Investors Title Company

11/07/2025 | Press release | Distributed by Public on 11/07/2025 15:56

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
Investors Title Company's (the "Company") Annual Report on Form 10-K for the year ended December 31, 2024 (the "2024 Form 10-K") as filed with the Securities and Exchange Commission (the "SEC") should be read in conjunction with the following discussion since it contains information which is important for evaluating the Company's operating results and financial condition.
In addition, the Company may make forward-looking statements in the following discussion and analysis. Forward looking statements are based on certain assumptions and expectations of future events that are subject to a number of risks and uncertainties. Actual results may vary. See "Safe Harbor for Forward-Looking Statements" at the end of this discussion and analysis, as well as the sections titled "Risk Factors" in Part I, Item 1A of the 2024 Form 10-K for factors that could affect forward-looking statements.
Overview
Title Insurance
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 90.1% of the Company's revenues for the nine-month period ended September 30, 2025.
Title insurance protects against loss or damage resulting from title defects that affect real property and typically arise prior to the policy date. When real property is conveyed from one party to another, occasionally there is an undisclosed defect in the title or a mistake or omission in a prior deed, will or mortgage that may give a third party a legal claim against such property. If a covered claim is made against real property, title insurance provides indemnification against insured defects.
There are two basic types of title insurance policies - one for the mortgage lender and one for the real property owner. A lender often requires the property owner to purchase a lender's title insurance policy to protect its position as a holder of a mortgage loan, but the lender's title insurance policy does not protect the property owner. The property owner has to purchase a separate owner's title insurance policy to protect its investment.
The Company issues title insurance policies directly and through a network of agents. Issuing agents are typically real estate attorneys, independent agents or subsidiaries of community and regional mortgage lending institutions, depending on local customs and regulations and the Company's marketing strategy in a particular territory. The ability to attract and retain issuing agents is a key determinant of the Company's growth in title insurance premiums written.
Revenues for the title insurance segment primarily result from purchases of new and existing residential and commercial real estate, refinance activity and certain other types of mortgage lending such as home equity lines of credit.
Title insurance premiums vary from state to state and are subject to extensive regulation. Statutes generally provide that rates must not be excessive, inadequate or unfairly discriminatory. The process of implementing a rate change in most states involves pre-approval by the applicable state insurance regulator.
Volume is a factor in the Company's profitability due to fixed operating costs that are incurred by the Company regardless of title insurance premium volume. The resulting operating leverage tends to amplify the impact of changes in volume on the Company's profitability. The Company's profitability also depends, in part, upon its ability to manage its investment portfolio to maximize investment returns and to minimize risks such as interest rate changes, defaults and impairments of assets.
The Company's volume of title insurance premiums is affected by the overall level of residential and commercial real estate activity, which includes property sales, mortgage financing and mortgage refinancing. Real estate activity, home sales and mortgage lending are cyclical in nature. Real estate activity is affected by a number of factors, including the availability of mortgage credit, the cost of real estate, consumer confidence, employment and family income levels, and general United States economic conditions. Interest rate volatility is also an important factor in the level of residential and commercial real estate activity.
The Company's title insurance premiums in future periods are likely to fluctuate due to these and other factors which are beyond management's control.
Historically, the title insurance business tends to be seasonal as well as cyclical. Because home sales are typically strongest in periods of favorable weather, the first calendar quarter tends to have the lowest activity levels, while the spring and summer quarters tend to be more active. Mortgage refinance activity tends to be influenced less by seasonality and more by economic cycles, with activity levels increasing during times of falling interest rates.
Exchange Services
The Company's exchange services division, consisting of the operations of Investors Title Exchange Corporation ("ITEC") and Investors Title Accommodation Corporation ("ITAC"), provides customer services in connection with tax-deferred real property exchanges. ITEC acts as a qualified intermediary in tax-deferred exchanges of real property held for productive use in a trade or business or for investment, and its income is derived from fees for handling exchange transactions and a portion of the interest earned on client deposits held by the Company. In its role as qualified intermediary, ITEC coordinates the exchange aspects of the real estate transaction, and its duties include drafting standard exchange documents, holding the exchange funds between the time the old property is sold and the new property is purchased, and accepting the formal identification of the replacement property within the required identification period. ITAC provides services as an exchange accommodation titleholder for accomplishing "parking transactions" as set forth in the safe harbor contained in Internal Revenue Procedure 2000-37. These transactions include reverse exchanges when taxpayers decide to acquire replacement property before selling the relinquished property, or "build to suit" exchanges, when improvements must be made to the replacement property before the taxpayer acquires the improved replacement property. The services provided by the Company's exchange services division, ITEC and ITAC, are pursuant to provisions in the Internal Revenue Code of 1986. From time to time, these laws are subject to review and changes, which may negatively affect the demand for tax-deferred exchanges in general, and consequently, the revenues and profitability of the Company's exchange services division.
