Notes to Consolidated Financial Statements
1. Basis of Presentation and Summary of Significant Accounting Policies
Description of Business
– Investors Title Company’s (the “Company”) primary business, and only reportable segment, is title insurance. The title insurance segment, through its
two
subsidiaries, Investors Title Insurance Company (“ITIC”) and National Investors Title Insurance Company (“NITIC”), is licensed to insure titles to residential, institutional, commercial and industrial properties. The Company issues title insurance policies primarily through approved attorneys from underwriting offices and through independent issuing agents in
22
states and the District of Columbia, primarily in the eastern half of the United States. The majority of the Company’s business is concentrated in Georgia, Illinois, Kentucky, Michigan, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas and Virginia.
Principles of Consolidation and Basis of Presentation
– The accompanying Consolidated Financial Statements include the accounts and operations of Investors Title Company and its subsidiaries, and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). Earnings attributable to the redeemable noncontrolling interest are recorded on the Consolidated Statements of Income for majority-owned subsidiaries. The redeemable noncontrolling interest representing the portion of equity not related to the Company’s ownership interest is recorded as redeemable equity in a separate section of the Consolidated Balance Sheets. All intercompany balances and transactions have been eliminated in consolidation.
Reclassification
–
Certain 2012 and 2011 amounts in the accompanying unaudited Consolidated Financial Statements have been reclassified to conform to the 2013 classifications. These reclassifications had no effect on stockholders’ equity or net income as previously reported.
Significant Accounting Policies
– The significant accounting policies of the Company are summarized below.
Cash and Cash Equivalents
For the purpose of presentation in the Company’s Consolidated Statements of Cash Flows, cash equivalents are highly liquid instruments with remaining original maturities of three months or less. The carrying amount of cash and cash equivalents is a reasonable estimate of fair value due to the short-term maturity at purchase of these instruments.
Investments in Securities
Securities for which the Company has the intent and ability to hold to maturity are classified as held-to-maturity and reported at cost, adjusted for amortization of premiums or accretion of discounts, and other-than-temporary declines in fair value. Securities held principally for resale in the near term are classified as trading securities and recorded at fair values. Realized and unrealized gains and losses on trading securities are included in other income. Securities not classified as either trading or held-to-maturity are classified as available-for-sale and reported at fair value with unrealized gains and losses, net of tax, adjusted for other-than-temporary declines in fair value, reported as accumulated other comprehensive income. As of
December 31, 2013
and
2012
, all investments in securities are classified as available-for-sale. Securities are regularly reviewed for differences between the cost and estimated fair value of each security for factors that may indicate that a decline in fair value is other-than-temporary. Some factors considered in evaluating whether or not a decline in fair value is other-than-temporary include the duration and extent to which the fair value has been less than cost and the Company’s ability and intent to retain the investment for a period of time sufficient to allow for a recovery in value. Such reviews are inherently uncertain and the value of the investment may not fully recover or may decline in future periods resulting in a realized loss. Fair values of the majority of investments are based on quoted market prices. Realized gains and losses are determined on the specific identification method. Refer to Note 3 for further information regarding investments in securities and fair value.
Short-term Investments
Short-term investments are comprised of money market accounts which are invested in short-term funds, time deposits with banks and savings and loan associations, and other investments expected to have maturities or redemptions greater than three months and less than twelve months. The Company monitors any events or changes in circumstances that may have a significant adverse effect on the fair value of these investments.
Other Investments
Other investments consist primarily of investments in title insurance agencies structured as limited liability companies (“LLCs”), which are accounted for under the equity or cost methods of accounting. The aggregate cost of the Company’s cost method investments totaled
$1,834,229
and
$1,778,115
at
December 31, 2013
and
December 31, 2012
, respectively. The Company monitors any events or changes in circumstances that may have had a significant adverse effect on the fair value of these investments and makes any necessary adjustments.
Property Acquired in Settlement of Claims
Property acquired in settlement of claims is held for sale and valued at the lower of cost or market. Adjustments to reported estimated realizable values and realized gains or losses on dispositions are recorded as increases or decreases in claim costs.
Property and Equipment
Property and equipment are recorded at cost and are depreciated principally under the straight-line method over the estimated useful lives (
three
to
twenty-five
years) of the respective assets. Maintenance and repairs are charged to operating expenses and improvements are capitalized.
Reserves for Claims
The total reserve for all reported and unreported losses the Company incurred through
December 31, 2013
is represented by the reserves for claims. The Company’s reserves for unpaid losses and loss adjustment expenses are established using estimated amounts required to settle claims for which notice has been received (reported) and the amount estimated to be required to satisfy incurred claims of policyholders which may be reported in the future. Despite the variability of such estimates, management believes that the reserves are adequate to cover claim losses resulting from pending and future claims for policies issued through
December 31, 2013
. The Company continually reviews and adjusts its reserve estimates as necessary to reflect its loss experience and any new information that becomes available. Adjustments resulting from such reviews may be significant.
Claims and losses paid are charged to the reserves for claims. Although claims losses are typically paid in cash, occasionally claims are settled by purchasing the interest of the insured or the claimant in the real property. When this event occurs, the acquiring company carries assets at the lower of cost or estimated realizable value, net of any indebtedness on the property.
Income Taxes
The Company makes certain estimates and judgments in determining income tax expense (benefit) for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes. The Company provides for deferred income taxes (benefits) for the tax consequences in future years of temporary differences between the financial statements’ carrying values and the tax bases of assets and liabilities using currently enacted tax rates. The Company establishes valuation allowances if it believes that it is more likely than not that some or all of its deferred tax assets will not be realized. Refer to Note 8 for further information regarding income taxes.
Premiums Written and Commissions to Agents
Generally, title insurance premiums are recognized at the time of closing of the related real estate transaction, as the earnings process is then considered complete. Policies or commitments are issued upon receipt of final certificates or preliminary reports with respect to titles. Title insurance commissions earned by the Company’s agents, taxes and a provision for claims losses are recognized as expenses concurrent with recognition of related premium revenue.
The Company’s premium revenues from certain agency operations include accruals based on estimates. These accruals estimate unreported agency premiums related to transactions which have settled as of the balance sheet date. Accruals for premiums from certain agencies are necessary because of the lag between policy effective dates and the reporting of these transactions to the Company by the agents. The lag time has historically been between
30
and
120
days, with the majority of agencies reporting within
60
to
90
days. The lag time is reviewed periodically to monitor accruals. The accrual of premium revenues is based on historical data that includes transactional volume, fluctuations in the real estate market and the mix between refinance and purchase transactions. There have been no material changes in historical estimates during the periods presented.
Quarterly, the Company evaluates the collectability of receivables. Premiums not collected within
7 months
are fully reserved. Write-offs of receivables have not been material to the Company.
Allowance for Doubtful Accounts
Company management continually evaluates the collectability of receivables and provides an allowance for doubtful accounts equal to estimated losses expected to be incurred in the collection of amounts receivable. Changes to the allowance for doubtful accounts are reflected within net premiums written in the Consolidated Statements of Income. Amounts are charged off in the period they are deemed to be uncollectible.
Exchange Services Revenue
Fees are recognized at the signing of a binding agreement and investment earnings are recognized as they are earned.
Fair Values of Financial Instruments
The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, short-term investments, premium and fees receivable, accrued interest and dividends, accounts payable, commissions payable, reinsurance payable and current income taxes recoverable/payable approximate fair value due to the short-term nature of these assets and liabilities. Fair values for the majority of investment securities are based on quoted market prices. Auction rate securities (“ARS”) are valued using discounted cash flow models to determine the estimated fair value of these investments. Some of the inputs for determining the fair value of ARS are unobservable in the securities markets and are significant. Refer to Note 3 for further information regarding investments in securities and fair value.
Comprehensive Income
The Company’s accumulated other comprehensive income is comprised of unrealized holding gains/losses on available-for-sale securities, net of tax, and unrecognized prior service cost and unrealized gains/losses associated with postretirement benefit liabilities, net of tax. Accumulated other comprehensive income as of
December 31, 2013
consists of
$11,395,757
of unrealized holding gains on available-for-sale securities and
$48,353
of unrecognized prior service cost and unrecognized actuarial losses associated with postretirement benefit liabilities. Accumulated other comprehensive income as of
December 31, 2012
consists of
$8,920,884
of unrealized holding gains on available-for-sale securities and
$102,454
of unrecognized prior service cost and unrecognized actuarial losses associated with postretirement benefit liabilities.
Share-Based Compensation
The Company accounts for share-based compensation in accordance with the fair value based principles required by the Financial Accounting Standards Board (“FASB”). Estimated compensation expense for awards outstanding at the effective date is recognized over their remaining service period using the compensation cost. Share-based compensation cost is generally measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense over the employee’s requisite service period.
As the share-based compensation expense recognized in the Consolidated Statements of Income is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Other Intangible Assets
The Company’s other intangible assets consist of a non-compete agreement and referral relationships resulting from an agency acquisition and are recorded at fair value. The referral relationships are amortized on a straight-line basis over the useful life and amortization of the non-compete contract will start at a future date when the related employment agreement is terminated. Intangible assets are reviewed and tested for impairment at least quarterly.
Subsequent Events
The Company has evaluated and concluded that there were no material subsequent events requiring adjustment or disclosure to its Consolidated Financial Statements.
Recently Issued Accounting Standards
In July 2013, the FASB updated guidance to eliminate diversity in practice relating to the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss or a tax credit carryforward exists. The main provision of the update requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to deferred tax assets for a net operating loss carryforward, a similar tax loss or a tax credit carryforward, except to the extent that a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, in which case the unrecognized tax benefit should be presented as a liability. For public entities, this update becomes effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted, and the Company elected to adopt this new guidance in the third quarter of 2013. This update did not have an impact on the Company’s financial condition or results of operations.
In February 2013, the FASB updated guidance to improve the reporting of reclassifications from accumulated other comprehensive income. The main provisions of this guidance require an entity to provide information about the amount reclassified from accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the footnotes, the amount reclassified out of accumulated other comprehensive income by the respective line items of net income if the amount is reclassified to net income in its entirety in the same reporting period. For other amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures providing additional detail about those amounts. The amendments do not change the requirements for reporting net income or other comprehensive income in financial statements. The Company complied with this update, and it did not have an impact on the Company’s financial condition or results of operations.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period and accompanying notes. Actual results could differ materially from those estimates and assumptions used. The more significant of these estimates and assumptions include the following:
Claims
– The Company’s reserves for claims are established using estimated amounts required to settle claims for which notice has been received (reported) and the amount estimated to be required to satisfy incurred claims of policyholders which may be reported in the future (incurred but not reported, or “IBNR”). A provision for estimated future claims payments is recorded at the time policy revenue is recorded as a percentage of premium income. By their nature, title claims can often be complex, vary greatly in dollar amounts, vary in number due to economic and market conditions such as an increase in mortgage foreclosures, and involve uncertainties as to ultimate exposure. In addition, some claims may require a number of years to settle and determine the final liability for indemnity and loss adjustment expense. The payment experience may extend for more than
20
years after the issuance of a policy. Events such as fraud, defalcation and multiple property defects can substantially and unexpectedly cause increases in estimates of losses. Due to the length of time over which claim payments are made and regularly occurring changes in underlying economic and market conditions, these estimates are subject to variability.
