What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-09 · 73 added, 73 removed, 299 unchanged (33% of the section changed)

8 unchanged sentences

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.

Total revenues from the title segment accounted for 90.9% of the Company's revenues for the nine-month period ended September 30, 2024.

Title insurance protects against loss or damage resulting from title defects that affect real property.

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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.

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.

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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.

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.

Real Estate Environment

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.

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 6.9% and 6.4% for the six-month periods ended June 30, 2024 and 2023, respectively.

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.

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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.

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.

Results of Operations

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

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2024 2023 2024 2023

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Other investment income 995 514 1,996 2,915

Net investment gains 1,242 1,092 3,664 1,535

Net investment gains (losses) 976 (815) 4,640 720

Other 388 257 748 647

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Net Premiums Written

Net premiums written increased 16.8% and 10.4% for the three- and six-month periods ended June 30, 2024 to $51.4 million and $91.6 million, respectively, compared with $44.0 million and $83.0 million for the same prior year periods.

The increases for the three- and six-month periods ended June 30, 2024 were attributable to higher real estate activity levels in certain markets and continued increases in average home prices.

Net premiums written increased 10.1% and 10.3% for the three- and nine-month periods ended September 30, 2024 to $54.9 million and $146.5 million, respectively, compared with $49.8 million and $132.8 million for 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.

Total premiums include an estimate of premiums for policies that have been issued directly and by agents, but not reported to the Company as of the balance sheet date.

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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:

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:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except percentages) 2024 % 2023 % 2024 % 2023 %

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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 driv en by higher activity levels in certain markets and continued increases in average home prices.

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.

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.

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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 driv en by higher activity levels in certain markets and continued increases in average home prices.

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:

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.

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:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

State (in thousands) 2024 2023 2024 2023

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South Carolina 4,371 5,090 12,314 12,904

Georgia 4,304 2,631 6,763 6,178

Florida 4,714 2,144 10,825 4,494

Georgia 3,857 3,169 10,620 9,347

All Others 8,052 7,630 20,658 20,253

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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.

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.

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 $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.

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.

Investment-Related Revenues

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

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

Interest and Dividends

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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 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.

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The Company strives to maintain a high quality investment portfolio.

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 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 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.

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.

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 $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.

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.

Net Investment Gains

Net Investment Gains (Losses)

Net investment gains and losses include realized gains and losses on the sale of investment securities and changes in the estimated fair value of equity security investments.

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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 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.

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.

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

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and the risk that management is making decisions based on inaccurate information in the financial statements provided by the issuers.

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.

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.

Other Revenues

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.

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.

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.

Following is a summary of the Company's operating expenses for the three- and six-month periods ended June 30, 2024 and 2023.

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.

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;

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except percentages) 2024 % 2023 % 2024 % 2023 %

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Total $ 57,241 100.0 $ 52,800 100.0 $ 159,018 100.0 $ 151,050 100.0

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.

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.

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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 $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.

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.

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.

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.

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.

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.

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 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.

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.

Provision for Claims – The provision for claims decreased 8.7% and 11.9% for the three- 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 the three- 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.

Provision for Claims – The provision for claims decreased 9.2% and 10.6% for the three- 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 the three- 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.

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.

At June 30, 2024, the total reserve for claims was $37.2 million.

Actual payments of claims, net of recoveries, were $3.6 million for both the nine-month periods ended September 30, 2024 and 2023.

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.

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

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 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.

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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, 2024 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, 2024 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.

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 – 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.

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.

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.

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.

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.

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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, 2024, both ITIC and NITIC met the minimum capital, surplus and reserve requirements for each state in which they are licensed.

As of September 30, 2024, 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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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 Consumer Financial Protection Bureau 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.

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

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.

Capital Expenditures – Capital expenditures were approximately $4.3 million for the six-month period ended June 30, 2024 .

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.

Contractual Obligations - As of June 30, 2024, the Company had a claims reserve totaling $37.2 million.

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.

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ITIC, a wholly owned subsidiary of the Company, has entered into employment agreements with certain executive officers.

The amounts accrued for these agreements at June 30, 2024 and December 31, 2023, were $15.3 million and $15.2 million, respectively, which includes postretirement compensation and health benefits, and were calculated based on the terms of the contracts.

The amounts accrued for these agreements at September 30, 2024 and December 31, 2023, were $15.3 million and $15.2 million, respectively, which includes postretirement compensation and health benefits, and were calculated based on the terms of the contracts.

These executive contracts are accounted for on an individual contract basis.

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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.

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.

30 unchanged sentences

• 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, South Carolina, Georgia and Florida markets for a significant portion of its premiums;

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

• compliance with government regulation, including pricing regulation, and significant changes to applicable regulations or in their application by regulators;

17 unchanged sentences

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