Management Services, Investment Management and Trust Services
Other services provided by operating divisions of the Company are not reported separately, but rather are reported collectively in a category called "All Other." These other services include those offered by the Company and by its wholly owned subsidiaries, Investors Title Management Services, Inc. ("ITMS") and Investors Trust Company ("Investors Trust").
ITMS offers various consulting and management services to provide clients with the technical expertise to start and successfully operate a title insurance agency.
The Company's trust services division, Investors Trust, provides investment management and trust services to individuals, companies, banks and trusts.
Business Trends and Recent Conditions
The housing market is heavily influenced by government policies and overall economic conditions. Regulatory reform and initiatives by various governmental agencies, including the Federal Reserve's monetary policy and other regulatory changes, could impact lending standards or the processes and procedures used by the Company. The current real estate environment, including interest rates and general economic activity, typically influences the demand for real estate. Changes in either of these areas, in addition to any inventory constraints or volatility in the cost and availability of building materials, could impact the Company's results of operations in future periods.
Inflationary pressures, the federal government shutdown, ongoing geopolitical and military conflicts, and changes in government regulations and policy, including as a result of policies implemented by the Trump administration such as the implementation of widespread tariff reform, 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 closely monitored the risks associated with these developments and responded by increasing the target federal funds rate across several meetings from 2022 through 2023, followed by a gradual reduction beginning in 2024 and continuing into 2025. 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. The current period of elevated mortgage interest rates has impacted the demand and pricing of real estate.
Regulatory Environment
The FOMC issues disclosures on a periodic basis that include projections of the federal funds rate and expected actions. Starting at the March 2022 meeting of the FOMC through July 2023, the FOMC repeatedly increased the target range, reaching a high of between 5.25% and 5.50%. During several meetings in 2024 and 2025, the FOMC has lowered the federal funds rate. The most recent adjustment, in October 2025, reduced the target range to 3.75% and 4.00%. 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") October 19, 2025 Mortgage Finance Forecast ("MBA Forecast") projects 2025 purchase activity to increase 1.3% to $1,356 billion and mortgage refinance activity to increase 94.0% to $675 billion, resulting in a net increase in total mortgage originations of 20.5% to $2,031 billion, all from 2024 levels. In 2024, purchase activity accounted for 79.4% of all mortgage originations and is projected in the MBA Forecast to represent 66.8% of all mortgage originations in 2025. According to data published by Freddie Mac, the average 30-year fixed mortgage interest rates in the United States were 6.7% and 6.8% for the nine-month periods ended September 30, 2025 and 2024, respectively. Per the MBA Forecast, mortgage interest rates are projected to decrease in subsequent periods, declining to 6.3% in 2027. Due to the rapidly changing environment brought on by inflationary pressures, the federal government shutdown, inventory constraints, geopolitical and military conflicts, and changes in government regulations and policy, including as a result of the policies implemented by the Trump administration,these projections and the impact of actual future developments on the Company could be subject to material change.
Historically, activity in real estate markets has varied over the course of market cycles by geographic region and in response to evolving economic factors. Operating results can vary from year to year based on cyclical market conditions and do not necessarily indicate the Company's future operating results and cash flows.
Critical Accounting Estimates and Policies
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, 2025, the Company did not make any material changes to its critical accounting policies as previously disclosed in Management's Discussion and Analysis in the 2024 Form 10-K.