Management considers factors such as the Company’s historical claims experience, case reserve estimates on reported claims, large claims, actuarial projections and other relevant factors in determining loss provision rates and the aggregate recorded expected liability for claims. In establishing reserves, actuarial projections are compared with recorded reserves to evaluate the adequacy of such recorded claims reserves and any necessary adjustments are then recorded in current operations. As the most recent claims experience develops and new information becomes available, the loss reserve estimate related to prior periods will change to more accurately reflect updated and improved emerging data. The Company reflects any adjustments to reserves in the results of operations in the period in which new information (principally claims experience) becomes available.
The Company’s reserves for claims are established using estimated amounts required to settle claims for which notice has been received (reported) and the amount estimated to be required to satisfy incurred claims of policyholders which have been incurred but not reported (“IBNR”). During the third quarter of 2013 certain actuarial inputs were changed to provide a more refined IBNR reserve estimate. See Note 6 in the accompanying Consolidated Financial Statements for further information regarding this change in accounting estimate.
Impairments
– Securities are regularly evaluated and reviewed for differences between the cost and estimated fair value of each security for factors that may indicate that a decline in fair value is other-than-temporary.
When, in the opinion of management, a decline in the fair value of an investment is considered to be other-than-temporary, such investment is written down to its fair value. Some factors considered in evaluating whether or not a decline in fair value is other-than-temporary include the duration and extent to which the fair value has been less than cost, the probability that the Company will be unable to collect all amounts due under the contractual terms of the security; with respect to equity securities, whether the Company’s ability and intent to retain the investment for a period of time is sufficient to allow for a recovery in value; with respect to fixed maturity securities, whether the Company has the intent to sell or will more likely than not be required to sell a particular security before recovery in value; and the financial condition and prospects of the issuer (including credit ratings). These factors are reviewed quarterly and any material degradation in the prospect for recovery will be considered in the other-than-temporary impairment analysis. Such reviews are inherently uncertain and the value of the investment may not fully recover or may decline in future periods resulting in a realized loss. The fair values of the majority of the Company’s investments are based on quoted market prices from independent pricing services.
2. Statutory Restrictions on Consolidated Stockholders’ Equity and Investments
The Company has designated approximately
$47,405,000
and
$44,829,000
of retained earnings as of
December 31, 2013
and
2012
, respectively, as appropriated to reflect the required statutory premium and supplemental reserves. See Note 8 for the tax treatment of the statutory premium reserve.
As of
December 31, 2013
and
2012
, approximately
$83,311,000
and
$76,167,000
, respectively, of consolidated stockholders’ equity represents net assets of the Company’s subsidiaries that cannot be transferred in the form of dividends, loans or advances to the parent company under statutory regulations without prior insurance department approval.
Bonds totaling approximately
$7,022,000
and
$6,700,000
at
December 31, 2013
and
2012
, respectively, are deposited with the insurance departments of the states in which business is conducted.
3. Investments in Securities and Fair Value
The aggregate fair value, gross unrealized holding gains, gross unrealized holding losses, and amortized cost for securities by major security type at December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair
Value
|
Fixed maturities, available-for-sale, at fair value:
|
|
|
|
|
|
|
|
General obligations of U.S. States, territories and political subdivisions
|
$
|
38,449,309
|
|
|
$
|
1,922,862
|
|
|
$
|
184,351
|
|
|
$
|
40,187,820
|
|
Issuer obligations of U.S. States, territories and political subdivisions special revenue
|
30,874,571
|
|
|
1,234,130
|
|
|
204,800
|
|
|
31,903,901
|
|
Corporate debt securities
|
17,736,608
|
|
|
789,840
|
|
|
108,456
|
|
|
18,417,992
|
|
Auction rate securities
|
919,672
|
|
|
16,028
|
|
|
—
|
|
|
935,700
|
|
Total
|
$
|
87,980,160
|
|
|
$
|
3,962,860
|
|
|
$
|
497,607
|
|
|
$
|
91,445,413
|
|
Equity securities, available-for-sale at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks and nonredeemable preferred stocks
|
$
|
22,200,369
|
|
|
$
|
14,052,780
|
|
|
$
|
109,084
|
|
|
$
|
36,144,065
|
|
Total
|
$
|
22,200,369
|
|
|
$
|
14,052,780
|
|
|
$
|
109,084
|
|
|
$
|
36,144,065
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit and money market funds
|
$
|
7,926,373
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,926,373
|
|
Total
|
$
|
7,926,373
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,926,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Estimated
Fair
Value
|
Fixed maturities, available-for-sale, at fair value:
|
|
|
|
|
|
|
|
General obligations of U.S. States, territories and political subdivisions
|
$
|
38,658,463
|
|
|
$
|
3,211,445
|
|
|
$
|
—
|
|
|
$
|
41,869,908
|
|
Issuer obligations of U.S. States, territories and political subdivisions special revenue
|
18,933,299
|
|
|
1,909,106
|
|
|
10,455
|
|
|
20,831,950
|
|
Corporate debt securities
|
17,064,697
|
|
|
1,252,973
|
|
|
14,750
|
|
|
18,302,920
|
|
Auction rate securities
|
917,214
|
|
|
14,986
|
|
|
—
|
|
|
932,200
|
|
Total
|
$
|
75,573,673
|
|
|
$
|
6,388,510
|
|
|
$
|
25,205
|
|
|
$
|
81,936,978
|
|
Equity securities, available-for sale at fair value:
|
|
|
|
|
|
|
|
Common stocks and nonredeemable preferred stocks
|
$
|
21,229,114
|
|
|
$
|
7,373,056
|
|
|
$
|
91,237
|
|
|
$
|
28,510,933
|
|
Total
|
$
|
21,229,114
|
|
|
$
|
7,373,056
|
|
|
$
|
91,237
|
|
|
$
|
28,510,933
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit and money market funds
|
$
|
13,567,648
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,567,648
|
|
Total
|
$
|
13,567,648
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,567,648
|
|
The special revenue category for both periods presented includes over 30 individual bonds with revenue sources from a broad variety of industry sectors.
The scheduled maturities of fixed maturity securities at
December 31, 2013
were as follows:
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
Amortized
Cost
|
|
Fair
Value
|
Due in one year or less
|
$
|
8,685,106
|
|
|
$
|
8,848,668
|
|
Due after one year through five years
|
57,287,230
|
|
|
60,170,845
|
|
Due five years through ten years
|
14,159,839
|
|
|
14,285,208
|
|
Due after ten years
|
7,847,985
|
|
|
8,140,692
|
|
Total
|
$
|
87,980,160
|
|
|
$
|
91,445,413
|
|
Earnings on investments for the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
Fixed maturities
|
$
|
2,997,901
|
|
|
$
|
3,154,131
|
|
|
$
|
3,233,988
|
|
Equity securities
|
890,917
|
|
|
815,674
|
|
|
347,843
|
|
Invested cash and other short-term investments
|
5,754
|
|
|
10,576
|
|
|
12,725
|
|
Miscellaneous interest
|
36
|
|
|
30
|
|
|
480
|
|
Investment income
|
$
|
3,894,608
|
|
|
$
|
3,980,411
|
|
|
$
|
3,595,036
|
|
Gross realized gains and losses on sales of available-for-sale securities for the years ended December 31 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
Gross realized gains:
|
|
|
|
|
|
General obligations of U.S. States, territories and political subdivisions
|
$
|
—
|
|
|
$
|
250
|
|
|
$
|
386
|
|
Corporate
|
—
|
|
|
52,396
|
|
|
20,459
|
|
Common stocks and nonredeemable preferred stocks
|
369,673
|
|
|
450,461
|
|
|
529,811
|
|
Auction rate securities
|
—
|
|
|
211,061
|
|
|
43,199
|
|
Total
|
369,673
|
|
|
714,168
|
|
|
593,855
|
|
Gross realized losses:
|
|
|
|
|
|
Common stocks and nonredeemable preferred stocks
|
(180,169
|
)
|
|
(91,975
|
)
|
|
(247,117
|
)
|
Other than temporary impairment of securities
|
—
|
|
|
(93,436
|
)
|
|
(280,987
|
)
|
Total
|
(180,169
|
)
|
|
(185,411
|
)
|
|
(528,104
|
)
|
Net realized gain
|
$
|
189,504
|
|
|
$
|
528,757
|
|
|
$
|
65,751
|
|
Net realized gains (losses) on other investments:
|
|
|
|
|
|
Impairments of other assets and investments
|
$
|
(34,070
|
)
|
|
$
|
(6,504
|
)
|
|
$
|
(44,404
|
)
|
Gain on other assets and investments
|
48,946
|
|
|
543,986
|
|
|
30,238
|
|
Loss on other assets and investments
|
(8,580
|
)
|
|
—
|
|
|
(23,026
|
)
|
Total
|
$
|
6,296
|
|
|
$
|
537,482
|
|
|
$
|
(37,192
|
)
|
Net Realized Gain
|
$
|
195,800
|
|
|
$
|
1,066,239
|
|
|
$
|
28,559
|
|
Realized gains and losses are determined on the specific identification method.
The following table presents the gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous loss position at
December 31, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
12 Months or Longer
|
|
Total
|
December 31, 2013
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Loss
|
|
Fair Value
|
|
Unrealized Loss
|
General obligations of U.S. states, territories and political subdivisions
|
$
|
4,198,012
|
|
|
$
|
(184,351
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,198,012
|
|
|
$
|
(184,351
|
)
|
Special revenue obligations of U.S. states territories and political subdivisions
|
11,010,093
|
|
|
(204,800
|
)
|
|
—
|
|
|
—
|
|
|
11,010,093
|
|
|
(204,800
|
)
|
Corporate debt securities
|
5,942,570
|
|
|
(108,456
|
)
|
|
—
|
|
|
—
|
|
|
5,942,570
|
|
|
(108,456
|
)
|
Total fixed maturity securities
|
$
|
21,150,675
|
|
|
$
|
(497,607
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21,150,675
|
|
|
$
|
(497,607
|
)
|
Equity securities
|
2,035,971
|
|
|
(72,998
|
)
|
|
244,929
|
|
|
(36,086
|
)
|
|
2,280,900
|
|
|
(109,084
|
)
|
Total temporarily impaired securities
|
$
|
23,186,646
|
|
|
$
|
(570,605
|
)
|
|
$
|
244,929
|
|
|
$
|
(36,086
|
)
|
|
$
|
23,431,575
|
|
|
$
|
(606,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
Special revenue obligations of U.S. states territories and political subdivisions
|
$
|
1,236,906
|
|
|
$
|
(10,455
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,236,906
|
|
|
$
|
(10,455
|
)
|
Corporate debt securities
|
985,250
|
|
|
(14,750
|
)
|
|
—
|
|
|
—
|
|
|
985,250
|
|
|
(14,750
|
)
|
Total fixed maturity securities
|
$
|
2,222,156
|
|
|
$
|
(25,205
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,222,156
|
|
|
$
|
(25,205
|
)
|
Equity securities
|
2,551,215
|
|
|
(91,237
|
)
|
|
—
|
|
|
—
|
|
|
2,551,215
|
|
|
(91,237
|
)
|
Total temporarily impaired securities
|
$
|
4,773,371
|
|
|
$
|
(116,442
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,773,371
|
|
|
$
|
(116,442
|
)
|
As of
December 31, 2013
, the Company held
$21,150,675
in fixed maturity securities with unrealized losses of
$497,607
. As of
December 31, 2012
, the Company held
$2,222,156
in fixed maturity securities with unrealized losses of
$25,205
. The decline in fair value of the fixed maturity securities can be attributed primarily to changes in market interest rates and changes in credit spreads over Treasury securities. Because the Company does not have the intent to sell these securities and likely will not be compelled to sell them before it can recover its cost basis, the Company does not consider these investments to be other-than-temporarily impaired.
