same prior year periods.

Such fluctuations are the result of changes in general market conditions during the respective periods.

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stock market indices substantially declined due to economic slowdowns and uncertainty resulting from COVID-19.

The major stock market indices partially recovered the first quarter losses during the second quarter of 2020.

The major stock market indices partially recovered the first quarter losses during the second and third quarters of 2020.

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 $120 thousand and $258 thousand for the three- and six-month periods ended June 30, 2020, respectively, compared with $90 thousand and $405 thousand for the same prior year periods.

The decrease for the six-month period ended June 30, 2020 primarily related to a decline in state tax credit income.

Other revenues were $185 thousand and $443 thousand for the three- and nine-month periods ended September 30, 2020, respectively, compared with $145 thousand and $550 thousand for the same prior year periods.

The decrease for the nine-month period ended September 30, 2020 primarily related to a decline in state tax credit income.

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 22.4% and 22.0% for the three- and six-month periods ended June 30, 2020, respectively, compared with the same prior year periods.

The increases for the three- and six-month periods ended June 30, 2020 were primarily due to increases in commissions to agents and personnel expenses.

Following is a summary of the Company's operating expenses for the three- and six-month periods ended June 30, 2020 and 2019.

Operating expenses increased 28.6% and 24.4% for the three- and nine-month periods ended September 30, 2020, respectively, compared with the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2020 were primarily due to increases in commissions to agents, claims expense and personnel expenses.

Following is a summary of the Company's operating expenses for the three- and nine-month periods ended September 30, 2020 and 2019.

Inter-segment eliminations have been netted;

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except percentages) 2020 % 2019 % 2020 % 2019 %

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All Other 1,825 3.7 2,238 5.9 6,444 4.9 6,898 6.5

$ 43,826 100.0 $ 35,813 100.0 $ 82,256 100.0 $ 67,446 100.0

On a combined basis, after-tax profit margins were 23.5% and 8.2% for the three- and six-month periods ended June 30, 2020, respectively, compared with 12.9% and 14.7% for the same prior year periods.

Total $ 48,776 100.0 $ 37,920 100.0 $ 131,032 100.0 $ 105,366 100.0

On a combined basis, after-tax profit margins were 22.6% and 14.3% for the three- and nine-month periods ended September 30, 2020, respectively, compared with 16.6% and 15.4% for the same prior year periods.

The Company continually strives to enhance its competitive strengths and market position, including ongoing initiatives to manage its operating expenses.

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Personnel Expenses – Personnel expenses include base salaries, benefits and payroll taxes, bonuses paid to employees and contract labor expenses.

Personnel expenses were $12.2 million and $24.1 million for the three- and six-month periods ended June 30, 2020, respectively, compared with $11.7 million and $23.3 million for the same prior year periods.

On a consolidated basis, personnel expenses as a percentage of total revenues were 19.8% and 26.2% for the three- and six-month periods ended June 30, 2020, respectively, compared with 27.3% and 28.2% for the same prior year period.

The increases in personnel expenses for the three- and six-month periods ended June 30, 2020 were primarily related to normal inflationary increases in salaries and benefits and targeted staffing increases to support growth initiatives.

Personnel expenses were $12.6 million and $36.6 million for the three- and nine-month periods ended September 30, 2020, respectively, compared with $11.6 million and $34.9 million for the same prior year periods.

On a consolidated basis, personnel expenses as a percentage of total revenues were 18.6% and 23.0% for the three- and nine-month periods ended September 30, 2020, respectively, compared with 24.1% and 26.7% for the same prior year period.

The increases in personnel expenses for the three- and nine-month periods ended September 30, 2020 were primarily related to normal inflationary increases in salaries, benefits and higher staffing levels to accommodate volume growth and targeted staffing increases to support growth initiatives.

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 were $2.5 million and $4.9 million for the three- and six-month periods ended June 30, 2020, respectively, compared with $2.2 million and $4.5 million for the same prior year periods.

The increases for the three- and six-month periods ended June 30, 2020 were primarily related to ongoing investments in software and technology related initiatives.

Office and technology expenses were $2.5 million and $7.3 million for the three- and nine-month periods ended September 30, 2020, respectively, compared with $2.4 million and $6.8 million for the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2020 were primarily related to ongoing investments in software and technology related initiatives.