Results of Operations
The following table presents certain unaudited Consolidated Statements of Operations data for the three- and nine-month periods ended September 30, 2025 and 2024:
Three Months Ended
September 30, 		Nine Months Ended
September 30,
(in thousands) 2025 2024 2025 2024
Revenues:
Net premiums written $ 56,402 $ 54,855 $ 157,243 $ 146,451
Escrow and other title-related fees 4,811 4,574 14,397 13,098
Non-title services 6,258 4,305 16,344 12,913
Interest and dividends 2,404 2,736 7,104 7,824
Other investment income 985 995 2,004 1,996
Net investment gains 2,057 976 2,982 4,640
Other 106 388 3,163 748
Total Revenues
73,023 68,829 203,237 187,670
Operating Expenses:
Commissions to agents 30,221 29,089 84,155 75,509
Provision for claims 1,209 1,668 3,612 3,483
Personnel expenses 17,435 18,057 53,229 54,793
Office and technology expenses 4,178 4,388 13,045 13,161
Other expenses 4,889 4,039 14,254 12,072
Total Operating Expenses
57,932 57,241 168,295 159,018
Income before Income Taxes 15,091 11,588 34,942 28,652
Provision for Income Taxes 2,877 2,273 7,279 5,941
Net Income $ 12,214 $ 9,315 $ 27,663 $ 22,711
Insurance Revenues
Insurance revenues include net premiums written and escrow and other title-related income that includes escrow fees, commissions and settlement fees. Non-title services revenue, investment-related revenues and other revenues are discussed separately below.
Net Premiums Written
Net premiums written increased 2.8% and 7.4% for the three- and nine-month periods ended September 30, 2025 to $56.4 million and $157.2 million, respectively, compared with $54.9 million and $146.5 million for the same prior year periods. The increases for the three- and nine-month periods ended September 30, 2025 were primarily due to higher levels of real estate activity.
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. To determine the estimated premiums, the Company uses historical experience, as well as other factors, to make certain assumptions about the average elapsed time between the policy effective date and the date the policies are reported. From time to time, the Company adjusts the inputs to the estimation process as reported transactions and new information becomes available. In addition to estimating revenues, the Company also estimates and accrues agent commissions, claims provision, premium taxes, income taxes, and other expenses associated with the estimated revenues that have been accrued. The Company reflects any adjustments to the accruals in the results of operations in the period in which new information becomes available.
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, 2025 and 2024:
Three Months Ended
September 30, 		Nine Months Ended
September 30,
(in thousands, except percentages) 2025 % 2024 % 2025 % 2024 %
Direct $ 16,330 29.0 $ 16,267 29.7 $ 45,687 29.1 $ 45,119 30.8
Agency 40,072 71.0 38,588 70.3 111,556 70.9 101,332 69.2
Total $ 56,402 100.0 $ 54,855 100.0 $ 157,243 100.0 $ 146,451 100.0
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 increased 0.4% and 1.3% for the three- and nine-month periods ended September 30, 2025, respectively, compared with the same prior year periods. The increases for the three- and nine-month periods ended September 30, 2025 were primarily the result of higher levels of real estate activity.
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 3.8% and 10.1% for the three- and nine-month periods ended September 30, 2025, respectively, compared with the same prior year periods. The increases for the three- and nine-month periods ended September 30, 2025 were primarily due to higher levels of real estate activity.
Following is a schedule of net premiums written for the three- and nine-month periods ended September 30, 2025 and 2024 in select states in which the Company's two insurance subsidiaries, ITIC and NITIC, currently underwrite title insurance:
Three Months Ended
September 30, 		Nine Months Ended
September 30,
State (in thousands) 2025 2024 2025 2024
North Carolina $ 19,922 $ 18,480 $ 54,351 $ 51,418
Texas 15,257 15,507 44,257 40,694
Georgia 4,253 3,857 13,928 10,620
South Carolina 5,235 4,371 12,332 12,314
Florida 3,235 4,714 10,612 10,825
All Others 8,572 8,052 21,980 20,658
Premiums Written 56,474 54,981 157,460 146,529
Reinsurance Assumed - - - -
Reinsurance Ceded (72) (126) (217) (78)
Net Premiums Written $ 56,402 $ 54,855 $ 157,243 $ 146,451
Title insurance rates vary by state and are subject to extensive regulatory oversight. In certain jurisdictions, insurers are required to adhere to rates established by state regulatory authorities and are not permitted to modify such rates independently. Regulatory authorities may approve rate adjustments to reflect current market conditions and cost factors affecting the title insurance industry. The Texas Commissioner of Insurance is evaluating a proposed 6.2% reduction in title insurance rates, which, if approved, would become effective March 1, 2026 and supersede the previously mandated 10% rate decrease originally scheduled to become effective on July 1, 2025. The Georgia Insurance and Safety Fire Commissioner approved a rate increase that became effective on July 1, 2024, which the Company estimates increased its revenues by approximately 17%. The North Carolina Department of Insurance recently approved a 9.4% rate increase effective October 1, 2025, and the Ohio Department of Insurance recently approved a 9.0% rate increase effective January 1, 2026. Overall, the Company anticipates that these rate adjustments, along with other approved rate changes, will have a favorable net impact on premium revenues in future reporting periods.