As of
December 31, 2013
, the Company held
$2,280,900
in equity securities with unrealized losses of
$109,084
. As of
December 31, 2012
, the Company held
$2,551,215
in equity securities with unrealized losses of
$91,237
. The unrealized losses related to holdings of equity securities were caused by market changes that the Company considers to be temporary. Since the Company has the intent and ability to hold these equity income securities until a recovery of fair value, the Company does not consider these investments other-than-temporarily impaired.
Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been below cost, the financial condition and prospects of the issuer (including credit ratings and analyst reports) and macro-economic changes. A total of
26
and
7
securities had unrealized losses at
December 31, 2013
and
December 31, 2012
, respectively. Reviews of the values of securities are inherently uncertain and the value of the investment may not fully recover, or may decline in future periods resulting in a realized loss. During
2013
, the Company did not record any other-than-temporary impairment charges related to securities. During
2012
, the Company recorded an other-than-temporary impairment charge in the amount of
$93,436
related to securities. During 2011, the Company recorded an other-than-temporary impairment charge in the amount of
$280,987
related to securities, of which,
$101,861
was related to Level 3 ARS that have had a history of being below cost and a change in the intent not to sell. Other-than-temporary impairment charges are included in net realized gain on investments in the Consolidated Statements of Income.
Valuation of Financial Assets and Liabilities
The FASB has established a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value of financial assets and liabilities, such as securities. This hierarchy categorizes the inputs into three broad levels as follows. Level 1 inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.
A financial instrument’s classification within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement—consequently, if there are multiple significant valuation inputs that are categorized in different levels of the hierarchy, the instrument’s hierarchy level is the lowest level (with Level 3 being the lowest level) within which any significant input falls.
Debt and Equity Securities
The Level 1 category includes equity securities that are measured at fair value using quoted active market prices.
The Level 2 category includes fixed maturity investments such as corporate bonds, U.S. government and agency bonds and municipal bonds. Fair value is principally based on market values obtained from a third party pricing service. Factors that are used in determining fair market value include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. The Company receives one quote per security from a third party pricing service, although as discussed below, the Company does consult other pricing resources when confirming that the prices it obtains reflect the fair values of the instruments in accordance with Accounting Standards Codification (“ASC”) 820
, Fair Value Measurements and Disclosures
. Generally, quotes obtained from the pricing service for instruments classified as Level 2 are not adjusted and are not binding. As of December 31, 2013 and December 31, 2012, the Company did not adjust any Level 2 fair values.
A number of the Company’s investment grade corporate bonds are frequently traded in active markets, and trading prices are consequently available for these securities. However, these securities were classified as Level 2 because the pricing service from which the Company has obtained fair values for these instruments uses valuation models which use observable market inputs in addition to traded prices. Substantially all of the input assumptions used in the service’s model are observable in the marketplace or can be derived or supported by observable market data.
The Level 3 category only includes the Company’s investments in student loan auction rate securities (“ARS”) because quoted prices were unavailable due to the failure of auctions. The Company’s ARS portfolio is comprised entirely of investment grade student loan ARS. The par value of these securities was
$1,000,000
as of December 31, 2013 and December 31, 2012, with approximately
97.0%
as of December 31, 2013 and December 31, 2012, guaranteed by the U.S. Department of Education.
Some of the inputs to ARS valuation are unobservable in the market and are significant; therefore, the Company utilizes another third party pricing service to assist in the determination of the fair market value of these securities. This service uses a proprietary valuation model that considers factors such as the following: the financial standing of the issuer; reported prices and the extent of public trading in similar financial instruments of the issuer or comparable companies; the ability of the issuer to obtain required financing; changes in the economic conditions affecting the issuer; pricing by other dealers in similar securities; time to maturity; and interest rates. The following table summarizes some key assumptions the service used to determine fair value as of
December 31, 2013
and
2012
:
|
|
|
|
|
|
2013
|
|
2012
|
Cumulative probability of earning maximum rate until maturity
|
—%
|
|
—%
|
Cumulative probability of principle returned prior to maturity
|
95.6%
|
|
96.1%
|
Cumulative probability of default at some future point
|
4.4%
|
|
3.9%
|
Significant increases or decreases in any of the inputs in isolation could result in significant changes to the fair value measurement. Generally, increases in default probabilities and liquidity risk premiums lower the fair market value while increases in principal being returned and earning maximum rates increase fair market values.
Based upon these inputs and assumptions, the pricing service provides a range of values to the Company for its ARS. The Company records the fair value based on the midpoint of the range and believes that this valuation is the most reasonable estimate of fair value. In
2013
and
2012
, the difference in the low and high values of the ranges was approximately
zero
and
four
percent of the carrying value of the Company’s ARS.
The following table presents, by level, the financial assets carried at fair value measured on a recurring basis as of
December 31, 2013
and
2012
. The table does not include cash on hand and also does not include assets which are measured at historical cost or any basis other than fair value. Level 3 assets are comprised solely of ARS.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Short Term
|
$
|
7,926,373
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,926,373
|
|
Equity Securities:
|
|
|
|
|
|
|
|
Common stock and nonredeemable preferred stock
|
36,144,065
|
|
|
—
|
|
|
—
|
|
|
36,144,065
|
|
Fixed Maturities:
|
|
|
|
|
|
|
|
Obligations of U.S. States, territories and political subdivisions*
|
—
|
|
|
72,091,721
|
|
|
—
|
|
|
72,091,721
|
|
Corporate debt securities*
|
—
|
|
|
18,417,992
|
|
|
935,700
|
|
|
19,353,692
|
|
Total
|
$
|
44,070,438
|
|
|
$
|
90,509,713
|
|
|
$
|
935,700
|
|
|
$
|
135,515,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Short Term
|
$
|
13,567,648
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,567,648
|
|
Equity Securities:
|
|
|
|
|
|
|
|
Common stock and nonredeemable preferred stock
|
28,510,933
|
|
|
—
|
|
|
—
|
|
|
28,510,933
|
|
Fixed Maturities:
|
|
|
|
|
|
|
|
Obligations of U.S. States, territories and political subdivisions*
|
—
|
|
|
62,701,858
|
|
|
—
|
|
|
62,701,858
|
|
Corporate debt securities*
|
—
|
|
|
18,302,920
|
|
|
932,200
|
|
|
19,235,120
|
|
Total
|
$
|
42,078,581
|
|
|
$
|
81,004,778
|
|
|
$
|
932,200
|
|
|
$
|
124,015,559
|
|
*Denotes fair market value obtained from pricing services.
There were no transfers into or out of Levels 1 and 2 during the period.
To help ensure that fair value determinations are consistent with ASC 820 fair value measurements, prices from our pricing services go through multiple review processes to ensure appropriate pricing. Pricing procedures and inputs used to price each security include, but are not limited to, the following: unadjusted quoted market prices for identical securities such as stock market closing prices; non-binding quoted prices for identical securities in markets that are not active; interest rates; yield curves observable at commonly quoted intervals; volatility; prepayment speeds; loss severity; credit risks and default rates. The Company reviews the procedures and inputs used by its pricing services and verifies a sample of the services’ quotes by comparing them to values obtained from other pricing resources. In the event the Company disagrees with a price provided by its pricing services, the service reevaluates the price to corroborate the market information and then reviews inputs to the evaluation in light of potentially new market data. The Company believes that these processes and inputs result in appropriate classifications and fair values consistent with ASC 820.
Other Financial Instruments
The Company uses various financial instruments in the normal course of its business. In the measurement of the fair value of certain financial instruments, other valuation techniques were utilized if quoted market prices were not available. These derived fair value estimates are significantly affected by the assumptions used. Additionally, ASC 820 excludes from its scope certain financial instruments including those related to insurance contracts, pension and other postretirement benefits, and equity method investments.
In estimating the fair value of the financial instruments presented, the Company used the following methods and assumptions:
Cash and cash equivalents
The carrying amount for cash and cash equivalents is a reasonable estimate of fair value due to the short-term maturity of these investments.
Cost-basis investments
The estimated fair value of cost-basis investments is calculated from the book value of the underlying entities, which is not materially different from the fair value of the underlying entity.
Accrued dividends and interest
The carrying amount for accrued dividends and interest is a reasonable estimate of fair value due to the short-term maturity of these assets.
Contingent consideration
The fair value of the contingent consideration was estimated based on the discounted value of the future cash flows. Contingent consideration consists of additional monies the Company may become obligated to pay based on the future performance of a business the Company acquired, as discussed in Note 18.