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 $3.0 million and $6.2 million for the three- and six-month periods ended June 30, 2020, respectively, compared with $3.2 million and $5.7 million for the same prior year periods.

The decrease for the three-month period ended June 30, 2020 was primarily related to a decrease in business development expenses on account of travel restrictions from COVID-19, partially offset by increases in professional services and premium-related taxes and licensing.

The increase for the six-month period ended June 30, 2020 was primarily related to increases in premium-related taxes and licensing and professional services, partially offset by a decline in business development expenses.

Other expenses were $3.1 million and $9.3 million for the three- and nine-month periods ended September 30, 2020, respectively, compared with $3.1 million and $8.8 million for the same prior year periods.

The increase for the nine-month period ended September 30, 2020 was primarily related to increases in premium-related taxes and licensing and professional services, partially offset by a decline in business development expenses.

Title Insurance

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 48.0% and 41.3% for the three- and six-month periods ended June 30, 2020, respectively, compared with the same prior year periods.

Commission expense as a percentage of net premiums written by agents was 69.8% and 70.0% for the three- and six-month periods ended June 30, 2020, respectively, compared with 66.2% and 67.8% for the same prior year periods.

The changes in commission expense, and commission expense as a percentage of net premiums written, were primarily related to increased premiums written by agents and changes in geographic mix for the three- and six-month periods ended June 30, 2020.

Commissions to agents increased 45.9% and 43.1% for the three- and nine-month periods ended September 30, 2020, respectively, compared with the same prior year periods.

Commission expense as a percentage of net premiums written by agents was 69.7% and 69.9% for the three- and nine-month periods ended September 30, 2020, respectively, compared with 69.6% and 68.5% for the same prior year periods.

Commission rates vary by market due to local practice, competition and state regulations.

Provision for Claims – The provision for claims as a percentage of net premiums written was 4.2% and 3.4% for the three- and six-month periods ended June 30, 2020, respectively, compared with 6.9% and 4.1% for the same prior year periods.

Notwithstanding premium volume increases in the current year, claims expense decreased for the three-month period ended June 30, 2020 as a result of a large claim in the prior year quarter and increased for the six-month period ended June 30, 2020 due to the recognition of favorable loss development in the prior year.

Provision for Claims – The provision for claims increased 57.2% and 23.3% for the three- and nine-month periods ended September 30, 2020, respectively, compared with the same prior year periods.

The provision for claims as a percentage of net premiums written was 2.7% and 3.1% for the three- and nine-month periods ended September 30, 2020, respectively, compared with 2.5% and 3.5% for the same prior year periods.

The increases in the provision for claims expenses for the three- and nine-month periods ended September 30, 2020 were primarily due to additional underwriting risks caused by the increase in premiums written.

A reduction in favorable loss development, compared to the prior year period, also impacted the nine-month period ended September 30, 2020.

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 $1.5 million and $1.3 million for the six-month periods ended June 30, 2020 and 2019, respectively.

At June 30, 2020, the total reserve for claims was $32.7 million.

Actual payments of claims, net of recoveries, were $2.3 million and $3.5 million for the nine-month periods ended September 30, 2020 and 2019, respectively.

At September 30, 2020, the total reserve for claims was $33.5 million.

Of that total, approximately $4.0 million was reserved for specific claims, and approximately $29.5 million was reserved for claims for which the Company had no notice.

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Adjustments may be required as new information develops, which often varies from past experience.

The provision for income taxes was $3.4 million and $1.9 million for the three- and six-month periods ended June 30, 2020, respectively, compared with $1.4 million and $3.1 million for the same prior year periods.

Income tax expense, including federal and state taxes, as a percentage of income before income taxes was 19.1% and 20.3% for the three- and six-month periods ended June 30, 2020, compared with 20.5% and 20.4% for the same prior year periods.

The provision for income taxes was $3.6 million and $5.5 million for the three- and nine-month periods ended September 30, 2020, respectively, compared with $2.1 million and $5.2 million for the same prior year periods.

Income tax expense, including federal and state taxes, as a percentage of income before income taxes was 18.9% and 19.3% for the three- and nine-month periods ended September 30, 2020, compared with 20.6% and 20.5% for the same prior year periods.

The effective income tax rates for both 2020 and 2019 differ from the U.S.

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Tax-exempt income lowers the effective tax rate.