Escrow and Other Title-Related Fees
Escrow and other title-related fees consist 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 $14.4 million for the three- and nine-month periods ended September 30, 2025, respectively, compared with $4.6 million and $13.1 million for the same prior year periods. The increases for the three- and nine-month periods ended September 30, 2025 were primarily due to higher levels of real estate activity.
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 $6.3 million and $16.3 million for the three- and nine-month periods ended September 30, 2025, respectively, compared with $4.3 million and $12.9 million for the same prior year periods. The increases for the three- and nine-month periods ended September 30, 2025 were primarily related to increases in revenue from like-kind exchanges and management services.
Investment-Related Revenues
Investment-related revenues include interest and dividends, other investment income, and net investment gains.
Interest and Dividends
The Company derives a substantial portion of its income from investments in short-term investments, fixed maturity securities, which are primarily municipal and corporate fixed maturity securities, and equity securities. The Company's investment policy is designed to comply with regulatory requirements and to balance the competing objectives of asset quality and investment returns. The Company's title insurance subsidiaries are required by statute to maintain minimum levels of investments in order to protect the interests of policyholders.
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, 2025 is less than 10 years. The Company's invested assets are managed to fund its obligations and evaluated to ensure long term stability of capital accounts.
As the Company generates cash from operations, it is invested in accordance with the Company's investment policy and corporate goals. The Company's investment policy has been designed to balance multiple goals, including the assurance of a stable source of income from interest and dividends, the preservation of principal, and the provision of liquidity sufficient to meet insurance underwriting and other obligations as they become payable in the future. Securities purchased may include a combination of taxable or tax-exempt fixed maturity securities and equity securities. The Company also invests in short-term investments that typically include money market funds, U.S. Treasury bills, commercial paper and certificates of deposit. The Company strives to maintain a high quality investment portfolio.
Interest and dividends were $2.4 million and $7.1 million for the three- and nine-month periods ended September 30, 2025, respectively, compared with $2.7 million and $7.8 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 decreases for the three- and nine-month periods ended September 30, 2025 were primarily impacted by prevailing interest rates and the composition of investment holdings.
Other Investment Income
Other investment income consists primarily of income related to investments in unconsolidated affiliates, typically structured as limited liability companies ("LLCs"), accounted for under either the equity method of accounting or the measurement alternative for investments that do not have readily determinable fair values. The measurement alternative method requires investments without readily determinable fair values to be recorded at cost, less impairments, and plus or minus any changes resulting from observable price changes. The Company monitors any events or changes in circumstances that may have had a significant adverse effect on the fair value of these investments and makes any necessary adjustments.
Other investment income was $985 thousand and $2.0 million for the three- and nine-month periods ended September 30, 2025, respectively, compared with $995 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 distributions received.
Net Investment Gains
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.
Net Realized Investment Gains and Losses- Dispositions of equity securities at a realized gain or loss reflect such factors as industry sector allocation decisions, ongoing assessments of issuers' business prospects and tax planning considerations. Additionally, the amounts included in net realized investment gains or losses are affected by assessments of securities' valuation for 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 were $856 thousand and $4.0 million for the three- and nine-month periods ended September 30, 2025, respectively, compared with $235 thousand and $4.7 million for the same prior year periods. The Company recorded impairment charges of $50 thousand and $469 thousand on other investments in the three- and nine-month periods ended September 30, 2025, respectively, compared with $309 thousand and $383 thousand on fixed maturity securities and other investments for the same prior year periods. Management believes unrealized losses on the remaining fixed maturity securities at September 30, 2025 are temporary in nature.
The securities in the Company's investment portfolio are subject to economic conditions and market risks. The Company considers relevant facts and circumstances in evaluating whether a credit or interest-related impairment of a fixed maturity security has occurred. Relevant facts and circumstances include the extent and length of time the fair value of an investment has been below cost.
There are a number of risks and uncertainties inherent in the process of monitoring impairments and determining if an impairment exists. These risks and uncertainties include the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated; the risk that the Company's assessment of an issuer's ability to meet all of its contractual obligations will change based on changes in the characteristics of that issuer; the risk that information obtained by the Company or changes in other facts and circumstances leads management to change its intent to sell the fixed maturity security; and the risk that management is making decisions based on 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 $1.2 million and $(1.0) million for the three- and nine-month periods ended September 30, 2025, respectively, compared with $741 thousand and $(18) thousand 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.
Other Revenues
Other revenues primarily include miscellaneous income and gains and losses on the disposal of fixed assets and real estate. Other revenues were $106 thousand and $3.2 million for the three- and nine-month periods ended September 30, 2025, respectively, compared with $388 thousand and $748 thousand for the same prior year periods. The increase for the nine-month period ended September 30, 2025 was related to a gain on the disposition of assets transferred to a joint venture.
Expenses
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 1.2% and 5.8% for the three- and nine-month periods ended September 30, 2025, compared with the same prior year periods. The increases for the three- and nine-month periods ended September 30, 2025 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 nine-month periods ended September 30, 2025 and 2024. 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.
Three Months Ended
September 30, 		Nine Months Ended
September 30,
(in thousands, except percentages) 2025 % 2024 % 2025 % 2024 %
Title Insurance $ 53,567 92.5 $ 54,380 95.0 $ 156,651 93.1 $ 150,370 94.6
Exchange Services 710 1.2 645 1.1 2,076 1.2 1,962 1.2
All Other 3,655 6.3 2,216 3.9 9,568 5.7 6,686 4.2
Total $ 57,932 100.0 $ 57,241 100.0 $ 168,295 100.0 $ 159,018 100.0
On a combined basis, the after-tax profit margins were 16.7% and 13.6% for the three- and nine-month periods ended September 30, 2025, respectively, compared with 13.5% and 12.1% for the same prior year periods. The increases for the three- and nine-month periods ended September 30, 2025 were primarily due to growth in net premiums written and non-title service revenues, lower personnel expenses, and, for the three-month period, net investment gains. These increases were partially offset by increases in commissions to agents and other expenses. The nine-month period was also impacted by an increase in other revenues. The Company continually strives to enhance its competitive strengths and market position, including ongoing initiatives to manage its operating expenses.
Total Company
Personnel Expenses - Personnel expenses include base salaries, benefits and payroll taxes, bonuses paid to employees and contract labor expenses. Personnel expenses were $17.4 million and $53.2 million for the three- and nine-month periods ended September 30, 2025, respectively, compared with $18.1 million and $54.8 million for the same prior year periods. On a consolidated basis, personnel expenses as a percentage of total revenues were 23.9% and 26.2% for the three- and nine-month periods ended September 30, 2025, respectively, compared with 26.2% and 29.2% for the same prior year periods. The decreases in personnel expenses for the three- and nine-month periods ended September 30, 2025 were primarily due to lower staffing levels, reduced health insurance costs, and decreased contractors expenditures.
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 $4.2 million and $13.0 million for the three- and nine-month periods ended September 30, 2025, respectively, compared with $4.4 million and $13.2 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 $4.9 million and $14.3 million for the three- and nine-month periods ended September 30, 2025, respectively, compared with $4.0 million and $12.1 million for the same prior year periods. The increases for the three- and nine-month periods ended September 30, 2025 were primarily due to increases in professional services, miscellaneous expenditures, and expenses associated with higher title insurance revenues.
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 3.9% and 11.5% for the three- and nine-month periods ended September 30, 2025, respectively, compared with the same prior year periods. Commission expense as a percentage of net premiums written by agents was 75.4% for the three- and nine-month periods ended September 30, 2025, respectively, compared with 75.4% and 74.5% 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 27.5% and increased 3.7% for the three- and nine-month periods endedSeptember 30, 2025, respectively, compared with the same prior year periods. The provision for claims as a percentage of net premiums written was 2.1% and 2.3% for the three- and nine-month periods endedSeptember 30, 2025, respectively, compared with 3.0% and 2.4% 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, 2025 were primarily due to higher levels of favorable loss development during 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 $2.5 million and $3.6 million for the nine-month periods ended September 30, 2025 and 2024, respectively.
At September 30, 2025, the total reserve for claims was $38.2 million. Of that total, approximately $3.3 million was reserved for specific claims, and approximately $34.9 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.
Changes from prior periods in the expected liability for claims reflect the uncertainty of the claims environment, as well as the limited predictive power of historical data. The Company continually updates and refines its reserve estimates as current experience develops and credible data emerges. Such data includes payments on claims closed during the quarter, new details that emerge on open cases that cause claims adjusters to increase or decrease the case reserves, and the impact that these types of changes have on the Company's total loss provision. Adjustments may be required as new information develops, which often varies from past experience.
Income Taxes
The provision for income taxes was $2.9 million and $7.3 million for the three- and nine-month periods ended September 30, 2025, respectively, compared with $2.3 million and $5.9 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 20.8% for the three- and nine-month periods ended September 30, 2025, respectively, compared with 19.6% and 20.7% for the same prior year periods. The effective income tax rates for both 2025 and 2024 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.
The Company believes it is more likely than not that the tax benefits associated with recognized impairments and unrecognized losses recorded through September 30, 2025 will be realized. However, this judgment could be impacted by further market fluctuations.
On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted in the United States. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The Company recognized the impact of the now-effective provisions of this legislative change in the third quarter of 2025 in accordance with ASC 740, Income Taxes. The restoration of immediate expensing for research and experimentation ("R&E") expenditures resulted in a favorable item in the quarter, reducing current tax expense and increasing deferred tax expense. Additionally, deferred tax assets previously recorded for the amortization of capitalized R&E costs were reversed, resulting in a corresponding increase in deferred tax expense. The Company is currently assessing the impact of the OBBBA on its consolidated financial statements.
Liquidity and Capital Resources
The Company's material cash requirements include general operating expenses, contractual and other obligations for the future payment of title claims, employment agreements, lease agreements, income taxes, capital expenditures, dividends on its common stock and other contractual commitments for goods and services needed for operations. All other arrangements entered into by the Company are not reasonably likely to have a material effect on liquidity or the availability of capital resources. Cash flows from operations have historically been the primary source of financing for expanding operations, whether through organic growth or outside investments. The Company believes its balances of cash, short-term investments and other readily marketable securities, along with cash flows generated by ongoing operations, will be sufficient to satisfy its cash requirements over the next 12 months and thereafter, including the funding of operating activities and commitments for investing and financing activities. The Company's cash flows for the three- and nine-month periods ended September 30, 2025, reflect the third-quarter 2025 recognition of the now-effective OBBBA provisions, which primarily accelerated certain tax deductions. The Company is currently evaluating the effects of provisions that have not yet become effective. At this time, the Company is not aware of any other known trends likely to materially affect its capital resources, nor does it anticipate any additional material changes in the composition or relative cost of those resources, except as otherwise disclosed in the Business Trends and Recent Conditions section of this Management's Discussion and Analysis.
The Company evaluates nonorganic growth opportunities, such as mergers and acquisitions, from time to time in the ordinary course of business. Because of the episodic nature of these events, related incremental liquidity and capital resource needs can be difficult to predict.
The Company's operating results and cash flows are heavily dependent on the real estate market. The Company's business has certain fixed costs such as personnel; therefore, changes in the real estate market are monitored closely, and operating expenses such as staffing levels are managed and adjusted accordingly. The Company believes that its significant working capital position and management of operating expenses will aid its ability to manage cash resources through fluctuations in the real estate market.
Cash Flows - Net cash flows provided by operating activities were $25.9 million and $17.7 million for the nine-month periods ended September 30, 2025 and 2024, respectively. Cash flows provided by 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 related to 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 and financing activities for the nine-month periods ended September 30, 2025 and 2024.
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, 2025, the Company held cash and cash equivalents of $22.8 million, short-term investments of $88.1 million, available-for-sale fixed maturity securities of $111.1 million and equity securities of $39.7 million. The net effect of all activities on total cash and cash equivalents was a decrease of $1.9 million in 2025.
Capital Resources - The amount of capital resources the Company maintains is influenced by state regulation, the need to maintain superior financial ratings from third-party rating agencies and other marketing and operational considerations.
The Company's significant sources of funds are dividends and distributions from its subsidiaries, primarily its two title insurance subsidiaries. Cash is received from its subsidiaries in the form of dividends and as reimbursements for operating and other administrative expenses that it incurs. The reimbursements are executed within the guidelines of management agreements between the Company and its subsidiaries.
The ability of the Company's title insurance subsidiaries to pay dividends to the Company is subject to state regulation from their respective states of domicile. Each state regulates the extent to which title underwriters can pay dividends or make distributions and requires prior regulatory approval of the payment of dividends and other intercompany transfers. The maximum dividend permitted by law is not necessarily indicative of an insurer's actual ability to pay dividends. Depending on regulatory conditions, the Company may in the future need to retain cash in its title insurance subsidiaries in order to maintain their statutory capital position. As of September 30, 2025, 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. For instance, the Company's capital resources help it maintain high ratings from insurance company rating agencies. Superior ratings strengthen the Company's ability to compete with larger, well known title insurers with national footprints.
A strong financial position provides the necessary flexibility to fund potential acquisition activity, to invest in the Company's core business, and to minimize the financial impact of potential adverse developments. Adverse developments that generally require additional capital include adverse financial results, changes in statutory accounting requirements by regulators, reserve charges, investment losses or costs incurred to adapt to a changing regulatory environment, including costs related to Consumer Financial Protection Bureau regulation of the real estate industry.
Due to the Company's historical ability to consistently generate positive cash flows from its consolidated operations and investment income, management believes that funds generated from operations will enable the Company to adequately meet its current operating needs for the foreseeable future. However, given inflationary pressures and geopolitical and military tensions and conflicts, there can be no assurance that future experience will be similar to historical experience, since it is influenced by such factors as the interest rate environment, real estate activity, the Company's claims-paying ability and its financial strength ratings. In addition to operational and investment considerations, taking advantage of opportunistic external growth opportunities may necessitate obtaining additional capital resources. The Company is carefully monitoring the U.S. political environment (including the federal government shutdown), inflation, geopolitical and military tensions and conflicts, and other trends that could potentially result in material adverse liquidity changes, and will continually assess its capital allocation strategy, including decisions relating to payment of dividends, repurchasing the Company's common stock and/or conserving cash.
Purchase of Company Stock - On November 9, 2015, the Board of Directors of the Company approved the purchase of an additional 163,335 shares pursuant to the Company's repurchase plan, such that there was authority remaining under the plan to purchase up to an aggregate of 500,000 shares of the Company's common stock pursuant to the plan immediately after this approval. Unless terminated earlier by resolution of the Board of Directors, the plan will expire when all shares authorized for purchase under the plan have been purchased. Pursuant to the Company's ongoing purchase program, the Company purchased no shares in the nine-month period ended September 30, 2025 and 7,039 shares in the corresponding period in 2024. 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 $4.2 million for the nine-month period ended September 30, 2025. In 2025, 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 September 30, 2025, the Company had a claims reserve totaling $38.2 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.
ITIC, a wholly owned subsidiary of the Company, has entered into employment agreements with certain executive officers. The amounts accrued for these agreements at September 30, 2025 and December 31, 2024, were $15.6 million and $15.4 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. As payments are based upon the occurrence of specific events, including death, disability, retirement, termination without cause or upon a change in control, payment periods are currently uncertain. Information regarding retirement agreements and other postretirement benefit plans can be found in Note 5 to the unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
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 2025 is $8.3 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.
In the normal course of business, the Company enters into other contractual commitments for goods and services needed for operations. Such commitments are not expected to have a material adverse effect on the Company's liquidity.
Off-Balance Sheet Arrangements
As a service to its customers, the Company, through ITIC, administers escrow and trust deposits representing earnest money received under real estate contracts, undisbursed amounts received for settlement of mortgage loans and indemnities against specific title risks. These amounts 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 these deposits.
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 $427.1 million and $323.5 million as of September 30, 2025 and December 31, 2024, 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.
External assets under management of Investors Trust Company are not considered assets of the Company and, therefore, are excluded from the accompanying unaudited Consolidated Balance Sheets.
It is not the general practice of the Company to enter into off-balance sheet arrangements or issue guarantees to third parties. The Company does not have any material source of liquidity or financing that involves off-balance sheet arrangements. Other than items noted above, off-balance sheet arrangements are generally limited to the future payments due under various agreements with third-party service providers.
Recent Accounting Standards
No recent accounting pronouncements are expected to have a material impact on the Company's financial position and results of operations. Please refer to Note 1 to the unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for further information regarding the Company's basis of presentation and significant accounting policies.
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 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 (the "Exchange Act"), that reflect management's current outlook for future periods. These statements may be identified by the use of words such as "plan," "expect," "aim," "believe," "project," "anticipate," "intend," "estimate," "should," "could," "would" and other expressions that indicate future events and trends. All statements that address expectations or projections about the future, including statements about the Company's strategy for growth, product and service development, market share position, claims, expenditures, financial results and cash requirements, are forward-looking statements. Without limitation, projected developments in mortgage interest rates and the overall economic environment set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Business Trends and Recent Conditions" constitute forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events that are subject to a number of risks and uncertainties. Actual future results and trends may differ materially from historical results or those projected in any such forward-looking statements depending on a variety of factors, including, but not limited to, the following:
•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, and changes in government regulations and policy, including as a result of the policies implemented by the Trump administration such as tariff and tax reform;
•the impact of inflation;
•the impact of the federal government shutdown;
•the impact of ongoing geopolitical tensions and military conflicts;
•potential reform of government sponsored entities;
•the level of real estate transaction volumes, the level of mortgage origination volumes (including refinancing), the mix of title insurance between markets with varying real estate values, changes to the insurance requirements of the participants in the secondary mortgage market, and the effect of these factors on the demand for title insurance;
•the possible inadequacy of the provision for claims to cover actual claim losses;
•the incidence of fraud-related losses;
•the impact of cyberattacks (including ransomware attacks) and other cybersecurity events involving the Company or its vendors, including damage to the Company's reputation in the event of a serious IT breach or failure;
•the impact of pandemics, climate change, severe weather conditions or the occurrence of another catastrophic event;
•unanticipated adverse changes in securities markets that could result in material losses to the Company's investments;
•significant competition that the Company's operating subsidiaries face, including the Company's ability to develop and offer products and services that meet changing industry standards in a timely and cost-effective manner and expansion into new geographic locations;
•the Company's reliance upon the North Carolina, Texas, Georgia, South Carolina, and Florida 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;
•the impact of governmental oversight of compliance of the Company's service providers, including the application of financial regulation designed to protect consumers;
•possible downgrades from a rating agency, which could result in a loss of underwriting business;
•the inability of the Company to manage, develop and implement technological advancements and prevent system interruptions or unauthorized system intrusions;
•statutory requirements applicable to the Company's insurance subsidiaries that require them to maintain minimum levels of capital, surplus and reserves and that restrict the amount of dividends they may pay the Company without prior regulatory approval;
•the desire to maintain capital above statutory minimum requirements for competitive, marketing and other reasons;
•heightened regulatory scrutiny and investigations of the title insurance industry;
•the Company's dependence on key management and marketing personnel, the loss of whom could have a material adverse effect on the Company's business;
•difficulty managing growth, whether organic or through acquisitions;
•unfavorable economic or other conditions could cause the Company to record impairment charges for all or a portion of its goodwill and other intangible assets;
•policies and procedures for the mitigation of risks may be insufficient to prevent losses;
•the shareholder rights plan could discourage transactions involving actual or potential changes of control; and
•other risks detailed elsewhere in this document and in the Company's other filings with the SEC.
These and other risks and uncertainties may be described from time to time in the Company's other reports and filings with the SEC. For more details on factors that could affect expectations, see the 2024 Form 10-K, including under the heading "Risk Factors." The Company is not under any obligation (and expressly disclaims any such obligation) and does not undertake to update or alter any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. You should consider the possibility that actual results may differ materially from our forward-looking statements.
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