The carrying amounts and fair values of these financial instruments (please note investments are disclosed in a previous table) as of
December 31, 2013
and
2012
are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
|
|
|
|
|
|
|
|
Financial Assets
|
Carrying Value
|
|
Estimated Fair
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash and cash equivalents
|
$
|
23,626,761
|
|
|
$
|
23,626,761
|
|
|
$
|
23,626,761
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost-basis investments
|
1,927,429
|
|
|
2,069,302
|
|
|
—
|
|
|
—
|
|
|
2,069,302
|
|
Accrued dividends and interest
|
1,006,698
|
|
|
1,006,698
|
|
|
1,006,698
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
26,560,888
|
|
|
$
|
26,702,761
|
|
|
$
|
24,633,459
|
|
|
$
|
—
|
|
|
$
|
2,069,302
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
341,250
|
|
|
$
|
341,250
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
341,250
|
|
Total
|
$
|
341,250
|
|
|
$
|
341,250
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
341,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
|
|
|
|
|
|
|
|
Financial Assets
|
Carrying Value
|
|
Estimated Fair
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Cash and cash equivalents
|
$
|
20,810,018
|
|
|
$
|
20,810,018
|
|
|
$
|
20,810,018
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost-basis investments
|
1,871,315
|
|
|
1,952,323
|
|
|
—
|
|
|
—
|
|
|
1,952,323
|
|
Accrued dividends and interest
|
1,037,447
|
|
|
1,037,447
|
|
|
1,037,447
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
23,718,780
|
|
|
$
|
23,799,788
|
|
|
$
|
21,847,465
|
|
|
$
|
—
|
|
|
$
|
1,952,323
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
691,250
|
|
|
$
|
691,250
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
691,250
|
|
Total
|
$
|
691,250
|
|
|
$
|
691,250
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
691,250
|
|
The following table presents a reconciliation of the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3), which are all ARS securities, for the twelve months ended
December 31, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
Changes in fair value during the year ended December 31:
|
2013
|
|
2012
|
Beginning balance at January 1
|
$
|
932,200
|
|
|
$
|
4,552,400
|
|
Redemptions and sales
|
—
|
|
|
(3,900,000
|
)
|
Realized gain – included in net realized gain on investments
|
—
|
|
|
211,061
|
|
Realized loss – included in net realized gain on investments
|
—
|
|
|
—
|
|
Unrealized gain - included in other comprehensive income
|
3,500
|
|
|
68,739
|
|
Ending balance at December 31
|
$
|
935,700
|
|
|
$
|
932,200
|
|
The following table presents a reconciliation of the Company’s liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), consisting solely of contingent consideration, for the twelve months ended
December 31, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
Changes in fair value during the period ended:
|
2013
|
|
2012
|
Beginning balance at January 1
|
$
|
691,250
|
|
|
$
|
—
|
|
Addition of contingent consideration
|
—
|
|
|
691,250
|
|
Payment for contingent consideration
|
(350,000
|
)
|
|
—
|
|
Ending balance, net
|
$
|
341,250
|
|
|
$
|
691,250
|
|
Certain cost-basis investments are measured at estimated fair value on a non-recurring basis, such as investments that are determined to be other-than temporarily impaired during the period and recorded at estimated fair value in the Consolidated Financial Statements as of
December 31, 2013
and
2012
. The following table summarizes the corresponding estimated fair value hierarchy of such investments at
December 31, 2013
and
2012
and the related impairments recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
Valuation
Method
|
|
Impaired
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total at
Estimated
Fair
Value
|
|
Impairment
Losses
|
Cost-basis investments
|
Fair Value
|
|
Yes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32,744
|
|
|
$
|
32,744
|
|
|
$
|
(34,070
|
)
|
Total cost method investments and other assets
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32,744
|
|
|
$
|
32,744
|
|
|
$
|
(34,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
Valuation
Method
|
|
Impaired
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total at
Estimated
Fair
Value
|
|
Impairment
Losses
|
Cost-basis investments
|
Fair Value
|
|
Yes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,406
|
|
|
$
|
36,406
|
|
|
$
|
(6,504
|
)
|
Total cost method investments and other assets
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36,406
|
|
|
$
|
36,406
|
|
|
$
|
(6,504
|
)
|
4. Property and Equipment
Property and equipment and estimated useful lives at December 31 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
Land
|
$
|
1,107,582
|
|
|
$
|
1,107,582
|
|
Office buildings and improvements (25 years)
|
3,365,699
|
|
|
3,345,762
|
|
Furniture, fixtures and equipment (3 to 10 years)
|
6,201,618
|
|
|
5,209,505
|
|
Automobiles (3 years)
|
855,018
|
|
|
787,180
|
|
Total
|
11,529,917
|
|
|
10,450,029
|
|
Less accumulated depreciation
|
(7,204,379
|
)
|
|
(6,846,706
|
)
|
Property and equipment, net
|
$
|
4,325,538
|
|
|
$
|
3,603,323
|
|
5. Reinsurance
The Company assumes and cedes reinsurance with other insurance companies in the normal course of business. Premiums assumed and ceded were approximately
$6,000
and
$211,000
, respectively, for
2013
,
$16,000
and
$233,000
, respectively, for
2012
and
$17,000
and
$177,000
, respectively, for 2011. Ceded reinsurance is comprised of excess of loss treaties, which protects against losses over certain amounts. The Company remains liable to the insured for claims under ceded insurance policies in the event that the assuming insurance companies are unable to meet their obligations under these contracts. The Company has not paid or recovered any reinsured losses during the three years ended
December 31, 2013
.
6. Reserves for Claims
Changes in the reserves for claims for the years ended December 31 are summarized as follows based on the year in which the policies were written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
Balance, beginning of period
|
$
|
39,078,000
|
|
|
$
|
37,996,000
|
|
|
$
|
38,198,700
|
|
Provisions related to:
|
|
|
|
|
|
Current year
|
7,239,628
|
|
|
7,650,959
|
|
|
6,845,338
|
|
Prior year
|
(7,811,224
|
)
|
|
(1,578,844
|
)
|
|
(3,502,911
|
)
|
Total provision charged to operations
|
(571,596
|
)
|
|
6,072,115
|
|
|
3,342,427
|
|
Claims paid, net of recoveries, related to:
|
|
|
|
|
|
Current year
|
(110,240
|
)
|
|
(76,288
|
)
|
|
(305,079
|
)
|
Prior year
|
(3,036,164
|
)
|
|
(4,913,827
|
)
|
|
(3,240,048
|
)
|
Total claims paid, net of recoveries
|
(3,146,404
|
)
|
|
(4,990,115
|
)
|
|
(3,545,127
|
)
|
Balance, end of year
|
$
|
35,360,000
|
|
|
$
|
39,078,000
|
|
|
$
|
37,996,000
|
|
The Company continually refines its reserve estimates as current loss experience develops and credible data emerges. Movements in the reserves related to prior periods were primarily the result of changes to estimates to better reflect the latest reported loss data. The
2013
calendar year change in the provision relating to prior years resulted mostly from changes to certain actuarial inputs and favorable development in
2013
versus prior year related primarily to policy years 2008 through 2012. Due to variances between actual and expected loss payments, loss development is subject to significant variability.
The Company does not recognize claim recoveries until an actual payment has been received by the Company. The Company realized claim recoveries of approximately
$1,165,000
,
$1,324,000
and
$1,488,000
during
2013
,
2012
and
2011
, respectively.
The provision for claims as a percentage of net premiums written was
(0.5)%
,
5.9%
and
4.1%
in
2013
,
2012
and
2011
, respectively.
A large claim is defined as a claim with incurred losses exceeding
$250,000
. Due to the small volume of large claims, the long-tail nature of title insurance claims and the inherent uncertainty in loss emergence patterns, large claim activity can vary significantly between policy years. The estimated development of large claims by policy year is therefore subject to significant changes as experience develops.
During 2013 certain actuarial inputs were changed to provide a more refined IBNR reserve estimate. The Company considers these modifications in actuarial inputs to be a change in estimate. The Company believes that these changes in actuarial inputs were necessary in response to favorable reserve development and claims experience incurred in several recent reporting periods. The approximate impact of this change in estimate for the year ended
December 31, 2013
was a reduction of
$2,200,000
to the reserves for claims in the Consolidated Balance Sheets, and in the Consolidated Statements of Income a decrease of
$2,200,000
to the provision for claims, an increase of
$750,000
in the provision for income taxes and an increase of
$1,450,000
in net income, or
$0.71
per basic share and
$0.70
per diluted share, compared with the amounts that would have been recorded under the Company’s prior estimate. This change in estimate, coupled with several recent policy years which continued to emerge favorably in comparison with prior expectations, contributed to a benefit in the claims provision this quarter. The change in estimate was primarily driven by the following:
|
|
•
|
Changing the specific weightings used in performing certain actuarial methods, including weighting between policy years and weighting of title industry loss data;
|
|
|
•
|
Adjusting for premium rate changes and the Company’s improved underwriting efforts related to construction business; and
|
|
|
•
|
Increasing the ratios used to estimate projected payments of unallocated loss adjustment expenses to more accurately reflect expected payments.
|
A summary of the Company’s loss reserves, broken down into its components of known title claims and IBNR, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
%
|
|
2012
|
|
%
|
Known title claims
|
$
|
4,670,809
|
|
|
13.2
|
|
$
|
5,166,370
|
|
|
13.2
|
IBNR
|
30,689,191
|
|
|
86.8
|
|
33,911,630
|
|
|
86.8
|
Total loss reserves
|
$
|
35,360,000
|
|
|
100.0
|
|
$
|
39,078,000
|
|
|
100.0
|
In management’s opinion, the reserves are adequate to cover claim losses which might result from pending and future claims.
7. Earnings Per Common Share and Share Awards
Basic earnings per common share is computed by dividing net income attributable to the Company by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed by dividing net income attributable to the Company by the combination of dilutive potential common stock, comprised of shares issuable under the Company’s share-based compensation plans and the weighted average number of common shares outstanding during the reporting period. Dilutive common share equivalents include the dilutive effect of in-the-money share-based awards, which are calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, when share-based awards are exercised, (a) the exercise price of a share-based award; (b) the amount of compensation cost, if any, for future service that the Company has not yet recognized; and (c) the amount of estimated tax benefits that would be recorded in additional paid-in capital, if any, are assumed to be used to repurchase shares in the current period. The incremental dilutive potential common shares, calculated using the treasury stock method, were
20,459
,
35,090
and
18,286
for
2013
,
2012
and
2011
, respectively.
The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
2013
|
|
2012
|
|
2011
|
Net income attributable to the Company
|
$
|
14,708,210
|
|
|
$
|
11,102,496
|
|
|
$
|
6,933,936
|
|
Weighted average common shares outstanding – Basic
|
2,056,169
|
|
|
2,081,703
|
|
|
2,151,350
|
|
Incremental shares outstanding assuming the exercise of dilutive stock options and SARs (share-settled)
|
20,459
|
|
|
35,090
|
|
|
18,286
|
|
Weighted average common shares outstanding – Diluted
|
2,076,628
|
|
|
2,116,793
|
|
|
2,169,636
|
|
Basic earnings per common share
|
$
|
7.15
|
|
|
$
|
5.33
|
|
|
$
|
3.22
|
|
Diluted earnings per common share
|
$
|
7.08
|
|
|
$
|
5.24
|
|
|
$
|
3.20
|
|
There were
no
potential shares excluded from the computation of diluted earnings per share in
2013
and
2012
. In
2011
,
11,500
awards were excluded from the computation of diluted earnings per share because their exercise price was greater than the stock price and therefore considered anti-dilutive.
The Company has adopted employee stock award plans under which restricted stock, and options or stock appreciation rights (“SARs”) to acquire shares (not to exceed
500,000
shares) of the Company’s stock, may be granted to key employees or directors of the Company at a price not less than the market value on the date of grant. SARs and options (which have predominantly been incentive stock options) awarded under the plans thus far generally expire in
five
to
ten
years and are exercisable and vest (1) immediately; (2) within
one year
; or (3) at
10%
to
20%
per year beginning on the date of grant. All SARs issued to date have been share-settled only.
A summary of share-based award transactions for all share-based award plans follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
Of Shares
|
|
Weighted
Average
Exercise
Price
|
|
Average
Remaining
Contractual
Term (Years)
|
|
Aggregate
Intrinsic
Value
|
Outstanding as of January 1, 2011
|
110,800
|
|
|
$
|
28.77
|
|
|
4.51
|
|
$
|
353,955
|
|
SARs granted
|
3,000
|
|
|
41.50
|
|
|
|
|
|
|
Options exercised
|
(7,700
|
)
|
|
20.15
|
|
|
|
|
|
|
Options/SARs canceled/forfeited/expired
|
(4,500
|
)
|
|
28.61
|
|
|
|
|
|
|
Outstanding as of December 31, 2011
|
101,600
|
|
|
$
|
29.81
|
|
|
3.91
|
|
$
|
697,780
|
|
SARs granted
|
3,000
|
|
|
50.50
|
|
|
|
|
|
|
Options exercised
|
(6,380
|
)
|
|
25.17
|
|
|
|
|
|
|
Options/SARs canceled/forfeited/expired
|
(70
|
)
|
|
31.00
|
|
|
|
|
|
|
Outstanding as of December 31, 2012
|
98,150
|
|
|
$
|
30.74
|
|
|
3.17
|
|
$
|
2,871,710
|
|
SARs granted
|
3,000
|
|
|
71.59
|
|
|
|
|
|
|
SARs exercised
|
(79,500
|
)
|
|
28.77
|
|
|
|
|
|
|
Options exercised
|
(2,650
|
)
|
|
28.63
|
|
|
|
|
|
|
Options/SARs canceled/forfeited/expired
|
—
|
|
|
—
|
|
|
|
|
|
|
Outstanding as of December 31, 2013
|
19,000
|
|
|
$
|
45.74
|
|
|
3.43
|
|
$
|
669,610
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2013
|
18,250
|
|
|
$
|
44.67
|
|
|
3.31
|
|
$
|
662,567
|
|
|
|
|
|
|
|
|
|
Unvested as of December 31, 2013
|
750
|
|
|
$
|
71.59
|
|
|
6.38
|
|
$
|
7,043
|
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock at
December 31, 2013
. The intrinsic values of options exercised during
2013
,
2012
and
2011
were approximately
$3,486,000
,
$153,000
and
$118,000
, respectively.
The following tables summarize information about fixed stock options outstanding at
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding at Year-End
|
|
Options Exercisable at Year-End
|
Range of Exercise Prices
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
$
|
21.49
|
|
|
—
|
|
$
|
27.96
|
|
|
1,000
|
|
|
0.38
|
|
$
|
27.21
|
|
|
1,000
|
|
|
$
|
27.21
|
|
33.32
|
|
|
—
|
|
36.79
|
|
|
1,500
|
|
|
1.38
|
|
36.79
|
|
|
1,500
|
|
|
36.79
|
|
$
|
21.49
|
|
|
—
|
|
$
|
36.79
|
|
|
2,500
|
|
|
0.98
|
|
$
|
32.96
|
|
|
2,500
|
|
|
$
|
32.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARs Outstanding at Year-End
|
|
SARs Exercisable at Year-End
|
Range of Exercise Prices
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
$
|
32.00
|
|
|
—
|
|
$
|
32.00
|
|
|
2,000
|
|
|
2.39
|
|
$
|
32.00
|
|
|
2,000
|
|
|
$
|
32.00
|
|
33.31
|
|
|
—
|
|
33.31
|
|
|
2,500
|
|
|
3.38
|
|
33.31
|
|
|
2,500
|
|
|
33.31
|
|
36.80
|
|
|
—
|
|
71.59
|
|
|
12,000
|
|
|
4.13
|
|
53.28
|
|
|
11,250
|
|
|
52.06
|
|
$
|
32.00
|
|
|
—
|
|
$
|
71.59
|
|
|
16,500
|
|
|
3.81
|
|
$
|
47.67
|
|
|
15,750
|
|
|
$
|
46.54
|
|
In
2013
,
3,250
options and SARs vested with a fair value of
$79,755
.
During the second quarters of
2013
,
2012
and
2011
, the Company issued
3,000
share-settled SARs to the directors of the Company. SARs give the holder the right to receive stock equal to the appreciation in the value of shares of stock from the grant date for a specified period of time, and as a result, are accounted for as equity instruments. The fair value of each award is estimated on the date of grant using the Black-Scholes option valuation model with the weighted average assumptions noted in the table shown below. Expected volatilities are based on both the implied and historical volatility of the Company’s stock. The Company uses historical data
to project SAR exercises and pre-exercise forfeitures within the valuation model. The expected term of awards represents the period of time that SARs granted are expected to be outstanding. The interest rate assumed for the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of the grant. The weighted average fair values for the SARs issued during
2013
,
2012
and
2011
were
$27.55
,
$18.84
and
$15.55
, respectively, and were estimated using the weighted average assumptions shown in the table below.
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
Expected Life in Years
|
5.0
|
|
5.0
|
|
5.0
|
Volatility
|
44.6%
|
|
44.6%
|
|
43.6%
|
Interest Rate
|
1.3%
|
|
0.8%
|
|
1.9%
|
Yield Rate
|
0.5%
|
|
0.6%
|
|
0.8%
|
There was approximately
$84,000
,
$75,000
and
$214,000
of compensation expense relating to SARs or options vesting on or before
December 31, 2013
,
2012
and
2011
, respectively, included in salaries, employee benefits and payroll taxes in the Consolidated Statements of Income. As of
December 31, 2013
, there was approximately
$23,000
of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Company’s stock award plans. That cost is expected to be recognized over a weighted average period of approximately
3 months
.
The estimated weighted average grant-date fair value of SARs granted for the years ended December 31 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
2013
|
|
2012
|
|
2011
|
Exercise price equal to market price on date of grant:
|
|
|
|
|
|
Weighted average market price
|
$
|
71.59
|
|
|
$
|
50.50
|
|
|
$
|
41.50
|
|
Weighted average grant-date fair value
|
$
|
27.55
|
|
|
$
|
18.84
|
|
|
$
|
15.55
|
|
There have been
no
stock options or SARs granted where the exercise price was less than the market price on the date of grant.
8. Income Taxes
The components of income tax expense for the years ended December 31 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
2013
|
|
2012
|
|
2011
|
Current:
|
|
|
|
|
|
Federal
|
$
|
4,873,000
|
|
|
$
|
5,018,000
|
|
|
$
|
2,515,000
|
|
State
|
69,000
|
|
|
163,000
|
|
|
29,000
|
|
Total current
|
4,942,000
|
|
|
5,181,000
|
|
|
2,544,000
|
|
Deferred:
|
|
|
|
|
|
Federal
|
1,805,215
|
|
|
(305,525
|
)
|
|
28,131
|
|
State
|
(1,215
|
)
|
|
13,525
|
|
|
(7,131
|
)
|
Total deferred
|
1,804,000
|
|
|
(292,000
|
)
|
|
21,000
|
|
Total
|
$
|
6,746,000
|
|
|
$
|
4,889,000
|
|
|
$
|
2,565,000
|
|
For state income tax purposes, ITIC and NITIC generally pay only a gross premium tax found in premium and retaliatory taxes in the Consolidated Statements of Income.
At December 31, the approximate tax effect of each component of deferred income tax assets and liabilities is summarized as follows:
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
2013
|
|
2012
|
Deferred income tax assets:
|
|
|
|
Accrued benefits and retirement services
|
$
|
3,074,164
|
|
|
$
|
2,889,350
|
|
Allowance for doubtful accounts
|
883,426
|
|
|
641,920
|
|
Other-than-temporary impairment of assets
|
319,962
|
|
|
344,701
|
|
Excess of book over tax depreciation
|
171,504
|
|
|
143,184
|
|
Postretirement benefit obligation
|
24,914
|
|
|
52,791
|
|
Reinsurance and commission payable
|
21,953
|
|
|
19,087
|
|
Net operating loss carryforward
|
5,000
|
|
|
12,000
|
|
Other
|
256,309
|
|
|
410,052
|
|
Total
|
4,757,232
|
|
|
4,513,085
|
|
Deferred income tax liabilities:
|
|
|
|
Net unrealized gain on investments
|
5,976,215
|
|
|
4,687,264
|
|
Recorded reserves for claims, net of statutory premium reserves
|
2,467,798
|
|
|
399,217
|
|
Other
|
327,202
|
|
|
319,760
|
|
Total
|
8,771,215
|
|
|
5,406,241
|
|
Net deferred income tax liabilities
|
$
|
(4,013,983
|
)
|
|
$
|
(893,156
|
)
|
At
December 31, 2013
and
2012
, no valuation allowance was recorded. Based upon the Company’s historical results of operations, the existing financial condition of the Company and management’s assessment of all other available information, management believes that it is more likely than not that the benefit of these deferred income tax assets will be realized.
A reconciliation of income tax as computed for the years ended December 31 at the U.S. federal statutory income tax rate of
34.1%
for 2013 and
34%
for 2012 and 2011, respectively, to income tax expense follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
2013
|
|
2012
|
|
2011
|
Anticipated income tax expense
|
$
|
7,346,074
|
|
|
$
|
5,467,168
|
|
|
$
|
3,229,638
|
|
Increase (decrease) related to:
|
|
|
|
|
|
State income taxes, net of federal income tax benefit
|
45,471
|
|
|
107,580
|
|
|
19,140
|
|
Tax-exempt interest income (net of amortization)
|
(772,545
|
)
|
|
(757,005
|
)
|
|
(700,300
|
)
|
Other, net
|
127,000
|
|
|
71,257
|
|
|
16,522
|
|
Provision for income taxes
|
$
|
6,746,000
|
|
|
$
|
4,889,000
|
|
|
$
|
2,565,000
|
|
In accounting for uncertainty in income taxes, the Company is required to recognize in its financial statements the impact of a tax position if that position is more likely than not of being sustained on an audit, based on the technical merits of the position. In this regard, an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting purposes. There were no unrecognized tax benefits or liabilities as of
December 31, 2013
.
The amount of unrecognized tax benefit or liability may increase or decrease in the future for various reasons, including adding amounts for current tax year positions, expiration of open income tax returns due to the expiration of the applicable statute of limitations, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the additions or eliminations of uncertain tax positions.
The Company’s policy is to report interest and penalties related to income taxes in the Other line item in the Consolidated Statements of Income.
The Company, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction and various states. With few exceptions, the Company is no longer subject to U.S. federal or state and local examinations by taxing authorities for years before 2010.
9. Leases
The Company leases certain office facilities and equipment under operating leases. Rental expense also includes occasional rental of automobiles. Rent expense totaled approximately
$699,000
,
$692,000
, and
$623,000
in
2013
,
2012
and
2011
, respectively. The
future minimum lease payments under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of
December 31, 2013
, are summarized as follows:
|
|
|
|
|
Year Ended:
|
|
2014
|
$
|
548,451
|
|
2015
|
303,465
|
|
2016
|
162,022
|
|
2017
|
45,107
|
|
2018
|
4,200
|
|
Thereafter
|
—
|
|
Total
|
$
|
1,063,245
|
|
10. Retirement Agreements and Other Postretirement Benefit Plan
The Company has a 401(k) savings plan. In order to participate, individuals must be employed for
one
full year and work at least
1,000
hours annually. The Company makes a
3%
Safe Harbor contribution and also has the option annually to make a discretionary profit share contribution. Individuals may elect to make contributions up to the maximum deductible amount as determined by the Internal Revenue Code. Expenses related to the 401(k) plan were approximately
$579,000
,
$518,000
and
$479,000
for
2013
,
2012
and
2011
, respectively.
In November 2003, ITIC, a wholly owned subsidiary of the Company, entered into employment agreements with the Chief Executive Officer, Chief Financial Officer and Chief Operating Officer of ITIC. These individuals also serve as the Chairman, President and Executive Vice President, respectively, of the Company. The agreements provide compensation and life, health, dental and vision benefits upon the occurrence of specific events, including death, disability, retirement, termination without cause or upon a change in control. The employment agreements also prohibit each of these executives from competing with ITIC and its parent, subsidiaries and affiliates in the State of North Carolina while employed by ITIC and for a period of
two
years following termination of their employment.
In addition, during the second quarter of 2004, ITIC entered into nonqualified deferred compensation plan agreements with these executives. The amount accrued for all agreements at
December 31, 2013
and
2012
was approximately
$6,580,000
and
$6,303,000
, respectively, which includes postretirement compensation and health benefits, and was calculated based on the terms of the contract. Both the
2013
and
2012
accruals are included in the Accounts payable and accrued liabilities line item of the Consolidated Balance Sheets. These executive contracts are accounted for on an individual contract basis. On December 24, 2008, the executive contracts were amended effective January 1, 2009 to bring them into compliance with Section 409A of the Internal Revenue Code, and were amended and restated to provide for an annual cash payment to the officers equal to the amounts the Company would have contributed to their accounts under its 401(k) plan if such contributions were not limited by the federal tax laws, less the amount of any contributions that the Company actually makes to their accounts under the Company’s 401(k) plan.
On November 17, 2003, ITIC entered into employment agreements with key executives that provide for the continuation of certain employee benefits upon retirement. The executive employee benefits include health insurance, dental insurance, vision insurance and life insurance. The benefits are unfunded. Estimated future benefit payouts expected to be paid for each of the next five years are
$4,231
in
2014
,
$4,596
in
2015
,
$4,937
in
2016
,
$8,093
in
2017
,
$11,751
in
2018
and
$100,122
in the next five years thereafter.
Cost of the Company’s postretirement benefits included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
2011
|
Net periodic benefit cost
|
|
|
|
|
|
Service cost – benefits earned during the year
|
$
|
15,782
|
|
|
$
|
12,617
|
|
|
$
|
19,503
|
|
Interest cost on the projected benefit obligation
|
28,412
|
|
|
27,867
|
|
|
24,607
|
|
(Accretion) amortization of unrecognized prior service cost
|
(1,518
|
)
|
|
9,396
|
|
|
13,038
|
|
Amortization (accretion) of unrecognized loss (gain)
|
6,293
|
|
|
680
|
|
|
(318
|
)
|
Net periodic benefits cost at end of year
|
$
|
48,969
|
|
|
$
|
50,560
|
|
|
$
|
56,830
|
|
The Company is required to recognize the funded status (i.e., the difference between the fair value of the assets and the accumulated postretirement benefit obligations of its postretirement benefits) in its Consolidated Balance Sheet, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The net amount in accumulated other comprehensive income is
$(73,246)
,
$(48,353)
net of tax, for
December 31, 2013
, and
$(155,234)
,
$(102,454)
net of tax, for
December 31, 2012
, and represents
the net unrecognized actuarial losses and unrecognized prior service costs. The effects of the funded status on the Company’s Consolidated Balance Sheets at
December 31, 2013
and
2012
are presented in the following table:
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
Funded status
|
|
|
|
Actuarial present value of future benefits:
|
|
|
|
Fully eligible active employee
|
$
|
(377,838
|
)
|
|
$
|
(401,553
|
)
|
Non-eligible active employees
|
(301,439
|
)
|
|
(310,743
|
)
|
Plan assets
|
—
|
|
|
—
|
|
Funded status of accumulated postretirement benefit obligation, recognized in other liabilities
|
$
|
(679,277
|
)
|
|
$
|
(712,296
|
)
|
Development of the accumulated postretirement benefit obligation for the years ended
December 31, 2013
and
2012
includes the following:
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
Accrued postretirement benefit obligation at beginning of year
|
$
|
(712,296
|
)
|
|
$
|
(588,894
|
)
|
Service cost – benefits earned during the year
|
(15,782
|
)
|
|
(12,617
|
)
|
Interest cost on projected benefit obligation
|
(28,412
|
)
|
|
(27,867
|
)
|
Actuarial gain (loss)
|
77,213
|
|
|
(82,918
|
)
|
Accrued postretirement benefit obligation at end of year
|
$
|
(679,277
|
)
|
|
$
|
(712,296
|
)
|
The changes in amounts related to accumulated other comprehensive income, pre-tax, are as follows:
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
Balance at beginning of year
|
$
|
155,234
|
|
|
$
|
82,392
|
|
Components of accumulated other comprehensive income:
|
|
|
|
Unrecognized prior service credit (cost)
|
1,518
|
|
|
(9,396
|
)
|
Amortization of loss, net
|
(6,293
|
)
|
|
(680
|
)
|
Actuarial (gain) loss
|
(77,213
|
)
|
|
82,918
|
|
Balance at end of year
|
$
|
73,246
|
|
|
$
|
155,234
|
|
The amounts currently in accumulated other comprehensive income, pre-tax, that will be reclassified to the Consolidated Statements of Income and recognized as components of net periodic benefit costs in
2014
are:
|
|
|
|
|
|
Projected
2014
|
Amortization of unrecognized prior service cost
|
$
|
2,217
|
|
Amortization of unrecognized loss
|
—
|
|
Net periodic benefit cost at end of year
|
$
|
2,217
|
|
Assumed health care cost trend rates do have an effect on the amounts reported for the postretirement benefit obligations. The following illustrates the effects on the net periodic postretirement benefit cost (“NPPBC”) and the accumulated postretirement benefit obligation (“APBO”) of a one percentage point increase and one percentage point decrease in the assumed health care cost trend rate as of
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
One-
Percentage
Point
Increase
|
|
One-
Percentage
Point
Decrease
|
Net periodic postretirement benefit cost
|
|
|
|
Effect on the service cost component
|
$
|
3,790
|
|
|
$
|
(2,860
|
)
|
Effect on interest cost
|
6,574
|
|
|
(5,056
|
)
|
Total effect on the net periodic postretirement benefit cost
|
$
|
10,364
|
|
|
$
|
(7,916
|
)
|
Accumulated postretirement benefit obligation (including active employees
who are not fully eligible)
|
|
|
|
Effect on those currently receiving benefits (retirees and spouses)
|
$
|
—
|
|
|
$
|
—
|
|
Effect on active fully eligible
|
68,198
|
|
|
(53,548
|
)
|
Effect on actives not yet eligible
|
77,887
|
|
|
(58,806
|
)
|
Total effect on the accumulated postretirement benefit obligation
|
$
|
146,085
|
|
|
$
|
(112,354
|
)
|
11. Commitments and Contingencies
Legal Proceedings.
A class action lawsuit is pending in the United States District Court for the Eastern District of Michigan, Southern Division, against several title insurance underwriters, including Investors Title Insurance Company, and several title insurance agents, entitled
Bushman et al. v. R. Kevin Clinton, Treasurer of the State of Michigan, et al
. (2:14-cv-10011-GCS-MAR). Michigan law requires the seller of property to pay a transfer tax based on the total value of the property at the time of transfer. Exemptions from the payment of this tax exist if (1) the property is the seller’s principal residence, and (2) the state equalized value (“SEV”) of the property at the time of purchase is greater than the SEV at the time of sale. Plaintiffs contend that, notwithstanding this exemption, they were assessed, charged and paid the full transfer tax when they sold their property. The plaintiffs seek an award of actual damages, statutory damages, attorneys’ fees and other relief as determined at trial. The Company believes that this case is without merit, and intends to vigorously defend against the allegations. At this stage in the litigation, the Company does not have the ability to make a reasonable range of estimates in regards to potential loss amounts, if any.
As previously reported, Investors Title Insurance Company and several other title insurance companies were named in a class action lawsuit in the United States District Court for the Southern District of West Virginia entitled
Backel v. Fidelity National Title Insurance et al
. (6:2008-CV-00181). The plaintiff in this case contended a lack of meaningful oversight by agencies with which title insurance rates are filed and approved. There were further allegations that the title insurance companies conspired to fix title insurance rates. This case, which had been inactive, was administratively closed in the third quarter of 2013. The Company will not report further on this matter unless there are any material developments.
The Company and its subsidiaries are involved in legal proceedings that are incidental to their business. In the Company’s opinion, based on the present status of these proceedings, any potential liability of the Company or its subsidiaries with respect to these legal proceedings, will not, in the aggregate, be material to the Company’s consolidated financial condition or operations.
Regulation
. The Company’s title insurance and trust subsidiaries are regulated by various federal, state and local governmental agencies and are subject to various audits and inquiries. It is the opinion of management based on its present expectations that these audits and inquiries will not have a material impact on the Company’s consolidated financial condition or operations.
Escrow and Trust Deposits
. As a service to its customers, the Company, through ITIC, administers escrow and trust deposits representing earnest money received under real estate contracts, undisbursed amounts received for settlement of mortgage loans and indemnities against specific title risks. Cash held by the Company for these purposes was approximately
$11,824,000
and
$11,689,000
as of
December 31, 2013
and
2012
, respectively. These amounts are not considered assets of the Company and, therefore, are excluded from the accompanying Consolidated Balance Sheets. However, the Company remains contingently liable for the disposition of these deposits.
Like-Kind Exchanges Proceeds
. In administering tax-deferred property exchanges, the Company’s subsidiary, Investors Title Exchange Corporation (“ITEC”), serves as a qualified intermediary for exchanges, holding the net sales proceeds from relinquished property to be used for purchase of replacement property. Another Company subsidiary, Investors Title Accommodation Corporation (“ITAC”), serves as exchange accommodation titleholder and, through limited liability companies (“LLCs”) that are wholly owned subsidiaries of ITAC, holds property for exchangers in reverse exchange transactions. Like-kind exchange deposits and reverse exchange property totaled approximately
$76,037,000
and
$55,580,000
as of
December 31, 2013
and
2012
, respectively. These amounts are not considered assets of the Company and, therefore, are excluded from the accompanying Consolidated Balance Sheets; however, the Company remains contingently liable for the disposition of the transfers of property, disbursements of proceeds and the return on the proceeds at the agreed upon rate. Exchange services revenues include earnings on these deposits; therefore, investment income is shown as other revenue rather than investment income. These like-kind exchange funds are primarily invested in money market and other short-term investments.
12. Statutory Accounting
The Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America which differ in some respects from statutory accounting practices prescribed or permitted in the preparation of financial statements for submission to insurance regulatory authorities.
Combined capital and surplus on a statutory basis was
$119,897,974
and
$102,047,179
as of
December 31, 2013
and
2012
, respectively. Net income on a statutory basis was
$11,858,699
,
$11,035,792
and
$6,416,684
for the twelve months ended
December 31, 2013
,
2012
and
2011
, respectively.
13. Segment Information
The Company has
one
reportable segment, title insurance services. The remaining immaterial segments have been combined into a group called “All Other.”
The title insurance segment primarily issues title insurance policies through approved attorneys from underwriting offices and through independent issuing agents. Title insurance policies insure titles to real estate.
Provided below is selected financial information about the Company’s operations by segment for the periods ended
December 31, 2013
,
2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
Title
Insurance
|
|
All
Other
|
|
Intersegment
Eliminations
|
|
Total
|
Insurance and other services revenues
|
$
|
118,153,904
|
|
|
$
|
5,507,069
|
|
|
$
|
(1,499,884
|
)
|
|
$
|
122,161,089
|
|
Investment income
|
3,599,106
|
|
|
388,838
|
|
|
(93,336
|
)
|
|
3,894,608
|
|
Net realized gain (loss) on investments
|
225,661
|
|
|
(29,861
|
)
|
|
—
|
|
|
195,800
|
|
Total revenues
|
$
|
121,978,671
|
|
|
$
|
5,866,046
|
|
|
$
|
(1,593,220
|
)
|
|
$
|
126,251,497
|
|
Operating expenses
|
99,899,804
|
|
|
6,239,155
|
|
|
(1,430,200
|
)
|
|
104,708,759
|
|
Income (loss) before income taxes
|
$
|
22,078,867
|
|
|
$
|
(373,109
|
)
|
|
$
|
(163,020
|
)
|
|
$
|
21,542,738
|
|
Total assets
|
$
|
146,110,146
|
|
|
$
|
42,195,670
|
|
|
$
|
—
|
|
|
$
|
188,305,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
Title
Insurance
|
|
All
Other
|
|
Intersegment
Eliminations
|
|
Total
|
Insurance and other services revenues
|
$
|
106,496,802
|
|
|
$
|
4,931,574
|
|
|
$
|
(1,395,934
|
)
|
|
$
|
110,032,442
|
|
Investment income
|
3,492,998
|
|
|
571,999
|
|
|
(84,586
|
)
|
|
3,980,411
|
|
Net realized gain on investments
|
430,495
|
|
|
635,744
|
|
|
—
|
|
|
1,066,239
|
|
Total revenues
|
$
|
110,420,295
|
|
|
$
|
6,139,317
|
|
|
$
|
(1,480,520
|
)
|
|
$
|
115,079,092
|
|
Operating expenses
|
94,909,649
|
|
|
5,433,207
|
|
|
(1,343,671
|
)
|
|
98,999,185
|
|
Income before income taxes
|
$
|
15,510,646
|
|
|
$
|
706,110
|
|
|
$
|
(136,849
|
)
|
|
$
|
16,079,907
|
|
Total assets
|
$
|
136,042,848
|
|
|
$
|
35,875,428
|
|
|
$
|
—
|
|
|
$
|
171,918,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
Title
Insurance
|
|
All
Other
|
|
Intersegment
Eliminations
|
|
Total
|
Insurance and other services revenues
|
$
|
83,420,562
|
|
|
$
|
4,455,631
|
|
|
$
|
(814,632
|
)
|
|
$
|
87,061,561
|
|
Investment income
|
3,174,148
|
|
|
502,557
|
|
|
(81,669
|
)
|
|
3,595,036
|
|
Net realized gain (loss) on investments
|
97,640
|
|
|
(69,081
|
)
|
|
—
|
|
|
28,559
|
|
Total revenues
|
$
|
86,692,350
|
|
|
$
|
4,889,107
|
|
|
$
|
(896,301
|
)
|
|
$
|
90,685,156
|
|
Operating expenses
|
77,294,353
|
|
|
4,706,499
|
|
|
(814,632
|
)
|
|
81,186,220
|
|
Income before income taxes
|
$
|
9,397,997
|
|
|
$
|
182,608
|
|
|
$
|
(81,669
|
)
|
|
$
|
9,498,936
|
|
Total assets
|
$
|
123,712,762
|
|
|
$
|
34,245,701
|
|
|
$
|
—
|
|
|
$
|
157,958,463
|
|
14. Stockholders’ Equity
On November 12, 2002, the Company’s Board of Directors amended the Company’s Articles of Incorporation, creating a series of Class A Junior Participating Preferred Stock (the “Class A Preferred Stock”). The Class A Preferred Stock is senior to common stock in dividends or distributions of assets upon liquidations, dissolutions or winding up of the Company. Dividends on the Class A Preferred Stock are cumulative and accrue from the quarterly dividend payment date. Each share of Class A Preferred Stock entitles the holder thereof to
100
votes on all matters submitted to a vote of shareholders of the Company. These shares were reserved for issuance under the Shareholder Rights Plan (the “Plan”), which was adopted on November 21, 2002, by the Company’s Board of Directors. Under the terms of the Plan, the Company’s common stock acquired by a person or a group buying
15%
or more of the Company’s common stock would be diluted, except in transactions approved by the Board of Directors.
In connection with the Plan, the Company’s Board of Directors declared a dividend distribution of one right (a “Right”) for each outstanding share of the Company’s common stock paid on December 16, 2002, to shareholders of record at the close of business on December 2, 2002. Each Right entitles the registered holder to purchase from the Company a unit (a “Unit”) consisting of one one-hundredth of a share of Class A Preferred Stock. Under the Plan, the Rights detach and become exercisable upon the earlier of (a) ten (
10
) days following public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial ownership of
15%
or more of the outstanding shares of the Company’s common stock, or (b) ten (10) business days following the commencement of, or first public announcement of the intent of a person or group to commence, a tender offer or exchange offer that would result in a person or group beneficially owning 15% or more of such outstanding shares of the Company’s common stock. The exercise price, the kind and the number of shares covered by each right are subject to adjustment upon the occurrence of certain events described in the Plan.
If any person or group of affiliated or associated persons acquires beneficial ownership of
15%
or more of the outstanding common stock, each holder of a Right (other than the acquiring person or group) will have the right to buy, at the exercise price, common stock of the Company having a market value of twice the exercise price. If the Company is acquired in a merger or consolidation in which the Company is not the surviving corporation, or the Company engages in a merger or consolidation in which the Company is the surviving corporation and the Company’s common stock is changed or exchanged, or more than
50%
of the Company’s assets or earning power is sold or transferred, the Rights entitle a holder (other than the acquiring person or group) to buy, at the exercise price, stock of the acquiring company having a market value equal to twice the exercise price. At any time after a person or group of affiliated or associated persons has acquired beneficial ownership of
15%
or more of the outstanding common stock and prior to the acquisition by such person or group of
50%
or more of the outstanding common stock, the Company’s Board of Directors may exchange the Rights (other than the Rights owned by such person or group), in whole or in part, at an exchange ratio of one share of the Company’s common stock, or one one-hundredth of a share of Preferred Stock, per Right.
The Rights are redeemable upon action by the Board of Directors at a price of
$0.01
per right at any time before they become exercisable. Until the Rights become exercisable, they are evidenced only by the common stock certificates and are transferred with and only with such certificates.
On October 31, 2012, the Plan was amended to, among other things, extend the expiration date of the plan from November 11, 2012 to October 31, 2022 and increase the exercise price of the stock purchase rights from
$80
per unit to
$220
per unit. In connection with the amendments to the shareholders’ rights plan, the Board of Directors of the Company also amended the Company’s Articles of Incorporation to increase the number of shares designated under the rights plan as Series A Participating Preferred Stock from
100,000
shares to
200,000
shares. There were
1,000,000
shares of Preferred Stock authorized as of
December 31, 2013
and
2012
, with
200,000
, being designated Class A Junior Participating Preferred Stock.
15. Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company invests its cash and cash equivalents into high credit quality security instruments.
On November 9, 2010, the Federal Deposit Insurance Corporation (“FDIC”) issued a Final Rule implementing section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that provides for unlimited insurance coverage of noninterest-bearing transaction accounts. Beginning December 31, 2010, through December 31, 2012, all noninterest bearing transaction accounts were fully insured, regardless of the balance of the account, at all FDIC insured institutions. All other deposits which exceed
$250,000
, including noninterest bearing transaction accounts prior to December 31, 2010, at each institution are not insured by the FDIC. Of the
$20.8 million
in cash and cash equivalents at
December 31, 2012
,
$3.2 million
was not insured by the FDIC.
As scheduled, the unlimited insurance coverage for noninterest-bearing transaction accounts provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act expired on December 31, 2012. Deposits held in noninterest-bearing transaction accounts are now aggregated with any interest-bearing deposits the owner may hold in the same ownership category, and the combined total insured up to at least
$250,000
. Of the
$23.6 million
in cash and cash equivalents at
December 31, 2013
,
$23.1 million
was not insured by the FDIC after the expiration of unlimited coverage for noninterest-bearing transaction accounts.
16. Business Concentration
The Company generates a significant amount of title insurance premiums in Texas, North Carolina and South Carolina. In
2013
,
2012
and
2011
, Texas accounted for
26.8%
,
24.8%
and
32.2%
of total title premiums, respectively. In
2013
,
2012
and
2011
, North Carolina accounted for
27.4%
,
30.5%
and
26.6%
of total title premiums, respectively. In
2013
,
2012
and
2011
, South Carolina accounted for
11.4%
,
8.6%
and
8.2%
of total title premiums, respectively.
In
2013
,
2012
and
2011
, the Company had one agent that accounted for
16.4%
,
14.0%
and
22.6%
of net premiums written, respectively.
17. Related Party Transactions
The Company does business with, and has investments in, unconsolidated limited liability companies that are primarily title insurance agencies. The Company utilizes the equity method to account for its investments in these limited liability companies. The following table sets forth the approximate values by year found within each financial statement classification:
|
|
|
|
|
|
|
|
|
Financial Statement Classification,
|
2013
|
|
2012
|
Consolidated Balance Sheets
|
|
Other investments
|
$
|
5,320,000
|
|
|
$
|
4,892,000
|
|
Premiums and fees receivable
|
$
|
657,000
|
|
|
$
|
1,011,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Statement Classification,
|
|
|
|
Consolidated Statements of Income
|
2013
|
|
2012
|
|
2011
|
Net premiums written
|
$
|
12,442,000
|
|
|
$
|
15,558,000
|
|
|
$
|
11,004,000
|
|
Other income
|
$
|
1,839,000
|
|
|
$
|
2,238,000
|
|
|
$
|
1,336,000
|
|
During the second quarter of 2013, the Company repurchased
17,524
shares of Company common stock from officers of the Company at a price of
$71.50
per share to cover withholding taxes payable by the officers upon the exercise of SARs. During the fourth quarter of 2013, the Company repurchased
28,130
shares of Company common stock from officers of the Company at a price of
$80.01
per share.
18. Acquisition
In
January 2012
, a subsidiary of the Company, ITIC, entered into a membership interest purchase and sale agreement under which it agreed to acquire a majority ownership interest of United Title Agency Co., LLC (“United”). United, a Michigan limited liability company, is an insurance agency doing business in the State of Michigan. On
April 2, 2012
, ITIC purchased a
70%
ownership interest in United, with both ITIC and the seller having the option to require ITIC to purchase the remaining
30%
interest not less than
27 months
from the closing.
The acquisition date fair value of the total consideration to be transferred was
$1,041,250
. This fair value total was equal to
$350,000
ITIC had already paid toward the purchase price, as well as
$691,250
in estimated contingent payments. As of
December 31, 2013
, management’s calculation of the fair value of consideration to be transferred is materially unchanged from its acquisition date amount. During the second quarter of 2013, ITIC paid an additional
$350,000
toward the purchase price. The resulting contingent payments of
$341,250
and
$691,250
are categorized in the Consolidated Balance Sheets as Accounts payable and accrued liabilities as of
December 31, 2013
and
December 31, 2012
, respectively.
The contingent payment arrangement requires that the purchase price for the
70%
majority interest be paid over the next
2
years and determined by multiplying United’s actual GAAP net income for the first full
24
calendar months subsequent to closing by an agreed upon factor. In no event will the purchase price for the majority interest exceed
$1,041,250
. The fair value of the contingent payment was derived using the Company’s best estimate (Level 3 inputs) of net income of approximately
$859,000
during the
24
-month period, discounted at a
15%
rate, and limited to the contractual maximum. The amounts previously paid will be used to offset contingent payment amounts calculated for final consideration, and is eligible for refunding in part or in its entirety if greater than the final settlement amount.
In the event that ITIC purchases the remaining
30%
interest, the purchase price of the redeemable noncontrolling interest will be calculated by multiplying United’s GAAP net income for the full
24
calendar months immediately preceding the written notice of the option exercise by an agreed upon factor. The agreement stipulates a minimum purchase price of
$1,000,000
for the entire agency should this option be exercised.
As certain provisions of the membership interest purchase and sale agreement place the acquisition of the remaining
30%
by ITIC out of ITIC’s control, the noncontrolling interest in United is deemed redeemable. The redeemable noncontrolling interest is presented outside of permanent equity, as redeemable equity in the Consolidated Balance Sheets. On the acquisition date, the fair value of the redeemable noncontrolling interest was
$446,250
. The fair value of the redeemable noncontrolling interest was based on the noncontrolling interest’s share of the value of net assets.
The following table provides a reconciliation of total redeemable equity for the periods ended
December 31, 2013
,
2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value during the period ended:
|
2013
|
|
2012
|
|
2011
|
Beginning balance at January 1
|
$
|
493,861
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Redeemable noncontrolling interest resulting from subsidiary purchase
|
—
|
|
|
446,250
|
|
|
—
|
|
Net income attributable to redeemable noncontrolling interest
|
88,528
|
|
|
88,411
|
|
|
—
|
|
Distributions to noncontrolling interest
|
(36,900
|
)
|
|
(40,800
|
)
|
|
—
|
|
Balance, net
|
$
|
545,489
|
|
|
$
|
493,861
|
|
|
$
|
—
|
|
Fair valuation methods used for the identifiable tangible net assets acquired in the acquisition make use of discounted cash flows using current interest rates. The fair value of identifiable net tangible assets at the acquisition date was
$5,600
. Identifiable assets acquired included cash and fixed assets. Liabilities assumed consisted of notes payable.
The transaction was accounted for using the acquisition method required by ASC 805,
Business Combinations
. Accordingly, the Company recognized the required identifiable intangible assets of United. There was no goodwill recorded as a result of the acquisition. The fair values of intangible assets, all Level 3 inputs, are principally based on values obtained from a third party valuation service. At acquisition, intangible assets included
$645,685
relating to a non-compete contract resulting from the acquisition and
$836,215
from referral relationships. The non-compete contract is being amortized over a
10
-year period using the straight-line method, starting at a future date when the related employment agreement is terminated. The referral relationships are being amortized over a
12
-year period using the straight-line method. At
December 31, 2013
and
December 31, 2012
, accumulated amortization of intangible assets was
$121,947
and
$52,263
, respectively. Net intangible assets of
$1,359,953
and
$1,429,637
are categorized as prepaid expenses and other assets in the Consolidated Balance Sheets as of
December 31, 2013
and
December 31, 2012
. In accordance with ASC 350,
Intangibles – Goodwill and Other
, the Company completed interim impairment testing and determined that the intangible assets assigned to United were not impaired at
December 31, 2013
.
The amortization of the non-compete contract will start at a future date when the related employment agreement is terminated. Assuming that the amortization of the non-complete agreement begins on the first day subsequent to the employment period stated in the current employment agreement, estimated aggregate amortization expense for each of the five succeeding fiscal years are as follows:
|
|
|
|
|
Year Ended:
|
|
2014
|
$
|
134,253
|
|
2015
|
134,253
|
|
2016
|
134,253
|
|
2017
|
134,253
|
|
2018
|
134,253
|
|
Thereafter
|
688,688
|
|
Total
|
$
|
1,359,953
|
|
In the Consolidated Statements of Income, revenues and expenses include the operations of United since April 2, 2012, which is the acquisition date. United was formed as a result of the Company’s acquisition, and had no net income prior to the acquisition date.
The Company has not provided historical or pro forma financial information related to the United acquisition because none of the purchase price paid, assets acquired or income of United were significant to the Company under the SEC’s Regulation S-X.
19. Accumulated Other Comprehensive Income
The following tables illustrate changes in the balances of each component of accumulated other comprehensive income, net of tax, for the periods ended
December 31, 2013
,
2012
and
2011
:
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
Unrealized Gains and Losses
On Available-for-Sale
Securities
|
|
Postretirement
Benefits Plans
|
|
Total
|
Beginning balance at January 1
|
$
|
8,920,884
|
|
|
$
|
(102,454
|
)
|
|
$
|
8,818,430
|
|
Other comprehensive income before reclassifications
|
2,605,184
|
|
|
50,961
|
|
|
2,656,145
|
|
Amounts reclassified from accumulated other comprehensive income
|
(130,311
|
)
|
|
3,140
|
|
|
(127,171
|
)
|
Net current-period other comprehensive income
|
2,474,873
|
|
|
54,101
|
|
|
2,528,974
|
|
Ending balance
|
$
|
11,395,757
|
|
|
$
|
(48,353
|
)
|
|
$
|
11,347,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
Unrealized Gains and Losses
On Available-for-Sale
Securities
|
|
Postretirement
Benefits Plans
|
|
Total
|
Beginning balance at January 1
|
$
|
7,563,541
|
|
|
$
|
(54,376
|
)
|
|
$
|
7,509,165
|
|
Other comprehensive income (loss) before reclassifications
|
2,032,134
|
|
|
(54,726
|
)
|
|
1,977,408
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
(674,791
|
)
|
|
6,648
|
|
|
(668,143
|
)
|
Net current-period other comprehensive income (loss)
|
1,357,343
|
|
|
(48,078
|
)
|
|
1,309,265
|
|
Ending balance
|
$
|
8,920,884
|
|
|
$
|
(102,454
|
)
|
|
$
|
8,818,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
Unrealized Gains and Losses
On Available-for-Sale
Securities
|
|
Postretirement
Benefits Plans
|
|
Total
|
Beginning balance at January 1
|
$
|
5,675,516
|
|
|
$
|
13,189
|
|
|
$
|
5,688,705
|
|
Other comprehensive income (loss) before reclassifications
|
1,910,017
|
|
|
(75,959
|
)
|
|
1,834,058
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
(21,992
|
)
|
|
8,394
|
|
|
(13,598
|
)
|
Net current-period other comprehensive income (loss)
|
1,888,025
|
|
|
(67,565
|
)
|
|
1,820,460
|
|
Ending balance
|
$
|
7,563,541
|
|
|
$
|
(54,376
|
)
|
|
$
|
7,509,165
|
|
The following tables provide significant amounts reclassified out of each component of accumulated other comprehensive income for the periods ended
December 31, 2013
,
2012
and
2011
:
|
|
|
|
|
|
|
2013
|
|
|
|
Details about Accumulated Other
Comprehensive Income Components
|
Amount Reclassified from
Accumulated Other
Comprehensive Income
|
|
Affected Line Item in the Consolidated
Statements of Income
|
Unrealized gains and losses on available-for-sale securities:
|
|
|
|
Net realized gain on investment
|
$
|
229,869
|
|
|
|
Other-than-temporary impairments
|
(34,070
|
)
|
|
|
Total
|
$
|
195,799
|
|
|
Net realized gain on investment
|
Tax
|
(65,488
|
)
|
|
Provision for Income Taxes
|
Net of Tax
|
$
|
130,311
|
|
|
|
Accretion (amortization) related to postretirement benefit plans:
|
|
|
|
|
Prior year service cost
|
$
|
1,518
|
|
|
|
Unrecognized loss
|
(6,293
|
)
|
|
|
Total
|
$
|
(4,775
|
)
|
|
(a)
|
Tax
|
1,635
|
|
|
Provision for Income Taxes
|
Net of Tax
|
$
|
(3,140
|
)
|
|
|
Reclassifications for the period
|
$
|
127,171
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
Details about Accumulated Other
Comprehensive Income Components
|
Amount Reclassified from
Accumulated Other
Comprehensive Income
|
|
Affected Line Item in the Consolidated
Statements of Income
|
Unrealized gains and losses on available-for-sale securities:
|
|
|
|
Net realized gain on investment
|
$
|
1,166,179
|
|
|
|
Other-than-temporary impairments
|
(99,940
|
)
|
|
|
Total
|
$
|
1,066,239
|
|
|
Net realized gain on investment
|
Tax
|
(391,448
|
)
|
|
Provision for Income Taxes
|
Net of Tax
|
$
|
674,791
|
|
|
|
Amortization related to postretirement benefit plans:
|
|
|
|
|
Prior year service cost
|
$
|
(9,396
|
)
|
|
|
Unrecognized loss
|
(680
|
)
|
|
|
Total
|
$
|
(10,076
|
)
|
|
(a)
|
Tax
|
3,428
|
|
|
Provision for Income Taxes
|
Net of Tax
|
$
|
(6,648
|
)
|
|
|
Reclassifications for the period
|
$
|
668,143
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
Details about Accumulated Other
Comprehensive Income Components
|
Amount Reclassified from
Accumulated Other
Comprehensive Income
|
|
Affected Line Item in the Consolidated
Statements of Income
|
Unrealized gains and losses on available-for-sale securities:
|
|
|
|
Net realized gain on investment
|
$
|
353,950
|
|
|
|
Other-than-temporary impairments
|
(325,391
|
)
|
|
|
Total
|
$
|
28,559
|
|
|
Net realized gain on investment
|
Tax
|
(6,567
|
)
|
|
Provision for Income Taxes
|
Net of Tax
|
$
|
21,992
|
|
|
|
(Amortization) accretion related to postretirement benefit plans:
|
|
|
|
|
Prior year service cost
|
$
|
(13,038
|
)
|
|
|
Unrecognized gain
|
318
|
|
|
|
Total
|
$
|
(12,720
|
)
|
|
(a)
|
Tax
|
4,326
|
|
|
Provision for Income Taxes
|
Net of Tax
|
$
|
(8,394
|
)
|
|
|
Reclassifications for the period
|
$
|
13,598
|
|
|
|
|
|
(a)
|
These accumulated other comprehensive income components are not reclassified to net income in their entirety in the same reporting period. The amounts are presented within Salaries, employee benefits and payroll taxes on the Consolidated Statements of Income as amortized. Amortization related to postretirement benefit plans is included in the computation of net periodic pension costs, as discussed in Note 10.
|