The Company believes it is more likely than not that the tax benefits associated with recognized impairments and unrecognized losses recorded through June 30, 2020 will be realized.

The Company believes it is more likely than not that the tax benefits associated with recognized impairments and unrecognized losses recorded through September 30, 2020 will be realized.

However, this judgment could be impacted by further market fluctuations.

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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.

The extent to which COVID-19 impacts the Company's future operations will depend on future developments which cannot be predicted with certainty at this time;

including the duration and severity of the pandemic, actions taken to contain the spread of the virus, and regulatory actions taken as a result of the outbreak.

The extent to which COVID-19 impacts the Company's future operations will depend on future developments which cannot be predicted with certainty at this time, including the duration and severity of the pandemic, actions taken to contain the spread of the virus, and regulatory actions taken as a result of the outbreak.

Currently, the Company is fully operational and has not had any reductions in workforce during 2020.

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The Company has not taken stimulus relief funding or incurred any other forms of debt.

Cash Flows – Net cash flows provided by operating activities were $16.0 million and $761 thousand for the three- and six-month periods ended June 30, 2020 and 2019, respectively.

Cash flows provided by operating activities increased in 2020 from 2019, primarily due to net income increasing when adjusted for non-cash items, such as changes in the estimated fair value of equity security investments, and the timing of payable disbursements.

Cash Flows – Net cash flows provided by operating activities were $21.9 million and $10.0 million for the nine-month periods ended September 30, 2020 and 2019, respectively.

This was partially offset by changes in other assets and the timing of the collection of receivables.

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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, 2020, the Company held cash and cash equivalents of $29.7 million, short-term investments of $24.7 million, available-for-sale fixed maturity securities of $102.1 million and equity securities of $55.8 million.

As of September 30, 2020, the Company held cash and cash equivalents of $41.5 million, short-term investments of $22.5 million, available-for-sale fixed maturity securities of $98.4 million and equity securities of $58.9 million.

The net effect of all activities on total cash and cash equivalents was an increase of $15.6 million in 2020.

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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 June 30, 2020, both ITIC and NITIC met the minimum capital, surplus and reserve requirements for each state in which they are licensed.

As of September 30, 2020, both ITIC and NITIC met the minimum capital, surplus and reserve requirements for each state in which they are licensed.

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.

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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 0 and 66 shares for the six-month periods ended June 30, 2020 and 2019, respectively.

Pursuant to the Company’s ongoing purchase program, the Company purchased 0 and 66 shares for the nine-month periods ended September 30, 2020 and 2019, 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 $1.4 million for the six-month period ended June 30, 2020.

Capital Expenditures – Capital expenditures were approximately $2.2 million for the nine-month period ended September 30, 2020.

In 2020, 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.

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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 $171.4 million and $214.6 million as of June 30, 2020 and December 31, 2019, respectively.

Like-kind exchange deposits and reverse exchange property held by the Company for the purpose of completing such transactions totaled approximately $179.5 million and $214.6 million as of September 30, 2020 and December 31, 2019, respectively.

These exchange deposits are held at third-party financial institutions.

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Safe Harbor for Forward-Looking Statements

This Quarterly Report on Form 10-Q, as well as information included in future filings by the Company with the Securities and Exchange Commission 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.

This Quarterly Report on Form 10-Q, as well as information included in future filings by the Company with the Securities and Exchange Commission (the "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.

COVID-19 Pandemic” 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.

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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;

• changes in general economic, business, and political conditions, including the performance of the financial and real estate markets and the impact of the 2020 U.S.

presidential election;

• potential reform of government sponsored entities;

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• 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 Securities and Exchange Commission.

For more details on factors that could affect expectations, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, including under the heading "Risk Factors", as supplemented in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, as well as the further updated risk factor set forth in Part II, Item 1A of this Quarterly Report.

These and other risks and uncertainties may be described from time to time in the Company's other reports and filings with the SEC.

For more details on factors that could affect expectations, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, including under the heading "Risk Factors", as well as the further updated risk factor set forth in Part II, Item 1A of this Quarterly Report.

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.

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Quantitative and Qualitative Disclosures About Market Risk

For the quarter ended June 30, 2020, there were no material changes in the Company’s market risks as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

For the quarter ended September 30, 2020, there were no material changes in the Company’s market risks as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis