INVESTORS TITLE CO (Form: 10-K, Received: 03/10/2017 16:45:22)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended December 31, 2016

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from __to __

Commission file number 0-11774

INVESTORS TITLE COMPANY

(Exact name of registrant as specified in its charter)



North Carolina	56-1110199
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

121 North Columbia Street

Chapel Hill, North Carolina 27514

(919) 968-2200

(Address and telephone number of principal executive office)



Securities registered pursuant to section 12(b) of the Act:	Name of each exchange on which registered:
Common Stock, no par value	The NASDAQ Stock Market LLC
Rights to Purchase Series A Junior Participating Preferred Stock	The NASDAQ Stock Market LLC

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

The aggregate market value of the shares held by non-affiliates of the registrant as of June 30, 2016 was $134,766,844 based on the closing price on the NASDAQ Stock Market LLC.

As of February 14, 2017 , there were 1,884,584 common shares of the registrant outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Investors Title Company’s definitive proxy statement for the Annual Meeting of Shareholders to be held May 17, 2017 are incorporated by reference in Part III hereof.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, as well as information included in future filings by the Company with the Securities and Exchange Commission (“SEC”) and information contained in written material, press releases and oral statements issued by or on behalf of the Company, contains, or may contain, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that reflect management’s current outlook for future periods. These statements may be identified by the use of words such as “plan,” “expect,” “aim,” “believe,” “project,” “anticipate,” “intend,” “estimate,” “should,” “could,” “would” and other expressions that indicate future events and trends. All statements that address expectations or projections about the future, including statements about the Company’s strategy for growth, product and service development, market share position, claims, expenditures, financial results and cash requirements, are forward-looking statements. Without limitation, projected developments in mortgage interest rates and the overall economic environment set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Business Trends and Recent Conditions” constitute forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events that are subject to a number of risks and uncertainties. For a description of factors that may cause actual results to differ materially from such forward-looking statements, see Item 1A, “Risk Factors” of this Annual Report on Form 10-K.

Actual future results and trends may differ materially from historical results or those projected in any such forward-looking statements depending on a variety of factors, including, but not limited to, the following:


•	the level of real estate transactions, the level of mortgage origination volumes (including refinancing) and changes to the insurance requirements of the participants in the secondary mortgage market, and the effect of these factors on the demand for title insurance;


•	changes in general economic, business, and political conditions, including the performance of the financial and real estate markets;


•	the possible inadequacy of provisions for claims to cover actual claim losses;


•	the incidence of fraud-related losses;


•	unanticipated adverse changes in securities markets, including interest rates, could result in material losses to the Company’s investments;


•	significant competition that the Company’s operating subsidiaries face, including the Company’s ability to develop and offer products and services that meet changing industry standards in a timely and cost-effective manner and expansion into new geographic locations;


•	the Company’s reliance upon the North Carolina and Texas markets for a significant portion of its premiums, comprising approximately 35.5% and 20.5% of premiums written, respectively;


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


•	the impact of governmental oversight of compliance by service providers, including title insurance agents, with federal consumer financial laws;


•	possible downgrades from a rating agency, which could result in a loss of underwriting business;


•	the inability of the Company to manage, develop and implement technological advancements and prevent system interruptions or unauthorized system intrusions;


•	statutory requirements applicable to the Company’s insurance subsidiaries that require them to maintain minimum levels of capital, surplus and reserves and that restrict the amount of dividends they may pay to the Company without prior regulatory approval;


•	the desirability to maintain capital above statutory minimum requirements for competitive, marketing and other reasons;


•	heightened regulatory scrutiny and investigations of the title insurance industry;


•	the Company’s dependence on key management and marketing personnel, the loss of whom could have a material adverse effect on the Company’s business;


•	difficulty managing growth, whether organic or through acquisitions;


•	reform of government-sponsored entities that could adversely impact the Company;


•	policies and procedures for the mitigation of risks that may be insufficient to prevent losses;


•	the shareholder rights plan could discourage transactions involving actual or potential changes of control; and


•	other risks detailed elsewhere in this document and in the Company’s other filings with the SEC.

These and other risks and uncertainties may be described from time to time in the Company’s other reports and filings with the SEC. The Company is not under any obligation (and expressly disclaims any such obligation) and does not undertake to update or alter any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. You should consider the possibility that actual results may differ materially from our forward-looking statements.

INVESTORS TITLE COMPANY AND SUBSIDIARIES

TABLE OF CONTENTS



PART I
ITEM 1.	BUSINESS	4
	EXECUTIVE OFFICERS OF THE COMPANY	9
ITEM 1A.	RISK FACTORS	9
ITEM 1B.	UNRESOLVED STAFF COMMENTS	14
ITEM 2.	PROPERTIES	14
ITEM 3.	LEGAL PROCEEDINGS	14
ITEM 4.	MINE SAFETY DISCLOSURES	14

PART II
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	15
ITEM 6.	SELECTED FINANCIAL DATA	17
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	33
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	35
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	74
ITEM 9A.	CONTROLS AND PROCEDURES	74
ITEM 9B.	OTHER INFORMATION	74

PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	75
ITEM 11.	EXECUTIVE COMPENSATION	75
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	75
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	75
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	75

PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	76

SIGNATURES		77
INDEX TO EXHIBITS		86

PART I

ITEM 1. BUSINESS

GENERAL

Investors Title Company (the “Company”) is a holding company that operates through its subsidiaries and was incorporated in the state of North Carolina in 1973. The Company became operational in 1976, when it acquired Investors Title Insurance Company (“ITIC”), which had itself been operating since 1972, as a wholly owned subsidiary under a plan of exchange of shares of common stock. In 1983, the Company acquired National Investors Title Insurance Company (“NITIC”), formerly Northeast Investors Title Insurance Company, which had itself been operating since 1973, as a wholly owned subsidiary under a plan of exchange of shares of common stock. The Company’s executive offices are located at 121 North Columbia Street, Chapel Hill, North Carolina 27514 and its telephone number is (919) 968-2200. The Company maintains a website at www.invtitle.com .

OVERVIEW OF THE BUSINESS

The Company’s primary business activity, and its only reportable operating segment, is the issuance of residential and commercial title insurance through ITIC and NITIC. Additionally, the Company provides tax-deferred real property exchange services through its subsidiaries, Investors Title Exchange Corporation (“ITEC”) and Investors Title Accommodation Corporation (“ITAC”); investment management and trust services to individuals, trusts and other entities through its subsidiary Investors Trust Company (“Investors Trust”); and management services to title insurance agencies through its subsidiary, Investors Title Management Services (“ITMS”). See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 12 of Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for additional information related to the revenues, income and assets attributable to the Company’s primary operating segment.

Title Insurance

Through its two wholly owned title underwriting subsidiaries, ITIC and NITIC, the Company underwrites title insurance for owners and mortgagees as a primary insurer. ITIC and NITIC offer primary title insurance coverage to owners and mortgagees of real estate and assume reinsurance of title insurance risks from other title insurance companies. The commitments and policies are predominantly issued using standard forms approved by the American Land Title Association (“ALTA”).

Title insurance protects against losses resulting from title defects affecting real property. Upon a real estate closing, the seller of real property executes a deed to the new owner, and typically, the property is encumbered with a new mortgage. When real property is conveyed from one party to another, occasionally there is an undisclosed defect in the title or a mistake or omission in a prior deed or mortgage that may give a third party a legal claim against such property or result in the invalidity or unenforceability of the insured mortgage. If a claim is made against the title to real property, title insurance provides indemnification against covered defects.

Numerous types of defects could jeopardize the property owner’s or mortgagee’s interest in the property for which a title policy may provide coverage. Such risks include title being vested in an individual or entity other than the insured, lack of a right of access to the property, invalidity or unenforceability of the insured mortgage, or other defects, liens, or encumbrances that make the property unmarketable. The policy may provide coverage for defects arising from prior unsatisfied mortgages, judgments, tax liens or confirmed assessments, or encumbrances against the property arising through easements, restrictions or other existing covenants. Title insurance may also protect against deeds or mortgages that were forged or improperly acknowledged or delivered, that were executed by spouses without the other spouse’s signature or that were conveyed by minors or other persons who lack legal capacity.

Title Insurance Policies. The Company issues title insurance policies based on a search of public records. The title search documents the current status of title to the property. There are two basic types of title insurance policies – one for the mortgage lender and one for the real property owner. A lender often requires property owners to purchase title insurance to protect the priority of its mortgage loan, but the lender’s title insurance policy does not protect the property owner. The property owner has to purchase a separate owner’s title insurance policy to protect its investment.

Insured Risk on Policies in Force. Generally, the amount of the insured risk under a title insurance policy is equal to the purchase price, the loan amount or the fair market value of the insured property. If a claim is made against an insured property’s title, the insurer can choose to pay the cost of eliminating the covered title defects or to defend the insured party against covered title defects affecting the property. In the alternative, the insurer may opt to pay the policy limits to the insured or, if the loss is less than policy limits, the amount of the insured’s actual loss due to such title defects, at which time the insurer’s duty to defend the claim and all other obligations of the insurer with respect to the claim are satisfied.

At any given time, the insurer’s actual risk of monetary loss under outstanding policies is only a portion of the aggregate insured risk, or total face amount, of all policies in force. The lower risk results primarily from the reissuance of title insurance policies for the same property by other underwriters over time when such property is subsequently conveyed or refinanced. The coverage on a lender’s title insurance policy is reduced and eventually terminated as the mortgage loan it secures is paid. An owner’s policy is effective as long as the insured has an ownership interest in the property or has liability under warranties of title. Due to the variability of these factors, the aggregate contingent liability of a title underwriter on outstanding policies of the Company and its subsidiaries cannot be determined with precision.

Losses and Reserves. While most other forms of insurance provide for the assumption of risk of loss arising from unforeseen events, title insurance is based upon a process of loss avoidance. Title insurance generally serves to protect the policyholder from the risk of loss from events that predate the issuance of the policy. Losses on policies typically occur when a title defect is not discovered during the examination and settlement process or upon the occurrence of certain hidden risks which cannot be determined from an accurate search of public land records. The maximum amount of liability under a title insurance policy is generally the face amount of the policy plus the cost of defending the insured’s title against an adverse claim, if agreed to by the insurer prior to payment of loss under the policy, and any inflation protection clause associated with the policy. The reserve for claim losses is established from known claims, as well as estimated losses incurred but not yet reported to the Company based upon historical experience and other factors.

Title claims can often be complex, vary greatly in dollar amounts, are affected by economic and market conditions and may involve uncertainties as to ultimate exposure. Therefore, reserve estimates are subject to variability. For a more complete description of the Company’s reserve for claims, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.

Title Insurance Underwriting Operations. ITIC and NITIC issue title insurance through the Company’s home and branch offices and through a network of agents. Issuing agents are typically real estate attorneys, independent agents or subsidiaries of community and regional mortgage lending institutions, depending on local customs and regulations and the Company’s marketing strategy in a particular territory. The Company’s title insurance subsidiaries determine the terms and conditions upon which they will insure title to real property according to the Company’s underwriting standards, policies and procedures. Title insurance premiums written reflect a one-time premium payment, with no recurring premiums.

Generally, premiums for title insurance are recorded and recognized as revenue at the closing of the related transaction, when the earnings process is considered complete. When the policy is issued directly through a home or branch office, the premiums collected are retained by the Company. When the policy is issued through a title insurance agent, the agent retains a majority of the premium as a commission and remits the net amount to the Company. Title insurance commissions earned by the Company’s agents are recognized as expenses concurrently with premium recognition. The percentage of the premium retained by agents varies by region and is sometimes regulated by the states where the property is located.

For a description of the level of net premiums written by direct and agency operations, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.

Geographic Operations. ITIC was incorporated in North Carolina in 1972, and is licensed to write title insurance in 44 states and the District of Columbia. ITIC currently writes title insurance as a primary insurer in 21 states and the District of Columbia, primarily in the eastern half of the United States, and as a reinsurer for NITIC and third party title insurance companies.

NITIC was incorporated in South Carolina in 1973, and is licensed to write title insurance in 20 states and the District of Columbia. In November 2014, NITIC redomesticated to Texas. NITIC currently writes title insurance as a primary insurer in Texas and New York, and as a reinsurer for ITIC.

Premiums from title insurance written on properties located in North Carolina and Texas represent the largest source of revenue for the title insurance segment. In North Carolina, ITIC primarily issues title insurance commitments and policies through branch offices. In Texas and other states, title policies are primarily issued through issuing agents. For a description of the level of net premiums written geographically for significant states, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.

Each state license authorizing ITIC or NITIC to write title insurance must be renewed annually. These licenses are necessary for the companies to operate as a title insurer in each state in which they write premiums.

Ratings. The Company’s title insurance subsidiaries are regularly assigned ratings by independent agencies designed to indicate their financial condition and/or their claims paying ability. The rating agencies determine ratings primarily by analyzing financial data.

Reinsurance. The Company assumes and cedes reinsurance with other insurance companies in the normal course of business. Reinsurance is a contractual arrangement whereby one insurer assumes some or all of the risk exposure written by another insurer. Ceded reinsurance is comprised of excess of loss treaties, which outline the conditions in which the reinsurance company will pay claims and protect the ceding insurer against losses over certain agreed amounts.

In the ordinary course of business, ITIC and NITIC reinsure certain risks with other title insurers to limit their risk exposure and to comply with state insurance regulations. They also assume reinsurance for certain risks of other title insurers for which they receive additional income in the form of reinsurance premiums. For each of the last three years, revenues from reinsurance activities accounted for less than 1% of total premium volume.

Exchange Services, Investment Management and Trust Services, and Management Services

The Company’s other lines of business include services offered by wholly owned subsidiaries ITEC, ITAC, Investors Trust, and ITMS.

In 1988, the Company established ITEC to provide services in connection with tax-deferred exchanges of like-kind property pursuant to Section 1031 of the Internal Revenue Code. ITEC acts as a qualified intermediary in tax-deferred exchanges of property held for productive use in a trade or business or for investment, and its income is derived from fees for handling exchange transactions and interest earned on client deposits held by the Company. ITAC provides services as an exchange accommodation titleholder for accomplishing reverse exchanges when taxpayers decide to acquire replacement property before selling the relinquished property. The services provided by the Company’s exchange division, ITEC and ITAC, are pursuant to provisions in the Internal Revenue Code. From time to time, these laws are subject to review and changes, which may negatively affect the demand for tax-deferred exchanges in general, and consequently, the revenues and profitability of the Company’s exchange division.

Investors Trust provides investment management and trust services to individuals, companies, banks and trusts.

ITMS offers various consulting and management services to provide clients with the technical expertise to start and successfully operate a title insurance agency.

None of these other lines of business is currently a reportable segment for which separate financial information is presented; instead, they are collectively included and reported in the category “All Other” in the segment information of the Company’s financial statements.

CYCLICALITY AND SEASONALITY

Real estate activity, home sales and mortgage lending are cyclical in nature. Title insurance premiums are closely related to the level of real estate activity and the average price of real estate sales. The availability of funds to finance purchases directly affects real estate sales. Other factors include mortgage interest rates, consumer confidence, economic conditions, supply and demand and family income levels. The Company’s premiums in future periods are likely to fluctuate due to these and other factors which are beyond management’s control.

Historically, the title insurance business tends to be seasonal as well as cyclical. Because home sales are typically strongest in periods of favorable weather, the first calendar quarter tends to have the lowest activity levels, while the spring and summer quarters tend to be more active. Refinance activity is generally less seasonal, but is subject to interest rate fluctuations.

MARKETING

The Company markets its title insurance services to a broad range of customers in the residential and commercial market sectors of the real estate industry. Issuing agents are typically real estate attorneys, independent agents or subsidiaries of community and regional mortgage lending institutions, depending on local customs and regulations and the Company’s marketing strategy in a particular territory.

ITIC and NITIC strive to provide superior service to their customers and consider this an important factor in attracting and retaining customers. Branch and corporate personnel strive to develop new business and agency relationships to increase market share while ITIC’s Commercial Services Division focuses on services provided to commercial clients.

REGULATION

Any material change in the Company’s regulatory environment may have an adverse effect on its business.

Title Insurance

The Company is an insurance holding company and therefore it is subject to regulation in the states in which its insurance subsidiaries do business. These regulations, among other things, require insurance holding companies to register and file certain reports, and require prior regulatory approval of the payment of extraordinary dividends and other intercompany distributions or transfers.

Title insurance companies are extensively regulated under applicable state laws. All states have requirements for admission to do business as an insurance company, including minimum levels of capital, surplus and reserves. State regulatory authorities monitor the stability and service of insurance companies and possess broad powers with respect to the licensing of title insurers and agents, approving rate schedules and policy forms, financial reporting and accounting practices, reserve requirements, investments and dividend restrictions, approving related party transactions, as well as examining and auditing title insurers. At December 31, 2016, both ITIC and NITIC met the statutory premium reserve requirements and the minimum capital and surplus requirements of the states where they are licensed. A substantial portion of the assets of the Company’s title insurance subsidiaries consists of their portfolios of investment securities. Both of these subsidiaries are required by various state laws to maintain assets of a defined minimum quality and amount.

The Company’s insurance subsidiaries are subject to examination at any time by the insurance regulators in the states where they are licensed as well as required examinations every five years. These and other governmental authorities have the power to enforce state and federal laws to which the title insurance subsidiaries are subject. These governmental authorities include, but are not limited to, the Consumer Financial Protection Bureau (“CFPB”), which enforces the Real Estate Settlement Procedures Act (“RESPA”), the primary federal regulatory guidance governing the real estate settlement industry. The CFPB has the authority to identify and address, through regulation, unfair, deceptive and abusive practices in the mortgage industry and certain other settlement service industries.

On August 15, 2016, the CFPB proposed various amendments to federal mortgage disclosure requirements under RESPA and the Truth in Lending Act that are implemented in Regulation Z. The proposed amendments would reinforce the CFPB’s informal guidance on various issues and include clarifications and technical amendments. The CFPB also proposed changes that would create tolerances for the total of payments; adjust a partial exemption that mainly affects housing finance agencies and nonprofits; provide a uniform rule regarding application of the integrated mortgage disclosure requirements to cooperative units; and provide guidance on sharing the disclosures with various parties involved in the mortgage origination process. The comment period on the proposed rule changes closed October 18, 2016. The proposed rules, if adopted, should not have a material impact on the Company.

In recent years, the CFPB, Office of the Comptroller of Currency and the Federal Reserve have issued memorandums to banks that communicated those agencies’ heightened focus on vetting third party providers. Such increased regulatory involvement may affect the Company's agents and approved providers. Further proposals to change regulations governing insurance holding companies and the title insurance industry are often introduced in Congress, in state legislatures and before various insurance regulatory agencies. Although the Company regularly monitors such proposals, the likelihood and timing of passage of any such regulation, and the possible effects of any such regulation on the Company and its subsidiaries, cannot be determined at this time.

Exchange Services, Investment Management and Trust Services, and Management Services

Investors Trust is regulated by the North Carolina Commissioner of Banks.

COMPETITION

The title insurance industry is highly competitive. The four largest title insurance companies typically maintain greater than 85% of the market for title insurance in the United States, with smaller regional companies holding the balance of the market. The number and size of competing companies varies in the respective geographic areas in which the Company conducts business. Key competitive factors in the title insurance industry are the financial strength and size of the insurer, timeliness and quality of service, price and expertise in certain transactions. Title insurance underwriters also compete for agents based upon service and commission levels. Some title insurers currently have greater financial resources, larger distribution networks and more extensive computerized databases of property records and related information than the Company. In addition, there are numerous industry-related regulations and statutes that set out conditions and requirements to conduct business. Changes to or the removal of such regulations and statutes could result in additional competition from alternative title insurance products or new entrants into the industry that could materially affect the Company’s business operations and financial condition.

CUSTOMER, LENDER AND AGENT CONCENTRATION

The Company is not dependent upon any single title insurance customer or a few customers, and the loss of any single customer would not have a material adverse effect on the Company.

Based on information from Mortgage Daily, published on April 4, 2016, in 2015’s Largest Mortgage Lenders by Bankrate.com, there were 10 lending institutions in the United States that accounted for approximately 43% of all mortgage originations in the United States in 2015. These lending institutions benefit from title insurance policies that are purchased by borrowers on the lending institutions’ behalf as a condition to the making of a loan. Refusal by major market lenders to accept our product offerings could have a material adverse effect on the Company.

In 2016, 2015 and 2014, the Company had one agent that accounted for 5.4%, 10.3% and 23.6% of net premiums written, respectively.

INVESTMENT POLICIES

The Company and its subsidiaries derive a substantial portion of their income from investments in municipal government securities and investment grade corporate bonds and equity securities. The Company’s debt and equity securities are classified as available for sale and carried at fair market value. The Company’s investment policy is designed to maintain a high quality portfolio and maximize income. Some state laws impose restrictions upon the types and amounts of investments that can be made by the Company’s insurance subsidiaries. The Company’s investment portfolio is managed internally and via an affiliated entity. The securities in the Company’s portfolio are subject to economic conditions and normal market risks. Equity securities at December 31, 2016 and 2015 consisted of investments in various industry groups. The Company’s investment portfolio did not include any significant investments in banks, trust or insurance companies at December 31, 2016 or 2015. Short-term investments, which consist primarily of money market instruments and certificates of deposit which have an original maturity of one year or less, are carried at cost, which approximates fair value due to the short duration to maturity. In addition, at December 31, 2016 and 2015, the Company held investments that are accounted for using the equity method (see Note 1 of the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K.)

See Note 3 of the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for the major categories of investments, scheduled maturities, fair values of investment securities and earnings by category.

ENVIRONMENTAL MATTERS

The title insurance policies ITIC and NITIC currently issue exclude any liability for environmental risks and contamination unless a notice of violation relating to an environmental protection law, ordinance or regulation is recorded prior to the date of such policy or the Company issues a specific policy endorsement providing coverage for environmental liens recorded prior to the date of such policy. The Company has not experienced and does not anticipate that it or its subsidiaries will incur any significant expenses related to environmental claims.

In connection with tax-deferred exchanges of like-kind property, ITAC may temporarily hold title to property pursuant to an accommodation titleholder agreement. In order for ITAC to enter into such arrangements, each person or entity for which title is being held must first (i) execute an indemnification agreement under which it agrees to indemnify ITAC for any environmental or other claims which may arise as a result of the arrangement, and (ii) provide due diligence materials regarding any known environmental issues, in the form of an environmental questionnaire and/or applicable environmental engineering studies, if indicated for review by ITAC, as applicable.

EMPLOYEES

The Company and its subsidiaries had 307 full-time employees and 13 part-time employees as of December 31, 2016. None of the employees are covered by any collective bargaining agreements. Management considers its relationship with its employees to be favorable.

ADDITIONAL INFORMATION

The Company’s internet address is www.invtitle.com . The contents of the Company’s website are not and shall not be deemed to be a part of this document or any other Securities and Exchange Commission (“SEC”) filing. The Company makes available free of charge through its internet website its annual reports on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC, and also makes available the Section 16 reports on Forms 3, 4 and 5 of its insiders no later than the end of the business day following such filings. The information is free of charge and may be reviewed and downloaded from the website at any time. The public may read any material it has filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The “Investor Relations” section of the Company’s website also includes its code of business conduct and ethics and the charters of the Audit, Compensation and Nominating Committees of its Board of Directors.

EXECUTIVE OFFICERS OF THE COMPANY

Following is information regarding the executive officers of the Company as of February 24, 2017. Each officer is appointed at the annual meeting of the Board of Directors to serve until the next annual meeting of the Board or until his or her respective successor has been elected and qualified.



Name	Age	Position with Registrant
J. Allen Fine	82	Chief Executive Officer and Chairman of the Board
James A. Fine, Jr.	54	President, Treasurer, Chief Financial Officer, Chief Accounting Officer and Director
W. Morris Fine	50	Executive Vice President, Secretary and Director

J. Allen Fine has been Chief Executive Officer and Chairman of the Board of the Company since its incorporation in 1973. He also served as President of the Company until May 1997. He is the father of James A. Fine, Jr. and W. Morris Fine.

James A. Fine, Jr. was named Vice President of the Company in 1987. In 1997, he was named President and Treasurer and appointed as a Director of the Company. In 2002, he was appointed as Chief Financial Officer and Chief Accounting Officer. He is the son of J. Allen Fine and the brother of W. Morris Fine.

W. Morris Fine was named Vice President of the Company in 1992. In 1993, he was named Treasurer of the Company and served in that capacity until 1997. In 1997, he was named Executive Vice President and Secretary of the Company. In 1999, he was appointed as a Director of the Company. He is the son of J. Allen Fine and the brother of James A. Fine, Jr.

ITEM 1A. RISK FACTORS

The risk factors listed in this section and other factors noted herein could cause actual results to differ materially from those contained in any forward-looking statements or could result in a significant or material adverse effect on the Company’s results of operations.

Adverse changes in real estate activity may negatively impact the Company’s results of operations and financial condition.

The demand for the Company’s title insurance and other real estate transaction products and services varies from year to year and is dependent upon, among other factors, the volume of residential and commercial real estate transactions and mortgage financing transactions. The volume of these transactions has historically been influenced by factors such as the state of the overall economy, the average price level of real estate sales and the availability and pricing of mortgage financing. During periods of economic uncertainty, or when the availability of mortgage credit is limited or when mortgage interest rates are increasing, real estate activity typically declines. The cyclical nature of the Company’s business has caused volatility in revenue and profitability in the past and could do so in the future.

Demand for title insurance also depends in part upon the requirement by mortgage lenders and other participants in the secondary mortgage market that title insurance policies be obtained on residential and commercial real property.

The Company may experience material losses resulting from fraud, defalcation or misconduct.

Underwriting agents and approved settlement providers perform a significant portion of the work necessary to issue the Company’s title insurance policies. These agents and providers operate with a substantial degree of independence from the Company, and while they are subject to certain contractual limitations designed to mitigate the Company’s risk, there is no guarantee that these limitations will eliminate all associated risks. As a result, the Company’s use of title agents and approved providers could result in claims on the Company’s policies and other expenses due to fraud and negligence. Fraud, defalcation, errors and other misconduct by the Company’s agents, approved attorneys and employees are risks inherent in the Company’s business. Agents and approved attorneys typically handle large sums of money in trusts pursuant to the closing of real estate transactions. Misappropriation of funds by any of these parties could result in title claims, some of which could have a material negative impact on the Company’s results of operations and financial condition.

The Company relies upon the North Carolina and Texas markets for a significant portion of its premiums. Changes in the economic or regulatory environments in North Carolina or Texas could have an adverse impact on the Company.

North Carolina and Texas are the largest sources of premium revenue for the Company’s title insurance subsidiaries. In 2016, North Carolina and Texas represented 35.5% and 20.5% of total premiums written by the Company, respectively. A decrease in the level of real estate activity in either North Carolina and/or Texas, whether driven by weak economic conditions, changes in regulatory environments or other factors that influence demand, could have a negative impact on the Company’s financial results.

Adverse deviation of actual claims experience from expected claims experience will result in lower net earnings.

The Company’s net income is affected by the extent to which its actual claims experience differs from the assumptions used in establishing the reserve for claims. The reserve for claims is established based on actuarial estimates of future payments for reported claims, as well as claims which have been incurred but not yet reported. In addition, management considers factors such as the Company’s historical claims experience, case reserve estimates on reported claims, large claims and other relevant factors in determining loss provision rates and the aggregate recorded expected liability for claims.

Due to the nature of the underlying risks and the high degree of uncertainty associated with the estimation of the reserve for claims, the Company cannot determine precisely the amounts which it will ultimately pay to settle its claims. Factors contributing to the complexity in establishing reserves can include varying loss potentials, timing, unfavorable market or economic conditions and the legal environment. The timing of claims is difficult to estimate as payments may not occur until well into the future. Higher levels of defaults and foreclosures upon insured properties are more prevalent in times of unfavorable economic conditions and can lead to an increase in title insurance claims. The Company may also incur higher than normal claim payment experience or large losses. To the extent that actual claims experience is greater than estimated, the Company could be required to increase the reserve.

The Company’s insurance subsidiaries are subject to complex government regulations. Changes in regulations may have an adverse effect on the Company’s results of operations.

The Company’s title insurance subsidiaries are subject to extensive regulations that are intended to protect policyholders and consumers.

The Company’s title insurance subsidiaries are subject to regulations by the CFPB, created by the Dodd-Frank Act. The CFPB has extensive regulatory and enforcement authority over real estate and mortgage markets, including RESPA, the primary federal regulatory guidance governing the real estate settlement industry. The manner and extent to which the CFPB will implement new regulations is not fully known; however, any new regulations implemented could result in changes to internal processes through changes to systems and forms. Additionally, the CFPB has issued extensive regulations for the integration of mortgage disclosures which became effective on October 3, 2015. These new regulations impacted the way in which mortgage market participants create, process and deliver disclosures to consumers; however, implementation did not have a material impact on the Company’s financial position or results of operations.

In addition to federal regulation, title insurance subsidiaries are subject to state regulations. The nature and extent of state regulations, which vary from state to state, typically involve, among other matters, licensing and renewal requirements and trade and marketing practices, including, but not limited to the following:



•	licensing of insurers and agents;
•	capital and surplus requirements;
•	approval, regulation or establishment of premium rates for insurance;
•	limitations on types and amounts of investments;
•	limitations on the size of risks that may be insured by a single company;
•	filing of annual and other reports with respect to financial condition;
•	the amount of dividends and other payments made by insurance subsidiaries;
•	establishing reserves;
•	accounting and financing practices;
•	deposits of securities for the benefit of policyholders;
•	trade and marketing practices;
•	regulation of reinsurance;
•	approval of policy forms; and
•	use of personal information.

Insurance holding companies are subject to periodic examinations and the regulation of acquisitions, intercompany transactions and changes in control, among others, by state regulators.

The Company and its subsidiaries are also subject to certain federal regulations established by the Office of the Comptroller of Currency, the Federal Reserve and various other governmental agencies.

The Company’s other businesses also operate within state and federal guidelines. Any changes in the regulatory environment could restrict its existing or future operations and could possibly make it more burdensome and costly to conduct them.

New regulations, or differing interpretations of existing laws, could change business processes, products and services and have a negative impact on the Company’s results of operations and financial condition.

Competition affects the Company’s results of operations .

The title insurance industry is highly competitive with only a few insurers comprising a large percentage of the market. Key competitive factors are quality of service, price within regulatory parameters, expertise, timeliness and the financial strength and size of the insurer. Title insurance underwriters compete for premiums by choosing various distribution channels which may include company-owned operations, independent agents and agency relationships with real estate attorneys, subsidiaries of community and regional lending institutions, realtors, builders and other settlement service providers. Title insurance underwriters compete for agents on the basis of service, technology and commission levels. Some title insurers currently have greater financial resources, larger distribution networks and more extensive computerized databases of property records and information than the Company. The number and size of competing companies varies in the different geographic areas in which the Company operates, and any reductions to current regulatory barriers within any of the different geographic areas could increase the number of competitors entering into the title insurance market. Competition among the major providers of title insurance or the acceptance of alternative products to traditional title products by the regulatory authorities and the marketplace could adversely affect the Company’s operations and financial condition.

Deterioration in financial markets may cause a decline in the performance of the Company’s investments and could have a material adverse impact on net income.

The Company derives a substantial portion of its income from its investment portfolio. The Company’s investment policy is designed to comply with regulatory requirements and to balance the competing objectives of asset quality and investment returns. The Company’s investment portfolio is subject to risk from changes in general economic conditions, interest rates, liquidity, credit markets, and other external factors. The risk of loss is increased during periods of economic uncertainty and tight credit markets as these factors could limit the ability of some issuers to repay their debt obligations. If the carrying value of the Company’s investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, the Company will be required to write down the value of its investments, which could have a material negative impact on the Company’s results of operations and financial condition.

A downgrade from a rating agency could result in a loss of underwriting business.

The competitive positions of title insurance companies rely partly on ratings published by independent rating services. Government sponsored entities and lending institutions utilize these ratings, among other items, to evaluate a title insurer’s strength and stability. The Company’s title insurance subsidiaries are currently rated by A.M. Best Company, Kroll Bond Agency and Demotech, Inc. The ratings issued by independent rating agencies are not credit ratings, but represent the opinion of the individual rating agency in regards to the title insurance subsidiaries’ financial strength, operating performance, and ability to meet policyholder obligations. These insurer ratings are subject to periodic review and there can be no assurance that the Company’s insurance subsidiaries will maintain their current respective ratings. A significant downgrade in the ratings of either of the Company’s insurance subsidiaries could negatively impact the ability to compete for new business, retain existing business and maintain the necessary licenses to operate as title insurance companies in various states.

Unauthorized access to the Company’s systems, or other system interruptions, and unauthorized data disclosures may harm the Company’s reputation, disrupt the Company’s operations, or result in monetary losses.

The Company utilizes electronic systems to deliver products and services. These electronic systems are used to receive, process, store, and transmit data. Non-public information may include, but is not limited to, names, addresses, social security numbers, and banking information. In addition, the Company utilizes electronic systems to receive and transfer money. While the Company takes normal precautions to minimize the risk of unauthorized access to and disclosure of non-public information, this risk cannot be entirely eliminated. Events beyond the control of the Company, including unauthorized system intrusions, fraud, telecommunication failures or natural disasters could disrupt operations both internally and externally, increase the possibility of an unauthorized release of proprietary and/or non-public information, and increase the possibility of defalcation of corporate or client funds. Furthermore, certain laws to which the Company or its subsidiaries are subject and certain contracts to which they are party, particularly contracts with financial institutions, require notification to various parties, consumers and customers in the event that confidential or personal information may have been or was accessed by unauthorized third parties. Such an event could potentially result in a breach of contract, and any required notifications could result in, among other things, the loss of customers, negative publicity, distraction of management, fines, suits for breach of contract, regulatory inquiries or involvement and a decline in sales. To counter these risks, the Company invests significant resources in maintaining the security of our network and adapting to evolving security threats. The Company further mitigates the financial risk associated with unauthorized disclosure of non-public information by maintaining cyber liability insurance coverage.

Title insurance rate regulation could have an adverse impact on the Company’s results of operations.

Rates for title insurance vary by state and are subject to extensive regulation. Statutes generally provide that rates must not be excessive, inadequate or unfairly discriminatory. The process of implementing a rate change in most states involves pre-approval by the applicable state insurance regulator. This regulation could impact the Company’s ability to adjust prices in the face of rapidly changing market conditions, which could adversely affect results of operations.

The Company may encounter difficulties managing system or technological changes, which could adversely affect its financial and operating results.

Technological changes in the title insurance industry are driven primarily by evolution in technology, competitive factors, and regulatory changes. These changes have resulted in faster information delivery and efficient, highly automated production processes. The inability of the Company to manage, develop or successfully implement new systems or technological changes could negatively impact profitability.

Financial institution failures could adversely affect the Company.

The Company has substantial deposits with financial institutions, including fiduciary deposits that are owned by third parties. There is no guarantee the Company, whether through the Federal Deposit Insurance Corporation or otherwise, would recover the funds it has deposited should one or more of the financial institutions at which the Company maintains deposits fail.

The Company may encounter difficulties managing growth, which could adversely affect its results.

The Company’s future growth plans involve expansion into new geographic locations and further penetration into established markets through new or existing agents, or through acquisitions. Such growth may subject the Company to associated risks, such as the diversion of management’s attention. Furthermore, growth through acquisitions may subject the Company to additional risks, such as incurring unanticipated liabilities from an acquired business, not being able to integrate an acquired entity, retain its employees or customers or realize synergies. The occurrence of any of these risks may deprive the Company of some or all of the anticipated value of an acquisition or other growth initiatives, resulting in lower returns on investment and negative effects on the Company’s results of operations. These risks could be particularly significant if the Company incurs significant costs in pursuing an acquisition or other initiatives.

The Company depends on its ability to attract and retain key personnel and agents, and its inability to do so could adversely affect its business.

Competition for skilled and experienced personnel in the Company’s industry is high, and the success of the Company is substantially dependent on its ability to attract and retain such personnel. The Company may have difficulty hiring and retaining the necessary marketing and management personnel to support future growth plans. Also, the Company’s results of operations and financial condition could be adversely affected if it is unsuccessful in attracting and retaining new agents.

Regulatory investigations of the title insurance industry by governmental entities could adversely impact the Company’s results of operations.

The title insurance industry is subject to scrutiny by both federal and state regulators focusing on violations of state insurance codes, RESPA and similar state and federal laws, among others. The Company’s insurance subsidiaries routinely receive inquiries from regulators involving market conduct. Future inquiries could lead to fines for violations, settlements with regulating authorities that could result in fines or requirements to pay claims and the potential for further regulation, all of which could adversely affect the Company’s results of operations and financial condition.

Mortgage lending is highly concentrated and changes in relationships with lenders or reform of government-sponsored entities could adversely affect the Company.

In 2015, the 10 largest mortgage lenders accounted for slightly less than half of all mortgage originations in the United States. Refusal by major market lenders to accept our product offerings could have a material adverse effect on the Company. Furthermore, government-sponsored entities, Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), often require the purchase of title insurance for home loans they securitize. The federal government has had discussions about the possible reform of Fannie Mae and Freddie Mac. Changes to these entities could impact the entire mortgage loan process and as a result, could impact the demand for title insurance. The timing and results of reform are currently unknown; however, changes to these entities could adversely impact the Company and its results of operations.

Policies and procedures for the mitigation of risk may not be sufficient.

The Company has policies and procedures in place to help identify, analyze, and measure the risks associated with the issuance of title insurance policies, investment risks, interest rate risks and legal risks, among others. Because a significant degree of judgment is involved with the establishment of policies and processes as well as the measurement of risks, it is possible not all risks have been identified or anticipated. Misidentified or unanticipated risks could adversely impact the Company and its results of operations.

The Company relies on distributions from its insurance subsidiaries .

The Company is an insurance holding company and it has no substantial operations of its own. Its principal assets are investments in its operating subsidiaries, primarily its insurance subsidiaries. The Company’s ability to pay dividends and meet its obligations is dependent, among other factors, on the ability of its subsidiaries to pay dividends or repay intercompany loans. The Company’s insurance subsidiaries are subject to regulations that limit the amount of dividends, loans or advances they may make to the Company. The restriction on these amounts is based on the amount of the insurance subsidiaries’ unassigned surplus and net income, with certain adjustments. Additionally, these subsidiaries are required to maintain minimum amounts of capital, surplus and reserves. As of December 31, 2016, approximately $88,323,000 of consolidated stockholders’ equity represented the net assets of the Company’s subsidiaries that cannot be transferred in the form of dividends, loans or advances to the Company. In general, dividends in excess of prescribed limits are deemed “extraordinary” and require prior approval by the appropriate regulatory body. These dividend restrictions could limit the Company’s ability to pay dividends to its shareholders or fund growth opportunities.

Certain provisions of the Company’s shareholder rights plan may deter or discourage a takeover of the Company.

The Company has adopted a shareholder rights plan. The rights set forth in the plan are not intended to prevent a takeover of the Company, and we believe the rights would be beneficial to the Company and its shareholders in the event of negotiations with a potential acquirer. However, the shareholder rights plan could discourage transactions involving actual or potential changes of control, including transactions that may involve payment of a premium over prevailing market prices to the Company’s common shareholders.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

The Company owns two adjacent office buildings and property located on the corner of North Columbia and West Rosemary streets in Chapel Hill, North Carolina, which serve as the Company’s corporate headquarters. The main building contains approximately 23,000 square feet and has on-site parking facilities. The Company’s subsidiaries, principally ITIC and NITIC, lease office space in 37 locations throughout North Carolina, South Carolina, Texas and Nebraska. The Company believes that each of the office facilities occupied by the Company and its subsidiaries are in good condition, adequately insured and sufficient for its present operations.

ITEM 3. LEGAL PROCEEDINGS

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.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock Data and Dividends

The Common Stock of the Company is traded under the symbol “ITIC” on the NASDAQ Stock Market LLC. The number of record holders of common stock at December 31, 2016 was 286. The number of record holders is based upon the actual number of holders registered on the books of the Company at such date and does not include holders of shares in “street name” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by securities depositories. The following table shows, for the periods indicated, the high and low sales prices of the Company’s Common Stock as reported on the NASDAQ Global Market, and cash dividends declared.



	2016						2015
	High		Low		Dividend Paid		High		Low		Dividend Paid
First Quarter	$	99.89	$	76.35	$	0.16	$	81.75	$	66.55	$	0.08
Second Quarter	$	106.80	$	82.13	$	0.16	$	77.75	$	69.51	$	0.08
Third Quarter	$	102.70	$	88.70	$	0.20	$	72.50	$	67.25	$	0.08
Fourth Quarter	$	174.10	$	93.78	$	0.20	$	102.41	$	71.00	$	0.16

The Company’s current dividend policy anticipates the payment of quarterly dividends in the future. The declaration and payment of dividends will be at the discretion of the Board of Directors and will be dependent upon the Company’s future earnings, financial condition and capital requirements. The Company’s ability to pay dividends is also subject to certain regulatory restrictions on the payment of dividends by its insurance subsidiaries as described in the “Liquidity and Capital Resources” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 2 to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

For the quarter ended December 31, 2016 , the Company did not purchase any shares of the Company’s common stock pursuant to the Company’s ongoing purchase program that was initially announced on June 5, 2000. On November 9, 2015, the Board of Directors of the Company approved the purchase of an additional 163,335 shares pursuant to the Company’s repurchase plan, such that there was authority remaining under the plan to purchase up to an aggregate of 500,000 shares of the Company’s common stock pursuant to the plan immediately after this approval. During the year ended December 31, 2016, the Company purchased a total of 66,803 shares of the Company’s common stock at an average per share price of $93.10 under the Company’s repurchase plan. As of December 31, 2016, there was authority remaining under the plan to purchase up to an aggregate of 429,777 shares of the Company’s common stock. Unless terminated earlier by resolution of the Board of Directors, the plan will expire when all shares authorized for purchase under the plan (as such number may be amended by the Board from time to time) have been purchased. The Company anticipates making further purchases under this plan from time to time in the future, depending on such factors as the prevailing market price of the Company’s common stock, the Company’s available cash and then existing alternative uses for such cash.

Common Stock Performance Graph

Presented below is a line graph comparing the yearly percentage change in the cumulative total return on the Company’s common stock to the cumulative return of the NASDAQ Composite Index and a peer group consisting of certain companies in the title insurance industry (SIC Code 6361) for the period commencing December 31, 2011 and ending December 31, 2016. The graph assumes that $100 was invested in the Company’s common stock, the NASDAQ Composite Index and the peer group on December 31, 2011 and that all dividends were reinvested on a quarterly basis. Returns for the companies included in the peer group have been weighted on the basis of the total market capitalization for each company.

The performance graph above and the related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Exchange Act, as amended, except to the extent that the Company specifically incorporates it by reference into such filing.

ITEM 6. SELECTED FINANCIAL DATA

(amounts in thousands except per share data)



For the Year	2016			2015			2014			2013			2012
Net premiums written	$	122,095		$	112,476		$	109,964		$	113,886		$	102,331
Investment income	4,684			4,531			4,260			3,895			3,980
Revenues	138,492			127,200			123,119			126,251			115,079
Net income attributable to the Company	19,523			12,534			9,649			14,708			11,102

Per Share Data
Basic earnings per common share	$	10.23		$	6.32		$	4.75		$	7.15		$	5.33
Weighted average shares outstanding – Basic	1,908			1,984			2,032			2,056			2,082
Diluted earnings per common share	$	10.19		$	6.30		$	4.74		$	7.08		$	5.24
Weighted average shares outstanding – Diluted	1,915			1,990			2,038			2,077			2,117
Cash dividends per share	$	0.72		$	0.40		$	0.32		$	0.32		$	0.29

At Year-End
Assets	$	228,938		$	211,522		$	198,039		$	188,306		$	171,918
Investments	160,854			160,552			159,411			142,764			130,779
Stockholders’ equity attributable to the Company	155,045			142,670			137,564			128,062			114,639
Book value/share attributable to the Company	82.28			73.17			67.99			62.86			56.10

Performance Ratios
Net income attributable to the Company to:
Average stockholders’ equity attributable to the Company	13.12		%	8.95		%	7.27		%	12.12		%	10.04		%
Total revenues	14.10		%	9.85		%	7.84		%	11.65		%	9.65		%

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes in this report. Forward-looking statements are based on certain assumptions and expectations of future events that are subject to a number of risks and uncertainties. Actual results may vary.

Overview

Investors Title Company (the “Company”) is a holding company that engages primarily in issuing title insurance through two subsidiaries, Investors Title Insurance Company (“ITIC”) and National Investors Title Insurance Company (“NITIC”). Total revenues from the title segment accounted for 95.3% of the Company’s revenues in 2016 . Through ITIC and NITIC, the Company underwrites land title insurance for owners and mortgagees as a primary insurer. Title insurance protects against loss or damage resulting from title defects that affect real property.

Title insurance policies for mortgage lenders and real estate owners are the two basic types of title insurance policies. A lender often requires the property owner to purchase a lender’s title insurance policy to protect its position as a holder of a mortgage loan, but the lender’s title insurance policy does not protect the property owner. The property owner has to purchase a separate owner’s title insurance policy to protect its investment. When real property is conveyed from one party to another, occasionally there is an undisclosed defect in the title or a mistake or omission in a prior deed, will or mortgage that may give a third party a legal claim against such property. If a covered claim is made against real property, title insurance provides indemnification against insured defects.

The Company issues title insurance policies through its home and branch offices and through a network of agents. Issuing agents are typically real estate attorneys, independent agents or subsidiaries of community and regional mortgage lending institutions, depending on local customs and regulations and the Company’s marketing strategy in a particular territory. The ability to attract and retain issuing agents is a key determinant of the Company’s growth in title insurance premiums written.

Revenues for this segment primarily result from purchases of new and existing residential and commercial real estate, refinance activity and certain other types of mortgage lending such as home equity lines of credit.

Title insurance premiums vary from state to state and are subject to extensive regulation. Statutes generally provide that rates must not be excessive, inadequate or unfairly discriminatory. The process of implementing a rate change in most states involves pre-approval by the applicable state insurance regulator.

Volume is a factor in the Company’s profitability due to fixed operating costs which are incurred by the Company regardless of title insurance premium volume. The resulting operating leverage tends to amplify the impact of changes in volume on the Company’s profitability. The Company’s profitability also depends, in part, upon its ability to manage its investment portfolio to maximize investment returns and minimize risks such as interest rate changes, defaults and impairments of assets.

The Company’s volume of title insurance premiums is affected by the overall level of residential and commercial real estate activity, which includes sales, mortgage financing and mortgage refinancing. Real estate activity, home sales and mortgage lending are cyclical in nature. In turn, real estate activity is affected by a number of factors, including the availability of mortgage credit, the cost of real estate, consumer confidence, employment and family income levels and general United States economic conditions. Interest rate volatility is also an important factor in the level of residential and commercial real estate activity.

The Company’s title insurance premiums in future periods are likely to fluctuate due to these and other factors which are beyond management’s control.

Services other than title insurance provided by operating divisions of the Company are not reported separately and are reported collectively in a category called “All Other.” These other services include those offered by the Company and by its wholly owned subsidiaries, Investors Title Exchange Corporation (“ITEC”), Investors Title Accommodation Corporation (“ITAC”), Investors Trust Company (“Investors Trust”) and Investors Title Management Services, Inc. (“ITMS”).

The Company’s exchange services division, consisting of the operations of ITEC and ITAC, provides customer services in connection with tax-deferred real property exchanges. ITEC serves as a qualified intermediary in like-kind exchanges of real or personal property under Section 1031 of the Internal Revenue Code of 1986, as amended. In its role as qualified intermediary, ITEC coordinates the exchange aspects of the real estate transaction, and its duties include drafting standard exchange documents, holding the exchange funds between the sale of the old property and the purchase of the new property, and accepting the formal identification of the replacement property within the required identification period. ITAC serves as exchange accommodation titleholder in reverse exchanges. An exchange accommodation offers a vehicle for accommodating a reverse exchange when the taxpayer must acquire replacement property before selling the relinquished property.

The Company’s trust services division, Investors Trust, provides investment management and trust services to individuals, companies, banks and trusts.

ITMS offers various consulting services to provide clients with the technical expertise to start and successfully operate a title insurance agency.

Business Trends and Recent Conditions

The housing market is heavily influenced by overall economic conditions and government policies. Initiatives undertaken by various governmental agencies could ease barriers to home ownership and help instill consumer confidence. Regulatory changes and reform of government-sponsored entities could impact lending standards or the processes and procedures used by the Company. The current real estate environment, including interest rates and general economic activity, typically influence the demand for real estate. Any of these factors would likely impact the Company's results of operations.

Current Initiatives

In efforts to provide transparency, the Federal Open Market Committee (“FOMC”) of the Federal Reserve issues disclosures on a periodic basis that include projections of the federal funds rate and expected actions. At the December 2015 meeting, the FOMC voted to raise the federal funds rate for the first time since December 2008 to a target range between 0.25% and 0.50%. The FOMC voted at the December 2016 meeting to increase interest rates to a target range between 0.50% and 0.75%. Any future adjustments to the rate are expected to be based on realized and expected economic developments to achieve maximum employment and 2.0% inflation. The FOMC anticipates future economic conditions to evolve in ways that will warrant gradual increases, and that for some time, the federal funds rate is expected to be below long range levels.

On October 20, 2014, the Federal Housing Finance Agency ("FHFA"), which regulates the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), announced that Fannie Mae and Freddie Mac were negotiating guidelines with mortgage lenders that resulted in less strict lending requirements and lower barriers to mortgage loans for borrowers who are seeking access to home loans. The FHFA noted in its announcement that it intended to clarify the rules that allow Fannie Mae and Freddie Mac to require mortgage lenders to repurchase troubled loans. The FHFA also sought to increase the supply of credit available, particularly to creditworthy lower and middle-income families, by collaborating with mortgage lenders to provide guidelines for mortgage loans with down payments as low as 3.0%. In December 2014, both Fannie Mae and Freddie Mac officially approved 97.0% loan-to-value products (3.0% down payment mortgages). The Fannie Mae program is targeted to first-time home buyers and became available to lenders in December 2014. The Freddie Mac program became available to lenders on March 23, 2015 and is available to both first-time home buyers and other qualified borrowers with limited down payment savings.

In an effort to expand home ownership for lower-income buyers, the Federal Housing Authority (“FHA”) announced in January 2015 that it would cut its rates on mortgage insurance premiums. Mortgage insurance premium rates for 30-year FHA insured mortgages with less than a 5.0% down payment decreased from 1.35% to 0.85%. Mortgage insurance premium rates for 30-year FHA insured mortgages with more than a 5.0% down payment decreased from 1.30% to 0.80%. The new rates took effect on January 26, 2015 and will not apply to borrowers with existing mortgages, unless refinanced, or to 15-year mortgages.

Regulation and Reform

In 2008, the federal government took control of Fannie Mae and Freddie Mac in an effort to keep these government-sponsored entities from failing. The primary functions of Fannie Mae and Freddie Mac are to provide liquidity to the nation's mortgage finance system by purchasing mortgages on the secondary market, pooling them and selling them as mortgage-backed securities. In order to securitize, Fannie Mae and Freddie Mac typically require the purchase of title insurance for loans they acquire. Since the federal takeover, there have been various discussions and proposals regarding their reform. Changes to these entities could impact the entire mortgage loan process and, as a result, could affect the demand for title insurance. The timing and results of reform are currently unknown; however, any changes to these entities could affect the Company and its results of operations.

On August 15, 2016, the Consumer Financial Protection Bureau (“CFPB”) proposed various amendments to federal mortgage disclosure requirements under the Real Estate Settlement Procedures Act and the Truth in Lending Act that are implemented in Regulation Z. The proposed amendments would reinforce the CFPB’s informal guidance on various issues and include clarifications and technical amendments. The CFPB also proposed changes that would create tolerances for the total of payments; adjust a partial exemption that mainly affects housing finance agencies and nonprofits; provide a uniform rule regarding application of the integrated mortgage disclosure requirements to cooperative units; and provide guidance on sharing the disclosures with various parties involved in the mortgage origination process. The comment period on the proposed rule changes closed October 18, 2016. The proposed rules, if adopted, are not expected to have a material impact on the Company.

Real Estate Environment

Overall, the economy is expanding and there has been a steady reduction in unemployment in recent years. The Mortgage Bankers Association's (“MBA”) January 2017 Economic and Mortgage Finance Commentary predicts 2017 overall growth in the gross domestic product of approximately 2.1% with continued improvement in the employment rate as the economy adds approximately 150,000 jobs per month. As the economy continues to improve, higher inflation will likely ensue, leading to higher interest rates. It is projected that the FOMC will raise the federal funds rate 3 times during 2017.

The MBA January 19, 2017 Mortgage Finance Forecast (“MBA Forecast”) projects 2017 purchase activity to increase 10.3% to $1,092 billion and refinance activity to decrease 47.7% to $471 billion, resulting in a decrease in total mortgage originations of 17.3% to $1,563 billion, all from 2016 levels. In 2016 , purchase activity accounted for 52.4% of all mortgage originations and is projected to represent 69.9% of all mortgage originations in 2017.

According to data published by Freddie Mac, the average 30-year fixed mortgage interest rate in the United States was 3.6%, 3.8% and 4.2% for the years ended December 31, 2016, 2015 and 2014, respectively. Per the MBA Forecast, refinancing is expected to be lower in 2017 as mortgage interest rates continue to climb to a projected 4.7% in the fourth quarter of 2017.

Historically, activity in real estate markets has varied over the course of market cycles by geographic region and in response to evolving economic factors. Operating results can vary from year to year based on cyclical market conditions and do not necessarily indicate the Company's future operating results and cash flows.

Acquisition of University Title

In October 2016, National Investors Holdings, LLC ("NIH"), a subsidiary of the Company, acquired all of the outstanding shares of University Title Company (“University”), a title insurance agency doing business in the state of Texas. NIH paid $10 million plus a $918,000 adjustment for University’s net cash position at closing to the shareholders of University. The acquisition was partially financed with loan proceeds from a Business/Commercial Loan Agreement and related Promissory Note (collectively, the “Loan Agreement”) with a bank, pursuant to which the bank loaned the Company the principal amount of $6 million . The Company paid off all amounts due under the Loan Agreement in December 2016, and therefore has no liabilities related to the Loan Agreement as of December 31, 2016.

Critical Accounting Estimates and Policies

This discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s accompanying Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The Company’s management makes various estimates and judgments when applying policies affecting the preparation of the Consolidated Financial Statements. Actual results could differ from those estimates. Significant accounting policies of the Company are discussed in Note 1 to the accompanying Consolidated Financial Statements. Following are the accounting estimates and policies considered critical to the Company.

Reserve for Claim Losses

The Company’s reserve for claims is established using estimates of 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”). The total reserve for all losses incurred but unpaid as of December 31, 2016 is represented by the reserve for claims totaling $35,305,000 in the accompanying Consolidated Balance Sheets. Of that total, approximately $4,405,000 was reserved for specific claims which have been reported to the Company, and approximately $30,900,000 was reserved for IBNR claims.

A provision for estimated future claims payments is recorded at the time the related policy revenue is recorded. The Company records the claims provision as a percentage of net premiums written. This loss provision rate is set to provide for losses on current year policies. 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 its loss provision rates and the aggregate recorded expected liability for claims. In establishing the reserve, actuarial projections are compared with recorded reserves to evaluate the adequacy of such recorded claims reserves and any necessary adjustments are then recorded in the current period’s income statement. 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 the reserve in the results of operations in the period in which new information (principally claims experience) becomes available.

The Company initially reserves for each known claim based upon an assessment of specific facts and updates the reserve amount as necessary over the course of administering each claim. Loss ratios for earlier years tend to be more reliable than recent policy years, as those years are more fully developed. In making loss estimates, management determines a loss provision rate, which it then applies to net premiums written.

The Company assumes the reported liability for known claims and IBNR, in the aggregate, will be comparable to its historical claims experience unless factors, such as loss experience and charged premium rates, change significantly. Also affecting the Company’s assumptions are large losses related to fraud and defalcation, as these can cause significant variances in loss emergence patterns. Management defines a large loss as one where incurred losses exceed $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. The loss provision rate is set to provide for losses on current year policies and changes in prior year estimates.

Management also considers actuarial analyses in evaluating the claims reserve. The actuarial methods used to evaluate the reserve are loss development methods, Bornhuetter-Ferguson methods and Cape Cod methods, all of which are accepted actuarial methods for estimating ultimate losses and, therefore, loss reserves. In the loss development method, each policy year’s paid or incurred losses are projected to an “ultimate” level using loss development factors. In the Bornhuetter-Ferguson method, a type of expected loss method, losses for each policy year are estimated based on an expected loss ratio derived directly from a previous estimate of ultimate loss for each policy year plus an additional provision for losses that have not been reported or paid as of the evaluation date. Bornhuetter-Ferguson methods produce more stable ultimate loss estimates than do loss development methods, which are more responsive to the current loss data but can lead to volatile results. The Cape Cod method, a special case of the Bornhuetter-Ferguson method, blends the results of the loss development and expected loss methods. For more recent policy years, the Cape Cod method gives more weight to the results of the expected loss methods; for older policy years, more weight is given to the loss development method results.

The key actuarial assumptions are principally loss development factors and expected loss ratios. The selected loss development factors are based on a combination of the Company’s historical loss experience and title industry loss experience. Expected loss ratios are estimated for each policy year based on the Company’s own experience and title industry loss ratios. When updated data is incorporated into the actuarial models, the resulting loss development factors and expected loss ratios will likely change from the prior values. Changes in these values from 2014 through 2016 have been the result of actual Company and industry experience during the calendar years.

If one or more of the variables or assumptions used changed such that the Company’s recorded loss ratio, or loss provision as a percentage of net title premiums, increased or decreased three loss ratio percentage points, the impact on after-tax income for the year ended December 31, 2016 would be as follows:



Increase in Loss Ratio of three percentage points	$	(2,417,000	)
Decrease in Loss Ratio of three percentage points	$	2,417,000

Company management believes that using a sensitivity of three loss percentage points for the loss ratio provides a reasonable benchmark for analysis of the calendar year loss provision of the Company based on historical loss ratios by year.

Despite the variability of such estimates, management believes that, based on historical claims experience and actuarial analysis, the Company’s reserve is adequate to cover claim losses resulting from pending and future claims for policies issued through December 31, 2016 . The ultimate settlement of claims will likely vary from the reserve estimates included in the Company’s Consolidated Financial Statements. The Company continually reviews and adjusts its reserve estimates to reflect its loss experience and any new information that becomes available. There are no known claims that are expected to have a material adverse effect on the Company’s financial position or operating results.

Premiums Written and Commissions to Agents

Generally, title insurance premiums are recognized at the time of settlement of the related real estate transaction, as the earnings process is then considered complete, irrespective of the timing of the issuance of a title insurance policy or commitment. Expenses typically associated with premiums, including agent commissions, premium taxes, and the provision for future claims are recognized concurrent with recognition of related premium revenue.

Premium revenues from certain agency operations include accruals for transactions which have settled but have not been reported as of the balance sheet date. These accruals are based on estimates of the typical lag time between settlement of real estate transactions and the agent’s reporting of these transactions to the Company. Reporting lag times vary by market. In certain markets, the lag time may be very short, but in others, can be as high as 100 days. The Company reviews and adjusts lag time estimates periodically, using historical experience and other factors, and reflects any adjustments in the result of operations in the period in which new information becomes available.

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.

Valuation and Impairment of Investments in Securities

Securities held principally for resale in the near term are classified as trading securities and recorded at fair value. 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 estimated fair value with unrealized gains and losses, net of tax, adjusted for other-than-temporary declines in estimated fair value, reported as accumulated other comprehensive income. As of December 31, 2016 and 2015 , all of the Company’s invested securities were classified as available-for-sale. Realized gains and losses on the sales of investments are determined using the specific identification method.

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 estimated fair value is other-than-temporary. When, in the opinion of management, a decline in the estimated fair value of an investment is considered to be other-than-temporary, such investment is written down to its estimated fair value. Some factors considered in evaluating whether or not a decline in estimated fair value is other-than-temporary include, but are not limited to:


•	the duration and extent to which the fair value has been less than cost;


•	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; and


•	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.

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. See Note 3 to the Consolidated Financial Statements included in this Annual Report on Form 10-K for further information about the Company’s valuation techniques.

Deferred Taxes

The Company recorded net deferred tax liabilities at December 31, 2016 and 2015. The deferred tax liabilities recorded during both periods primarily relate to net unrealized gains on investments, the recorded reserve for claims, net of statutory premium reserves and the excess of tax over book depreciation. The 2016 balance also includes deferred tax liabilities related to intangible assets. See Note 8 to the Consolidated Financial Statements in this Annual Report on Form 10-K for further information on the Company’s deferred taxes.

Cyclicality and Seasonality

Real estate activity, home sales and mortgage lending are cyclical in nature. Title insurance premiums are closely related to the level of real estate activity and the average price of real estate sales. Factors directly impacting real estate sales include mortgage interest rates and the availability of funds, consumer confidence, economic conditions, supply and demand and family income levels. The Company’s premiums in future periods are likely to fluctuate due to these and other factors which are beyond management’s control.

Historically, the title insurance business tends to be seasonal as well as cyclical. Because home sales are typically strongest in periods of favorable weather, the first calendar quarter tends to have the lowest activity levels, while the spring and summer seasons tend to be more active. Refinance activity is generally less seasonal, but is subject to interest rate fluctuations.

Results of Operations

The following table presents certain income statement data for the years ended December 31, 2016, 2015 and 2014:



For the Years Ended December 31,	2016		2015			2014
Revenues:
Net premiums written	$	122,095,381	$	112,475,686		$	109,963,556
Investment income – interest and dividends	4,684,489		4,531,319			4,259,501
Net realized gain (loss) on investments	768,436		(116,163		)	268,294
Other	10,944,108		10,309,230			8,627,935
Total Revenues	138,492,414		127,200,072			123,119,286

Operating Expenses:
Commissions to agents	63,643,321		62,174,301			65,632,353
Provision for claims	242,953		4,478,494			5,229,716
Salaries, employee benefits and payroll taxes	31,372,099		28,041,213			25,218,225
Office occupancy and operations	6,265,908		5,885,336			5,049,962
Business development	2,511,699		2,373,270			2,333,491
Filing fees, franchise and local taxes	907,225		732,985			817,909
Premium and retaliatory taxes	2,202,595		2,161,571			1,851,767
Professional and contract labor fees	2,115,754		2,691,411			2,676,483
Other	1,099,408		884,438			820,882
Total Operating Expenses	110,360,962		109,423,019			109,630,788

Income before Income Taxes	28,131,452		17,777,053			13,488,498

Provision for Income Taxes	8,616,000		5,228,000			3,816,000

Net Income Attributable to the Company	$	19,523,118	$	12,533,905		$	9,648,975

Insurance and Other Services Revenue

Insurance and other services revenues include net premiums written plus other fee income, trust income, management services income, and exchange services income. Investment income and realized investment gains and losses are not included in insurance and other service revenues and are discussed separately under “Investment-Related Revenues” below. The following is a summary of the Company’s insurance and other services revenues with intersegment eliminations netted with each segment; therefore, the individual segment amounts will not agree to Note 12 in the accompanying Consolidated Financial Statements.



	2016		%		2015		%		2014		%
Title Insurance	$	127,228,426	95.6	%	$	117,281,588	95.5	%	$	113,592,742	95.8	%
All Other	5,811,063		4.4	%	5,503,328		4.5	%	4,998,749		4.2	%
Total	$	133,039,489	100.0	%	$	122,784,916	100.0	%	$	118,591,491	100.0	%

Title Insurance

Net Premiums : Net premiums written increased 8.6% in 2016 to $122,095,381 compared with $112,475,686 in 2015 , and increased 2.3% in 2015 compared with $109,963,556 in 2014 . The increase in 2016 net premiums versus the prior year is primarily attributable to growth in average real estate values, coupled with growth in transaction volumes stemming from higher levels of home sales and refinance activity. The 2015 increase in net premiums versus the prior year is primarily attributable to an increase in the level of both purchase and refinance transactions.

Title insurance companies typically issue title insurance policies directly through home and branch offices or through title agencies. Following is a breakdown of premiums generated by branch and agency operations for the years ended December 31:



	2016		%		2015		%		2014		%
Home and Branch	$	34,063,187	27.9	%	$	28,400,531	25.3	%	$	24,057,032	21.9	%
Agency	88,032,194		72.1	%	84,075,155		74.7	%	85,906,524		78.1	%
Total	$	122,095,381	100.0	%	$	112,475,686	100.0	%	$	109,963,556	100.0	%

Home and Branch Office Net Premiums: In the Company’s home and branch operations, the Company issues the insurance policy and retains the entire premium, as no commissions are paid in connection with these policies. Net premiums written from home and branch operations increased 19.9% in 2016 to $34,063,187 compared with $28,400,531 in 2015 , and increased 18.1% in 2015 compared with $24,057,032 in 2014 . The increase in 2016 net premiums was primarily related to revised premium rates filed in North Carolina and higher levels of real estate activity and overall higher home prices. Real estate activity increased due to favorable interest rates and economic conditions. The increase in 2015 net premiums was primarily attributable to higher levels of real estate activity and overall higher home prices.

During the quarter ended March 31, 2016, the North Carolina Title Insurance Rating Bureau, which establishes premium rates for title insurance in North Carolina, and of which Investors Title Insurance Company is a member, filed updated premium rates that took effect on April 1, 2016. The revised rates positively impacted premiums by approximately $3,950,000 for 2016.

All of the Company’s home office operations and the majority of branch offices are located in North Carolina; as a result, the home and branch office net premiums written are primarily for North Carolina title insurance policies.

Agency Net Premiums: When a policy is written through a title agency, the premium is shared between the agency and the underwriter. Total premiums include an estimate of premiums for policies that have been issued by agents, but not reported to the Company as of the balance sheet date. To determine the estimated premiums, the Company uses historical experience, as well as other factors, to make certain assumptions about the average elapsed time between the policy effective date and the date the policies are reported. From time to time, the Company adjusts the inputs to the estimation process as agents report transactions and new information becomes available. In addition to estimating revenues, the Company also estimates and accrues agent commissions, claims provision, premium taxes, income taxes, and other expenses associated with the estimated revenues that have been accrued. The Company reflects any adjustments to the accruals in the result of operations in the period in which new information becomes available.

Agency net premiums written increased 4.7% in 2016 to $88,032,194 compared with $84,075,155 in 2015 , and decreased 2.1% in 2015 compared with $85,906,524 in 2014 . The increase in 2016 agency premiums was primarily attributable to higher levels of real estate activity from existing agents, overall higher home prices, and the addition of new title insurance agents in the Company’s southeast and Texas markets. The decrease in 2015 agency premiums was primarily attributable to a decrease in the amount of premiums written for the Company by one agent in the Texas market, partially offset by increases in premiums in most states in which the Company operates due to higher average real estate prices and increased real estate activity.

Agency Relationship: The Company received a significant percentage of its net premiums written from a single title agent in 2015 and 2014 that was acquired by another title insurer in 2015. Net premiums written by this agent are for title insurance policies written in Texas. For further details, refer to Note 11 to the Notes to Consolidated Financial Statements herein.

Following is a schedule of net premiums written in select states in which the Company’s two insurance subsidiaries, ITIC and NITIC, currently underwrite title insurance:



State	2016			2015			2014
North Carolina	$	43,439,451		$	36,921,195		$	31,264,486
Texas	25,088,421			25,211,496			40,139,495
South Carolina	12,259,739			11,327,702			8,462,014
Georgia	10,981,062			7,682,820			4,335,216
Virginia	6,052,602			5,706,769			4,821,900
All Others	24,397,802			25,806,768			21,042,470
Premiums Written	122,219,077			112,656,750			110,065,581
Reinsurance Assumed	17,246			33,603			37,992
Reinsurance Ceded	(140,942		)	(214,667		)	(140,017		)
Net Premiums Written	$	122,095,381		$	112,475,686		$	109,963,556

Other Revenues

Other revenues primarily include other fee income, trust income, management services income, exchange services income, and income related to the Company’s equity method investments. Other revenues were $10,944,108, $10,309,230 and $8,627,935 in 2016 , 2015 and 2014 , respectively. Other revenues increased in 2016 compared with 2015 primarily due to increases in title fees, exchange services income and management services income, partially offset by a decrease in earnings of unconsolidated affiliates. Other revenues increased in 2015 compared with 2014 primarily due to increases in earnings of unconsolidated affiliates, title fees and exchange services income, partially offset by a decline in trust and investment management services income.

Investment Related Revenues

Investment income and realized gains and losses from investments are included in investment related revenues.

Investment Income

The Company derives a substantial portion of its income from investments in municipal and corporate bonds and equity securities. The Company's title insurance subsidiaries are required by statute to maintain minimum levels of investments in order to protect the interests of policyholders. The Company’s investment policy is designed to comply with regulatory requirements and to balance the competing objectives of asset quality and investment returns. The Company’s title insurance subsidiaries are required by statute to maintain minimum levels of investments in order to protect the interests of policyholders. Bonds totaling approximately $6,843,000 and $7,159,000 at December 31, 2016 and 2015 , respectively, are deposited with the insurance departments of the states in which business is conducted.

The Company’s investment strategy emphasizes after-tax income and principal preservation. The Company’s investments are primarily in bonds and, to a lesser extent, equity securities. The average effective maturity of the majority of the bonds is less than 10 years. The Company’s invested assets are managed to fund its obligations and evaluated to ensure long term stability of capital accounts.

As the Company generates cash from operations, it is invested in accordance with the Company’s investment policy and corporate goals. The Company’s investment policy has been designed to balance multiple goals, including the assurance of a stable source of income from interest and dividends, the preservation of principal, and the provision of liquidity sufficient to meet insurance underwriting and other obligations as they become payable in the future. Securities purchased may include a combination of taxable bonds, tax-exempt bonds and equity securities. The Company strives to maintain a high quality investment portfolio. Interest and investment income levels are primarily a function of general market performance, interest rates and the amount of cash available for investment.

Investment income was $4,684,489 in 2016 compared with $4,531,319 in 2015 and $4,259,501 in 2014 . The increases in investment income year over year were primarily due to higher average portfolio balances for both fixed maturities and equity securities compared with the previous years. See Note 3 in the accompanying Consolidated Financial Statements for the major categories of investments, scheduled maturities, amortized cost, fair values of investment securities and earnings by security category.

Net Realized Gain (Loss) on Investments

Dispositions of equity securities at a realized gain or loss reflect such factors as industry sector allocation decisions, ongoing assessments of issuers’ business prospects and tax planning considerations. Additionally, the amounts of net realized investment gains and losses are affected by assessments of securities’ valuation for other-than-temporary impairment. As a result of the interaction of these factors and considerations, the net realized investment gain or loss can vary significantly from period to period.

The net realized gain (loss) on investments was $768,436 for 2016 compared with $(116,163) for 2015 and $268,294 for 2014. The net realized gain (loss) on investments included impairment charges of $233,941, $984,128 and $24,604, on certain investments and other assets that were deemed to be other-than-temporarily impaired in 2016, 2015 and 2014, respectively, offset by a net realized gain on the sales of investments and other assets of $1,002,377, $867,965 and $292,898 in 2016, 2015, and 2014, respectively. Management believes unrealized losses on remaining fixed income and equity securities at December 31, 2016 are temporary in nature.

The securities in the Company’s investment portfolio are subject to economic conditions and market risks. The Company considers relevant facts and circumstances in evaluating whether a credit or interest-related impairment of a security is other-than-temporary. Relevant facts and circumstances include the extent and length of time the fair value of an investment has been below cost.

There are a number of risks and uncertainties inherent in the process of monitoring impairments and determining if an impairment is other-than-temporary. These risks and uncertainties include the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated; the risk that the Company’s assessment of an issuer’s ability to meet all of its contractual obligations will change based on changes in the characteristics of that issuer; the risk that information obtained by the Company or changes in other facts and circumstances leads management to change its intent to hold the equity security until it recovers in value or its intent to sell the debt security; and the risk that management is making decisions based on misstated information in the financial statements provided by issuers.

Expenses

The Company’s operating expenses consist primarily of commissions to agents, salaries, employee benefits and payroll taxes, office occupancy and operations and the provision for claims. Operating expenses increased 0.9% in 2016 compared with 2015 primarily due to increases in salaries, employee benefits and payroll taxes and commissions to agents, mostly offset by a decrease in the provision for claims. Operating expenses decreased 0.2% in 2015 compared with 2014 primarily due to decreases in commissions to agents and the provision for claims, partially offset by increases in salaries, employee benefits and payroll taxes and office occupancy and operations.

Following is a summary of the Company’s operating expenses for 2016 , 2015 and 2014 . Intersegment eliminations have been netted; therefore, the individual segment amounts will not agree to Note 12 in the accompanying Consolidated Financial Statements.



	2016		%		2015		%		2014		%
Title Insurance	$	103,828,173	94.1	%	$	102,895,701	94.0	%	$	103,850,090	94.7	%
All Other	6,532,789		5.9	%	6,527,318		6.0	%	5,780,698		5.3	%
Total	$	110,360,962	100.0	%	$	109,423,019	100.0	%	$	109,630,788	100.0	%

On a combined basis, the after-tax profit margins were 14.1%, 9.9% and 7.8% in 2016 , 2015 and 2014 , respectively. The Company continually strives to enhance its competitive strengths and market position, including ongoing initiatives to manage its operating expenses.

Total Company

Salaries, Employee Benefits and Payroll Taxes : Personnel costs include base salaries, benefits and bonuses paid to employees. Salaries, employee benefits and payroll taxes were $31,372,099, $28,041,213 and $25,218,225 for 2016 , 2015 and 2014 , respectively. Salaries and related costs increased by approximately 11.9% in 2016 from 2015 and increased 11.2% in 2015 from 2014 . The increase in 2016 compared with 2015 was primarily related to higher levels of incentive compensation, inflationary increases in salaries and benefits, payroll expenses associated with Texas title agency University Title, which was acquired in the fourth quarter, and increases in staffing levels to accommodate higher volume. The increase in 2015 compared with 2014 was primarily related to inflationary increases in salaries and benefits, higher staffing levels to support ongoing software development activities and higher levels of incentive compensation. On a consolidated basis, salaries and employee benefits as a percentage of total revenues were 22.7%, 22.0% and 20.5% in 2016 , 2015 and 2014 , respectively.

Office Occupancy and Operations : Office occupancy and operations expenses primarily include office rent and utilities, depreciation, maintenance, telecommunications and insurance expenses. Overall office occupancy and operations expenses were $6,265,908, $5,885,336 and $5,049,962 for 2016, 2015 and 2014, respectively. The increase in office occupancy and operations expense in 2016 compared with 2015 was primarily related to increases in maintenance and depreciation, partially offset by decreases in printing and telecommunications. The increase in office occupancy and operations expense in 2015 compared with 2014 was primarily related to increases in depreciation, maintenance and telecommunications. Office occupancy and operations expenses as a percentage of total revenues were 4.5%, 4.6% and 4.1% for 2016, 2015 and 2014 , respectively.

Business Development: Business development expenses primarily include marketing and travel-related expenses. Business development expenses increased to $2,511,699 in 2016 compared with $2,373,270 in 2015 and $2,333,491 in 2014 , primarily due to increases in travel and marketing expenses.

Filing Fees, Franchise and Local Taxes : Filing fees, franchise and local tax expenses include insurance filing and licensing fees, franchise taxes, excise taxes and local taxes. Filing fees, franchise and local tax expenses were $907,225 in 2016 compared with $732,985 in 2015 and $817,909 in 2014 .

Professional and Contract Labor Fees : Professional and contract labor fees were $2,115,754 in 2016 compared with $2,691,411 in 2015 and $2,676,483 in 2014 . The decrease in professional and contract labor fees for 2016 was primarily attributable to a decrease in legal fees and consulting fees associated with the Company's ongoing software initiatives. Professional and contract labor fees remained virtually unchanged for 2015 compared with 2014.

Other Expenses : Other operating expenses primarily include amortization of intangible assets, miscellaneous operating expenses of the trust division and other miscellaneous expenses of the title segment. These amounts typically fluctuate with transaction volume of the title segment and the trust division. Other expenses increased to $1,099,408 in 2016 , compared with $884,438 in 2015 and $820,882 in 2014 . Other operating expenses increased in 2016 and 2015 primarily due to the amortization of intangible assets.

Title Insurance

After-Tax Profit Margin : The Company’s title insurance after-tax profit margin varies according to a number of factors, including the volume and type of real estate activity. After-tax profit margins for the title insurance segment were 15.0% 10.9% and 8.5% in 2016 , 2015 and 2014 , respectively. The increase in after-tax profit margin in 2016 compared with 2015 is primarily related to an increase in operating revenues and, a lower provision for claims, partially offset by an increase in salaries, employee benefits and payroll expenses. The increase in after-tax profit margin in 2015 compared with 2014 is primarily related to an increase in operating revenues, lower commission expenses and a lower provision for claims, partially offset by an increase in salaries, employee benefits and payroll taxes. Also impacting both the 2016 and 2015 after-tax profit margins was a higher proportion of branch business as compared with the prior year.

Commissions : Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts. In 2016, commissions to agents increased 2.4% to $63,643,321 compared with $62,174,301 in 2015 , and decreased 5.3% in 2015 compared with $65,632,353 in 2014 . Commissions increased in 2016 compared with 2015 primarily due to higher agent premiums written. Commissions decreased in 2015 compared with 2014 primarily due to a shift in premiums to geographic areas with lower average commission rates. Commission rates vary by market due to local practice, competition and state regulations. Commission expense as a percentage of net premiums written by agents was 72.3%, 74.0% and 76.4% in 2016 , 2015 and 2014 , respectively.

Provision for Claims : The provision for claims as a percentage of net premiums written was 0.2%, 4.0% and 4.8% in 2016 , 2015 and 2014 , respectively. The change in the provision for claims in 2016 compared with the 2015 primarily related to favorable loss development in recent policy years, as the Company’s incurred losses for policy years 2009 through 2015 continue to develop favorably. The decrease in 2015 compared with 2014 was primarily attributable to fewer new claim filings and favorable claims experience. The Company continues to benefit from the absence of large claims related to defalcations in recent policy years.

The decrease in the loss provision rate in 2016 from the 2015 level resulted in approximately $4,619,000 less in reserves than would have been recorded at the higher 2015 level. Loss provision ratios are subject to variability and are reviewed and adjusted as experience develops.

Title claims are typically reported and paid within the first several years of policy issuance. The provision for claims reflects actual payments of claims, net of recovery amounts, plus adjustments to the specific and incurred but not reported claims reserves, the latter of which are actuarially determined based on historical claims experience. Actual payments of claims, net of recoveries, were $2,725,953, $3,367,494 and $3,912,716 in 2016 , 2015 and 2014 , respectively.

Reserve for Claims: At December 31, 2016 , the total reserve for claims was $35,305,000. Of that total, approximately $4,405,000 was reserved for specific claims, and approximately $30,900,000 was reserved for claims for which the Company had no notice. Because of the uncertainty of future claims, changes in economic conditions and the fact that many claims do not materialize for several years, reserve estimates are subject to variability.

Changes from prior periods in the expected liability for claims reflect the uncertainty of the claims environment, as well as the limited predictive power of historical data. The Company continually updates and refines its reserve estimates as current experience develops and credible data emerges. Such data includes payments on claims closed during the quarter, new details that emerge on open cases that cause claims adjusters to increase or decrease the case reserves, and the impact that these types of changes have on the Company’s total loss provision. Adjustments may be required as new information develops which often varies from past experience.

Premium and Retaliatory Taxes : Title insurance companies are generally not subject to state income or franchise taxes. However, in most states they are subject to premium and retaliatory taxes, as defined by statute. Premium and retaliatory tax rates vary from state to state; accordingly, the total premium and retaliatory tax incurred is dependent upon the geographical mix of insurance revenues. Premium and retaliatory taxes as a percentage of net premiums written were 1.8%, 1.9% and 1.7% in 2016 , 2015 and 2014 , respectively.

Income Taxes

The provision for income taxes was $8,616,000, $5,228,000 and $3,816,000 for the years ended December 31, 2016 , 2015 and 2014 , respectively. Income tax expense as a percentage of earnings before income taxes was 30.6%, 29.4% and 28.3%, for the years ended December 31, 2016 , 2015 and 2014 , respectively. The increases in the effective rate in 2016 and 2015 compared with their respective prior years was primarily due to a lower proportion of tax-exempt to taxable income. The effective income tax rate for 2016 , 2015 and 2014 was below the U.S. federal statutory income tax rate (34%), primarily due to the effect of tax-exempt income.

The Company believes it is more likely than not that the tax benefits associated with recognized impairments and unrecognized losses recorded through December 31, 2016 will be realized. However, this judgment could be impacted by further market fluctuations. Information regarding the components of income tax expense and the items included in the reconciliation of the effective rate with the federal statutory rate can be found in Note 8 to the accompanying Consolidated Financial Statements.

Net Income Attributable to the Company

The Company reported net income attributable to the Company of $19,523,118, $12,533,905 and $9,648,975, or $10.19, $6.30 and $4.74 per share on a diluted basis in 2016 , 2015 and 2014 , respectively. Net income attributable to the Company increased in 2016 compared to 2015 primarily due to an 8.9% increase in total revenues while operating expenses increased 0.9%. The increase in revenues was attributable to an 8.6% increase in premiums written primarily due to growth in average real estate values, revised premium rates filed in North Carolina, growth in transaction volumes stemming from higher levels of home sales and refinance activity, and an increase in net realized gain on investments. Operating expenses increased 0.9% primarily due to an 11.9% increase in payroll expenses as a result of higher levels of incentive compensation, inflationary increases in salaries and benefits, payroll expenses associated with University Title and increases in staffing levels to accommodate higher volume, and a 2.4% increase in commissions to agents, mostly offset by a 94.6% decrease in the provision for claims due to favorable claims experience in recent policy years and fewer new claims filings. Net income attributable to the Company increased in 2015 compared with 2014 primarily due to a 3.3% increase in total revenues, while operating expenses remained virtually flat. The increase in revenues was attributable to a 2.3% increase in net premiums written due to higher levels of purchase and refinance activity and a 19.5% increase in other income attributable to an increase in earnings from unconsolidated affiliates, title fees and exchange services income, partially offset by a decline in trust and investment management services. The slight decrease in operating expenses was primarily attributable to a 5.3% decrease in commissions due to a favorable mix of direct business and a 14.4% decrease in the provision for claims related to fewer new claims filings and favorable claims experience in recent years, partially offset by an 11.2% increase in payroll expenses due to inflationary increases in salaries and benefits, higher staffing level needs to support ongoing software development activities and higher levels of incentive compensation.

Liquidity and Capital Resources

The Company’s current cash requirements include general operating expenses, income taxes, capital expenditures, dividends on its common stock and repurchases of its commons stock. Cash flows from operations have historically been the primary source of financing for expanding operations, whether through organic growth or outside investments.

The Company evaluates nonorganic growth opportunities, such as mergers and acquisitions, from time to time in the ordinary course of business. Because of the episodic nature of these events, related incremental liquidity and capital resource needs can be difficult to predict.

The Company’s operating results and cash flows are heavily dependent on the real estate market. The Company’s business has certain fixed costs such as personnel; therefore, changes in the real estate market are monitored closely, and operating expenses such as staffing levels are managed and adjusted accordingly. The Company believes that its significant working capital position and management of operating expenses will improve its ability to manage cash resources through fluctuations in the real estate market.

Cash Flows: Net cash flows provided by operating activities were $22,534,969, $16,889,631 and $9,683,980 for 2016 , 2015 and 2014 , respectively. Cash flows from operating activities increased in 2016 from 2015 due to a decrease in other assets and an increase in net income, partially offset by the timing of payable disbursements and a lower provision for claims. Cash flows from operating activities increased in 2015 from 2014 due to the timing of payable disbursements and an increase in net income, partially offset by an increase in other assets.

Cash flows from non-operating activities have historically consisted of purchases and proceeds from investing activities, repurchases of common stock and the issuance of dividends. In 2016, the Company had a lower level of investment purchase activity, a lower level of proceeds from investments, a purchase of a subsidiary, a higher level of common stock repurchases and a higher level of dividends paid compared with 2015. In 2015, the Company had a lower level of investment purchase activity, a higher level of proceeds from the sales and maturities of investments, and a higher level of common stock repurchases compared with 2014.

The Company maintains a high degree of liquidity within its investment portfolio, classified as available for sale, in the form of cash, short-term investments, and other readily marketable securities. As of December 31, 2016 , the Company held cash and cash equivalents of $27,928,472, short-term investments of $6,558,840, fixed maturity securities of $101,934,077 and equity securities of $41,179,259. The net effect of all activities on total cash and cash equivalents was an increase of $6,138,404 for 2016 , an increase of $5,963,553 for 2015 , and a decrease of 7,800,246 for 2014 .

Capital Resources: The amount of capital resources the Company maintains is influenced by state regulation, the need to maintain superior financial ratings from third party rating agencies and other marketing and operational considerations.

The Company's significant sources of funds are dividends and distributions from its subsidiaries, primarily its two title insurance subsidiaries. Cash is received from its subsidiaries in the form of dividends and as reimbursements for operating and other administrative expenses that it incurs. The reimbursements are executed within the guidelines of management agreements between the Company and its subsidiaries.

The ability of the Company's title insurance subsidiaries to pay dividends to the Company is subject to state regulation from their respective states of domicile. Each state regulates the extent to which title underwriters can pay dividends or make distributions and requires prior regulatory approval of the payment of dividends and other intercompany transfers. The maximum dividend permitted by law is not necessarily indicative of an insurer’s actual ability to pay dividends. Depending on regulatory conditions, the Company may in the future need to retain cash in its title insurance subsidiaries in order to maintain their statutory capital position. As of December 31, 2016, both ITIC and NTIIC met the minimum capital, surplus and reserve requirements for each state in which they are licensed.

As of December 31, 2016 , approximately $88,323,000 of the consolidated stockholders’ equity represented 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 approval from the respective state insurance department. These regulations require prior regulatory approval of the payment of dividends and other intercompany transfers. The Company believes, however, that amounts available for transfer from the insurance and other subsidiaries are adequate to meet the Company’s current operating needs.

During 2017, the maximum distributions the insurance subsidiaries can make to the Company without prior approval from applicable regulators total approximately $18,234,000 .

While state regulation and the need to cover risks may set a minimum level for capital requirements, other factors necessitate maintaining capital resources in excess of the required minimum amounts. For instance, the Company’s capital resources help it maintain high ratings from insurance company rating agencies. Superior ratings strengthen the Company's ability to compete with larger, well known title insurers with national footprints.

A strong financial position provides necessary flexibility to fund potential acquisition activity, to invest in the Company's core business, and to minimize the financial impact of potential adverse developments. Adverse developments that generally require additional capital include adverse financial results, changes in statutory accounting requirements by regulators, reserve charges, investment losses or costs incurred to adapt to a changing regulatory environment, including costs related to emerging CFPB regulation of the real estate industry.

The Company bases its capitalization levels in part on net coverage retained. Since the Company's geographical focus has been and continues to be concentrated in states with average premium rates that are typically lower than the national average, capitalization relative to premiums will usually appear higher than industry averages.

Due to the Company’s historical ability to consistently generate positive cash flows from its consolidated operations and investment income, management believes that funds generated from operations will enable the Company to adequately meet its current operating needs for the foreseeable future. However, there can be no assurance that future experience will be similar to historical experience, since it is influenced by such factors as the interest rate environment, real estate activity, the Company’s claims-paying ability and its financial strength ratings. In addition to operational and investment considerations, taking advantage of opportunistic external growth opportunities may necessitate obtaining additional capital resources. The Company is unaware of any trend that is likely to result in material adverse liquidity changes, but continually assesses its capital allocation strategy, including decisions relating to repurchasing the Company’s stock and/or conserving cash.

Purchase of Company Stock : On November 9, 2015, the Board of Directors of the Company approved the purchase of an additional 163,335 shares pursuant to the Company’s repurchase plan, such that there was authority remaining under the plan to purchase up to an aggregate of 500,000 shares of the Company’s common stock pursuant to the plan immediately after this approval. Unless terminated earlier by resolution of the Board of Directors, the plan will expire when all shares authorized for purchase under the plan have been purchased. Pursuant to the Company’s ongoing purchase program, the Company has purchased 66,803 shares in the twelve months ended December 31, 2016 , 75,665 shares in the twelve months ended December 31, 2015 , and 15,372 shares in the twelve months ended December 31, 2014 at an average per share price of $93.10, $72.48 and $68.68, respectively. The Company anticipates making further purchases under this plan from time to time in the future, depending on such factors as the prevailing market price of the Company’s common stock, the Company’s available cash and then existing alternative uses for such cash.

Capital Expenditures : Capital expenditures were approximately $2,457,000, $2,743,000 and $2,017,000 during 2016, 2015 and 2014, respectively. The Company has plans for various capital improvement projects, including increased investment in a number of technology and system development initiatives and hardware purchases which are anticipated to be funded via cash flows from operations. All material anticipated capital expenditures are subject to periodic review and revision and may vary depending on a number of factors.

Off-Balance Sheet Arrangements

As a service to its customers, the Company, through ITIC, administers escrow and trust deposits representing earnest money received under real estate contracts, undisbursed amounts received for settlement of mortgage loans and indemnities against specific title risks. Cash held by the Company for these purposes was approximately $18,032,000 and $20,510,000 as of December 31, 2016 and 2015 , 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.

In addition, in administering tax-deferred property exchanges, ITEC serves as a qualified intermediary for exchanges, holding the net sales proceeds from relinquished property to be used for purchase of replacement property. ITAC serves as exchange accommodation titleholder and, through limited liability companies that are wholly owned subsidiaries of ITAC, holds property for exchangers in reverse exchange transactions. Like-kind exchange deposits and reverse exchange property held by the Company for the purpose of completing such transactions totaled approximately $202,184,000 and $171,010,000 as of December 31, 2016 and 2015 , respectively. These exchange deposits are held at third-party financial institutions. These amounts are not considered assets of the Company for accounting purposes and, therefore, are excluded from the accompanying Consolidated Balance Sheets. Exchange services revenues include earnings on these deposits; therefore, investment income is shown as exchange services revenue, rather than investment income. The Company remains contingently liable to customers for the transfers of property, disbursements of proceeds, and the return on the proceeds at the agreed upon rate.

External assets under management by the Investors Trust Company totaled approximately $440,000,000 for the years ended December 31, 2016 and 2015 . These amounts are not considered assets of the Company and, therefore, are excluded from the accompanying Consolidated Balance Sheets.

It is not the general practice of the Company to enter into off-balance sheet arrangements or issue guarantees to third parties. The Company does not have any material source of liquidity or financing that involves off-balance sheet arrangements. Other than items noted above, off-balance sheet arrangements are generally limited to the future payments under noncancelable operating leases and payments due under various agreements with third party service providers.

The following table summarizes the Company’s future estimated cash payments under existing contractual obligations at December 31, 2016, including, payments due by period:



			Payments due by period
Contractual Obligations Including Off-Balance Sheet Arrangements	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Reserve for claims	$	35,305,000	$	6,319,595	$	9,991,315	$	6,707,950	$	12,286,140
Obligations under executive employment plans and agreements	8,989,061		230,176		38,958		46,131		8,673,796
Operating lease obligations	3,417,975		932,831		1,158,771		772,712		553,661
Other obligations	1,146,276		858,104		233,172		55,000		—
Total	$	48,858,312	$	8,340,706	$	11,422,216	$	7,581,793	$	21,513,597

As of December 31, 2016, the Company had a claims reserve totaling $35,305,000. The amounts and timing of these obligations are estimated and not set contractually. Nonetheless, based on historical insurance claims experience, the Company anticipates the payments shown in the Contractual Obligations table. Events such as fraud, defalcation, and multiple property title defects can substantially and unexpectedly cause increases in both the amount and timing of estimated title insurance loss payments and loss cost trends whereby increases or decreases in inflationary factors (including the value of real estate) will influence the ultimate amount of title insurance loss payments and could increase total obligations and influence claim payout patterns. Due to the length of time over which claim payments are made and regularly occurring changes in underlying economic and market conditions, claim estimates are subject to variability and future payments could increase or decrease from these estimated amounts in the future.

Recently Issued Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses (Topic 326) . ASU 2016-13 is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The update broadens the information that an entity must consider in developing its expected credit loss estimates, and is meant to better reflect an entity’s current estimate of all expected credit losses. In addition, this update amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The update is effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact that the recently issued accounting standard will have on the Company's financial position and results of operations, but does not expect it to have a material impact.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718) . ASU 2016-09 updated guidance to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The update is effective for annual periods beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that the recently issued accounting standard will have on the Company's financial position and results of operations, but does not expect it to have a material impact.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) . ASU 2016-02 updated guidance to improve financial reporting for leasing transactions. The core principle of the guidance is that lessees will be required to recognize assets and liabilities on the balance sheet for all leases with terms of more than twelve months. A lessee would recognize a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. The accounting applied by a lessor is largely unchanged from current GAAP, with some targeted improvements. Disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. In transition, both lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption was permitted for all entities upon issuance. The Company is currently evaluating whether or not the recently issued accounting standard will have a material impact on the Company's financial position or results of operations.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities . ASU 2016-01 updated guidance to enhance the reporting model for financial instruments. Among the main principles of the guidance applicable to the Company are provisions to: require equity investments, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income; simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, noting that when a qualitative assessment indicates that impairment exists that an entity is required to measure the investment at fair value; eliminate the requirement to disclose methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost; require entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; require separate presentation of financial assets and financial liabilities by measuring category and form of financial asset on the balance sheet or accompanying notes to the financial statements; and clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for the provision requiring entities to recognize the fair value change from instrument-specific credit risk in other comprehensive income for financial liabilities measured using the fair value option in Accounting Standards Codification ("ASC") 825, and can be early adopted for financial statements of annual or interim periods that have not yet been issued or made available for issuance. The Company will be required to apply the update by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, with the amendments related to equity securities without readily determinable fair values being applied prospectively to equity investments that exist as of the date of adoption. The guidance is expected to have a material impact on the Company’s financial condition and results of operations once effective, primarily resulting from fluctuations in security exchanges or markets.

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis . ASU 2015-02 updated guidance to change the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments: modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities; eliminate the presumption that a general partner should consolidate a limited partnership; affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and provide a scope exception from consolidation guidance for reporting entities that are required to comply with or operate in accordance with certain requirements similar to those for registered money market funds. For public entities, this update was effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. The Company adopted this update on January 1, 2016 with no impact to the Company's financial position or results of operations. Certain investments previously considered voting interest entities are considered VIEs under this update. However, since the Company is not considered the primary beneficiary, none of the investments are consolidated. Refer to Note 3 for additional disclosure.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) . ASU 2014-09 updated guidance to improve the comparability of revenue recognition practices for entities that either enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards such as insurance contracts or lease standards. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For public entities, this update originally became effective for interim and annual reporting periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date . ASU 2015-14 updated guidance to defer the effective date of the standard by one year. Early adoption is not permitted, although public entities are permitted to elect to adopt the amendments on the original effective date. The Company is currently evaluating the impact that the recently issued accounting standard will have on the Company's financial position and results of operations, but does not expect it to have a material impact.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s primary exposure to market risk relates to the impact of adverse changes in the fair value of financial instruments as a result of changes in interest rates and equity market prices of its investment portfolio. Increases in interest rates diminish the value of fixed income securities and preferred stock, and decreases in stock market values diminish the value of common stocks held. The fair value of the majority of marketable securities is determined based on quoted market prices.

Although the Company monitors its risks associated with fluctuations in interest rates, it does not currently use derivative financial instruments to hedge these risks.

There were no material changes in the Company’s market risk or market strategy during the year ended December 31, 2016 .

Credit Risk

Credit ris k is the risk that the Company will incur economic losses due to an issuer’s inability to repay a contractual obligation. The Company’s investment portfolio, primarily municipal and corporate bonds, and to a lesser extent, equity securities, is subject to credit risk. The Company mitigates this risk by actively monitoring changes in credit ratings, security pricing and financial reports.

The Company’s average credit quality for fixed maturity securities is A+, determined by using the lower rating reported by the credit reporting agencies.

Interest Rate Risk

Interest rate risk is the risk that the Company will incur economic losses due to adverse changes in interest rates. This risk arises from the Company’s investments in interest-sensitive debt securities. These securities are primarily fixed-rate municipal bonds and corporate bonds. The Company typically does not purchase such securities for trading purposes. At December 31, 2016, the Company had approximately $101.9 million in fixed maturities. The Company manages the interest rate risk inherent in its assets by monitoring its liquidity needs and by targeting a specific range for the portfolio’s duration or weighted average maturity.

To determine the potential effect of interest rate risk on interest-sensitive assets, the Company calculates the effect of a 100 basis point shock in prevailing interest rates (“rate shock”) on the fair market value of these securities considering stated interest rates and time to maturity. Based upon the information and assumptions the Company uses in its calculation, management estimates that a 100 basis point increase in prevailing interest rates would decrease the net fair market value of its fixed-rate debt securities by approximately $5.3 million. The selection of a 100 basis point increase in prevailing interest rates should not be construed as a prediction by the Company’s management of future market events, but rather, to illustrate the potential impact of such an event. To the extent that actual results differ from the assumptions utilized, the Company’s rate shock measures could be significantly impacted. Additionally, the Company’s calculation assumes that the current relationship between short-term and long-term interest rates (the term structure of interest rates) will remain constant over time. As a result, these calculations may not fully capture the impact of nonparallel changes in the term structure of interest rates and/or large changes in interest rates.

Equity Price Risk

The Company also holds investments in marketable equity securities, which exposes it to market volatility, as discussed in Note 3 to the accompanying Consolidated Financial Statements. The sensitivity analysis presented does not consider the effects that such adverse changes may have on overall economic activity, nor does it consider additional actions the Company may take to mitigate its exposure. Equity price risk is the risk that the Company will incur economic losses due to adverse changes in a particula r common stock or stock index. The Company had approximately $41.2 million in equity securities at December 31, 2016. Equity price risk is addressed in part by varying the specific allocation of equity investments over time pursuant to management’s assessment of market and business conditions and ongoing liquidity needs analysis. The Company’s equity exposure is a decline in market prices. Based upon the information and assumptions the Company used in its calculation, management estimates that an immediate decrease in market prices of 10% would decrease the net fair value of the Company’s assets identified above by approximately $4.1 million in 2 016.

The selection of a 10% immediate decrease should not be construed as a prediction by the Company’s management of future market events, but rather, to illustrate the potential impact of such an event. The Company’s exposure will change as a result of changes in its mix of common stocks. Since this calculation is based on historical performance, projecting future price volatility using this method involves an inherent assumption that historical volatility and correlation relationships will remain stable. Therefore, the results noted above may not reflect the Company’s actual experience if future volatility and correlation relationships differ from such historical relationships.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



1.	Report of Independent Registered Public Accounting Firm	36
2.	Management's Report on Internal Control Over Financial Reporting	37
3.	Report of Independent Registered Public Accounting Firm	38
4.	Consolidated Balance Sheets	40
5.	Consolidated Statements of Income	41
6.	Consolidated Statements of Comprehensive Income	42
7.	Consolidated Statements of Stockholders' Equity	43
8.	Consolidated Statements of Cash Flows	45
9.	Notes to Consolidated Financial Statements	47

The financial statement schedules meeting the requirements of Regulation S-X are attached hereto as Schedules I, II, III, IV and V.

Selected Quarterly Financial Data (unaudited)



2016	March 31		June 30		September 30		December 31
Net premiums written	$	21,508,997	$	29,790,232	$	36,511,373	$	34,284,779
Net income	1,804,461		4,530,047		8,129,167		5,051,777
Net income attributable to the Company	1,814,040		4,529,380		8,126,939		5,052,759
Basic earnings per common share	0.94		2.36		4.30		2.68
Diluted earnings per common share	0.93		2.35		4.29		2.67

2015	March 31		June 30		September 30		December 31
Net premiums written	$	24,962,041	$	30,464,581	$	30,945,532	$	26,103,532
Net income	1,726,124		4,120,497		4,495,498		2,206,934
Net income attributable to the Company	1,726,124		4,120,497		4,490,962		2,196,322
Basic earnings per common share	0.86		2.06		2.28		1.13
Diluted earnings per common share	0.86		2.05		2.28		1.12

2014	March 31		June 30		September 30		December 31
Net premiums written	$	24,909,252	$	29,849,853	$	26,356,835	$	28,847,616
Net income	985,515		3,398,044		2,594,490		2,694,449
Net income attributable to the Company	986,438		3,373,598		2,594,490		2,694,449
Basic earnings per common share	0.48		1.66		1.28		1.33
Diluted earnings per common share	0.48		1.65		1.28		1.33

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Investors Title Company

Chapel Hill, North Carolina

We have audited the accompanying consolidated balance sheets of Investors Title Company and subsidiaries (the Company) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2016. Our audits also included the financial statement schedules listed in the Index at Item 15(a)(2). These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 10, 2017, expressed an unqualified opinion thereon. Our report on internal control over financial reporting refers to the fact that we excluded from the scope of our audit of internal control over financial reporting University Title Company, which was acquired by the Company in October 2016.

/s/ Dixon Hughes Goodman LLP

High Point, North Carolina

March 10, 2017

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Investors Title Company and Subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f) and 15(d)-15(f). The Company’s internal control over financial reporting has been designed to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles.

The Company’s internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorization of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s Consolidated Financial Statements.

Because of its inherent limitation, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

The Company acquired University Title on October 31, 2016. See Note 17 of the Notes to Consolidated Financial Statements for more information. As permitted by SEC guidance, the Company has elected to exclude University Title from its current evaluation of internal control over financial reporting. The financial results of University Title (for November and December of 2016) are not material to the Consolidated Financial Statements of the Company for 2016.

Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and concluded that the Company’s internal control over financial reporting was effective as of December 31, 2016 .

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Investors Title Company

Chapel Hill, North Carolina

We have audited Investors Title Company’s (the Company) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Board of Directors and Stockholders

Investors Title Company

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded University Title Company (University) from its assessment of internal control over financial reporting as of December 31, 2016 because it was acquired by the Company in October 2016. We have also excluded University from the scope of our audit of internal control over financial reporting. University was acquired by National Investors Holdings, LLC, a wholly-owned subsidiary of the Company. University constituted 0.9% of consolidated revenue for the year ended December 31, 2016 and 6.0% of consolidated total assets as of December 31, 2016.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of December 31, 2016, and 2015, and for each of the years in the three-year period ended December 31, 2016, and our report dated March 10, 2017, expressed an unqualified opinion on those consolidated financial statements.

/s/ Dixon Hughes Goodman LLP

High Point, North Carolina

March 10, 2017

Investors Title Company and Subsidiaries

Consolidated Balance Sheets



As of December 31,	2016		2015
Assets:
Investments in securities:
Fixed maturities, available-for-sale, at fair value (amortized cost: 2016: $100,162,357; 2015: $102,015,826)	$	101,934,077	$	106,066,384
Equity securities, available-for-sale, at fair value (cost: 2016: $24,836,032; 2015: $23,855,873)	41,179,259		37,513,464
Short-term investments	6,558,840		6,865,406
Other investments	11,181,531		10,106,828
Total investments	160,853,707		160,552,082

Cash and cash equivalents	27,928,472		21,790,068
Premium and fees receivable	8,654,161		8,392,697
Accrued interest and dividends	1,035,152		1,004,126
Prepaid expenses and other assets	9,456,523		11,413,520
Property, net	8,753,466		7,148,951
Goodwill and other intangible assets, net	12,256,641		1,220,585
Total Assets	$	228,938,122	$	211,522,029

Liabilities and Stockholders’ Equity
Liabilities:
Reserve for claims	$	35,305,000	$	37,788,000
Accounts payable and accrued liabilities	26,146,480		25,043,588
Current income taxes payable	1,232,432		210,355
Deferred income taxes, net	11,118,256		5,703,006
Total liabilities	73,802,168		68,744,949

Commitments and Contingencies	—		—

Stockholders’ Equity:
Preferred stock (1,000,000 authorized shares; no shares issued)	—		—
Common stock – no par value (10,000,000 authorized shares; 1,884,283 and 1,949,797 shares issued and outstanding 2016 and 2015, respectively, excluding 291,676 shares for 2016 and 2015 of common stock held by the Company’s subsidiary)	1		1
Retained earnings	143,283,621		131,186,866
Accumulated other comprehensive income	11,761,447		11,483,015
Total stockholders’ equity attributable to the Company	155,045,069		142,669,882
Noncontrolling interests	90,885		107,198
Total stockholders’ equity	$	155,135,954	$	142,777,080
Total Liabilities and Stockholders’ Equity	$	228,938,122	$	211,522,029

See notes to the Consolidated Financial Statements.

Investors Title Company and Subsidiaries

Consolidated Statements of Income



For the Years Ended December 31,	2016		2015			2014
Revenues:
Net premiums written	$	122,095,381	$	112,475,686		$	109,963,556
Investment income – interest and dividends	4,684,489		4,531,319			4,259,501
Net realized gain (loss) on investments	768,436		(116,163		)	268,294
Other	10,944,108		10,309,230			8,627,935
Total Revenues	138,492,414		127,200,072			123,119,286

Operating Expenses:
Commissions to agents	63,643,321		62,174,301			65,632,353
Provision for claims	242,953		4,478,494			5,229,716
Salaries, employee benefits and payroll taxes	31,372,099		28,041,213			25,218,225
Office occupancy and operations	6,265,908		5,885,336			5,049,962
Business development	2,511,699		2,373,270			2,333,491
Filing fees, franchise and local taxes	907,225		732,985			817,909
Premium and retaliatory taxes	2,202,595		2,161,571			1,851,767
Professional and contract labor fees	2,115,754		2,691,411			2,676,483
Other	1,099,408		884,438			820,882
Total Operating Expenses	110,360,962		109,423,019			109,630,788

Income before Income Taxes	28,131,452		17,777,053			13,488,498

Provision for Income Taxes	8,616,000		5,228,000			3,816,000

Net Income	19,515,452		12,549,053			9,672,498

Net Loss (Income) Attributable to Noncontrolling Interests	7,666		(15,148		)	(23,523		)

Net Income Attributable to the Company	$	19,523,118	$	12,533,905		$	9,648,975

Basic Earnings per Common Share	$	10.23	$	6.32		$	4.75

Weighted Average Shares Outstanding – Basic	1,907,675		1,984,360			2,031,760

Diluted Earnings per Common Share	$	10.19	$	6.30		$	4.74

Weighted Average Shares Outstanding – Diluted	1,915,057		1,989,799			2,037,534

Cash Dividends Paid per Common Share	$	0.72	$	0.40		$	0.32

See notes to the Consolidated Financial Statements.

Investors Title Company and Subsidiaries

Consolidated Statements of Comprehensive Income



For the Years Ended December 31,	2016			2015			2014
Net income	$	19,515,452		$	12,549,053		$	9,672,498
Other comprehensive income (loss), before tax:
Amortization related to prior year service cost	—			4,390			2,217
Amortization of unrecognized loss	8,941			3,514			—
Accumulated postretirement benefit obligation adjustment	(566		)	(63,566		)	(47,121		)
Unrealized gains (losses) on investments arising during the period	1,145,529			(2,077,542		)	2,848,256
Reclassification adjustment for sale of securities included in net income	(972,672		)	(718,837		)	(518,279		)
Reclassification adjustment for write-down of securities included in net income	233,941			751,059			14,542
Other comprehensive income (loss), before tax	415,173			(2,100,982		)	2,299,615
Income tax expense (benefit) related to postretirement health benefits	2,849			(18,924		)	(15,269		)
Income tax expense (benefit) related to unrealized gains (losses) on investments arising during the year	387,508			(722,226		)	974,145
Income tax benefit related to reclassification adjustment for sale of securities included in net income	(333,426		)	(245,200		)	(173,403		)
Income tax expense related to reclassification adjustment for write-down of securities included in net income	79,810			258,862			5,037
Net income tax expense (benefit) on other comprehensive income (loss)	136,741			(727,488		)	790,510
Other comprehensive income (loss)	278,432			(1,373,494		)	1,509,105
Comprehensive Income	$	19,793,884		$	11,175,559		$	11,181,603
Less: Comprehensive loss (income) attributable to noncontrolling interests	7,666			(15,148		)	(23,523		)
Comprehensive Income Attributable to the Company	$	19,801,550		$	11,160,411		$	11,158,080

See notes to the Consolidated Financial Statements.

Investors Title Company and Subsidiaries

Consolidated Statements of Stockholders’ Equity



	Common Stock				Retained Earnings			Accumulated Other Comprehensive Income			Noncontrolling Interests			Total Stockholders’ Equity
	Shares		Amount		Retained Earnings			Accumulated Other Comprehensive Income			Noncontrolling Interests			Total Stockholders’ Equity
Balance, January 1, 2014	2,037,135		$	1	$	116,714,749		$	11,347,404		$	—		$	128,062,154
Net income attributable to the Company					9,648,975									9,648,975
Dividends ($0.32 per share)					(650,433		)							(650,433		)
Shares of common stock repurchased and retired	(15,372	)			(1,055,765		)							(1,055,765		)
Stock options and stock appreciation rights exercised	1,507				27,100									27,100
Share-based compensation expense					120,891									120,891
Amortization related to postretirement health benefits								1,465						1,465
Accumulated postretirement benefit obligation adjustment								(31,100		)				(31,100		)
Net unrealized gain on investments								1,538,740						1,538,740
Purchase of minority-interest of subsidiary					(114,320		)							(114,320		)
Income tax benefit from share-based compensation					15,999									15,999
Balance, December 31, 2014	2,023,270		$	1	$	124,707,196		$	12,856,509		$	—		$	137,563,706
Net income attributable to the Company					12,533,905									12,533,905
Dividends ($0.40 per share)					(789,907		)							(789,907		)
Shares of common stock repurchased and retired	(75,665	)			(5,483,953		)							(5,483,953		)
Stock options and stock appreciation rights exercised	2,192				54,988									54,988
Share-based compensation expense					137,762									137,762
Amortization related to postretirement health benefits								5,216						5,216
Accumulated postretirement benefit obligation adjustment								(41,954		)				(41,954		)
Net unrealized loss on investments								(1,336,756		)				(1,336,756		)
Net effect changes of ownership											127,050			127,050
Subsidiary return of capital											(35,000		)	(35,000		)
Net income attributable to noncontrolling interests											15,148			15,148
Income tax benefit from share-based compensation					26,875									26,875
Balance, December 31, 2015	1,949,797		$	1	$	131,186,866		$	11,483,015		$	107,198		$	142,777,080
Net income attributable to the Company					19,523,118									19,523,118
Dividends ($0.72 per share)					(1,370,390		)							(1,370,390		)
Shares of common stock repurchased and retired	(66,803	)			(6,219,670		)							(6,219,670		)
Stock options and stock appreciation rights exercised	1,289				(200		)							(200		)
Share-based compensation expense					132,098									132,098
Amortization related to postretirement health benefits								5,900						5,900
Accumulated postretirement benefit obligation adjustment								(374		)				(374		)
Net unrealized gain on investments								272,906						272,906
Purchase of noncontrolling interest of subsidiary											(8,647		)	(8,647		)
Additional paid-in capital from purchase of noncontrolling interest of subsidiary					(494		)							(494		)



Consolidated Statements of Stockholders’ Equity, continued
	Common Stock			Retained Earnings		Accumulated Other Comprehensive Income		Noncontrolling Interests			Total Stockholders’ Equity
	Shares	Amount		Retained Earnings		Accumulated Other Comprehensive Income		Noncontrolling Interests			Total Stockholders’ Equity
Net loss attributable to noncontrolling interests								(7,666		)	(7,666		)
Income tax benefit from share-based compensation				32,293							32,293
Balance, December 31, 2016	1,884,283	$	1	$	143,283,621	$	11,761,447	$	90,885		$	155,135,954

See notes to the Consolidated Financial Statements.

Investors Title Company and Subsidiaries

Consolidated Statements of Cash Flows



For the Years Ended December 31,	2016			2015			2014
Operating Activities
Net income	$	19,515,452		$	12,549,053		$	9,672,498
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	1,306,643			1,105,839			833,104
Amortization of investments, net	772,100			728,510			630,782
Amortization of other intangible assets	213,795			—			—
Amortization related to postretirement benefits obligation	8,941			7,904			2,217
Share-based compensation expense related to stock appreciation rights and options	132,098			137,762			120,891
Net (gain) loss on disposals of property	(12,439		)	(24,867		)	24,608
Net realized (gain) loss on investments	(768,436		)	116,163			(268,294		)
Net earnings from other investments	(1,750,485		)	(2,002,276		)	(1,450,980		)
Provision for claims	242,953			4,478,494			5,229,716
Provision for deferred income taxes	2,790,000			1,015,000			611,000
Changes in assets and liabilities:
(Increase) decrease in receivables	(261,464		)	217,594			206,041
Decrease (increase) in other assets	2,631,205			(4,879,418		)	(393,359		)
Decrease in current income taxes recoverable	—			—			366,772
(Decrease) increase in accounts payable and accrued liabilities	(581,518		)	6,689,204			(2,080,492		)
Increase in current income taxes payable	1,022,077			118,163			92,192
Payments of claims, net of recoveries	(2,725,953		)	(3,367,494		)	(3,912,716		)
Net cash provided by operating activities	22,534,969			16,889,631			9,683,980

Investing Activities
Purchases of available-for-sale securities	(19,424,849		)	(20,164,353		)	(30,899,452		)
Purchases of short-term securities	(1,775,239		)	(4,593,240		)	(911,188		)
Purchases of other investments	(2,743,413		)	(3,717,978		)	(1,689,950		)
Investment in subsidiary	(9,141		)	(72,600		)	—
Proceeds from sales and maturities of available-for-sale securities	20,258,089			22,151,408			12,472,817
Proceeds from sales and maturities of short-term securities	2,081,805			304,827			6,260,568
Proceeds from sales and distributions of other investments	3,437,999			3,911,286			1,584,337
Proceeds from sales of other assets	17,601			149,128			38,052
Purchase of subsidiary, net of cash received	(8,316,155		)	—			—
Purchase of redeemable noncontrolling interest of subsidiary	—			—			(515,275		)
Purchases of property, equipment and software	(2,456,951		)	(2,742,619		)	(2,017,379		)
Proceeds from disposals of property	91,656			75,060			24,400
Net cash used in investing activities	(8,838,598		)	(4,699,081		)	(15,653,070		)

Financing Activities
Repurchases of common stock	(6,219,670		)	(5,483,953		)	(1,055,765		)
Exercise of stock appreciation rights and options	(200		)	54,988			27,100
Proceeds from note payable	6,000,000			—			—
Payments on note payable	(6,000,000		)	—			—
Distribution to noncontrolling interest	—			—			(168,057		)
Subsidiary return of capital	—			(35,000		)	—
Excess tax benefits related to exercise of stock options and SARs	32,293			26,875			15,999
Dividends paid	(1,370,390		)	(789,907		)	(650,433		)
Net cash used in financing activities	(7,557,967		)	(6,226,997		)	(1,831,156		)



Consolidated Statements of Cash Flows, continued
	2016			2015		2014
Net Increase (Decrease) in Cash and Cash Equivalents	6,138,404			5,963,553		(7,800,246		)
Cash and Cash Equivalents, Beginning of Period	21,790,068			15,826,515		23,626,761
Cash and Cash Equivalents, End of Period	$	27,928,472		$	21,790,068	$	15,826,515

Supplemental Disclosures:
Cash Paid During the Year for:
Income tax payments, net	$	5,068,400		$	4,658,000	$	2,744,100
Non Cash Investing and Financing Activities
Non cash net unrealized (gain) loss on investments, net of deferred tax (provision) benefit of $(133,892), $708,564 and $(805,779) for 2016, 2015 and 2014, respectively	$	(272,906	)	$	1,336,756	$	(1,538,740	)
Adjustments to postretirement benefits obligation, net of deferred tax benefit of $192, $21,612 and $16,021 for 2016, 2015 and 2014, respectively	$	374		$	41,954	$	31,100
Changes in Financial Statement Amounts Related to Purchase of Subsidiaries, Net of Cash Received
Goodwill and other intangibles acquired	$	(11,249,851	)	$	—	$	—
Title plant acquired (in prepaid expenses and other assets)	(690,000		)	—		—
Fixed assets acquired	(533,424		)	—		—
Prepaid and other assets acquired	(15,233		)	—		—
Accounts payable and accrued liabilities assumed	1,683,844			—		—
Deferred income taxes	2,488,509			—		—
Purchase of subsidiary, net of cash received	$	(8,316,155	)	$	—	$	—

See notes to the Consolidated Financial Statements.

Investors Title Company and Subsidiaries

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, North Carolina, South Carolina, 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 accounting principles generally accepted in the United States (“GAAP”). Earnings attributable to noncontrolling interests in majority-owned insurance agencies are recorded in the Consolidated Statements of Income. Noncontrolling interests representing the portion of equity not related to the Company's ownership interests are recorded in separate sections of the Consolidated Balance Sheets. All intercompany balances and transactions have been eliminated in consolidation.

Reclassification – Certain 2015 and 2014 amounts in the accompanying Consolidated Financial Statements have been reclassified to conform to the 2016 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 and adjusted for other-than-temporary declines in fair value, reported as accumulated other comprehensive income. As of December 31, 2016 and 2015 , 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 $4,744,402 and $3,572,914 at December 31, 2016 and 2015 , 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. Properties acquired in settlement of claims are included in prepaid expenses and other assets in the Consolidated Balance Sheets.

Property and Equipment

Property and equipment are recorded at cost and are depreciated principally under the straight-line method over the estimated useful lives ( 3 to 25 years) of the respective assets. Maintenance and repairs are charged to operating expenses and improvements are capitalized.

Reserve for Claims

The total reserve for all reported and unreported losses the Company incurred through December 31, 2016 is represented by the reserve for claims. The Company’s reserve for unpaid losses and loss adjustment expenses is 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 reserve is adequate to cover claim losses resulting from pending and future claims for policies issued through December 31, 2016 . 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 reserve 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 a valuation allowance 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 settlement of the related real estate transaction, as the earnings process is then considered complete, irrespective of the timing of issuance of a title insurance policy or commitment. Expenses typically associated with premiums, including agent commissions, premium taxes, and provision for future claims are recognized concurrent with recognition of related premium revenue.

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 premiums and fees 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.

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.

Exchange Services Revenue

Fees are recognized at the signing of a binding agreement and investment earnings are recognized as they are earned. Exchange services revenues are included in other revenues in the Consolidated Statements of Income.

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. Estimated 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, 2016 consists of $11,870,647 of unrealized holding gains on available-for-sale securities and $109,200 of unrecognized prior service cost and unrecognized actuarial losses associated with postretirement benefit liabilities. Accumulated other comprehensive income as of December 31, 2015 consists of $11,597,741 of unrealized holding gains on available-for-sale securities and $114,726 of unrecognized prior service cost and unrecognized actuarial losses associated with postretirement benefit liabilities. Accumulated other comprehensive income as of December 31, 2014 consists of $12,934,497 of unrealized holding gains on available-for-sale securities and $77,988 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”). 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.

Goodwill

Goodwill represents the excess of cost over fair value of identifiable net assets acquired and assumed in a business combination. The fair value of the Company’s goodwill is principally based on values obtained from a third party valuation service. Goodwill is reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable and at least annually.

Other Intangible Assets

The Company’s other intangible assets consist of non-compete agreements, referral relationships and a tradename resulting from agency acquisitions; all of which are recorded at the acquisition date fair value. The fair value of the Company’s other intangible assets is principally based on values obtained from a third party valuation service. These assets are amortized on a straight-line basis over their useful lives, which range from 1 to 30 years; noting that the amortization of certain non-compete contracts will start at a future date when the related employment agreements are terminated. Other intangible assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable and at least annually.

Title Plants

Title plants represent a historical record of matters affecting title to parcels of land in a particular geographic area. Title plants are recorded at the cost incurred to construct or obtain and organize historical title information to the point it can be used to perform title searches. Costs incurred to maintain, update and operate title plants are expensed as incurred. Title plants are not amortized as they are considered to have an indefinite life with no diminishment of value if properly maintained; but are subject to impairment evaluation, which the Company performs on at least an annual basis.

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 June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses (Topic 326) . ASU 2016-13 is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The update broadens the information that an entity must consider in developing its expected credit loss estimates, and is meant to better reflect an entity’s current estimate of all expected credit losses. In addition, this update amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The update is effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact that the recently issued accounting standard will have on the Company's financial position and results of operations, but does not expect it to have a material impact.

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 reserve for claims is 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 the reserve, 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 the reserve in the results of operations in the period in which new information (principally claims experience) becomes available.

The Company’s reserve for claims is 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”).

Premiums written – Premium revenues from certain agency operations include accruals for transactions which have settled but have not been reported as of the balance sheet date. These accruals are based on estimates of the typical lag time between settlement of real estate transactions and the agent’s reporting of these transactions to the Company. Reporting lag times vary by market. In certain markets, the lag time may be very short, but in others, can be as high as 100 days. The Company reviews and adjusts lag time estimates periodically, using historical experience and other factors, and reflects any adjustments in the result of operations in the period in which new information becomes available.

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 estimated fair value is other-than-temporary. When, in the opinion of management, a decline in the estimated fair value of an investment is considered to be other-than-temporary, such investment is written down to its estimated fair value. Some factors considered in evaluating whether or not a decline in estimated fair value is other-than-temporary include the duration and extent to which the estimated 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 estimated fair values of the majority of the Company’s investments are based on quoted market prices from independent pricing services.

2. Statutory Accounting and Restrictions on Consolidated Stockholders’ Equity and Investments

The Consolidated Financial Statements have been prepared in conformity with GAAP, 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 $152,700,227 and $133,363,375 as of December 31, 2016 and 2015 , respectively. Net income on a statutory basis was $17,863,815 , $13,621,174 and $9,737,634 for the twelve months ended December 31, 2016 , 2015 and 2014 , respectively.

The Company has designated approximately $53,190,000 and $50,508,000 of retained earnings as of December 31, 2016 and 2015 , 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, 2016 and 2015 , approximately $88,323,000 and $89,489,000 , 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. During 2017, the maximum distributions the insurance subsidiaries can make to the Company without prior approval from applicable regulators total approximately $18,234,000 .

Bonds totaling approximately $6,843,000 and $7,159,000 at December 31, 2016 and 2015 , respectively, are deposited with the insurance departments of the states in which business is conducted.

3. Investments and Estimated Fair Value

The aggregate estimated 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, 2016	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	$	29,374,774	$	440,628	$	298,533	$	29,516,869
Special revenue issuer obligations of U.S. states, territories and political subdivisions	57,459,818		1,619,444		502,135		58,577,127
Corporate debt securities	13,327,765		512,316		—		13,840,081
Total	$	100,162,357	$	2,572,388	$	800,668	$	101,934,077
Equity securities, available-for-sale, at fair value:
Common stocks	$	24,836,032	$	16,392,210	$	48,983	$	41,179,259
Total	$	24,836,032	$	16,392,210	$	48,983	$	41,179,259
Short-term investments:
Money market funds and certificates of deposit	$	6,558,840	$	—	$	—	$	6,558,840
Total	$	6,558,840	$	—	$	—	$	6,558,840



December 31, 2015	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	$	31,883,439	$	987,595	$	11,734	$	32,859,300
Special revenue issuer obligations of U.S. states, territories and political subdivisions	52,202,815		2,604,152		26,127		54,780,840
Corporate debt securities	17,004,985		539,832		58,473		17,486,344
Auction rate securities	924,587		15,313		—		939,900
Total	$	102,015,826	$	4,146,892	$	96,334	$	106,066,384
Equity securities, available-for sale, at fair value:
Common stocks	$	23,855,873	$	13,785,968	$	128,377	$	37,513,464
Total	$	23,855,873	$	13,785,968	$	128,377	$	37,513,464
Short-term investments:
Money market funds and certificates of deposit	$	6,865,406	$	—	$	—	$	6,865,406
Total	$	6,865,406	$	—	$	—	$	6,865,406

The special revenue category for both periods presented includes over 60 individual bonds with revenue sources from a variety of industry sectors.

The scheduled maturities of fixed maturity securities at December 31, 2016 were as follows:



	Available-for-Sale
	Amortized Cost		Fair Value
Due in one year or less	$	17,441,766	$	17,562,215
Due after one year through five years	33,072,959		34,149,161
Due five years through ten years	47,658,033		47,758,923
Due after ten years	1,989,599		2,463,778
Total	$	100,162,357	$	101,934,077

Earnings on investments for the years ended December 31 were as follows:



	2016		2015		2014
Fixed maturities	$	3,506,484	$	3,439,296	$	3,282,810
Equity securities	1,157,550		1,086,365		973,419
Invested cash and other short-term investments	19,982		5,605		3,202
Miscellaneous interest	473		53		70
Investment income	$	4,684,489	$	4,531,319	$	4,259,501

Gross realized gains and losses on sales of investments for the years ended December 31 are summarized as follows:



	2016			2015			2014
Gross realized gains:
Special revenue issuer obligations of U.S. states, territories and political subdivisions	$	161		$	—		$	—
Corporate debt securities	119,001			5,417			6,670
Common stocks and nonredeemable preferred stocks	953,491			1,572,636			1,021,463
Auction rate securities	74,996			—			—
Total	1,147,649			1,578,053			1,028,133
Gross realized losses:
General obligations of U.S. states, territories and political subdivisions	(535		)	(12,319		)	—
Special revenue issuer obligations of U.S. states, territories and political subdivisions	(1,085		)	(397		)	—
Common stocks and nonredeemable preferred stocks	(173,357		)	(846,500		)	(509,854		)
Other than temporary impairment of securities	(233,941		)	(751,059		)	(14,542		)
Total	(408,918		)	(1,610,275		)	(524,396		)
Net realized gain (loss)	$	738,731		$	(32,222	)	$	503,737
Net realized gain (loss) on other investments:
Impairments of other assets and investments	$	—		$	(233,069	)	$	(10,062	)
Net gain on other assets and investments	29,705			149,128			45,288
Net loss on other assets and investments	—			—			(270,669		)
Total	$	29,705		$	(83,941	)	$	(235,443	)
Net realized gain (loss) on investments	$	768,436		$	(116,163	)	$	268,294

Realized gains and losses are determined on the specific identification method.

The following table presents the gross unrealized losses on investment securities and the estimated 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, 2016 and 2015 :



	Less than 12 Months					12 Months or Longer				Total
December 31, 2016	Estimated Fair Value		Unrealized Loss			Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
General obligations of U.S. states, territories and political subdivisions	$	13,884,808	$	(298,533	)	$	—	$	—	$	13,884,808	$	(298,533	)
Special revenue issuer obligations of U.S. states, territories and political subdivisions	16,161,906		(502,135		)	—		—		16,161,906		(502,135		)
Corporate debt securities	—		—			—		—		—		—
Total fixed maturity securities	$	30,046,714	$	(800,668	)	$	—	$	—	$	30,046,714	$	(800,668	)
Equity securities	380,400		(48,983		)	—		—		380,400		(48,983		)
Total temporarily impaired securities	$	30,427,114	$	(849,651	)	$	—	$	—	$	30,427,114	$	(849,651	)



December 31, 2015
General obligations of U.S. states, territories and political subdivisions	$	1,758,345	$	(11,734	)	$	—	$	—		$	1,758,345	$	(11,734	)
Special revenue issuer obligations of U.S. states, territories and political subdivisions	1,672,217		(5,139		)	1,183,963		(20,989		)	2,856,180		(26,128		)
Corporate debt securities	6,981,275		(58,472		)	—		—			6,981,275		(58,472		)
Total fixed maturity securities	$	10,411,837	$	(75,345	)	$	1,183,963	$	(20,989	)	$	11,595,800	$	(96,334	)
Equity securities	5,533,667		(128,377		)	—		—			5,533,667		(128,377		)
Total temporarily impaired securities	$	15,945,504	$	(203,722	)	$	1,183,963	$	(20,989	)	$	17,129,467	$	(224,711	)

The decline in estimated 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 will likely 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.

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 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 36 and 30 securities had unrealized losses at December 31, 2016 and December 31, 2015, 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 2016 , the Company recorded other-than-temporary impairment charges in the amount of $233,941 related to securities. During 2015 , the Company recorded other-than-temporary impairment charges in the amount of $751,059 related to securities. During 2014, the Company recorded other-than-temporary impairment charges in the amount of $14,542 related to securities. Other-than-temporary impairment charges are included in net realized gain (loss) on investments in the Consolidated Statements of Income.

Variable Interest Entities

The Company holds investments in VIEs that are not consolidated in the Company's financial statements as the Company is not the primary beneficiary. These entities are considered VIEs as the equity investors at risk, including the Company, do not have the power over the activities that most significantly impact the economic performance of the entities; this power resides with a third-party general partner or managing member that cannot be removed except for cause. The following table sets forth details about the Company's variable interest investments in VIEs, which are structured either as limited partnerships ("LPs") or limited liability companies ("LLCs"), as of December 31, 2016:



Type of Investment	Balance Sheet Classification	Carrying Value		Estimated Fair Value		Maximum Potential Loss (a)
Tax credit LPs	Other investments	$	1,137,346	$	1,137,346	$	1,325,000
Real estate LLCs or LPs	Other investments	4,691,173		5,119,361		7,150,000
Small business investment LPs	Other investments	3,134,234		3,024,455		9,400,000
Total		$	8,962,753	$	9,281,162	$	17,875,000



(a)		Maximum potential loss is calculated as the total investment in the LLC or LP including any capital commitments that may have not yet been called. The Company is not exposed to any loss beyond the total commitment of its investment.

Valuation of Financial Assets and Liabilities

The FASB has established a valuation hierarchy for disclosure of the inputs 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 are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs 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 estimated 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. Estimated fair value is principally based on market values obtained from a third party pricing service. Factors that are used in determining estimated 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 estimated fair values of the instruments in accordance with 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, 2016 and December 31, 2015, 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 are 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 trading 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 are unavailable due to the failed auctions. The Company’s ARS portfolio, which was comprised entirely of an investment grade student loan ARS, was sold during the first quarter of 2016. The par value of this security was $1,000,000 as of December 31, 2015, with approximately 97.0% 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 utilized another third party pricing service to assist in the determination of the estimated fair market value of these securities. This service used a proprietary valuation model that considered 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 pricing service provided a range of values to the Company for its ARS. The Company recorded the estimated fair value based on the midpoint of the range and believes that this valuation is the most reasonable estimate of fair value. In 2015, the difference in the low and high values of the ranges was approximately one to four percent of the carrying value of the Company’s ARS.

The following table presents, by level, the financial assets carried at estimated fair value measured on a recurring basis as of December 31, 2016 and 2015 . The table does not include cash on hand and also does not include assets that are measured at historical cost or any basis other than fair value. Level 3 assets are comprised solely of ARS.



As of December 31, 2016	Level 1		Level 2		Level 3		Total
Short-term investments	$	6,558,840	$	—	$	—	$	6,558,840
Equity securities:
Common stocks	41,179,259		—		—		41,179,259
Fixed maturities:
Obligations of U.S. states, territories and political subdivisions*	—		88,093,996		—		88,093,996
Corporate debt securities* and auction rate security	—		13,840,081		—		13,840,081
Total	$	47,738,099	$	101,934,077	$	—	$	149,672,176



As of December 31, 2015	Level 1		Level 2		Level 3		Total
Short-term investments	$	6,865,406	$	—	$	—	$	6,865,406
Equity securities:
Common stocks and nonredeemable preferred stock	37,513,464		—		—		37,513,464
Fixed maturities:
Obligations of U.S. states, territories and political subdivisions*	—		87,640,140		—		87,640,140
Corporate debt securities* and auction rate security	—		17,486,344		939,900		18,426,244
Total	$	44,378,870	$	105,126,484	$	939,900	$	150,445,254

*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 estimated fair value determinations are consistent with ASC 820, 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 respective 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 estimated 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 estimated 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. These items are included in other investments in the Consolidated Balance Sheets.

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.

The carrying amounts and estimated fair values of other financial instruments (see previous table for investments carried at estimated fair value) as of December 31, 2016 and 2015 are presented in the following table:



As of December 31, 2016
Financial Assets	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	27,928,472	$	27,928,472	$	27,928,472	$	—	$	—
Cost-basis investments	4,244,402		4,497,665		—		—		4,497,665
Accrued dividends and interest	1,035,152		1,035,152		1,035,152		—		—
Total	$	33,208,026	$	33,461,289	$	28,963,624	$	—	$	4,497,665



As of December 31, 2015
Financial Assets	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	21,790,068	$	21,790,068	$	21,790,068	$	—	$	—
Cost-basis investments	3,588,314		3,684,020		—		—		3,684,020
Accrued dividends and interest	1,004,126		1,004,126		1,004,126		—		—
Total	$	26,382,508	$	26,478,214	$	22,794,194	$	—	$	3,684,020

The following table presents a reconciliation of the Company’s assets measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3), which are all ARS securities, for the twelve months ended December 31, 2016 and 2015 :



Changes in fair value during the year ended December 31:	2016			2015
Beginning balance at January 1	$	939,900		$	939,100
Redemptions and sales	(1,000,000		)	—
Realized gain – included in net realized gain (loss) on investments	74,996			—
Unrealized (loss) gain – included in other comprehensive income (loss)	(14,896		)	800
Ending balance at December 31	$	—		$	939,900

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, 2016 and 2015 . The following table summarizes the corresponding estimated fair value hierarchy of such investments at December 31, 2016 and 2015 and the related impairments recognized:

December 31, 2016

Valuation

Method

Impaired

Level 1

Level 2

Level 3

Total at

Estimated

Fair

Value

Impairment

Losses

Cost-basis investments

Fair Value

Yes

—

Total cost-basis investments and other assets

—



December 31, 2015	Valuation Method	Impaired	Level 1		Level 2		Level 3		Total at Estimated Fair Value		Impairment Losses
Cost-basis investments	Fair Value	Yes	$	—	$	—	$	163,350	$	163,350	$	(233,069	)
Total cost-basis investments and other assets			$	—	$	—	$	163,350	$	163,350	$	(233,069	)

4. Property and Equipment

Property and equipment and estimated useful lives at December 31 are summarized as follows:



	2016			2015
Land	$	1,122,582		$	1,122,582
Office buildings and improvements (25 years)	4,399,448			3,495,338
Furniture, fixtures and equipment (3 to 10 years)	10,444,355			8,948,535
Automobiles (3 years)	971,235			968,210
Total	16,937,620			14,534,665
Less accumulated depreciation	(8,184,154		)	(7,385,714		)
Property and equipment, net	$	8,753,466		$	7,148,951

Included within furniture, fixtures and equipment is software developed by the Company for internal use. Capitalized costs include both direct and indirect costs, such as payroll costs of employees associated with developing software, incurred during the software development stage.

5. Reinsurance

The Company assumes and cedes reinsurance with other insurance companies in the normal course of business. Premiums assumed and ceded were approximately $17,000 and $141,000 , respectively, for 2016 , $34,000 and $215,000 , respectively, for 2015 and $38,000 and $140,000 , respectively, for 2014 . Ceded reinsurance is comprised of excess of loss treaties, which outline the conditions in which the reinsurance company will pay claims and protect against losses over certain agreed 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, 2016 .

6. Reserve for Claims

Changes in the reserve for claims for the years ended December 31 are summarized as follows based on the year in which the policies were written:



	2016			2015			2014
Balance, beginning of period	$	37,788,000		$	36,677,000		$	35,360,000
Provision (benefit) related to:
Current year	6,673,036			7,295,013			6,860,335
Prior years	(6,430,083		)	(2,816,519		)	(1,630,619		)
Total provision charged to operations	242,953			4,478,494			5,229,716
Claims paid, net of recoveries, related to:
Current year	(102,501		)	(97,116		)	(102,947		)
Prior years	(2,623,452		)	(3,270,378		)	(3,809,769		)
Total claims paid, net of recoveries	(2,725,953		)	(3,367,494		)	(3,912,716		)
Balance, end of year	$	35,305,000		$	37,788,000		$	36,677,000

The Company continually refines its reserve estimates as current loss experience develops and credible data emerges. Movements in the reserve related to prior periods were primarily the result of changes to estimates to better reflect the latest reported loss data. The 2016 calendar year change in the provision relating to prior years resulted mostly from changes to certain actuarial inputs and favorable development in 2016 versus the prior year related primarily to policy years 2009 through 2015. 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 $1,040,000 , $467,000 and $790,000 during 2016 , 2015 and 2014 , respectively.

The provision for claims as a percentage of net premiums written was 0.2% , 4.0% and 4.8% in 2016 , 2015 and 2014 , 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.

A summary of the Company’s loss reserve, broken down into its components of known title claims and IBNR, follows:



	2016		%	2015		%
Known title claims	$	4,405,343	12.5	$	5,066,469	13.4
IBNR	30,899,657		87.5	32,721,531		86.6
Total loss reserve	$	35,305,000	100.0	$	37,788,000	100.0

In management’s opinion, the reserve is 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 services that the Company has not yet recognized; and (c) the amount of estimated tax benefits that would be recorded in retained earnings, if any, are assumed to be used to repurchase shares in the current period.

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,	2016		2015		2014
Net income attributable to the Company	$	19,523,118	$	12,533,905	$	9,648,975
Weighted average common shares outstanding – Basic	1,907,675		1,984,360		2,031,760
Incremental shares outstanding assuming the exercise of dilutive stock options and SARs (share-settled)	7,382		5,439		5,774
Weighted average common shares outstanding – Diluted	1,915,057		1,989,799		2,037,534
Basic earnings per common share	$	10.23	$	6.32	$	4.75
Diluted earnings per common share	$	10.19	$	6.30	$	4.74

There were no potential shares excluded from the computation of diluted earnings per share in 2016 , 2015 and 2014 .

The Company has adopted employee stock award plans under which restricted stock, and options or stock appreciation rights

("SARs") 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. There is currently one active plan from which the Company may grant share-based awards. The awards

eligible to be granted under the active plan are limited to SARs, and the maximum aggregate number of shares of common stock of the

Company available pursuant to the plan for the grant of SARs is 250,000 shares.

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, 2014	19,000		$	45.74	3.43	$	669,610
SARs granted	4,500		68.70
SARs exercised	(1,500	)	49.04
Options exercised	(1,000	)	27.21
Outstanding as of December 31, 2014	21,000		$	51.30	3.64	$	453,510
SARs granted	4,500		73.00
SARs exercised	(2,000	)	47.88
Options exercised	(1,500	)	36.79
Outstanding as of December 31, 2015	22,000		$	57.04	3.93	$	945,055
SARs granted	4,500		93.87
SARs exercised	(2,000	)	32.00
Outstanding as of December 31, 2016	24,500		$	65.85	3.85	$	836,640

Exercisable as of December 31, 2016	23,375		$	64.50	3.73	$	829,744

Unvested as of December 31, 2016	1,125		$	93.87	6.38	$	6,896

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, 2016 . The intrinsic values of options exercised during 2016 , 2015 and 2014 were approximately $117,000 , $104,000 and $82,000 , respectively.

There were no options outstanding at December 31, 2016 . The following tables summarize information about SARs outstanding at December 31, 2016 :



					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
$	30.00	—	$	39.99	2,500	0.38	$	33.31	2,500	$	33.31
40.00		—	49.99		2,500	1.38	41.50		2,500	41.50
50.00		—	59.99		3,000	2.37	50.50		3,000	50.50
60.00		—	69.99		4,500	4.39	68.70		4,500	68.70
70.00		—	79.99		7,500	4.58	72.44		7,500	72.44
80.00		—	89.99		—	0.00	—		—	—
90.00		—	99.99		4,500	6.38	93.87		3,375	93.87
$	30.00	—	$	99.99	24,500	3.85	$	65.85	23,375	$	64.50

In 2016 , 4,500 SARs vested with a fair value of $132,099 .

During the second quarters of 2016 , 2015 and 2014 , the Company issued 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 2016 , 2015 and 2014 were $28.75 , $31.16 and $28.98 , respectively, and were estimated using the weighted average assumptions shown in the table below.



	2016	2015	2014
Expected Life in Years	7.0	7.0	6.9
Volatility	28.9%	40.7%	39.9%
Interest Rate	1.7%	2.0%	2.1%
Yield Rate	1.0%	0.4%	0.4%

There was approximately $132,000 , $138,000 and $121,000 of compensation expense relating to SARs or options vesting on or before December 31, 2016 , 2015 and 2014 , respectively, included in salaries, employee benefits and payroll taxes in the Consolidated Statements of Income. As of December 31, 2016 , there was approximately $32,000 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,	2016		2015		2014
Exercise price equal to market price on date of grant:
Weighted average market price	$	93.87	$	73.00	$	68.70
Weighted average grant-date fair value	$	28.75	$	31.16	$	28.98

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,	2016		2015		2014
Current:
Federal	$	5,745,000	$	4,179,000	$	3,121,000
State	81,000		34,000		84,000
Total current	5,826,000		4,213,000		3,205,000
Deferred:
Federal	2,755,777		976,624		620,156
State	34,223		38,376		(9,156		)
Total deferred	2,790,000		1,015,000		611,000
Total	$	8,616,000	$	5,228,000	$	3,816,000

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,	2016			2015
Deferred income tax assets:
Accrued benefits and retirement services	$	3,625,943		$	3,266,823
Other-than-temporary impairment of assets	429,167			428,614
Allowance for doubtful accounts	122,477			1,205,735
Postretirement benefit obligation	56,259			59,108
Net operating loss carryforward	15,000			22,000
Reinsurance and commission payable	7,935			13,752
Other	410,400			416,401
Total	4,667,181			5,412,433
Deferred income tax liabilities:
Net unrealized gain on investments	6,207,324			6,073,431
Recorded reserve for claims, net of statutory premium reserves	4,985,984			3,322,336
Intangible assets	2,525,511			37,451
Excess of tax over book depreciation	1,303,710			987,765
Other	762,908			694,456
Total	15,785,437			11,115,439
Net deferred income tax liabilities	$	(11,118,256	)	$	(5,703,006	)

At December 31, 2016 and 2015 , 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 34.6% for 2016, 34.4% for 2015 and 34.3% for 2014, respectively, to income tax expense follows:



For the Years Ended December 31,	2016			2015			2014
Anticipated income tax expense	$	9,733,482		$	6,115,306		$	4,626,555
Increase (decrease) related to:
State income taxes, net of federal income tax benefit	52,974			22,304			55,188
Tax-exempt interest income (net of amortization)	(1,074,504		)	(981,712		)	(876,365		)
Other, net	(95,952		)	72,102			10,622
Provision for income taxes	$	8,616,000		$	5,228,000		$	3,816,000

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, 2016 .

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 2013.

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 $896,000 , $793,000 , and $766,000 in 2016 , 2015 and 2014 , 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, 2016 , are summarized as follows:



Year Ended:
2017	$	932,831
2018	683,892
2019	474,879
2020	396,386
2021	376,327
Thereafter	553,660
Total	$	3,417,975

10. Retirement Agreements and Other Postretirement Benefit Plan

The Company has a 401(k) savings plan. In order to participate in the plan, individuals must have worked at the Company for at least 3 months. In order to be eligible for employer contributions, 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 $810,000 , $741,000 and $676,000 for 2016 , 2015 and 2014 , 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 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, 2016 and 2015 was approximately $8,487,000 and $7,818,000 , respectively, which includes postretirement compensation and health benefits, and was calculated based on the terms of the contract. Both the 2016 and 2015 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 $13,521 in 2017 , $18,628 in 2018 , $20,330 in 2019 , $22,150 in 2020 , $23,981 in 2021 and $216,988 in the next five years thereafter.

Cost of the Company’s postretirement benefits included the following components:



	2016		2015		2014
Net periodic benefit cost
Service cost – benefits earned during the year	$	10,180	$	16,748	$	14,667
Interest cost on the projected benefit obligation	35,123		30,772		30,472
Amortization of unrecognized prior service cost	—		4,390		2,217
Amortization of unrecognized loss	8,941		3,514		—
Net periodic benefits cost at end of year	$	54,244	$	55,424	$	47,356

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 $(165,437) , $(109,200) net of tax, for December 31, 2016 , and $(173,812) , $(114,726) net of tax, for December 31, 2015 , 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, 2016 and 2015 are presented in the following table:



	2016			2015
Funded status
Actuarial present value of future benefits:
Fully eligible active employee	$	(928,492	)	$	(483,985	)
Non-eligible active employees	—			(398,638		)
Plan assets	—			—
Funded status of accumulated postretirement benefit obligation, recognized in other liabilities	$	(928,492	)	$	(882,623	)

Development of the accumulated postretirement benefit obligation for the years ended December 31, 2016 and 2015 includes the following:



	2016			2015
Accrued postretirement benefit obligation at beginning of year	$	(882,623	)	$	(771,537	)
Service cost – benefits earned during the year	(10,180		)	(16,748		)
Interest cost on projected benefit obligation	(35,123		)	(30,772		)
Actuarial loss	(566		)	(63,566		)
Accrued postretirement benefit obligation at end of year	$	(928,492	)	$	(882,623	)

The changes in amounts related to accumulated other comprehensive income, pre-tax, are as follows:



	2016			2015
Balance at beginning of year	$	173,812		$	118,150
Components of accumulated other comprehensive income:
Unrecognized prior service cost	—			(4,390		)
Amortization of loss, net	(8,941		)	(3,514		)
Actuarial loss	566			63,566
Balance at end of year	$	165,437		$	173,812

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 2017 are:



	Projected 2017
Amortization of unrecognized prior service cost	$	—
Amortization of unrecognized loss	8,612
Net periodic benefit cost at end of year	$	8,612

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, 2016 :



	One Percentage Point Increase		One Percentage Point Decrease
Net periodic postretirement benefit cost
Effect on the service cost component	$	—	$	—
Effect on interest cost	7,447		(5,835		)
Total effect on the net periodic postretirement benefit cost	$	7,447	$	(5,835	)
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	186,181		(145,871		)
Effect on actives not yet eligible	—		—
Total effect on the accumulated postretirement benefit obligation	$	186,181	$	(145,871	)

11. Commitments and Contingencies

Legal Proceedings. 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 $18,032,000 and $20,510,000 as of December 31, 2016 and 2015 , 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 Exchange 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 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 $202,184,000 and $171,010,000 as of December 31, 2016 and 2015 , 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.

Agency Relationship. On July 1, 2015, Title Resource Group LLC's wholly owned subsidiary, title insurer Texas American Title Company, acquired the assets of ITCOA, LLC, which does business throughout Texas as Independence Title. In 2016 , 2015 and 2014 Independence Title originated 5.4% , 10.3% and 23.6% , respectively, of the net premiums written for the Company. Independence Title is under no legal commitment to remit a minimum amount of premiums to the Company, and could cease doing so at any time.

12. 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, 2016 , 2015 and 2014 :



2016	Title Insurance		All Other		Intersegment Eliminations			Total
Insurance and other services revenues	$	128,408,746	$	6,808,392	$	(2,177,649	)	$	133,039,489
Investment income	4,329,605		564,891		(210,007		)	4,684,489
Net realized gain on investments	644,850		123,586		—			768,436
Total revenues	$	133,383,201	$	7,496,869	$	(2,387,656	)	$	138,492,414
Operating expenses	105,885,770		6,583,157		(2,107,965		)	110,360,962
Income before income taxes	$	27,497,431	$	913,712	$	(279,691	)	$	28,131,452
Total assets	$	183,763,655	$	45,174,467	$	—		$	228,938,122



2015	Title Insurance			All Other			Intersegment Eliminations			Total
Insurance and other services revenues	$	118,144,981		$	6,479,484		$	(1,839,549	)	$	122,784,916
Investment income	4,073,857			574,132			(116,670		)	4,531,319
Net realized loss on investments	(13,603		)	(102,560		)	—			(116,163		)
Total revenues	$	122,205,235		$	6,951,056		$	(1,956,219	)	$	127,200,072
Operating expenses	104,594,829			6,598,055			(1,769,865		)	109,423,019
Income before income taxes	$	17,610,406		$	353,001		$	(186,354	)	$	17,777,053
Total assets	$	163,582,898		$	47,939,131		$	—		$	211,522,029



2014	Title Insurance		All Other		Intersegment Eliminations			Total
Insurance and other services revenues	$	114,279,532	$	5,904,059	$	(1,592,100	)	$	118,591,491
Investment income	3,835,209		517,628		(93,336		)	4,259,501
Net realized gain on investments	213,709		54,585		—			268,294
Total revenues	$	118,328,450	$	6,476,272	$	(1,685,436	)	$	123,119,286
Operating expenses	105,290,627		5,862,577		(1,522,416		)	109,630,788
Income before income taxes	$	13,037,823	$	613,695	$	(163,020	)	$	13,488,498
Total assets	$	153,072,950	$	44,966,260	$	—		$	198,039,210

13. 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, 2016 and 2015 , with 200,000 , being designated Class A Junior Participating Preferred Stock.

14. 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. Deposits which exceed $250,000 at each institution are not insured by the Federal Deposit Insurance Corporation (“FDIC”). Of the $27.9 million in cash and cash equivalents at December 31, 2016 , $27.1 million was not insured by the FDIC. Of the $21.8 million in cash and cash equivalents at December 31, 2015 , $21.3 million was not insured by the FDIC. The Company mitigates the risk of having cash and cash equivalents not insured by the FDIC by monitoring the credit quality of the financial institutions in which the funds are held.

15. Business Concentration

The Company generates a significant amount of title insurance premiums in Texas, North Carolina and South Carolina. In 2016 , 2015 and 2014 , North Carolina accounted for 35.5% , 32.8% and 28.4% of total title premiums, respectively. In 2016 , 2015 and 2014 , Texas accounted for 20.5% , 22.4% and 36.5% of total title premiums, respectively. In 2016 , 2015 and 2014 , South Carolina accounted for 10.0% , 10.1% and 7.7% of total title premiums, respectively.

In 2016 , 2015 and 2014 , the Company had one agent that accounted for 5.4% , 10.3% and 23.6% of net premiums written, respectively. This agent was acquired by another title insurer during 2015. Refer to Note 11 for further information.

16. 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,	2016		2015
Consolidated Balance Sheets	2016		2015
Other investments	$	6,437,000	$	6,519,000
Premiums and fees receivable	$	56,000	$	719,000



Financial Statement Classification,
Consolidated Statements of Income	2016		2015		2014
Net premiums written	$	15,016,000	$	14,015,000	$	11,783,000
Other income	$	2,317,000	$	2,618,000	$	2,043,000
Commissions to agents	$	10,394,000	$	9,700,000	$	8,049,000

17. Business Combinations, Intangible Assets and Goodwill

Business Combinations

In October 2016, National Investors Holdings, LLC ("NIH"), a subsidiary of the Company, acquired all of the outstanding shares of University Title Company (“University”), a title insurance agency doing business in the State of Texas. NIH paid $10 million plus a $918,000 adjustment for University’s net cash position at closing to the shareholders of University. The acquisition was partially financed with loan proceeds from a Business/Commercial Loan Agreement and related Promissory Note (collectively, the “Loan Agreement”) with a bank, pursuant to which the bank loaned the Company the principal amount of $6 million . The Company paid off all amounts due under the Loan Agreement in December 2016, and therefore has no liabilities related to the Loan Agreement at December 31, 2016 .

In April 2012, ITIC purchased a 70% ownership interest in United Title Agency Co., LLC (“United”) for a purchase price of $1,041,250 . In May 2014, ITIC purchased the remaining 30% interest in United for an additional $515,275 , making United a wholly owned subsidiary of ITIC. United is a title insurance agency doing business in the State of Michigan.

Intangible Assets

The Company recognized the required identifiable intangible assets of University and United. The fair values of intangible assets, all Level 3 inputs, are principally based on values obtained from a third party valuation service. In accordance with ASC 350, Intangibles – Goodwill and Other , management determined that no events or changes in circumstances occurred that would indicate the carrying amounts may not be recoverable, and therefore determined that no identifiable intangible assets were impaired at December 31, 2016 .

Identifiable intangible assets consist of the following as of December 31:



Year Ended:	2016			2015
Referral relationships	$	6,416,215		$	836,215
Non-complete agreements	1,405,685			645,685
Tradename	560,000			—
Total	8,381,900			1,481,900
Accumulated amortization	(475,110		)	(261,315		)
Identifiable intangible assets, net	$	7,906,790		$	1,220,585

The following table provides the estimated aggregate amortization expense for each of the five succeeding fiscal years:



Year Ended:
2017	$	963,920
2018	642,253
2019	568,920
2020	568,920
2021	561,587
Thereafter	4,601,190
Total	$	7,906,790

Goodwill and Title Plant

The Company recognized $4,349,851 in goodwill and $690,000 in a title plant as the result of the University acquisition. The fair values of goodwill and the title plant, both Level 3 inputs, are principally based on values obtained from a third party valuation service. In accordance with ASC 350, Intangibles – Goodwill and Other , management determined that no events or changes in circumstances occurred that would indicate the carrying amounts may not be recoverable, and therefore determined that goodwill and the title plant were not impaired at December 31, 2016 .

18. Accumulated Other Comprehensive Income

The following tables provide changes in the balances of each component of accumulated other comprehensive income, net of tax, for the periods ended December 31, 2016 , 2015 and 2014 :



2016	Unrealized Gains and Losses On Available-for-Sale Securities			Postretirement Benefits Plans			Total
Beginning balance at January 1	$	11,597,741		$	(114,726	)	$	11,483,015
Other comprehensive income (loss) before reclassifications	758,021			(374		)	757,647
Amounts reclassified from accumulated other comprehensive income	(485,115		)	5,900			(479,215		)
Net current-period other comprehensive income	272,906			5,526			278,432
Ending balance	$	11,870,647		$	(109,200	)	$	11,761,447



2015	Unrealized Gains and Losses On Available-for-Sale Securities			Postretirement Benefits Plans			Total
Beginning balance at January 1	$	12,934,497		$	(77,988	)	$	12,856,509
Other comprehensive loss before reclassifications	(1,355,316		)	(41,954		)	(1,397,270		)
Amounts reclassified from accumulated other comprehensive income	18,560			5,216			23,776
Net current-period other comprehensive loss	(1,336,756		)	(36,738		)	(1,373,494		)
Ending balance	$	11,597,741		$	(114,726	)	$	11,483,015



2014	Unrealized Gains and Losses On Available-for-Sale Securities			Postretirement Benefits Plans			Total
Beginning balance at January 1	$	11,395,757		$	(48,353	)	$	11,347,404
Other comprehensive income (loss) before reclassifications	1,874,111			(31,100		)	1,843,011
Amounts reclassified from accumulated other comprehensive income	(335,371		)	1,465			(333,906		)
Net current-period other comprehensive income (loss)	1,538,740			(29,635		)	1,509,105
Ending balance	$	12,934,497		$	(77,988	)	$	12,856,509

The following tables provide significant amounts reclassified out of each component of accumulated other comprehensive income for the periods ended December 31, 2016 , 2015 and 2014 :



2016
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	$	972,672
Other-than-temporary impairments	(233,941		)
Total	$	738,731		Net realized gain (loss) on investments
Tax	(253,616		)	Provision for Income Taxes
Net of Tax	$	485,115
Amortization related to postretirement benefit plans:
Prior year service cost	$	—
Unrecognized loss	(8,941		)
Total	$	(8,941	)	(a)
Tax	3,041			Provision for Income Taxes
Net of Tax	$	(5,900	)
Reclassifications for the period	$	479,215



2015
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	$	718,837
Other-than-temporary impairments	(751,059		)
Total	$	(32,222	)	Net realized gain (loss) on investments
Tax	13,662			Provision for Income Taxes
Net of Tax	$	(18,560	)
Amortization related to postretirement benefit plans:
Prior year service cost	$	(4,390	)
Unrecognized loss	(3,514		)
Total	$	(7,904	)	(a)
Tax	2,688			Provision for Income Taxes
Net of Tax	$	(5,216	)
Reclassifications for the period	$	(23,776	)



2014
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	$	518,279
Other-than-temporary impairments	(14,542		)
Total	$	503,737		Net realized gain (loss) on investments
Tax	(168,366		)	Provision for Income Taxes
Net of Tax	$	335,371
Amortization related to postretirement benefit plans:
Prior year service cost	$	(2,217	)
Unrecognized loss	—
Total	$	(2,217	)	(a)
Tax	752			Provision for Income Taxes
Net of Tax	$	(1,465	)
Reclassifications for the period	$	333,906

(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.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in such reports is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure.

No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that the system of controls has operated effectively in all cases. The Company’s disclosure controls and procedures, however, are designed to provide reasonable assurance that the objectives of disclosure controls and procedures are met.

Pursuant to Rule 13a-15(b) under the Exchange Act, an evaluation was performed under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2016 to provide reasonable assurance that the objectives of disclosure controls and procedures are met.

Changes in Internal Control Over Financial Reporting

Other than as detailed below, there were no changes during the quarter ended December 31, 2016 in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company acquired University Title on October 31, 2016 and as permitted by SEC guidance, has elected to exclude University Title from its current evaluation on internal control over financial reporting. The financial results of University Title (for November and December of 2016) are not material to the Consolidated Financial Statements of the Company for 2016; however, integration of University Title’s systems and processes could cause changes to the Company’s internal controls over financial reporting in future periods.

Reports of Management and Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

Management has assessed, and the Company’s independent registered public accounting firm, Dixon Hughes Goodman LLP, has audited, the Company’s internal control over financial reporting as of December 31, 2016 . The reports of management and Dixon Hughes Goodman LLP thereon are included in Item 8 of this Annual Report on Form 10-K and are incorporated by reference herein.

ITEM 9B. OTHER INFORMATION

There was no information required to be disclosed in a report on Form 8-K during the fourth quarter of the year that has not been reported.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information called for by this item is incorporated by reference to the material under the captions “Proposals Requiring Your Vote – Proposal 1 – Election of Directors,” “General Information - Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance – Board of Directors and Committees – The Audit Committee” and “Corporate Governance – Code of Business Conduct and Ethics” in the Company’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 17, 2017. Other information with respect to the executive officers of the Company is included at the end of Part I of this Annual Report on Form 10-K under the separate caption “Executive Officers of the Company.”

ITEM 11. EXECUTIVE COMPENSATION

The information called for by this item is set forth under the captions “Executive Compensation” and “Compensation of Directors” in the Company’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 17, 2017 and is incorporated by reference in this Annual Report on Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information pertaining to securities ownership of certain beneficial owners and management is set forth under the caption “Stock Ownership of Certain Beneficial Owners and Management” in the Company’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 17, 2017 and is incorporated by reference in this Annual Report on Form 10-K.

The following table provides information about the Company’s compensation plans under which equity securities are authorized for issuance as of December 31, 2016 . The Company does not have any equity compensation plans that have not been approved by its shareholders.

Equity Compensation Plan Information



Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity compensation plans approved by shareholders	24,500	$	65.85	227,500
Equity compensation plans not approved by shareholders	—	—		—
Total	24,500	$	65.85	227,500

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information called for by this item is set forth under the captions “Certain Relationships and Related Transactions,” “Corporate Governance – Independent Directors” and “Proposals Requiring Your Vote – Proposal 1 – Election of Directors” set forth in the Company’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 17, 2017 and is incorporated by reference in this Annual Report on Form 10-K.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information pertaining to principal accountant fees and services is set forth under the caption “Proposals Requiring Your Vote – Proposal 2 – Ratification of Appointment of Independent Registered Public Accounting Firm” in the Company’s definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 17, 2017 and is incorporated by reference in this Annual Report on Form 10-K.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements

The following financial statements are filed under Item 8 of this Annual Report on Form 10-K:

Report of Independent Registered Public Accounting Firm

Management’s Report on Internal Control Over Financial Reporting

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2016 and 2015

Consolidated Statements of Income for the Years Ended December 31, 2016 , 2015 and 2014

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016 , 2015 and 2014

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2016 , 2015 and 2014

Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 , 2015 and 2014

Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules

The following is a list of financial statement schedules filed as part of this Form 10-K Annual Report:



Schedule Number		Description
I		Summary of Investments – Other Than Investments in Related Parties
II		Condensed Financial Information of Registrant
III		Supplementary Insurance Information
IV		Reinsurance
V		Valuation and Qualifying Accounts

All other schedules are omitted, as the required information either is not applicable, is not required, or is presented in the Consolidated Financial Statements or the notes thereto.

(a)(3) Exhibits

The exhibits filed as a part of this report and incorporated herein by reference to other documents are listed in the Index to Exhibits to this Annual Report on Form 10-K.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	INVESTORS TITLE COMPANY
	(Registrant)

	By:	/s/ J. Allen Fine
		J. Allen Fine, Chairman and Chief Executive
		Officer (Principal Executive Officer)

March 10, 2017

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 10th day of March, 2017.



/s/ J. Allen Fine		/s/ James A. Fine, Jr.
J. Allen Fine, Chairman of the Board and		James A. Fine, Jr., President, Treasurer, Chief
Chief Executive Officer		Financial Officer, Chief Accounting Officer and
(Principal Executive Officer)		Director (Principal Financial Officer and
		Principal Accounting Officer)

/s/ W. Morris Fine		/s/ H. Joe King, Jr.
W. Morris Fine, Executive Vice President,		H. Joe King, Jr., Director
Secretary and Director

/s/ R. Horace Johnson		/s/ James R. Morton
R. Horace Johnson, Director		James R. Morton, Director

/s/ David L. Francis		/s/ James H. Speed, Jr.
David L. Francis, Director		James H. Speed, Jr., Director

/s/ Richard M. Hutson, II
Richard M. Hutson, II, Director

SCHEDULE I

INVESTORS TITLE COMPANY AND SUBSIDIARIES

SUMMARY OF INVESTMENTS – OTHER THAN INVESTMENTS IN RELATED PARTIES

AS OF DECEMBER 31, 2016



Type of Investment	Cost (1)		Market Value		Amount at which shown in the Balance Sheet (2)

Fixed maturities:
Bonds:
General obligations of U.S. states, territories and political subdivisions	$	29,163,453	$	29,307,663	$	29,307,663
Special revenue issuer obligations of U.S. states, territories and political subdivisions	43,158,632		44,092,544		44,092,544
Public utilities	13,327,765		14,693,789		14,693,789
Corporate debt securities	14,512,507		13,840,081		13,840,081
Total fixed maturities	100,162,357		101,934,077		101,934,077

Equity securities:
Common stocks:
Public utilities	563,857		900,904		900,904
Banks, trusts and insurance companies	5,488,073		8,190,374		8,190,374
Industrial, miscellaneous and all other	16,273,231		26,958,274		26,958,274
Technology	2,510,871		5,129,707		5,129,707
Total equity securities	24,836,032		41,179,259		41,179,259

Other investments:
Short-term investments	6,558,840		6,558,840		6,558,840
Other investments (3)	9,972,130		9,972,130		9,972,130
Total other investments	16,530,970		16,530,970		16,530,970

Total investments (3)	$	141,529,359	$	159,644,306	$	159,644,306

(1) Fixed maturities are shown at amortized cost and equity securities are shown at original cost.

(2) All fixed maturities presented are classified as available-for-sale and shown at estimated fair value. Equity securities are shown at fair value.

(3) The above summary of investments does not include investments in related parties accounted for under the cost and equity methods of accounting in the amount of $1,209,401 .

SCHEDULE II

INVESTORS TITLE COMPANY (PARENT COMPANY)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

BALANCE SHEETS

AS OF DECEMBER 31, 2016 AND 2015



	2016		2015
Assets:
Cash and cash equivalents	$	10,178,219	$	8,347,004
Investments in fixed maturities, available-for-sale	16,505,866		21,779,123
Investments in equity securities, available-for-sale	3,193,268		2,638,330
Short-term investments	3,162,283		3,005,647
Investments in affiliated companies	113,234,094		99,951,433
Other investments	4,318,296		3,089,550
Premium and fees receivable	99,878		43,690
Other receivables	1,986,634		3,080,245
Income taxes recoverable	2,562,589		1,733,314
Accrued interest and dividends	86,481		120,369
Property, net	2,340,605		2,288,776
Total Assets	$	157,668,213	$	146,077,481

Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable and accrued liabilities	$	2,370,963	$	3,267,274
Deferred income taxes, net	252,181		140,325
Total liabilities	2,623,144		3,407,599

Stockholders’ Equity:
Preferred stock (1,000,000 authorized shares; no shares issued)	—		—
Common stock – no par value (10,000,000 authorized shares; 1,884,283 and 1,949,797 shares issued and outstanding 2016 and 2015, respectively, excluding 291,676 shares for 2016 and 2015 of common stock held by the Company’s subsidiary)	1		1
Retained earnings	143,283,621		131,186,866
Accumulated other comprehensive income	11,761,447		11,483,015
Total stockholders’ equity	155,045,069		142,669,882
Total Liabilities and Stockholders’ Equity	$	157,668,213	$	146,077,481

See notes to Condensed Financial Statements.

SCHEDULE II

INVESTORS TITLE COMPANY (PARENT COMPANY)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2016 , 2015 AND 2014



	2016			2015			2014
Revenues:
Investment income – interest and dividends	$	525,453		$	535,963		$	482,711
Net realized gain (loss) on investments	77,895			(152,026		)	9,169
Rental income	772,123			765,134			772,256
Miscellaneous income	77,074			385,058			59,569
Total	1,452,545			1,534,129			1,323,705

Operating Expenses:
Salaries, employee benefits and payroll taxes	664,436			651,957			673,729
Office occupancy and operations	236,954			239,176			270,881
Business development	99,229			76,684			49,059
Taxes – other than payroll and income	183,566			213,466			200,718
Professional and contract labor fees	377,738			378,265			192,064
Other expenses	246,375			198,788			193,681
Total	1,808,298			1,758,336			1,580,132

Equity in Net Income of Affiliated Companies	19,665,205			12,640,260			9,777,925

Income before Income Taxes	19,309,452			12,416,053			9,521,498

Income Tax Benefit	(206,000		)	(133,000		)	(151,000		)

Net Income	19,515,452			12,549,053			9,672,498

Net Loss (Income) Attributable to Noncontrolling Interests	7,666			(15,148		)	(23,523		)

Net Income Attributable to the Company	$	19,523,118		$	12,533,905		$	9,648,975

Basic Earnings per Common Share	$	10.23		$	6.32		$	4.75

Weighted Average Shares Outstanding – Basic	1,907,675			1,984,360			2,031,760

Diluted Earnings per Common Share	$	10.19		$	6.30		$	4.74

Weighted Average Shares Outstanding – Diluted	1,915,057			1,989,799			2,037,534

Cash Dividends Paid per Common Share	$	0.72		$	0.40		$	0.32

See notes to Condensed Financial Statements.

SCHEDULE II

INVESTORS TITLE COMPANY (PARENT COMPANY)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2016 , 2015 AND 2014



	2016			2015			2014
Operating Activities
Net income	$	19,515,452		$	12,549,053		$	9,672,498
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Equity in net earnings of subsidiaries	(19,665,205		)	(12,640,260		)	(9,777,925		)
Depreciation	93,086			112,690			136,369
Amortization, net	163,989			192,654			210,768
Share-based compensation expense related to stock appreciation rights and options	132,098			137,759			164,730
Net loss on disposals of property	—			1,683			2,722
Net realized (gain) loss on investments	(77,895		)	152,026			(19,231		)
Net (earnings) loss from other investments	(13,135		)	(237,686		)	322
(Benefit) provision for deferred income taxes	(18,000		)	13,000			(40,000		)
Decrease (increase) in receivables	1,037,423			(847,177		)	(685,052		)
(Increase) decrease in income taxes recoverable	(829,275		)	142,928			1,354,735
Decrease (increase) in other assets	33,888			7,852			(24,650		)
(Decrease) increase in accounts payable and accrued liabilities	(896,311		)	1,192,927			516,252
Net cash (used in) provided by operating activities	(523,885		)	777,449			1,511,538

Investing Activities
Purchase of subsidiary	(10,918,003		)	—			—
Dividends received from subsidiaries	17,330,948			7,630,835			5,051,664
Purchases of available-for-sale securities	(1,783,223		)	(260,044		)	(6,883,612		)
Purchases of short-term securities	(3,162,283		)	(2,721,578		)	(104,207		)
Purchases of and net earnings from other investments	(1,552,769		)	(2,007,798		)	(964,197		)
Proceeds from sales and maturities of available-for-sale securities	6,815,907			2,475,557			1,631,987
Proceeds from sales and maturities of short-term securities	3,005,647			—			2,033,634
Proceeds from sales and distributions of other investments	321,758			734,170			123,017
Purchases of property	(144,915		)	(32,071		)	(5,200		)
Net cash provided by investing activities	9,913,067			5,819,071			883,086

Financing Activities
Repurchases of common stock	(6,219,670		)	(5,483,953		)	(1,055,765		)
Exercise of stock appreciation rights and options	(200		)	54,988			27,100
Proceeds from note payable	6,000,000			—			—
Payments on note payable	(6,000,000		)	—			—
Excess tax benefit	32,293			26,875			15,999
Dividends paid	(1,370,390		)	(789,907		)	(650,433		)
Net cash used in financing activities	(7,557,967		)	(6,191,997		)	(1,663,099		)

Net Increase in Cash and Cash Equivalents	1,831,215			404,523			731,525
Cash and Cash Equivalents, Beginning of Period	8,347,004			7,942,481			7,210,956
Cash and Cash Equivalents, End of Period	$	10,178,219		$	8,347,004		$	7,942,481

Supplemental Disclosures:
Income tax payments, net	$	4,964,000		$	4,598,000		$	2,699,000

See notes to Condensed Financial Statements.

SCHEDULE II

INVESTORS TITLE COMPANY (PARENT COMPANY)

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 , 2015 AND 2014


1.	The accompanying Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto of Investors Title Company and Subsidiaries.


2.	Cash dividends paid to Investors Title Company by its wholly owned subsidiaries were as follows:



Subsidiaries	2016		2015		2014
Investors Title Insurance Company, net*	$	15,838,248	$	7,134,823	$	4,906,664
Investors Title Exchange Corporation	100,000		245,000		50,000
Investors Title Accommodation Corporation	45,000		12,000		10,000
Investors Capital Management Company	—		9,012		40,000
Investors Trust Company	750,000		—		—
Investors Title Commercial Agency, LLC	125,000		230,000		45,000
National Investors Holdings, LLC	472,700		—		—
Total	$	17,330,948	$	7,630,835	$	5,051,664

* Total dividends of $16,048,255 , $7,251,493 and $5,000,000 paid to the Parent Company in 2016 , 2015 and 2014 , respectively, netted with dividends of $210,007 , $116,670 and $93,336 received from the Parent Company in 2016 , 2015 and 2014 , respectively.

SCHEDULE III

INVESTORS TITLE COMPANY AND SUBSIDIARIES

SUPPLEMENTARY INSURANCE INFORMATION

FOR THE YEARS ENDED DECEMBER 31, 2016 , 2015 AND 2014



Segment	Deferred Policy Acquisition Cost		Future Policy Benefits, Losses, Claims and Loss Expenses		Unearned Premiums		Other Policy Claims and Benefits Payable		Premium Revenue		Net Investment Income		Benefits, Claims. Losses and Settlement Expenses		Amortization of Deferred Policy Acquisition Costs		Other Operating Expenses		Premiums Written
Year Ended December 31, 2016
Title Insurance	$	—	$	35,305,000	$	—	$	475,700	$	122,095,381	$	4,119,598	$	242,953	$	—	$	103,585,220	N/A
All Other	—		—		—		—		—		564,891		—		—		6,532,789		N/A
	$	—	$	35,305,000	$	—	$	475,700	$	122,095,381	$	4,684,489	$	242,953	$	—	$	110,118,009	N/A

Year Ended December 31, 2015
Title Insurance	$	—	$	37,788,000	$	—	$	341,191	$	112,475,686	$	3,957,187	$	4,478,494	$	—	$	98,417,207	N/A
All Other	—		—		—		—		—		574,132		—		—		6,527,318		N/A
	$	—	$	37,788,000	$	—	$	341,191	$	112,475,686	$	4,531,319	$	4,478,494	$	—	$	104,944,525	N/A

Year Ended December 31, 2014
Title Insurance	$	—	$	36,677,000	$	—	$	236,401	$	109,963,556	$	3,741,873	$	5,229,716	$	—	$	98,620,374	N/A
All Other	—		—		—		—		—		517,628		—		—		5,780,698		N/A
	$	—	$	36,677,000	$	—	$	236,401	$	109,963,556	$	4,259,501	$	5,229,716	$	—	$	104,401,072	N/A

SCHEDULE IV

INVESTORS TITLE COMPANY AND SUBSIDIARIES

REINSURANCE

FOR THE YEARS ENDED DECEMBER 31, 2016 , 2015 AND 2014



	Gross Amount		Ceded to Other Companies		Assumed from Other Companies		Net Amount		Percentages of Amount Assumed to Net
Year Ended December 31, 2016
Title Insurance	$	122,219,077	$	140,942	$	17,246	$	122,095,381	0.01	%

Year Ended December 31, 2015
Title Insurance	$	112,656,750	$	214,667	$	33,603	$	112,475,686	0.03	%

Year Ended December 31, 2014
Title Insurance	$	110,065,581	$	140,017	$	37,992	$	109,963,556	0.03	%

SCHEDULE V

INVESTORS TITLE COMPANY AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2016 , 2015 AND 2014



Description	Balance at Beginning of Period		Additions Charged to Costs and Expenses		Additions Charge to Other Accounts – Describe		Deductions – Describe				Balance at End of Period
2016
Premiums Receivable:
Valuation Provision	$	3,552,779	$	2,679,300	$	—	$	(5,859,907	)	(a)	$	372,172
Reserves for Claims	$	37,788,000	$	242,953	$	—	$	(2,725,953	)	(b)	$	35,305,000

2015
Premiums Receivable:
Valuation Provision	$	3,022,731	$	6,267,911	$	—	$	(5,737,863	)	(a)	$	3,552,779
Reserves for Claims	$	36,677,000	$	4,478,494	$	—	$	(3,367,494	)	(b)	$	37,788,000

2014
Premiums Receivable:
Valuation Provision	$	2,620,903	$	6,287,694	$	—	$	(5,885,866	)	(a)	$	3,022,731
Reserves for Claims	$	35,360,000	$	5,229,716	$	—	$	(3,912,716	)	(b)	$	36,677,000


(a)	Canceled premiums


(b)	Payments of claims, net of recoveries

INDEX TO EXHIBITS



Exhibit Number	Description	Location

2.1	Stock Purchase Agreement between National Investors Holdings, LLC, University Title Company and the sellers dated October 12, 2016	Filed herewith

3.1(a)	Articles of Incorporation dated January 22, 1973	Incorporated by reference to Exhibit 4.1 to Form S-8 filed August 10, 2009, File No. 333-161209

3.1(b)	Articles of Amendment to the Articles of Incorporation, dated February 8, 1973	Incorporated by reference to Exhibit 4.2 to Form S-8 filed August 10, 2009, File No. 333-161209

3.1(c)	Articles of Amendment to Articles of Incorporation, dated May 14, 1987	Incorporated by reference to Exhibit 4.3 to Form S-8 filed August 10, 2009, File No. 333-161209

3.1(d)	Articles of Amendment to Articles of Incorporation, dated May 15, 2002	Incorporated by reference to Exhibit 3.3 to Form 10-Q for the quarter ended June 30, 2002, File No. 11774

3.1(e)	Articles of Amendment to Articles of Incorporation, dated November 2, 2002	Incorporated by reference to Exhibit 3.4 to Form 10-Q for the quarter ended March 31, 2003, File No. 11774

3.1(f)	Articles of Amendment to Articles of Incorporation, dated October 31, 2012	Incorporated by reference to Exhibit 3.1 to Form 8-K filed on October 31, 2012, File No. 11774

3.2	Amended and Restated By-laws, dated November 9, 2015	Incorporated by reference to Exhibit 3.1 to Form 10-Q filed on November 9, 2015, File No. 11774

4.1	Amended and Restated Rights Agreement dated October 31, 2012, between the Company and Broadridge Issuer Solutions, Inc., as Rights Agent, dated October 31, 2012	Incorporated by reference to Exhibit 4.1 to Form 8-K filed on November 2, 2012, File No. 11774

10.1(a)*	2001 Stock Option and Restricted Stock Plan, as amended and restated effective May 17, 2006	Incorporated by reference to Exhibit 10.1 to Form 8-K filed on May 23, 2006, File No. 11774

10.1(b)*	Form of Stock Appreciation Rights Award Agreement under 2001 Stock Option and Restricted Stock Plan	Incorporated by reference to Exhibit 10.2 to Form 8-K filed on May 23, 2006, File No. 11774

10.1(c)*	Form of Stock Appreciation Rights Agreement under 2001 Stock Option and Restricted Stock Plan	Incorporated by reference to Exhibit 10.1 to Form 8-K filed on March 6, 2009, File No. 11774

10.2*	Amended and Restated Employment Agreement effective January 1, 2009 for J. Allen Fine	Incorporated by reference to Exhibit 10.7 to Form 10-K for the year ended December 31, 2008, File No. 11774

10.3*	Amended and Restated Employment Agreement effective January 1, 2009 for James A. Fine, Jr.	Incorporated by reference to Exhibit 10.8 to Form 10-K for the year ended December 31, 2008, File No. 11774

10.4*	Amended and Restated Employment Agreement effective January 1, 2009 for W. Morris Fine	Incorporated by reference to Exhibit 10.9 to Form 10-K for the year ended December 31, 2008, File No. 11774

10.5*	Amended and Restated Death Benefit Plan Agreement effective January 1, 2009 for J. Allen Fine	Incorporated by reference to Exhibit 10.10 to Form 10-K for the year ended December 31, 2008, File No. 11774

10.6*	Amended and Restated Death Benefit Plan Agreement effective January 1, 2009 for James A. Fine, Jr.	Incorporated by reference to Exhibit 10.11 to Form 10-K for the year ended December 31, 2008, File No. 11774

10.7*	Death Benefit Plan Agreement effective January 1, 2009 for W. Morris Fine	Incorporated by reference to Exhibit 10.12 to Form 10-K for the year ended December 31, 2008, File No. 11774



10.8*	Amended and Restated Nonqualified Deferred Compensation Plan effective January 1, 2009	Incorporated by reference to Exhibit 10.13 to Form 10-K for the year ended December 31, 2008, File No. 11774

10.9*	Amended and Restated Nonqualified Supplemental Retirement Benefit Plan effective January 1, 2009	Incorporated by reference to Exhibit 10.14 to Form 10-K for the year ended December 31, 2008, File No. 11774

10.10(a)*	2009 Stock Appreciation Right Plan effective March 2, 2009	Incorporated by reference to Appendix A to the Proxy Statement dated May 26, 2009, File No. 11774

10.10(b)*	Form of Stock Appreciation Rights Agreement under 2009 Stock Appreciation Right Plan	Incorporated by reference to Exhibit 10 to Form 10-Q for the quarter ended June 30, 2011, File No. 11774

10.11	Business/Commercial Loan Agreement between the Company and First Citizens Bank dated October 27, 2016	Filed herewith

10.12	Promissory note between the Company and First Citizens Bank dated October 27, 2016	Filed herewith

10.13	Commercial Security Agreement between the Company and First Citizens bank dated October 27, 2016	Filed herewith

21	Subsidiaries of Registrant	Filed herewith

23	Consent of Independent Registered Public Accounting Firm	Filed herewith

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

32	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith

101.INS	XBRL Instance Document	Filed herewith

101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith

101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith



*	Management contract or compensatory plan or arrangement

Exhibit 2.1

STOCK PURCHASE AGREEMENT

among

NATIONAL INVESTORS HOLDINGS, LLC

(as Buyer)

and

UNIVERSITY TITLE COMPANY

(the Company)

and

THE INDIVIDUALS LISTED ON SCHEDULE I

(as Sellers)

dated as of

October 12,2016

TABLE OF CONTENTS



§1.	Definitions		1

§2.	Purchase and Sale of Company Shares		6
	(a)	Transaction	6
	(b)	Preliminary Purchase Price	6
	(c)	Closing	6
	(d)	Deliveries at Closing	7
	(e)	Closing Statement	7

§3.	Representations and Warranties Concerning Transaction		7
	(a)	Sellers' Representations and Warranties	7
	(b)	Company Shares	8
	(c)	Buyer's Representations and Warranties	8

§4.	Representations and Warranties Concerning Company		9
	(a)	Organization, Qualification, and Corporate Power	9
	(b)	Capitalization	10
	(c)	Non-contravention	10
	(d)	Brokers' Fees	10
	(e)	Assets	10
	(f)	No Subsidiaries	10
	(g)	Financial Statements	10
	(h)	Events Subsequent to Most Recent Financial Year End	11
	(i)	Undisclosed Liabilities	12
	(j)	Legal Compliance	13
	(k)	Tax Matters	13
	(l)	Real Property	15
	(m)	Intellectual Property	16
	(n)	Tangible Assets	17
	(o)	Contracts	17
	(p)	[Reserved]	18
	(q)	Powers of Attorney	18
	(r)	Insurance	19
	(s)	Litigation	19
	(t)	Employees	19
	(u)	Employee Benefits	20
	(v)	Guaranties	22
	(w)	Environmental, Health, and Safety Matters	22
	(x)	Title Insurance Agency Business Matters	23
	(y)	Computer and Technology Security	24
	(z)	Certain Business Relationships with Company	24
	(aa)	Customers and Suppliers	24
	(bb)	Data Privacy	25
	(cc)	Disclosure	25

§5.	Pre-Closing Covenants		25
	(a)	General	25
	(b)	Notices and Consents	25
	(c)	Operation of Business	25
	(d)	Preservation of Business	26
	(e)	Full Access	26
	(f)	Notice of Developments	26
	(g)	Exclusivity	26
	(h)	Maintenance of Leased Real Property	26
	(i)	Leases	26
	(j)	Tax Matters	26



	(k)	E&O Policy	27
	(l)	Internet Domain Registration	27
§6.	Post-Closing Covenants		27
	(a)	General	27
	(b)	Litigation Support	27
	(c)	Transition	27
	(d)	Confidentiality	28
	(e)	Non-Compete Covenant	28
	(f)	Seller Release of Company	29
	(g)	Buyer Continuation of Employee Benefit Policies and Procedures	29
	(h)	Transition Bonuses	29

§7.	Conditions to Obligation to Close		30
	(a)	Conditions to Buyer's Obligation	30
	(b)	Conditions to Sellers' Obligation	32

§8.	Remedies for Breaches of This Agreement		32
	(a)	Survival of Representations and Warranties	32
	(b)	Indemnification Provisions for Buyer's Benefit	33
	(c)	Indemnification Provisions for Sellers' Benefit	34
	(d)	Matters Involving Third Parties	34
	(e)	Determination of Adverse Consequences; Limitations on Adverse Consequences	35
	(f)	Other Indemnification Provisions	35

§9.	Tax Matters		36
	(a)	Tax Indemnification	36
	(b)	Straddle Period	36
	(c)	S Corporation Status	36
	(d)	Tax Periods Ending on or before Closing Date	37
	(e)	Cooperation on Tax Matters	37
	(f)	Tax-Sharing Agreements	37
	(g)	Certain Taxes	37
	(h)	Contests	37

§10.	Termination		38
	(a)	Termination of Agreement	38
	(b)	Effect of Termination	38

§11.	Miscellaneous		38
	(a)	Nature of Sellers' Obligations	38
	(b)	Press Releases and Public Announcements	39
	(c)	No Third-Party Beneficiaries	39
	(d)	Entire Agreement	39
	(e)	Succession and Assignment	39
	(f)	Counterparts	39
	(g)	Headings	39
	(h)	Notices	39
	(i)	Governing Law	40
	(j)	Amendments and Waivers	40
	(k)	Severability	40
	(l)	Expenses	40
	(m)	Construction	41
	(n)	Incorporation of Exhibits, Annexes, and Schedules	41
	(o)	Specific Performance	41
	(p)	Submission to Jurisdiction	41

*Schedule I - Sellers

* Exhibit A - Financial Statements

* Exhibit B-1 - Forms of Seller Employment Offer Letters

* Exhibit B-2 - Form of Seller Non-Competition Agreement

* Exhibit C - Management Employees

* Exhibit C-1 - Form of Management Employee Non-Competition Agreement

* Exhibit C-2 - Form of Management Employee Retention Bonus Agreement

* Exhibit D - Key Employees

* Exhibit D-1 - Form of Key Employee Non-Competition Agreement

* Exhibit D-2 - Form of Key Employee Retention Bonus Agreement

* Annex I - Exceptions to Sellers' Representations and Warranties Concerning Transaction

* Annex II - Exceptions to Buyer's Representations and Warranties Concerning Transaction

* Disclosure Schedule - Exceptions to Representations and Warranties Concerning Company

* The filed version of this Stock Purchase Agreement omits the schedules and other attachments indicated above. The Registrant hereby agrees to furnish supplementally a copy of any omitted schedule or attachment to the Securities and Exchange Commission upon request.

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (this “ Agreement” ) is entered into as of October, 12, 2016, by and among National Investors Holdings, LLC, a Texas limited liability company (“ Buyer ” ), University Title Company, a Texas corporation (“ Company ”), and the individuals listed on Schedule I (each a “ Seller ” and collectively, “ Sellers” ). Buyer, Company and Sellers are referred to collectively herein as the “ Parties . ”

RECITALS

WHEREAS, Sellers collectively own all of the issued and outstanding shares of capital stock, par value $1.00 per share, of Company (the “ Company Shares ”); and

WHEREAS, Sellers wish to sell to Buyer, and Buyer wishes to buy from Sellers, all of the Company Shares, on and subject to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows.

§1. Definitions.

“ Abstract Plant ” has the meaning set forth in §4(x) below.

“ Adverse Consequences ” means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, costs and expenses, including costs of investigation, settlement, mitigation and defense actually incurred (including expenses of (i) defending a third party claim seeking to impose an Adverse Consequence that would be subject to indemnification, (ii) asserting claims and affirmative defenses against a third party claim which claims and defenses are directly related to the subject matter of the third party claim and (iii) such reasonable offensive or other actions taken in connection with any defensive strategy, costs and expenses relating to obtaining a preliminary or permanent injunction, legal and consulting fees and alternative dispute resolution and court costs, and any interest costs or fines or penalties, in each case as incurred).

“ Affiliate ” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. With respect to any natural Person, the term “Affiliate” shall also include any member of such Person’s immediate family, any family limited partnership for such Person, and any trust of which such Person is a trustee or of which such Person or any of such Person’s immediate family is a beneficiary. With respect to any trust, the term “Affiliate” shall also include any trustee or beneficiary of such trust. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by Contract or otherwise.

“ Affiliated Group ” means any affiliated group within the meaning of Code §1504(a) or any similar group defined under a similar provision of state, local, or non-U.S. law.

“ Basis ” means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or could form the basis for any specified consequence.

“ Buy-Sell Agreement ” has the meaning set forth in §3(b) below.

-1-

“ Buyer ” has the meaning set forth in the preamble.

“ Closing ” has the meaning set forth in §2(c) below.

“ Closing Date ” has the meaning set forth in §2(c) below.

“ Closing Date Cash ” means all cash and cash equivalents of Company as of 11:59 p.m. local time at College Station, Texas on the Closing Date, determined on a consolidated basis in accordance with GAAP applied on a basis consistent with and using the same accounting methods, policies, practices and procedures, with consistent classifications, judgments and estimation methodology used in the preparation of the Financial Statements. Notwithstanding anything to the contrary, Closing Date Cash shall (a) include checks and drafts deposited for the account of Company, net of any outstanding checks issued by Company, and (b) exclude the Statutory Deposit.

“ Closing Date Liabilities ” means any and all Liabilities of Company as of 11:59 p.m. local time at College Station, Texas on the Closing Date, including, without limitation, unpaid vendor invoices, unpaid wages and employee bonuses, employee health insurance and other employee benefits, and notes payable. Notwithstanding anything to the contrary, Closing Date Liabilities shall specifically exclude items which do not meet normal criteria for recognition as a liability under GAAP as of 11:59 p.m. on the Closing Date. Notwithstanding the foregoing, Closing Date Liabilities shall include (a) any Transaction Expenses for which Company is liable to the extent not identified and paid at Closing, (b) the Performance Bonus Fund Amount and (c) the Profit Sharing Contribution.

“ Closing Statement ” has the meaning set forth in §2(e) below

“ Closing Net Cash ” means (a) the Closing Date Cash of Company minus (b) the Closing Date Liabilities of Company, each calculated on a consolidated basis as of the Closing Date. Closing Net Cash shall be calculated in accordance with GAAP applied on a basis consistent with and using the same accounting methods, policies, practices and procedures, with consistent classifications, judgments and estimation methodology used in the preparation of the Financial Statements.

“ Closing Net Cash Target ” means zero.

“ COBRA ” means the requirements of Part 6 of Subtitle B of Title I of ERISA and Code §4980B and of any similar state law.

“ Code ” means the Internal Revenue Code of 1986, as amended.

“ Company ” has the meaning set forth in the preamble.

“ Company Shares ” has the meaning set forth in the recitals.

“ Confidential Information ” means any information concerning the business and affairs of the Company that is not already generally available to the public.

“ Contracts ” means all contracts, leases, deeds, mortgages, licenses, instruments, notes, commitments, undertakings, indentures, joint ventures and all other agreements, commitments and legally binding arrangements.

“ Data Laws ” means laws, regulations, guidelines, and rules in any jurisdiction (federal, state, local, and non-U.S.) applicable to data privacy, data security, and/or personal information, including the Federal Trade Commission’s Fair Information Principles, as well as industry standards applicable to Company.

“ Disclosure Schedule ” has the meaning set forth in §4 below.

-2-

“ E&O Policy ” has the meaning set forth in §5(k) below.

“ Employee Benefit Plan ” means any “employee benefit plan” (as such term is defined in ERISA §3(3)) and any other employee benefit plan, program or arrangement of any kind.

“ Employee Pension Benefit Plan ” has the meaning set forth in ERISA §3(2).

“ Employee Welfare Benefit Plan ” has the meaning set forth in ERISA §3(1).

“ Environmental, Health, and Safety Requirements ” means, whenever in effect, all federal, state, local, and non-U.S. statutes, regulations, ordinances, and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations, and all common law concerning public health and safety, worker health and safety, pollution, or protection of the environment, including, without limitation, all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control, exposure to, or cleanup of any hazardous materials, substances, wastes, chemical substances, mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise, odor, mold, or radiation.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

“ ERISA Affiliate ” means each entity that is treated as a single employer with Company for purposes of Code §414.

“ Fiduciary ” has the meaning set forth in ERISA §3(21).

“ Financial Statements ” has the meaning set forth in §4(g) below.

“ FIRPTA Affidavit ” has the meaning set forth in §7(a) below.

“ GAAP ” means United States generally accepted accounting principles as in effect from time to time, consistently applied.

“ Improvements ” has the meaning set forth in §4(l) below.

“ Indemnified Party ” has the meaning set forth in §8(d) below.

“ Indemnifying Party ” has the meaning set forth in §8(d) below.

“ Insurance Contracts ” has the meaning set forth in §4(x) below

“ Intellectual Property ” means all of the following in any jurisdiction throughout the world: (a) all trademarks, service marks, trade dress, logos, slogans, trade names, corporate names, Internet domain names, other source identifiers, and rights in telephone numbers, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (b) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, divisions, continuations-in-part, revisions, extensions, and reexaminations thereof, (c) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications, registrations, and renewals in connection therewith, (e) all trade secrets and confidential, technical, and business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings,

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specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (f) all computer software (including source code, executable code, data, databases, and related documentation), (g) all advertising and promotional materials, (h) all other proprietary rights, and (i) all copies and tangible embodiments thereof (in whatever form or medium) ^.

“ Knowledge ” means actual knowledge after reasonable investigation.

“ Land Indices ” has the meaning set forth in §4(x) below.

“ Lease Consents ” has the meaning set forth in §7(a) below.

“ Leased Real Property ” means all leasehold or subleasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures, or other interest in real property held by Company.

“ Leases ” means all leases, subleases, licenses, concessions and other agreements (written or oral), including all amendments, extensions, renewals, guaranties, and other agreements with respect thereto, pursuant to which Company holds any Leased Real Property, including the right to all security deposits and other amounts and instruments deposited by or on behalf of Company thereunder.

“ Letter of Intent ” means the letter agreement between Sellers and Buyer dated August 26, 2016 relating to the transactions contemplated hereby.

“ Liability ” means, as to any Person, all debts, claims, liabilities, commitments, responsibilities, loss contingencies and obligations of any kind or nature whatsoever, direct, indirect, absolute or contingent, of or against such Person, whether accrued or unaccrued, joint or several, vested or unvested, disputed or undisputed, liquidated or unliquidated, secured or unsecured, due or to become due, known or unknown, executory, determined, determinable or otherwise and whether or not actually reflected, or required to be reflected, in such Person’s balance sheets or other books and records.

“ Lien ” means any lien, pledge, mortgage, deed of trust, security interest, charge, claim, community property interest, easement, encroachment, right of way, or other similar encumbrance, and, with respect to stock or other equity or ownership interests, includes any option, right of first offer or refusal, purchase right or restriction of any kind, including any restriction on or right of any third party with respect to use, voting transfer, receipt of income or exercise of any other attribute of ownership.

“ Material Adverse Effect ” or “ Material Adverse Change ” means any event, occurrence, fact, condition, effect or change that would be (or could reasonably be expected to be), either alone or taken together with all other events, occurrences, facts, conditions, effects or changes, materially adverse to the business, operating results, operations, condition (financial or otherwise), Liabilities or assets of the Company, whether viewed on a long-term, intermediate-term or short-term basis, or to the ability of Sellers to consummate timely the transactions contemplated hereby (regardless of whether or not such adverse effect or change can be or has been cured at any time). In no event need any effect or change adversely affect a party’s long-term earnings power or potential in a durationally significant manner in order to constitute a Material Adverse Effect or a Material Adverse Change, it being understood and agreed that a short-term adverse effect may constitute a Material Adverse Effect or a Material Adverse Change.

“ Miscellaneous Indices ” has the meaning set forth in §4(x) below.

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“ Most Recent Balance Sheet ” means the balance sheet contained within the Most Recent Financial Statements.

“ Most Recent Financial Statements ” has the meaning set forth in §4(g) below.

“ Most Recent Fiscal Month End ” has the meaning set forth in §4(g) below.

“ Most Recent Fiscal Year End ” has the meaning set forth in §4(g) below.

“ Multiemployer Plan ” has the meaning set forth in ERISA §3(37).

“ Ordinary Course of Business ” means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency).

“ Owned IP ” has the meaning set forth in §4(m) below.

“ Party ” has the meaning set forth in the preamble.

“ Performance Bonus Fund Amount ” means an amount equal to $669,532 to fund the performance bonuses to be paid by Company to employees of Company subsequent to Closing.

“ Person ” means an individual, corporation, partnership, joint venture, limited liability company, any governmental authority or instrumentality, unincorporated organization, trust, association or other entity.

“ PBGC ” means the Pension Benefit Guaranty Corporation.

“ Person ” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, any other business entity, or a governmental entity (or any department, agency, or political subdivision thereof).

“ Pre-Closing Assignments ” has the meaning set forth in §5(c) below.

“ Preliminary Purchase Price ” has the meaning set forth in §2(b) below.

“ Profit-Sharing Contribution ” means an amount equal to $200,000 to fund the profit-sharing component of the Company’s 401(k) plan subsequent to Closing.

“ Prohibited Transaction ” has the meaning set forth in ERISA §406 and Code §4975.

“ Purchase Price ” has the meaning set forth in §2(e) below.

“ Regulatory Approvals ” has the meaning set forth in §3(a) below

“ Releasees ” has the meaning set forth in §6(f) below.

“ Reportable Event ” has the meaning set forth in ERISA §4043.

“ Securities Act ” means the Securities Act of 1933, as amended.

“ Securities Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Seller ” has the meaning set forth in the preamble.

“ Special Indemnifying Seller ” has the meaning set forth in §8(b)(iv) below.

“ Statutory Deposit ” means the deposit placed by Company with the Texas Department of Insurance to become licensed in Texas in the amount of $51,365.

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“ Tax ” or “ Taxes ” means any federal, state, county, local, or non-U.S. income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code §59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, capital stock, unclaimed property or escheatment, estimated and any other taxes of any kind whatsoever, including any deficiencies, interest, penalty, or addition thereto, whether disputed or not and including any obligations to indemnify or otherwise assume or succeed to the Tax liability of any other Person.

“ Tax Claim ” has the meaning set forth in §9(h) below.

“ Tax Return ” means any return, declaration, report, claim for refund, statement or information report of filing relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“ Third-Party Claim ” has the meaning set forth in §8(d) below.

“ Transaction Expenses ” means the legal, accounting, financial advisory and other third party advisory or consulting fees and expenses and all other costs and expenses incurred on or before the Closing Date by any of the Company, Sellers, or the Affiliates of any of the foregoing in connection with this Agreement and the transactions contemplated hereby and not paid in full prior to the Closing Date. Transaction Expenses shall include all amounts payable by Company due upon or in the future in whole or in part as a result of the consummation of the Closing, including any, stay or retention bonuses (including the total retention bonuses set forth in Exhibits C and D ); provided, however, Transaction Expenses shall not include the transition bonuses referred to in §6(h) below.

“ WARN Act ” has the meaning set forth in §4(h) below.

§2. Purchase and Sale of Company Shares.

(a) Transaction. On and subject to the terms and conditions of this Agreement, Buyer agrees to purchase from each Seller, and each Seller agrees to sell to Buyer, all of his or her or its Company Shares for the consideration specified below in this §2.

(b) Preliminary Purchase Price. Buyer agrees to pay to Sellers at the Closing $10,000,000 in cash, as adjusted pursuant to §2(e) (the “ Preliminary Purchase Price ”), payable by wire transfer or delivery of other immediately available funds. The Preliminary Purchase Price shall be allocated among Sellers in proportion to their respective holdings of Company Shares as set forth in §4(b) of the Disclosure Schedule . The Preliminary Purchase Price is subject to adjustment as set forth below in §2(e).

(c) Closing. The closing of the transactions contemplated by this Agreement (the “ Closing ” ) shall be effective at 11:59 p.m. local time at College Station, Texas, on the Closing Date, and shall take place at 10:00 a.m. local time at College Station, Texas on the second business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective Parties will take at the Closing itself) or such other date as Buyer and the Sellers may mutually determine (the “ Closing Date ”); provided, however, that the Closing

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Date shall be no earlier than October 31, 2016. In lieu of a physical Closing, the Parties agree that all requisite Closing documents may be exchanged electronically at the Closing, and that documents so exchanged shall be binding for all purposes, provided that each Party undertakes to exchange originally executed documents promptly thereafter.

(d) Deliveries at Closing. At the Closing, (i) Sellers will deliver to Buyer the various certificates, instruments, and documents referred to in §7(a) below, (ii) Buyer will deliver to Sellers the various certificates, instruments, and documents referred to in §7(b) below, (iii) each Seller will deliver to Buyer stock certificates representing all of his, her, or its Company Shares, endorsed in blank or accompanied by duly executed assignment documents, and (iv) Buyer will deliver to each Seller the consideration specified in §2(b) above.

(e) Closing Statement .

(i) On the Closing, the Sellers shall prepare and deliver to Buyer an unaudited statement (the “ Closing Statement ”) consisting of financial statements prepared as of Closing Date, including unaudited balance sheet, statement of income and changes in shareholder’s equity, prepared in accordance with GAAP, or on a basis satisfactory to Buyer. In order to prepare the Closing Statement, Sellers and the Company shall cooperate fully with Buyer in closing the accounting books of the Company on each of the three business days preceding the Closing, and on the Closing Date, on a basis satisfactory to Buyer. The Sellers covenant that the Closing Statement will be prepared in accordance with GAAP (or on a basis satisfactory to Buyer) throughout the periods covered thereby, present fairly the financial condition of Company as of such dates, and the results of operations of Company for such periods, will be correct and complete, and will be consistent with the books and records of Company (which books and records will be correct and complete).

(ii) If the Closing Net Cash is less than the Closing Net Cash Target, the Preliminary Purchase Price shall be reduced at the Closing, dollar for dollar, by the amount of such shortfall. If the Closing Net Cash is greater than the Closing Net Cash Target, the Preliminary Purchase Price shall be increased at the Closing, dollar for dollar, by the amount of such excess. The Preliminary Purchase Price as so adjusted is referred to herein as the “ Purchase Price .”

§3. Representations and Warranties Concerning Transaction.

(a) Sellers’ Representations and Warranties. Each Seller represents and warrants to Buyer that the statements contained in this §3(a) are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this §3(a)) with respect to himself, herself, or itself, except as set forth in Annex I attached hereto.

(i) Authorization of Transaction . Seller has full power and authority to execute and deliver this Agreement and to perform his or her obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Seller, enforceable in accordance with its terms and conditions. Seller need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. The execution, delivery, and performance of this Agreement and all other agreements contemplated hereby have been duly authorized by Seller.

(ii) Non-contravention . Except for filings of applications and notices, as applicable, with the Texas

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Department of Insurance (if necessary), and approval of such applications and notices (collectively, the “ Regulatory Approvals ”), to the Knowledge of Sellers, no consents or approvals of, notices to, or filings or registrations with any foreign, federal or state insurance or other regulatory, self-regulatory or enforcement authorities or any courts, administrative agencies or commissions or other governmental authorities or instrumentalities are necessary in order for the Sellers to consummate the transactions contemplated by this Agreement. To the knowledge of Sellers, neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Seller is subject, (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Seller is a party or by which he or she is bound or to which any of his or her assets are subject, or (C) result in the imposition or creation of a Lien upon or with respect to the Company Shares.

(iii) Brokers’ Fees . Seller has no Liability to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement.

(b) Company Shares . Seller holds of record and owns beneficially the number of Company Shares set forth next to his or her name in §4(b) of the Disclosure Schedule , free and clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities laws), Taxes, Liens, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands, except as stated in the Disclosure Schedule . Other than the Amended and Restated Buy-Sell Agreement by and among the Sellers and Company dated as of November 22, 2013 (the “ Buy-Sell Agreement ”), Seller is not a party to any option, warrant, purchase right, or other contract or commitment (other than this Agreement) that could require Seller to sell, transfer, or otherwise dispose of any capital stock of Company. Seller is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any capital stock of Company.

(c) Buyer’s Representations and Warranties. Buyer represents and warrants to Sellers that the statements contained in this §3(b) are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this §3(b)), except as set forth in Annex II attached hereto.

(i) Organization of Buyer . Buyer is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Texas.

(ii) Authorization of Transaction . Buyer has full limited liability company power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Buyer, enforceable in accordance with its terms and conditions. Buyer need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. The execution, delivery, and performance of this Agreement and all other agreements contemplated hereby have been duly authorized by Buyer.

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(iii) Non-contravention . Except for the Regulatory Approvals, to the Knowledge of Buyer, no consents or approvals of, notices to, or filings or registrations with any foreign, federal or state insurance or other regulatory, self-regulatory or enforcement authorities or any courts, administrative agencies or commissions or other governmental authorities or instrumentalities are necessary in order for the Buyer to consummate the transactions contemplated by this Agreement. To the Knowledge of Buyer, neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Buyer is subject or any provision of its charter, bylaws, or other governing documents or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Buyer is a party or by which it is bound or to which any of its assets are subject.

(iv) Brokers’ Fees . Buyer has no Liability to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which any Seller could become liable or obligated.

(v) Investment . Buyer is not acquiring the Company Shares with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act.

§4. Representations and Warranties Concerning Company. Sellers represent and warrant to Buyer that the statements contained in this §4 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this §4), except as set forth in the disclosure schedule delivered by Sellers to Buyer on the date hereof and initialed by the Parties (the “ Disclosure Schedule ”). Nothing in the Disclosure Schedule shall be deemed adequate to disclose an exception to a representation or warranty made herein, however, unless the Disclosure Schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item shall not be deemed adequate to disclose an exception to a representation or warranty made herein (unless the representation or warranty pertains to the existence of the document or other item itself). The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this §4.

(a) Organization, Qualification, and Corporate Power. Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Texas. Company is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required. Company has full corporate power and authority and all licenses, permits, and authorizations necessary to carry on the business in which it is engaged and to own and use the properties owned and used by them. §4(a) of the Disclosure Schedule lists the directors and officers of Company. Sellers have delivered to Buyer correct and complete copies of the charter and bylaws for Company (as amended to date). The minute books (containing the records of meetings of the shareholders, the board of directors, and any committees of the board of directors), the stock certificate books, and the stock record books for Company are correct and complete. Company is not in default under or in violation of any provision of its charter or bylaws.

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(b) Capitalization. The entire authorized capital stock of Company consists of 100,000 Company Shares, of which 600 Company Shares are issued and outstanding and 4,840 Company Shares are held in treasury. All of the issued and outstanding Company Shares have been duly authorized, are validly issued, fully paid, and non-assessable, and are held of record by the respective Sellers as set forth in §4(b) of the Disclosure Schedule . Other than the Buy-Sell Agreement, there are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require Company to issue, sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to Company. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of Company.

(c) Non-contravention. Except for the Regulatory Approvals, to the knowledge of Sellers, no consents or approvals of, notices to, or filings or registrations with any foreign, federal or state insurance or other regulatory, self-regulatory or enforcement authorities or any courts, administrative agencies or commissions or other governmental authorities or instrumentalities are necessary in order for the Parties to consummate the transactions contemplated by this Agreement. To the knowledge of Sellers, neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Company is subject or any provision of the charter or bylaws of Company or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Company is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Lien upon any of its assets).

(d) Brokers’ Fees. Company has no Liability to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement.

(e) Assets. Company has good and marketable title to, or a valid leasehold interest in, the properties and assets used by it, located on its premises, or shown on the Most Recent Balance Sheet or acquired after the date thereof, free and clear of all Liens, except for properties and assets disposed of in the Ordinary Course of Business since the date of the Most Recent Balance Sheet. Company has good and marketable title to, or a valid leasehold interest in or other right to use, all assets, properties and rights, whether tangible or intangible, necessary for, or used in, the conduct of the business of the Company in the Ordinary Couse of Business since the beginning of the earliest period covered by the statements of income included in the Financial Statements.

(f) No Subsidiaries. Company does not own or have any right to acquire, directly or indirectly, any outstanding capital stock of, or other equity interests in, or have any other ownership interest in, any other Person.

(g) Financial Statements. Attached hereto as Exhibit A are the following financial statements

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(collectively the “ Financial Statements ”): (i) unaudited balance sheets and statements of income and changes in shareholders’ equity as of and for the fiscal years ended December 31, 2014 and December 31, 2015 (the “ Most Recent Fiscal Year End ”) for Company; and (ii) unaudited balance sheets and statements of income, changes in shareholders’ equity (the “ Most Recent Financial Statements ”) as of and for the month ended September 30, 2016 (the “ Most Recent Fiscal Month End ”) for Company. To the Knowledge of Sellers, the Financial Statements have been prepared in accordance with GAAP throughout the periods covered thereby, present fairly the financial condition of Company as of such dates and the results of operations of Company for such periods, are correct and complete, and are consistent with the books and records of Company (which books and records are correct and complete).

(h) Events Subsequent to Most Recent Fiscal Year End. Except as set forth on §4(h) of the Disclosure Schedule, since the Most Recent Fiscal Year End, there has not been any Material Adverse Change. Without limiting the generality of the foregoing, since that date:

(i) Company has not sold, leased, transferred, or assigned any of its assets, tangible or intangible, other than for a fair consideration in the Ordinary Course of Business;

(ii) Company has not entered into any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) either involving more than $25,000 or outside the Ordinary Course of Business;

(iii) No party (including Company) has accelerated, terminated, modified, or cancelled any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) to which Company is a party or by which it is bound;

(iv) Company has not imposed any Liens upon any of its assets, tangible or intangible;

(v) Company has not made any capital expenditure (or series of related capital expenditures) either involving more than $25,000 or outside the Ordinary Course of Business;

(vi) Company has not made any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans, and acquisitions);

(vii) Company has not issued any note, bond, or other debt security or created, incurred, assumed, or guaranteed any indebtedness for borrowed money or capitalized lease obligation;

(viii) Company has not delayed or postponed the payment of accounts payable and other Liabilities outside the Ordinary Course of Business;

(ix) Company has not cancelled, compromised, waived, or released any right or claim (or series of related rights and claims);

(x) Company has not transferred, assigned, or granted any license or sublicense of any rights under or with respect to any Intellectual Property;

(xi) there has been no change made or authorized in the charter or bylaws of Company;

(xii) Company has not issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its capital stock;

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(xiii) Company has not declared, set aside, or paid any dividend or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased, or otherwise acquired any of its capital stock;

(xiv) Company has not experienced any damage, destruction, or loss (whether or not covered by insurance) to its property;

(xv) Company has not made any loan to, or entered into any other transaction with, any of its directors, officers, and employees outside the Ordinary Course of Business;

(xvi) Company has not entered into or terminated any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement, or become bound by any collective bargaining relationship;

(xvii) Company has not granted any increase in the base compensation of any of its directors, officers, and employees outside the Ordinary Course of Business;

(xviii) Company has not adopted, amended, modified, or terminated any bonus, profit sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its directors, officers, and employees (or taken any such action with respect to any other Employee Benefit Plan);

(xix) Company has not made any other change in employment terms for any of its directors, officers, and employees outside the Ordinary Course of Business;

(xx) Company has not implemented any employee layoffs that could implicate the Worker Adjustment and Retraining Notification Act of 1988, as amended, or any similar state, local, or non-U.S. law, regulation, or ordinance (collectively the “ WARN Act ”);

(xxi) Company has not made or pledged to make any charitable or other capital contribution;

(xxii) there has not been any other material occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving Company;

(xxiii) Company has not discharged a material Liability or Lien outside the Ordinary Course of Business;

(xxiv) Company has not made any loans or advances of money;

(xxv) Company has not disclosed any Confidential Information subsequent to the execution of the Letter of Intent; and

(xxvi) Company has not committed to any of the foregoing.

(i) Undisclosed Liabilities. Company does not have any Liability (and there is no Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against any of them giving rise to any Liability), except for (i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) and (ii) Liabilities that have arisen after the Most Recent Fiscal Month End in the Ordinary Course of Business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of law).

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(j) Legal Compliance.

(i) To the Knowledge of Sellers, Company and its predecessors and Affiliates have complied with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder and including the Foreign Corrupt Practices Act, 15 U.S.C. 78dd-1 et seq .) of federal, state, local, and non-U.S. governments (and all agencies thereof), and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any failure so to comply.

(ii) To the knowledge of Sellers, Company has timely filed or furnished, as applicable, all reports, registrations, statements and certifications, together with any amendments required to be made with respect thereto, that it was required to file or furnish, as applicable, with any state regulatory authority, and have paid all fees and assessments due and payable in connection therewith.

(k) Tax Matters.

(i) Company has filed all Tax Returns that it was required to file under applicable laws and regulations. All such Tax Returns were correct and complete in all respects and were prepared in compliance with all applicable laws and regulations. All Taxes due and owing by Company (whether or not shown on any Tax Return) have been paid. Company currently is not the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where Company does not file Tax Returns that Company is or may be subject to taxation by that jurisdiction. There are no Liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of Company.

(ii) Company has withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other third party.

(iii) No Seller or director or officer (or employee responsible for Tax matters) of Company expects any authority to assess any additional Taxes for any period for which Tax Returns have been filed. No federal, state, local, or non-U.S. tax audits or administrative or judicial Tax proceedings are pending or being conducted with respect to Company. Company has not received from any federal, state, local, or non-U.S. taxing authority (including jurisdictions where Company has not filed Tax Returns) any (i) written notice indicating an intent to open an audit or other review, (ii) request for information related to Tax matters, or (iii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any taxing authority against Company. §4(k)(iii) of the Disclosure Schedule lists all federal, state, local, and non-U.S. income Tax Returns filed with respect to any of Company for taxable periods ended on or after December 31, 2013, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. Sellers have delivered to Buyer correct and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by Company filed or received since December 31, 2013.

(iv) Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

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(v) Company has not been a United States real property holding corporation within the meaning of Code §897(c)(2) during the applicable period specified in Code §897(c)(1)(A)(ii). Company has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code §6662. Company is not a party to or bound by any Tax allocation or sharing agreement. Company (A) has not been a member of an Affiliated Group filing a consolidated federal income Tax Return (other than a group the common parent of which was Company) or (B) has no Liability for the Taxes of any Person (other than Company) under Reg. §1.1502-6 (or any similar provision of state, local, or non-U.S. law), as a transferee or successor, by contract, or otherwise.

(vi) The unpaid Taxes of Company (A) did not, as of the Most Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) and (B) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of Company in filing its Tax Returns. Since the date of the Most Recent Balance Sheet, Company has not incurred any liability for Taxes arising from extraordinary gains or losses, as that term is used in GAAP, outside the Ordinary Course of Business consistent with past custom and practice.

(vii) Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any:

(A) change in method of accounting for a taxable period ending on or prior to the Closing Date;

(B) use of an improper method of accounting for a taxable period ending on or prior to the Closing Date;

(C) “closing agreement” as described in Code §7121 (or any corresponding or similar provision of state, local, or non-U.S. income Tax law) executed on or prior to the Closing Date;

(D) intercompany transaction or excess loss account described in Treasury Regulations under Code §1502 (or any corresponding or similar provision of state, local, or non-U.S. income Tax law);

(E) installment sale or open transaction disposition made on or prior to the Closing Date;

(F) prepaid amount received on or prior to the Closing Date; or

(G) election under Code §108(i).

(viii) Company has not distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Code §355 or Code §361.

(ix) Company is not nor has it been a party to any “reportable transaction,” as defined in Code §6707A(c)(1) and Reg. §1.6011-4(b).

(x) Company (A) does not own an interest in a “controlled foreign corporation” as defined in Code §957, (B) does not own an interest in a “passive foreign investment company” within the meaning of Code §1297, or (C) does not have a permanent establishment (within the meaning of an applicable Tax treaty) or otherwise have an office or fixed place of business in a country other than the country in which it is organized.

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(xi) Company will not be required to include in income, or exclude items of deduction, in a taxable period beginning after the Closing Date as a result of any deemed distribution pursuant to Section 956 of the Code.

(xii) Company has not received any letter ruling from the Internal Revenue Service (or any comparable ruling from any other taxing authority).

(xiii) There is no material property or obligation of Company including uncashed checks to vendors, customers, or employees, non-refunded overpayments, or unclaimed subscription balances, that is escheatable or reportable as unclaimed property to any state or municipality under any applicable laws relating to escheatment or unclaimed property.

(xiv) Except as set forth on §4(k)(xiv) of the Disclosure Schedules , Company shall not be liable for any Tax under Code §§1374 or 1375. Company has not, since 2014 (A) acquired assets from another corporation in a transaction in which Company’s Tax basis for the acquired assets was determined, in whole or in part, by reference to the Tax basis of the acquired assets (or any other property) in the hands of the transferor or (B) acquired the stock of any corporation that is a qualified subchapter S subsidiary.

(xv) Company (and any predecessor of Company) has been a validly electing S corporation within the meaning of Code §1361 and §1362 since January 1, 2014 and Company will be an S corporation up to and including the Closing Date. Company has taken no actions and made no elections that would cause Company to cease to be an S corporation.

(l) Real Property.

(i) Company does not own, and has never owned, any real property.

(ii) §4(l)(ii) of the Disclosure Schedule sets forth the address of each parcel of Leased Real Property, and a true and complete list of all Leases for each such Leased Real Property (including the date and name of the parties to such Lease document). Company has delivered to Buyer a true and complete copy of each such Lease document, and in the case of any oral Lease, a written summary of the material terms of such Lease. Except as set forth in §4(l)(ii) of the Disclosure Schedule , with respect to each of the Leases:

(A) such Lease is legal, valid, binding, enforceable and in full force and effect;

(B) the transactions contemplated by this Agreement do not require the consent of any other party to such Lease (except for those Leases for which Lease Consents are obtained), will not result in a breach of or default under such Lease, and will not otherwise cause such Lease to cease to be legal, valid, binding, enforceable and in full force and effect on identical terms following the Closing;

(C) Company’s possession and quiet enjoyment of the Leased Real Property under such Lease has not been disturbed and there are no disputes with respect to such Lease;

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(D) Company is not, nor is any other party to the Lease, in breach of or default under such Lease, and no event has occurred or circumstance exists that, with the delivery of notice, the passage of time or both, would constitute such a breach or default, or permit the termination, modification or acceleration of rent under such Lease;

(E) no security deposit or portion thereof deposited with respect to such Lease has been applied in respect of a breach of or default under such Lease that has not been redeposited in full;

(F) Company does not owe, nor will owe in the future, any brokerage commissions or finder’s fees with respect to such Lease;

(G) except as set forth in §4(l)(ii)(G) of the Disclosure Schedule , the other party to such Lease is not an Affiliate of, and otherwise does not have any economic interest in, Company;

(H) Company has not subleased, licensed or otherwise granted any Person the right to use or occupy the Leased Real Property or any portion thereof;

(I) Company has not collaterally assigned or granted any other Lien in such Lease or any interest therein; and

(J) there are no Liens on the estate or interest created by such Lease.

(iii) The Leased Real Property identified in §4(l)(ii) of the Disclosure Schedule comprise all of the real property used or intended to be used in, or otherwise related to, Company’s business; and Company is not a party to any agreement or option to purchase any real property or interest therein.

(iv) All buildings, structures, fixtures, building systems and equipment, and all components thereof, including the roof, foundation, load-bearing walls and other structural elements thereof, heating, ventilation, air conditioning, mechanical, electrical, plumbing and other building systems, environmental control, remediation and abatement systems, sewer, storm and waste water systems, irrigation and other water distribution systems, parking facilities, fire protection, security and surveillance systems, and telecommunications, computer, wiring and cable installations, included in the Leased Real Property (the “ Improvements ”) are in good condition and repair and sufficient for the operation of Company’s business. To the Knowledge of Sellers, there are no structural deficiencies or latent defects affecting any of the Improvements and there are no facts or conditions affecting any of the Improvements that would, individually or in the aggregate, interfere in any respect with the use or occupancy of the Improvements or any portion thereof in the operation of Company’s business as currently conducted thereon.

(m) Intellectual Property.

(i) §4(m)(i) of the Disclosure Schedule lists all trademark, trade name or service mark registrations, material unregistered trademarks, and pending applications for registration, copyright registrations and pending applications for registration that, to the Knowledge of Sellers, are owned by, filed by or registered in the name of Company (together with any trade secrets, know-how and proprietary information of Company, the “ Owned IP ”). To the Knowledge of the Sellers, Company owns all right, title and interest in and to the Owned IP, free and clear of all Liens. Company does not have any patents or patent applications.

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(ii) To the Knowledge of the Sellers, Company owns the entire right, title and interest in, to and under, or has acquired an express license to use the Intellectual Property used by it, without payment of any further royalty or similar amount to any third party, and Company’s Intellectual Property consists of all Intellectual Property necessary for the unimpaired continued operation of Company’s business as currently conducted.

(iii) Except as set forth in Section 4(m)(iii) of the Disclosure Schedule, to the Knowledge of the Sellers, Company has not used and does not use, nor does it require, any third party software for the conduct of its business, except for such third party software as may be readily obtained by license from third party vendors of such software on reasonable commercial terms at costs similar to those reflected in the Financial Statements.

(iv) To the Knowledge of Sellers, Company’s conduct of its business as currently conducted does not infringe, misappropriate or otherwise violate the Intellectual Property rights of any Person, and Company does not have any liability for past infringement, misappropriation, violation or unauthorized use. To the Knowledge of Sellers, no Person is infringing, misappropriating or otherwise violating any of the Company’s Intellectual Property. Company is not, nor has it ever been, a party to any action, suit or proceeding, nor is any action, suit or proceeding threatened, involving a claim of infringement, misappropriation, violation or unauthorized use of any Intellectual Property by Company or any third party. Company has not received any notice or claim asserting that or suggesting that any such infringement, misappropriation, violation or unauthorized use is occurring or may have occurred.

(v) Sellers have taken all necessary and desirable actions to maintain and protect all of the Intellectual Property of Company (including all trade secrets and confidential proprietary information) from not being known to third Persons, including by taking all commercially reasonable efforts to safeguard any such information against unauthorized access, and will continue to maintain and protect all of the Intellectual Property of Company prior to Closing so as not to adversely affect the validity or enforceability thereof.

(vi) To the Knowledge of Sellers, Company has complied with, and is presently in compliance with, all federal, state, local, and non-U.S. governmental, administrative, or regulatory laws, regulations, guidelines, and rules applicable to any Intellectual Property or to personal information.

(n) Tangible Assets. To the Knowledge of the Sellers, Company owns or leases all buildings, machinery, equipment, and other tangible assets necessary for the conduct of their business as presently conducted and as presently proposed to be conducted. To the Knowledge of the Sellers, each such tangible asset is free from defects (patent and latent), has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear), and is suitable for the purposes for which it presently is used and presently is proposed to be used.

(o) Contracts. §4(o) of the Disclosure Schedule lists the following contracts and other agreements to which Company is a party and which is in current force and effect:

(i) any agreement (or group of related agreements) for the lease of personal property to or from any Person providing for lease payments in excess of $20,000 per annum;

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(ii) any agreement (or group of related agreements) for the purchase or sale of raw materials, commodities, supplies, products, or other personal property, or for the furnishing or receipt of services, the performance of which will extend over a period of more than 1 year, result in a loss to Company, or involve consideration in excess of $10,000;

(iii) any agreement concerning a partnership or joint venture;

(iv) any agreement (or group of related agreements) under which it has created, incurred, assumed, or guaranteed any indebtedness for borrowed money, or any capitalized lease obligation;

(v) any agreement concerning confidentiality or non-competition;

(vi) any agreement with any of Sellers and their Affiliates (other than Company);

(vii) any profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance, or other plan or arrangement for the benefit of its current or former directors, officers, and employees;

(viii) any collective bargaining agreement;

(ix) any agreement for the employment of any individual on a full-time, part-time, consulting, or other basis;

(x) any agreement under which it has advanced or loaned any amount to any of its directors, officers, and employees outside the Ordinary Course of Business;

(xi) any agreement under which the consequences of a default or termination could have a Material Adverse Effect;

(xii) any agreement under which it has granted any Person any registration rights (including, without limitation, demand and piggyback registration rights);

(xiii) any settlement, conciliation or similar agreement with any Governmental Entity or which will require satisfaction of any obligations after the execution date of this Agreement;

(xiv) any agreement under which Company has given any other Person an advance or a loan; or

(xv) any other agreement (or group of related agreements) the performance of which involves consideration in excess of $20,000.

Sellers have delivered to Buyer a correct and complete copy of each written agreement (as amended to date) listed in §4(o) of the Disclosure Schedule and a written summary setting forth the terms and conditions of each oral agreement referred to in §4(o) of the Disclosure Schedule . With respect to each such agreement: (A) the agreement is legal, valid, binding, enforceable, and in full force and effect; (B) the agreement will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby; (C) no party is in breach or default, and no event has occurred that with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration, under the agreement; and (D) no party has repudiated any provision of the agreement.

(p) [Reserved].

(q) Powers of Attorney. There are no outstanding powers of attorney executed on behalf of Company.

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(r) Insurance. §4(r) of the Disclosure Schedule sets forth the following information with respect to each insurance policy (including policies providing property, casualty, liability, and workers’ compensation coverage and bond and surety arrangements) to which Company has been a party, a named insured, or otherwise the beneficiary of coverage at any time within the past two (2) years:

(i) the name, address, and telephone number of the agent;

(ii) the name of the insurer, the name of the policyholder, and the name of each covered insured;

(iii) the policy number and the period of coverage;

(iv) the scope (including an indication of whether the coverage was on a claims made, occurrence, or other basis) and amount (including a description of how deductibles and ceilings are calculated and operate) of coverage; and

(v) a description of any retroactive premium adjustments or other loss-sharing arrangements.

To the Knowledge of the Sellers, with respect to each such insurance policy: (A) the policy is legal, valid, binding, enforceable, and in full force and effect; (B) the policy will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby; (C) neither Company, nor any other party to the policy is in breach or default (including with respect to the payment of premiums or the giving of notices), and no event has occurred that, with notice or the lapse of time, would constitute such a breach or default, or permit termination, modification, or acceleration, under the policy; and (D) no party to the policy has repudiated any provision thereof. Company has been covered during the past ten (10) years by insurance in scope and amount customary and reasonable for the businesses in which it has engaged during the aforementioned period. §4(r) of the Disclosure Schedule describes any self-insurance arrangements affecting Company.

(s) Litigation. §4(s) of the Disclosure Schedule sets forth each instance in which Company (i) is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a party or is threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before (or that could come before) any court or quasi-judicial or administrative agency of any federal, state, local, or non-U.S. jurisdiction or before (or that could come before) any arbitrator. None of the actions, suits, proceedings, hearings, and investigations set forth in §4(s) of the Disclosure Schedule could result in any Material Adverse Change.

(t) Employees.

(i) To the Knowledge of the Sellers, with respect to the business of Company:

(A) there is not and has never been, a party to or bound by any collective bargaining agreement and, to the Knowledge of Sellers, no union or group of employees is seeking or has sought to organize any of the Company’s employees for the purpose of collective bargaining.

(B) no executive or manager of Company (1) has any present intention to terminate his or her employment, or (2) is a party to any confidentiality, non-competition, proprietary rights or other such agreement between such employee and any Person besides such entity that would be material to the performance of such employee’s employment duties, or the ability of such entity or Buyer to conduct the business of such entity;

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(D) there is no employment-related charge, complaint, grievance, investigation, inquiry or obligation of any kind, pending or threatened in any forum, relating to an alleged violation or breach by Company (or its officers or directors) of any law, regulation or contract; and,

(E) no employee or agent of Company has committed any act or omission giving rise to material liability for any violation or breach identified in subsection (G) above.

(ii) Except as set forth in §4(t)(ii) of the Disclosure Schedule , (A) there are no employment contracts or severance agreements with any employees of Company, and (B) there are no written personnel policies, rules, or procedures applicable to employees of Company. True and complete copies of all such documents have been provided to Buyer prior to the date of this Agreement.

(iii) With respect to this transaction, any notice required under any law or collective bargaining agreement has been or prior to the Closing Date will be given, and all bargaining obligations with any employee representative have been or prior to the Closing Date will be satisfied. Company has not implemented any plant closing or layoff of employees that could implicate the WARN Act.

(u) Employee Benefits.

(i) §4(u)(i) of the Disclosure Schedule lists each Employee Benefit Plan that, to the Knowledge of the Sellers, the Company maintains, contributes to or has any obligation to contribute to, or with respect to which Company has any Liability.

(A) To the Knowledge of the Sellers, each such Employee Benefit Plan (and each related trust, insurance contract, or fund) has been maintained, funded and administered in accordance with the terms of such Employee Benefit Plan and the terms of any applicable collective bargaining agreement and complies in form and in operation in all respects with the applicable requirements of ERISA, the Code, and other applicable laws.

(B) To the Knowledge of the Sellers, all required reports and descriptions (including Form 5500 annual reports, summary annual reports, and summary plan descriptions) have been timely filed and/or distributed in accordance with the applicable requirements of ERISA and the Code with respect to each such Employee Benefit Plan. To the Knowledge of the Sellers, the requirements of COBRA have been met with respect to each such Employee Benefit Plan and each Employee Benefit Plan maintained by an ERISA Affiliate that is an Employee Welfare Benefit Plan subject to COBRA.

(C) To the Knowledge of the Sellers, all contributions (including all employer contributions and employee salary reduction contributions) that are due have been made within the time periods prescribed by ERISA and the Code to each such Employee Benefit Plan that is an Employee Pension Benefit Plan and all contributions for any period ending on or before the Closing Date that are not yet due have been made to each such Employee Pension Benefit Plan or accrued in accordance with the past custom and practice of Company. To the Knowledge of the Sellers, all premiums or other payments for all periods ending on or before the Closing Date have been paid with respect to each such Employee Benefit Plan that is an Employee Welfare Benefit Plan.

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(D) To the Knowledge of the Sellers, each such Employee Benefit Plan that is intended to meet the requirements of a “qualified plan” under Code §401(a) has received a determination from the Internal Revenue Service that such Employee Benefit Plan is so qualified, and nothing has occurred since the date of such determination that could adversely affect the qualified status of any such Employee Benefit Plan. To the Knowledge of the Sellers, all such Employee Benefit Plans have been timely amended for all such requirements and have been submitted to the Internal Revenue Service for a favorable determination letter within the latest applicable remedial amendment period.

(E) To the Knowledge of the Sellers, there have been no Prohibited Transactions with respect to any such Employee Benefit Plan or any Employee Benefit Plan maintained by an ERISA Affiliate. To the Knowledge of the Sellers, no Fiduciary has any Liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any such Employee Benefit Plan. To the Knowledge of the Sellers, no action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or threatened. None of Sellers and the directors and officers (and employees with responsibility for employee benefits matters) of Company has any Knowledge of any Basis for any such action, suit, proceeding, hearing, or investigation.

(F) Sellers have delivered to Buyer correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, the most recent annual report (Form 5500, with all applicable attachments), and all related trust agreements, insurance contracts, and other funding arrangements that implement each such Employee Benefit Plan.

(ii) Neither Company, nor any ERISA Affiliate contributes to, has or has had any obligation to contribute to, or has any Liability under or with respect to any Employee Pension Benefit Plan that is a “defined benefit plan” (as defined in ERISA §3(35)). To the Knowledge of the Sellers, no asset of Company is subject to any Lien under ERISA or the Code.

(iii) Neither Company, nor any ERISA Affiliate contributes to, has or has had any obligation to contribute to, or has any Liability (including withdrawal liability as defined in ERISA §4201) under or with respect to any Multiemployer Plan.

(iv) Company does not maintain, contribute to or have an obligation to contribute to, or have any Liability with respect to, any Employee Welfare Benefit Plan or other arrangement providing health or life insurance or other welfare-type benefits for current or future retired or terminated directors, officers or employees (or any spouse or other dependent thereof) of Company or of any other Person other than in accordance with COBRA.

(v) To the Knowledge of the Sellers, the consummation of the transactions contemplated by this Agreement will not accelerate the time of the payment or vesting of, or increase the amount of, or result in the forfeiture of compensation or benefits under, any Employee Benefit Plan.

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(vi) §4(u)(vi) of the Disclosure Schedule lists each agreement, contract, plan, or other arrangement—whether or not written and whether or not an Employee Benefit Plan (collectively a “ Plan ”)—to which, to the Knowledge of the Sellers, Company is a party that is a “nonqualified deferred compensation plan” subject to Code §409A. To the Knowledge of the Sellers, each Plan complies with the requirements of Code §409A(a)(2), (3), and (4) and any Internal Revenue Service guidance issued thereunder and no amounts under any such Plan is or has been subject to the interest and additional tax set forth under Code §409A(a)(1)(B). To the Knowledge of the Sellers, Company does not have any actual or potential obligation to reimburse or otherwise “gross-up” any Person for the interest or additional tax set forth under Code §409A(a)(1)(B).

(v) Guaranties . Company is not a guarantor or nor it is otherwise liable for any Liability (including indebtedness) of any other Person.

(w) Environmental, Health, and Safety Matters.

(i) To the Knowledge of the Sellers, Company has for the past five years complied and is in compliance, in each case in all material respects, with all Environmental, Health, and Safety Requirements.

(ii) Without limiting the generality of the foregoing, to the Knowledge of the Sellers, Company has obtained, has for the past five years complied, and is in compliance with, in each case in all material respects, all material permits, licenses and other authorizations that are required pursuant to Environmental, Health, and Safety Requirements for the occupation of its facilities and the operation of its business.

(iii) Company has not received any written notice, report, or other information regarding any actual or alleged material violation of Environmental, Health, and Safety Requirements, nor any material liabilities or potential material liabilities, including any material investigatory, remedial, or corrective obligations, relating to it, its business, or its past or current facilities arising under Environmental, Health, and Safety Requirements.

(iv) To the Knowledge of the Sellers, neither Company, nor any of its predecessors or Affiliates has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, manufactured, distributed, exposed any person to, or released any substance, including without limitation any hazardous substance, or owned or operated any property or facility which is or has been contaminated by any such substance so as to give rise to any current or future material liabilities, including any material liability for fines, penalties, response costs, corrective action costs, personal injury, property damage, natural resources damages, or attorneys’ fees, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“ CERCLA ”), or the Solid Waste Disposal Act, as amended (“ SWDA ”), or any other Environmental, Health, and Safety Requirements.

(v) Neither Company nor any of its predecessors or Affiliates has designed, manufactured, sold, marketed, installed, or distributed products or other items containing asbestos and none of such entities is or will become subject to any liabilities with respect to the presence of asbestos in any product or item or in or upon any property, premises, or facility.

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(vi) Sellers and Company, have furnished to Buyer all material environmental audits, reports, and other material environmental documents relating to Company’s or its predecessors’ or Affiliates’ past or current properties, facilities, or operations that are in their possession, custody, or under their reasonable control.

(x) Title Insurance Agency Business Matters.

(i) Company is: (A) duly licensed or authorized as a title insurance agent in the State of Texas; (B) duly licensed, authorized or otherwise eligible to transact the business of a title insurance agent in each other jurisdiction where it is required to be so licensed, authorized or eligible; and (C) duly licensed, authorized or eligible in the State of Texas and each other applicable jurisdiction to write each line of insurance it writes. Each jurisdiction in which Company is domiciled, commercially domiciled, licensed, authorized or eligible is set forth in in §4(x) of the Disclosure Schedule . There is no proceeding or investigation pending or, to the Knowledge of Sellers, threatened which would reasonably be expected to lead to the revocation, amendment, failure to renew, limitation, suspension or restriction of any license, authorization or eligibility of Company to transact the business of title insurance agent.

(ii) All policies, binders, slips, certificates, and other agreements of insurance issued or distributed by Company in any jurisdiction (“ Insurance Contracts ”) have been issued or distributed, to the extent required by applicable law, on forms filed with and approved by all applicable state insurance authorities, or not objected to by any such state insurance authorities within any period provided for objection, and all such forms comply with applicable Laws. All premium rates with respect to the Insurance Contracts, to the extent required by applicable law, have been filed with and approved by all applicable state insurance authorities or were not objected to by any such state insurance authorities within any period provided for objection. All such premium rates comply with applicable laws and are within the amount permitted by such laws. There are no insurance policies issued, reinsured or assumed by Company that are currently in force under which Company may be required to allocate profit or pay dividends to the holders thereof. Company is and has been marketing, selling and issuing Insurance Contracts in compliance in all material respects with all applicable laws, all applicable orders and directives of all insurance regulatory authorities and all market conduct recommendations resulting from market conduct or other examinations of insurance regulatory authorities in the respective jurisdictions in which such products have been marketed, issued or sold.

(iii) All underwriting, management and administration agreements entered into by Company are, to the extent required by applicable law, in forms acceptable to all applicable state insurance authorities or have been filed with and approved by all applicable state insurance authorities or were not objected to by any such state insurance authorities within any period provided for objection.

(iv) All advertising, promotional, sales and solicitation materials and all product illustrations used by either Company or any agent, broker, intermediary, manager or producer employed or engaged by Company are in compliance with applicable laws.

(v) All “escrow accounts” (as defined in Procedural Rule P-27 of the Texas Title Insurance Basic Manual, including interest bearing accounts) are maintained in accordance with the Texas Statues and all rules, regulations and procedures promulgated by the Texas Department of Insurance. Each individual escrow account utilized by Company is and has been supported by a monthly three-way reconciliation of bank balance, book balance and escrow trial balance. All funds in escrow accounts utilized by Company are and were received and disbursed in compliance with all minimum escrow accounting procedures and internal controls set forth by the Texas Department of Insurance. To the Knowledge of Sellers, all escrow account funds are accounted for and there are no misappropriated or missing funds in any escrow account utilized by Company.

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(vi) The abstract plant owned by Company (the “ Abstract Plant ”) consists of fully indexed records showing all instruments of record affecting lands within Brazos County covering a period beginning at sovereignty of the State of Texas. The indices of the Abstract Plant pertaining to land (“ Land Indices ”) are arranged in geographic order (i.e.: Lot and Block for subdivided lands, and by Survey or Abstract Name or Abstract Number for acreage tracts). Miscellaneous alphabetical indices of the Abstract Plant (“ Miscellaneous Indices ”) are maintained according to name. Land Indices and Miscellaneous Indices are stored in a computer owned and operated by Company, and as to Land Indices, are subject to retrieval by reference to description of the property under search. The records of the Abstract Plant are maintained to current date, and include, but are not limited to, plat or map records, deeds, deeds of trust, mortgages, lis pendens, abstracts of judgment, federal Tax liens, mechanic's liens, attachment liens, divorce actions, wherein real property is involved; probate records; chattel mortgages, attached to realty and financing statements relating to items which are, or are to become, attached to realty.

(y) Computer and Technology Security. To the Knowledge of the Sellers, Company has taken all reasonable steps to safeguard the information technology systems utilized in the operation of the business of Company, including the implementation of procedures to ensure that such information technology systems are free from any disabling codes or instructions, timer, copy protection device, clock, counter or other limiting design or routing and any “back door,” “time bomb,” “Trojan horse,” “worm,” “drop dead device,” “virus,” or other software routines or hardware components that in each case permit unauthorized access or the unauthorized disablement or unauthorized erasure of data or other software by a third party, and to date there have been no successful unauthorized intrusions or breaches of the security of the information technology systems. To the Knowledge of the Sellers, Company currently maintains, and has maintained for the 6 months prior to the date hereof, a plan with respect to business continuity and disaster recovery activities. To the Knowledge of the Sellers, such plan is current and consistent with industry standards and is adequate to ensure that all business operations and records necessary for the overall operation and functionality of Company’s business will continue to be available notwithstanding the occurrence of any disaster, act of God, act of war, act of hostilities against the U.S., any other force majeure event, the achievement of any particular dates or any effects thereof.

(z) Certain Business Relationships with Company. Except as set forth in §4(z) of the Disclosure Schedule , none of Sellers, their Affiliates, and Company’s directors, officers and employees has been involved in any business arrangement or relationship with Company within the past 12 months, and none of Sellers, their Affiliates, and Company’s directors, officers and employees owns any asset, tangible or intangible, that is used in the business of Company.

(aa) Customers and Suppliers. To the Knowledge of Sellers:

(i) §4(aa) of the Disclosure Schedule lists the customers of Company (on a consolidated, source-of-business basis, and not on an individual, policy-by-policy basis) for each of the 2 most recent fiscal years and sets forth opposite the name of each such customer the aggregate sales prices or aggregate loan amounts.

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(ii) Since the date of the Most Recent Balance Sheet, no customer listed on §4(aa) of the Disclosure Schedule has indicated that it shall stop, or decrease the rate of, buying materials, products or services from Company.

(bb) Data Privacy . To the Knowledge of the Sellers, Company’s business has complied with and, as presently conducted and as presently proposed to be conducted, is in compliance with, all Data Laws. To the Knowledge of the Sellers, Company has complied with, and is presently in compliance with, its policies applicable to data privacy, data security, and/or personal information. Company has not experienced any incident in which personal information or other data was or may have been stolen or improperly accessed, and Company is not aware of any facts suggesting the likelihood of the foregoing, including without limitation, any breach of security or receipt of any notices or complaints from any Person regarding personal information or other data.

(cc) Disclosure . To the Knowledge of the Sellers, the representations and warranties contained in this §4 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this §4 not misleading.

§5. Pre-Closing Covenants. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing:

(a) General. Each of the Parties will use his, her, or its reasonable best efforts to take all actions and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the Closing conditions set forth in §7 below).

(b) Notices and Consents. Company shall , and Sellers will cause Company to, give any notices to third parties, and Company shall, and Sellers will cause Company to, use reasonable best efforts to obtain any third-party consents referred to in §4(c) above, the Lease Consents, and the items set forth on §5(b) of the Disclosure Schedule . Each of the Parties will give any notices to, make any filings with, and use its reasonable best efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters referred to in §3(a)(ii), §3(b)(ii), and §4(c) above.

(i) Except as set forth on §5(c) of the Disclosure Schedule , Company shall not, and Sellers will not cause or permit Company to, engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business. Without limiting the generality of the foregoing, Company shall not, and Sellers will not cause or permit Company to, (A) declare, set aside, or pay any dividend or make any distribution with respect to its capital stock or redeem, purchase, or otherwise acquire any of its capital stock, or (B) otherwise engage in any practice, take any action, or enter into any transaction of the sort described in §4(h) above.

(ii) Notwithstanding the foregoing, the Parties agree that, prior to Closing, Company shall assign to Sellers (the “ Pre-Closing Assignments ”):

(A) That certain promissory note made by John Patton Atkins in favor the Company dated October 12, 2012 in the original principal amount of $306,000.00, and the deed of trust lien dated October 12, 2012 securing the note, and recorded in Brazos County, Texas;

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(B) The Statutory Deposit; and

(C) any and all capital stock or other ownership interest of Company in Alliant National Title Insurance Company, a Colorado corporation.

(d) Preservation of Business. Company shall, and Sellers will cause Company to, keep its business and properties substantially intact, including its present operations, physical facilities, working conditions, insurance policies, and relationships with lessors, licensors, suppliers, customers, and employees.

(e) Full Access. Company shall, and each of Sellers will permit, and Sellers will cause Company to permit, representatives of Buyer (including legal counsel and accountants) to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of Company, to all premises, properties, personnel, books, records (including Tax records), contracts, and documents of or pertaining to Company.

(f) Notice of Developments. Sellers will give prompt written notice to Buyer of any material adverse development causing a breach of any of the representations and warranties in §4 above. Each of Party will give prompt written notice to the others of any material adverse development causing a breach of any of his, her, or its own representations and warranties in §3 above. No disclosure by any Party pursuant to this §5(f), however, shall be deemed to amend or supplement Annex I , Annex II , or the Disclosure Schedule or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant.

(g) Exclusivity. None of Sellers will (and Sellers will not cause or permit Company to) (i) solicit, initiate, encourage or entertain the submission of any proposal or offer from any Person relating to the acquisition of any capital stock or other voting securities, or any substantial portion of the assets, of Company (including any acquisition structured as a merger, consolidation, or share exchange) or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any of the foregoing. None of Sellers will vote their Company Shares in favor of any such acquisition. Sellers will promptly notify Buyer if any Person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing.

(h) Maintenance of Leased Real Property. Sellers will cause Company to maintain the Leased Real Property, including all of the Improvements, in substantially the same condition as existed on the date of this Agreement, ordinary wear and tear excepted, and shall not demolish or remove any of the existing Improvements, or erect new improvements on the Leased Real Property or any portion thereof, without the prior written consent of Buyer.

(i) Leases. Sellers will not cause or permit any of Company’s Leases to be amended, modified, extended, renewed or terminated, nor shall Company enter into any new lease, sublease, license or other agreement for the use or occupancy of any real property, without the prior written consent of Buyer.

(j) Tax Matters. Without the prior written consent of Buyer, Company shall not make or change any election, change an annual accounting period, adopt or change any accounting method, file any amended Tax Return, enter into any closing agreement, settle any Tax claim or assessment relating to Company, surrender any right to claim a refund of Taxes, consent to any extension or waiver of the limitation period applicable to any Tax claim or assessment relating to Company, or take any other similar action relating to the filing of any Tax Return or the payment of any Tax, if such election, adoption, change, amendment, agreement, settlement, surrender, consent or other action would have the effect of increasing the Tax liability of Company for any period ending after the Closing Date or decreasing any Tax attribute of Company existing on the Closing Date.

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(k) E&O Policy. Buyer, Sellers and the Company shall use their best efforts to obtain prior to the Closing a prepaid errors and omissions insurance policy at Buyers expense, with a coverage limit of up to $3,000,000 and a claim period of not less than three years following the Closing, covering risks related to the negligence or other errors of the Company or its agents in issuing title insurance policies prior to the Closing, at a premium reasonably acceptable to Buyer (the “ E&O Policy ”). The E&O Policy shall contain such terms, conditions and exclusions from coverage no less favorable to the Company than the Company’s existing errors and omissions coverage, and in any event, reasonably satisfactory to the Buyer.

(l) Internet Domain Registration. Prior to Closing, Sellers will cause the internet domain registration of the Company, www.utitle.com , to be transferred to and owned by the Company.

§6. Post-Closing Covenants. The Parties agree as follows with respect to the period following the Closing:

(a) General. In case at any time after the Closing any further actions are necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further actions (including the execution and delivery of such further instruments and documents) as any other Party may reasonably request, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under §8 below). Sellers acknowledge and agree that from and after the Closing Buyer will be entitled to possession of all documents, books, records (including Tax records), agreements, and financial data of any sort relating to Company.

(b) Litigation Support. In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving Company, each of the other Parties will cooperate with him, her, or it and his, her, or its counsel in the contest or defense, make available his, her, or its personnel, and provide such testimony and access to his, her, or its books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under §8 below).

(c) Transition. None of Sellers will take any action that is designed or intended to have the effect of discouraging any lessor, licensor, customer, supplier, or other business associate of Company from maintaining the same business relationships with Company after the Closing as it maintained with Company prior to the Closing. Each of Sellers will refer all customer inquiries relating to the business of Company to Buyer from and after the Closing.

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(d) Confidentiality.

(i) Each of the Parties acknowledges and agrees that Section 10 and Section 16 of the Letter of Intent remain in full force and effect until Closing or termination of this Agreement, subject to the terms and conditions of the Letter of Intent. If this Agreement is, for any reason, terminated prior to the Closing, the Section 10 and Section 16 of the Letter of Intent (subject to the terms and conditions thereof) and the provisions of this §6(d) shall nonetheless continue in full force and effect.

(ii) Following the Closing, each Seller will treat and hold as such all of the Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to Buyer or destroy, at the request and option of Buyer, all tangible embodiments (and all copies) of the Confidential Information that are in his, her, or its possession. In the event that any Seller is requested or required pursuant to written or oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process to disclose any Confidential Information, such Seller will notify Buyer promptly of the request or requirement so that Buyer may seek an appropriate protective order or waive compliance with the provisions of this §6(d)(ii). If, in the absence of a protective order or the receipt of a waiver hereunder, any of Sellers is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, such Seller may disclose the Confidential Information to the tribunal; provided, however, that the disclosing Seller shall use his, her, or its best efforts to obtain, at the reasonable request of Buyer, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as Buyer shall designate. The foregoing provisions shall not apply to any Confidential Information that is generally available to the public immediately prior to the time of disclosure unless such Confidential Information is so available due to the actions of a Seller.

(e) Non-Compete Covenant. The Parties acknowledge and agree that Company has operated in Brazos and Grimes counties primarily, but has also operated throughout the State of Texas through a variety of referral and fee arrangements in accordance with Texas Department of Insurance rules and regulations. In consideration for the purchase of Company’s goodwill and business assets, Sellers agree that, for a period of five (5) years from and after the Closing Date, none of Sellers will, directly or indirectly, as an owner, officer, employee, contractor, consultant, agent, representative or otherwise, engage in any business that Company conducts as of the Closing Date in the State of Texas; provided, however, that no owner of less than one percent (1%) of the outstanding stock of any publicly traded corporation shall be deemed to engage solely by reason thereof in its business. Notwithstanding the foregoing terms of this §6(e), it is acknowledged and agreed by the Parties that William C. Lipsey is a member of the State Bar of Texas and is licensed to practice law in the State of Texas, so that he is bound to adhere to the Texas Disciplinary Rules of Professional Conduct and the Texas Lawyer’s Creed Nothing contained in this §6(e) will be construed, interpreted or enforced to restrict William C. Lipsey from the practice of law or the representation of his clients in accordance with law and the ethical mandates of his license. If the final judgment of a court of competent jurisdiction declares that any term or provision of this §6(e) is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed.

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(f) Seller Release of Company. Following the Closing, Company shall have no Liability to any Seller as a result of any inaccuracy or misrepresentation in or breach of any representation or warranty made by any Seller contained in this Agreement or any other agreement contemplated hereby, any schedule thereto, or in connection with the transactions contemplated therein, the breach of any covenant or agreement made by any Seller in this Agreement or any other agreement contemplated hereby, or any other matter subject to indemnification by any Seller pursuant to this Agreement, and no Seller shall have any right of indemnification or contribution against Company on account of any event or condition occurring or existing prior to or on the Closing Date. In furtherance of the foregoing, effective as of the Closing, the Sellers, both severally and jointly, for themselves and their heirs, legal representatives and successors-in-interest or any other Person who may now or hereafter claim through any of them, hereby forever release and discharge Company, its officers and directors and their respective predecessors, successors-in-interest, assigns, equityholders, parent companies, controlling persons, other Affiliates, heirs and legal representatives (the “ Releasees ”) from any and all charges, complaints, claims, Liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts, and expenses (including attorneys’ fees and legal expenses), of any nature whatsoever, whether known or unknown, which any such Seller now has, has had, or may hereafter claim to have had against the Releasees by reason of any matter, act, omission, cause, event or circumstance arising or existing prior to or at the Closing. The Sellers acknowledge and agree that the matters released hereby include matters arising from the sole, joint, comparative or concurrent negligence or gross negligence of the Releasees .

(g) Buyer Continuation of Employee Benefit Policies and Procedures. At all times from and after the Closing Date until the second anniversary date of the Closing Date, Buyer will cause the Company to keep and maintain the same Company employee policies and procedures, Company leave policies, and Employee Benefit Plan, Employee Pension Benefit Plan or Employee Welfare Benefit Plan of the Company that are in effect on the Closing Date (provided such benefits and plans are set forth in the Disclosure Schedule ), or benefits and plans substantially similar in all material respects to the foregoing benefits and plans, without any material modification or amendment, unless such modification or amendment is made with the prior written consent of the President and CEO of the Company, provided, however, except for the 2016 plan year (which must be made), neither Buyer nor Company shall be obligated to make any contributions to the Company’s 401(k) profit sharing plan if, in their reasonable business judgment, such contributions are not justified. Furthermore, notwithstanding the foregoing, neither Buyer nor Company shall be obligated to maintain any benefit or plan if (i) a regulatory or statutory requirement or development renders such benefit or plan unlawful or commercially unreasonable to maintain, (ii) such benefit or plan conflicts with a contractual requirement or (iii) the cost of maintaining any such benefit or plan increases 10% or more in any year as compared with the immediately preceding year.

(h) Transition Bonuses. Buyer and the Company’s President and CEO shall mutually agree upon a list of Company employee to receive transition bonuses following the Closing, in amounts to be mutually agreed upon by Buyer and the Company’s President and CEO, provided the total aggregate transition bonuses shall not exceed $40,000. Such bonuses will be paid within 7 months of the Closing.

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§7. Conditions to Obligation to Close.

(a) Conditions to Buyer’s Obligation. Buyer’s obligation to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions:

(i) the representations and warranties set forth in §3(a) and §4 above shall be true and correct in all material respects at and as of the Closing Date, except to the extent that such representations and warranties are qualified by the term “material,” or contain terms such as “Material Adverse Effect” or “Material Adverse Change,” in which case such representations and warranties (as so written, including the term “material” or “Material”) shall be true and correct in all respects at and as of the Closing Date;

(ii) Sellers shall have performed and complied with all of their covenants hereunder in all material respects through the Closing, except to the extent that such covenants are qualified by the term “material,” or contain terms such as “Material Adverse Effect” or “Material Adverse Change,” in which case Sellers shall have performed and complied with all of such covenants (as so written, including the term “material” or “Material”) in all respects through the Closing;

(iii) Company shall have procured all of the third-party consents specified in §5(b) above;

(iv) no action, suit, or proceeding shall be pending or threatened before (or that could come before) any court or quasi-judicial or administrative agency of any federal, state, local, or non-U.S. jurisdiction or before (or that could come before) any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (C) adversely affect the right of Buyer to own the Company Shares and to control Company, or (D) adversely affect the right of Company to own its assets and to operate its business (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect);

(v) Sellers shall have delivered to Buyer a certificate to the effect that each of the conditions specified above in §7(a)(i)-(iv) is satisfied in all respects;

(vi) the Parties shall have received all other authorizations, consents, and approvals of governments and governmental agencies referred to in §3(a)(ii), §3(b)(ii), and §4(c) above;

(vii) each of the Sellers shall have countersigned the employment offer letters with Buyer in general form and substance as set forth in Exhibit B-1 , which offers of employment shall be effective at and subject to the occurrence of the Closing, and the same shall be in full force and effect;

(viii) each of the Sellers shall have entered into non-competition agreements in general form and substance as set forth in Exhibit B-2 attached hereto and the same shall be in full force and effect;

(ix) each of the management employees identified on Exhibit C shall have entered into non-competition agreements in general form and substance as set forth in Exhibit C-1 attached hereto and bonus retention agreements in general form and substance as set forth in Exhibit C-2 (with bonus amounts for each such management employee in the amount set forth opposite their name on Exhibit C ), each of which shall be in full force and effect;

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(x) each of the key employees identified on Exhibit D shall have entered into non-competition agreements in general form and substance as set forth in Exhibit D-1 attached hereto and bonus retention agreements in general form and substance as set forth in Exhibit D-2 ( with bonus amounts for each such key employee in the amount set forth opposite their name on Exhibit D ), each of which shall be in full force and effect;

(xi) Buyer shall have received the resignations, effective as of the Closing, of each director and officer of Company other than those whom Buyer shall have specified in writing at least five (5) business days prior to the Closing;

(xii) Buyer shall have obtained on terms and conditions satisfactory to it all of the financing it needs in order to consummate the transactions contemplated hereby;

(xiii) Buyer shall have received evidence satisfactory to it that (A) the Buy-Sell Agreement has been terminated by all parties thereto and (B) either Company has been released from all its obligations pursuant to that certain General Partnership Agreement of the UTC Insurance Partnership, a Texas general partnership, dated as May 14, 2014, or such partnership agreement has been terminated by all parties thereto;

(xiv) all actions to be taken by Sellers in connection with consummation of the transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby shall be reasonably satisfactory in form and substance to Buyer;

(xv) Buyer shall have received and, to its satisfaction in its sole discretion, validated and approved the Financial Statements;

(xvi) Buyer shall have received evidence satisfactory to it that the Pre-Closing Assignments to Seller have been completed;

(xvii) Company shall have obtained and delivered to Buyer, an estoppel certificate with respect to each of the Leases, and, if requested by Buyer’s lender, a waiver of landlord liens, collateral assignment of lease or leasehold mortgage from the landlord or other party whose consent thereto is required under such Lease (the “ Lease Consents ” ), in each case in form and substance satisfactory to Buyer and Buyer’s lender;

(xviii) each Seller shall deliver to Buyer a non-foreign affidavit dated as of the Closing Date, sworn under penalty of perjury and in form and substance required under the Treasury Regulations issued pursuant to Code §1445 stating that such Seller is not a “foreign person” as defined in Code §1445 (the “ FIRPTA Affidavit ”);

(xix) no damage or destruction or other change has occurred with respect to any of the Leased Real Property or any portion thereof that, individually or in the aggregate, would materially impair the use or occupancy of the Leased Real Property or the operation of Company’s business as currently conducted thereon;

(xx) Sellers shall have delivered to Buyer copies of the certificate of incorporation (or formation) of Company, certified on or soon before the Closing Date by the Secretary of State of the State of Texas;

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(xxi) Sellers shall have delivered to Buyer copies of the certificate of good standing of Company, issued on or soon before the Closing Date by the Secretary of State of the State of Texas and of each jurisdiction in which Company is qualified to do business;

(xxii) Sellers shall have delivered to Buyer consents, in form and substance satisfactory to Buyer, of their respective spouses consenting to the transactions contemplated by this Agreement; and

(xxiii) Sellers shall have delivered to Buyer a certificate of the secretary or an assistant secretary of Company, dated the Closing Date, in form and substance reasonably satisfactory to Buyer, as to: (i) no amendments to the certificate of incorporation (or formation) of Company since delivery by Sellers pursuant to §7(a)(xix) above; (ii) the bylaws (or other governing documents) of Company; and (iii) any resolutions of the board of directors or other authorizing body (or a duly authorized committee thereof) of Company relating to this Agreement and the transactions contemplated hereby.

Buyer may waive any condition specified in this §7(a) if it executes a writing so stating at or prior to the Closing.

(b) Conditions to Sellers’ Obligation. The obligation of Sellers to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions:

(i) the representations and warranties set forth in §3(b) above shall be true and correct in all material respects at and as of the Closing Date, the except to the extent that such representations and warranties are qualified by the term “material,” or contain terms such as “Material Adverse Effect” or “Material Adverse Change,” in which case such representations and warranties (as so written, including the term “material” or “Material”) shall be true and correct in all respects at and as of the Closing Date;

(ii) Buyer shall have performed and complied with all of its covenants hereunder in all material respects through the Closing, except to the extent that such covenants are qualified by the term “material,” or contain terms such as “Material Adverse Effect” or “Material Adverse Change,” in which case Buyer shall have performed and complied with all of such covenants (as so written, including the term “material” or “Material”) in all respects through the Closing;

(iii) no action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or non-U.S. jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); and

(iv) Buyer shall have delivered to Sellers a certificate to the effect that each of the conditions specified above in §7(b)(i)-(iii) is satisfied in all respects.

Sellers may waive any condition specified in this §7(b) if they execute a writing so stating at or prior to the Closing.

§8. Remedies for Breaches of This Agreement.

(a) Survival of Representations and Warranties.

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(i) All of the representations and warranties of Sellers contained in §3(a) and §4 above shall survive the Closing hereunder, for a period of two (2) years thereafter; provided, however , that the representations and warranties of Sellers contained in §4(k) (Tax Matters) shall survive the Closing hereunder and continue in full force and effect until the expiration of any applicable statutes of limitations (after giving effect to any extensions or waivers) plus sixty (60) days.

(ii) All of the representations and warranties of Buyer contained in §3(b) shall survive the Closing (even if Sellers knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing) for a period of two (2) years thereafter.

(iii) The survival period in respect of any representation or warranty in this Agreement, or any related claim, shall be extended automatically to include any time period necessary to resolve a claim which was asserted by notice in accordance with this §8 but not resolved before expiration of such survival period, and liability for any such item (including as to any Adverse Consequences incurred after the expiration of such survival period) shall continue until such claim shall have been finally settled, decided or adjudicated. Under no circumstances shall the fact that Adverse Consequences are still being or may in the future be incurred be a basis for postponing or delaying satisfaction of any indemnifiable Adverse Consequences that have already been incurred.

(iv) All covenants and agreements hereunder shall survive for the longest period allowed by applicable law.

(b) Indemnification Provisions for Buyer’s Benefit.

(i) In the event any Seller breaches (or in the event any third party alleges facts that, if true, would mean any Seller has breached) any of his, her, or its representations, warranties, and covenants contained herein (determined without any limitation or qualification by materiality) (other than the covenants in §2(a) above and the representations and warranties in §3(a) above) and, provided that Buyer makes a written claim for indemnification against any Seller pursuant to §11(h) below within the survival period (if there is an applicable survival period pursuant to §8(a) above), then each Seller shall be obligated jointly and severally to indemnify Buyer from and against the entirety of any Adverse Consequences (except as limited in §8(e) below) Buyer may suffer resulting from, arising out of, relating to, in the nature of, or caused by the breach (or the alleged breach).

(ii) In the event any Seller breaches (or in the event any third party alleges facts that, if true, would mean any Seller breached) any of his, her, or its covenants in §2(a) above or any of his, her, or its representations and warranties in §3(a) above, and provided that Buyer makes a written claim for indemnification against such a Seller pursuant to §11(h) below within the survival period (if there is an applicable survival period pursuant to §8(a) above), then such Seller shall indemnify Buyer from and against the entirety of any Adverse Consequences (except as limited in §8(e) below) Buyer may suffer resulting from arising out of, relating to, in the nature of, or caused by the breach (or the alleged breach).

(iii) Each Seller shall be obligated jointly and severally to indemnify Buyer from and against the entirety of any Adverse Consequences Buyer may suffer resulting from, arising out of, relating to, in the nature of, or caused by any claim for payment of Seller’s Transaction Expenses or other Liabilities of Company existing as of the Closing Date to the extent not included in the Closing Statement for payment out of the Preliminary Purchase Price.

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(iv) Subject to the limitations set forth in §8(e)(iv) below, the Seller identified on Schedule I as the Seller responsible for indemnification pursuant to this §8(b)(iv) (the “ Special Indemnifying Seller ”) shall be obligated to indemnify Buyer from and against the entirety of any Adverse Consequences Buyer may suffer resulting from, arising out of, relating to, in the nature of, or caused by actual or alleged negligence or other misfeasance by the Company or its agents in title search services or issuing title insurance policies prior to the Closing that are asserted during the three years following the Closing.

(c) Indemnification Provisions for Sellers’ Benefit. In the event Buyer breaches (or in the event any third party alleges facts that, if true, would mean Buyer has breached) any of its representations, warranties, and covenants contained herein and, provided that any Seller makes a written claim for indemnification against Buyer pursuant to §11(h) below within such survival period (if there is an applicable survival period pursuant to §8(a) above), then Buyer shall indemnify each Seller from and against the entirety of any Adverse Consequences suffered (including any Adverse Consequences suffered after the end of any applicable survival period) resulting from, arising out of, relating to, in the nature of, or caused by the breach (or the alleged breach).

(d) Matters Involving Third Parties.

(i) If any third party notifies any Party (the “ Indemnified Party ”) with respect to any matter (a “ Third-Party Claim ”) that may give rise to a claim for indemnification against any other Party (the “ Indemnifying Party ”) under this §8, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing, but in any event, at least ten (10) days prior to the last date to avoid a default or forfeiture of the right to dispute or contest the claim or for filing an answer or response to any suit, claim or action; provided, however, that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party is thereby prejudiced as stated above.

(ii) Any Indemnifying Party will have the right to defend the Indemnified Party against the Third-Party Claim with counsel of his, her, or its choice reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying Party notifies the Indemnified Party in writing within fifteen (15) days after the Indemnified Party has given notice of the Third-Party Claim that the Indemnifying Party will indemnify the Indemnified Party from and against the entirety of any Adverse Consequences the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third-Party Claim, (B) the Indemnifying Party provides the Indemnified Party with evidence acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the Third-Party Claim and fulfill its indemnification obligations hereunder, (C) the Third-Party Claim involves only money damages and does not seek an injunction or other equitable relief, (D) settlement of, or an adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of the Indemnified Party, likely to establish a precedential custom or practice adverse to the continuing business interests or the reputation of the Indemnified Party, and (E) the Indemnifying Party conducts the defense of the Third-Party Claim actively and diligently.

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(iii) So long as the Indemnifying Party is conducting the defense of the Third-Party Claim in accordance with §8(d)(ii) above, (A) the Indemnified Party may retain separate co-counsel at his, her, or its sole cost and expense and participate in the defense of the Third-Party Claim, (B) the Indemnified Party will not consent to the entry of any judgment on or enter into any settlement with respect to the Third-Party Claim without the prior written consent of the Indemnifying Party, and (C) the Indemnifying Party will not consent to the entry of any judgment on or enter into any settlement with respect to the Third-Party Claim without the prior written consent of the Indemnified Party.

(iv) In the event any of the conditions in §8(d)(ii) above is or becomes unsatisfied, however, (A) the Indemnified Party may defend against, and consent to the entry of any judgment on or enter into any settlement with respect to, the Third-Party Claim in any manner his, her, or it may deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, any Indemnifying Party in connection therewith), (B) the Indemnifying Parties will reimburse the Indemnified Party promptly and periodically for the costs of defending against the Third-Party Claim (including attorneys’ fees and expenses), and (C) the Indemnifying Parties will remain responsible for any Adverse Consequences the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third-Party Claim to the fullest extent provided in this §8.

(e) Determination of Adverse Consequences; Limitations on Adverse Consequences.

(i) All indemnification payments under this §8 and §9(a) shall be deemed adjustments to the Purchase Price.

(ii) Notwithstanding anything herein to the contrary, except in the case of intentional breach, actual fraud or willful misconduct, or breach after the Closing of any covenant or agreement hereunder or a claim pursuant to §8(b)(iii), (A) the aggregate cumulative liability of each Seller for payment of all Adverse Consequences subject to indemnification by such Seller under this §8 shall in no event exceed the portion of the Purchase Price paid by Buyer to such Seller; and (B) the aggregate cumulative liability of all Sellers for all Adverse Consequences subject to Seller indemnification under this §8 shall in no event exceed four million dollars ($4,000,000.00).

(iii) Notwithstanding anything herein to the contrary, except in the case of intentional breach, actual fraud or willful misconduct, the aggregate cumulative liability of Buyer for all Adverse Consequences subject to Buyer indemnification under this Agreement shall in no event exceed one hundred percent (100%) of the Purchase Price, as adjusted pursuant to §2.

(iv) Notwithstanding anything herein to the contrary, except in the case of intentional breach, actual fraud or willful misconduct, the amount of the Special Indemnifying Seller’s indemnification obligation pursuant to §8(b)(iv) shall be limited to $3,000,000 minus the amount, if any, by which the Adverse Consequences to Buyer are actually indemnified pursuant to insurance policies of the Company, including the E&O Policy.

(f) Other Indemnification Provisions. The foregoing indemnification provisions are in addition to, and not in derogation of, any statutory, equitable, or common law remedy (including without limitation any such remedy arising under Environmental, Health, and Safety Requirements) any Party may have with respect to Company or the transactions contemplated by this Agreement. Each Seller hereby agrees that he, she, or it will not make any claim for indemnification against Company by reason of the fact that he, she, or it was a director, officer, employee, or agent of any such entity or was serving at the request of any such entity as a partner, trustee, director, officer, employee, or agent of another entity (whether such claim is for judgments, damages, penalties, fines, costs, amounts paid in settlement, losses, expenses, or otherwise and whether such claim is pursuant to any statute, charter document, bylaw, agreement, or otherwise) with respect to any action, suit, proceeding, complaint, claim, or demand brought by Buyer against such Seller (whether such action, suit, proceeding, complaint, claim, or demand is pursuant to this Agreement, applicable law, or otherwise).

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§9. Tax Matters. The following provisions shall govern the allocation of responsibility as between Buyer and Sellers for certain tax matters following the Closing Date:

(a) Tax Indemnification. Each Seller shall jointly and severally indemnify Company, Buyer, and each Buyer Affiliate and hold them harmless from and against any loss, claim, liability, expense, or other damage attributable to (i) all Taxes (or the non-payment thereof) of Company for all taxable periods ending on or before the Closing Date and the portion through the end of the Closing Date for any taxable period that includes (but does not end on) the Closing Date (“ Pre-Closing Tax Period ”), (ii) all Taxes of any member of an affiliated, consolidated, combined or unitary group of which Company (or any predecessor of any of the foregoing) is or was a member on or prior to the Closing Date, including pursuant to Treasury Regulation §1.1502-6 or any analogous or similar state, local, or non-U.S. law or regulation, and (iii) any and all Taxes of any person (other than Company) imposed on Company as a transferee or successor, by contract or pursuant to any law, rule, or regulation, which Taxes relate to an event or transaction occurring before the Closing, provided, however , , Sellers shall be liable only to the extent that such Taxes exceed the amount, if any, reserved for such Taxes (excluding any reserve for deferred Taxes established to reflect timing differences between book and Tax income) on the face of the Closing Balance Sheet (rather than in any notes thereto) and taken into account in determining the Purchase Price Adjustment. Sellers shall reimburse Buyer for any Taxes of Company that are the responsibility of Sellers pursuant to this §9(a) within fifteen (15) business days after payment of such Taxes by Buyer. Notwithstanding the provisions of this Section 9(a), no reimbursement of Taxes for any taxable period shall be required if the amount of Taxes for such period is less than $15,000.00.

(b) Straddle Period. In the case of any taxable period that includes (but does not end on) the Closing Date (a “ Straddle Period ”), the amount of any Taxes based on or measured by income, receipts, or payroll of Company for the Pre-Closing Tax Period shall be determined based on an interim closing of the books as of the close of business on the Closing Date (and for such purpose, the taxable period of any partnership or other pass-through entity in which Company holds a beneficial interest shall be deemed to terminate at such time) and the amount of other Taxes of Company for a Straddle Period that relates to the Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the taxable period ending on the Closing Date and the denominator of which is the number of days in such Straddle Period.

(c) S Corporation Status . Company and Sellers shall not revoke Company’s election to be taxed as an S corporation within the meaning of Code §1361 and §1362. Company and Sellers shall not take or allow any action other than the sale of Company’s stock pursuant to this agreement that would result in the termination of Company’s status as a validly electing S corporation within the meaning of Code §1361 and §1362.

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(d) Tax Periods Ending on or before Closing Date. Buyer shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for Company for all periods ending on or prior to the Closing Date that are filed after the Closing Date. Buyer shall permit Sellers to review and comment on each such Tax Return described in the preceding sentence prior to filing. To the extent permitted by applicable law, Sellers shall include any income, gain, loss, deduction or other tax items for such periods on their Tax Returns in a manner consistent with the Schedule K-1s furnished by Company to Sellers for such periods.

(e) Cooperation on Tax Matters.

(i) Buyer, Company and Sellers shall cooperate fully, as and to the extent reasonably requested by the other party, in connection with the filing of Tax Returns and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information reasonably relevant to any such audit, litigation, or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Company, Sellers, and Buyer agree (A) to retain all books and records with respect to Tax matters pertinent to Company relating to any taxable period beginning before the Closing Date until expiration of the statute of limitations (and, to the extent notified by Buyer or Sellers, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (B) to give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other party so requests, Company or Sellers, as the case may be, shall allow the other party to take possession of such books and records.

(ii) Buyer and Sellers further agree, upon request, to use their best efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including with respect to the transactions contemplated hereby).

(f) Tax-Sharing Agreements . All tax-sharing agreements or similar agreements with respect to or involving Company shall be terminated as of the Closing Date and, after the Closing Date, Company shall not be bound thereby or have any liability thereunder.

(g) Certain Taxes . All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement shall be paid one-half by Buyer and one-half by Sellers when due, and the party required by applicable law shall file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes and fees, and, if required by applicable law, the other parties shall, and shall cause their affiliates to, join in the execution of any such Tax Returns and other documentation. The expense of such filings shall be paid one-half by Buyer and one-half by Sellers.

(h) Contests . Buyer agrees to give written notice to Sellers upon receipt of any written notice relating to the assertion of any claim, or the commencement of any Proceeding by a Governmental Authority in respect of Taxes for which the Sellers may be liable pursuant to §9(a) (each, a “ Tax Claim ”); provided, that any failure or delay in giving such notice shall not affect Buyer’s right to indemnification hereunder, unless the failure or delay in giving such notice results in a bar or forfeiture of the right or privilege to contest, protest or appeal the Tax Claim.

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In such event, Buyer will have no right to indemnification of the Tax Claim. With respect to any Tax Claim relating to a Pre-Closing Tax Period, the Sellers may assume and control all proceedings taken in connection with such Tax Claim; provided, however, the Sellers shall consult with Buyer in the negotiation and settlement of any such Tax Claim and Sellers shall not, without the written consent of Buyer, settle or compromise any Tax Claim in a manner that would reasonably be expected to have a Material Adverse Effect on any Tax period of Company ending after the Closing Date. All other Tax Claims with respect to Company shall be controlled by Buyer; provided, however, Buyer shall consult with the Sellers in the negotiation and settlement of any post-Closing Tax period (including any Straddle Period) Tax Claim and Buyer shall not, without the written consent of the Sellers, which consent shall not be unreasonably withheld, settle or compromise any such Tax Claim in a manner that could have any material impact on the Sellers’ indemnification obligations hereunder.

§10. Termination.

(a) Termination of Agreement. Certain of the Parties may terminate this Agreement as provided below:

(i) Buyer and the Sellers may terminate this Agreement by mutual written consent at any time prior to the Closing;

(ii) Buyer may terminate this Agreement by giving written notice to Sellers at any time prior to the Closing (A) in the event any of Sellers has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Buyer has notified Sellers of the breach, and the breach has continued without cure for a period of thirty (30) days after the notice of breach or (B) if the Closing shall not have occurred on or before January 31, 2017 by reason of the failure of any condition precedent under §7(a) hereof (unless the failure results primarily from Buyer itself breaching any representation, warranty, or covenant contained in this Agreement); and

(iii) Sellers may terminate this Agreement by giving written notice to Buyer at any time prior to the Closing (A) in the event Buyer has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, any Seller has notified Buyer of the breach, and the breach has continued without cure for a period of thirty (30) days after the notice of breach or (B) if the Closing shall not have occurred on or before January 31, 2017, by reason of the failure of any condition precedent under §7(b) hereof (unless the failure results primarily from any Seller breaching any representation, warranty, or covenant contained in this Agreement).

(b) Effect of Termination . If any Party terminates this Agreement pursuant to §10(a) above, all rights and obligations of the Parties hereunder shall terminate without any Liability of any Party to any other Party (except for any Liability of any Party then in breach).

§11. Miscellaneous.

(a) Nature of Sellers’ Obligations.

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(i) The covenants of each Seller in §2(a) above concerning the sale of his, her, or its Company Shares to Buyer and the representations and warranties of each Seller in §3(a) above concerning the transaction are individual, and not joint and several, obligations. This means that the particular Seller making the representation, warranty, or covenant shall be solely responsible to the extent provided in §8(b)(ii) above for any Adverse Consequences Buyer may suffer as a result of any breach thereof.

(ii) The remainder of the representations, warranties, and covenants in this Agreement are joint and several obligations. This means that each Seller shall be responsible to the extent provided in §8(b)(i) and (iii) above for the entirety of any Adverse Consequences Buyer may suffer as a result of any breach thereof.

(b) Press Releases and Public Announcements. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of Buyer and Sellers; provided, however , that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly traded securities (in which case the disclosing Party will use its reasonable best efforts to advise the other Parties prior to making the disclosure).

(c) No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.

(d) Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they relate in any way to the subject matter hereof.

(e) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of his, her, or its rights, interests, or obligations hereunder without the prior written approval of Buyer and Sellers; provided, however, that Buyer may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (ii) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases Buyer nonetheless shall remain responsible for the performance of all of its obligations hereunder).

(f) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. A signed copy of this Agreement delivered by facsimile, e-mail, PDF or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

(g) Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

(h) Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given (i) when delivered personally to the recipient, (ii) one (1) business day after being sent to the recipient by reputable overnight courier service (charges prepaid), (iii) one (1) business day after being sent to the recipient by electronic mail, with receipt confirmed, or (iv) four (4) business days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid, and addressed to the intended recipient as set forth below:

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If to Sellers (or Company prior to Closing): University Title Company 1021 University Drive East College Station, TX 77840 Attn: Karen C. McCarroll Tel: (979) 260-9818 Email: karen.mccarroll@utitle.com	Copy to: Hoelscher Lipsey Elmore & Poole, P.C. 1021 University Dr E College Station, TX 77840 Attn: Cully Lipsey Tel: (979) 314-1172 Email: cully@hle.com
If to Buyer (or Company after Closing): Investors Title Management Services, Inc. c/o Investors Title Company 121 N. Columbia St Chapel Hill, NC 27514 Attn.: Michael Aiken Tel.:(919) 945-2549 Email:Maiken@invtitle.com	Copy to: Kilpatrick Townsend & Stockton LLP 1100 Peachtree Street NE, Suite 2800 Atlanta, GA 30309 Attn.: David M. Eaton Tel.: (404) 815-6500 Email: DEaton@KilpatrickTownsend.com

Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth.

(i) Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Texas without giving effect to any choice or conflict of law provision or rule (whether of the State of Texas or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Texas.

(j) Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by Buyer and Sellers. No waiver by any Party of any provision of this Agreement or any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be valid unless the same shall be in writing and signed by the Party making such waiver nor shall such waiver be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such default, misrepresentation, or breach of warranty or covenant.

(k) Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

(l) Expenses. Buyer, Company and each Seller shall bear his, her or its own costs and expenses (including legal, accounting, financial advisory and other third party advisory or consulting fees and expenses and all other costs and expenses) incurred in connection with this Agreement and the transactions contemplated hereby; provided, however , that Sellers shall also bear the Transaction Expenses in the event that the transactions contemplated by this Agreement are consummated.

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(m) Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or non-U.S. statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word “including” shall mean including without limitation. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) that the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant.

(n) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits, Annexes, and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof.

(o) Specific Performance. Each Party acknowledges and agrees that the other Parties would be damaged irreparably in the event any provision of this Agreement is not performed in accordance with its specific terms or otherwise is breached, so that a Party shall be entitled to injunctive relief to prevent breaches of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in addition to any other remedy to which such Party may be entitled, at law or in equity. In particular, the Parties acknowledge that the business of Company is unique and recognize and affirm that in the event Sellers breach this Agreement, money damages would be inadequate and Buyer would have no adequate remedy at law, so that Buyer shall have the right, in addition to any other rights and remedies existing in its favor, to enforce its rights and the other Parties’ obligations hereunder not only by action for damages but also by action for specific performance, injunctive, and/or other equitable relief.

(p) Submission to Jurisdiction. Each of the Parties submits to the jurisdiction of any state or federal court sitting in Austin, Texas in any action or proceeding arising out of or relating to this Agreement and agrees that all claims in respect of the action or proceeding may be heard and determined in any such court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other Party with respect thereto. Any Party may make service on any other Party by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving of notices in §11(h) above in the manner provided for the giving of notices in §11(h) above. Nothing in this §11(p), however, shall affect the right of any Party to serve legal process in any other manner permitted by law or at equity. Each Party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law or at equity.

* * * * *

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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

BUYER:

National Investors Holdings, LLC

By: Investors Title Management Services, Inc., its Manager

By: /s/ W. Morris Fine

Name: W. Morris Fine

Title: President

COMPANY:

University Title Company

By: /s/ Celia Goode-Haddock

Name: Celia Goode-Haddock

Title: Chairman/CEO

SELLERS:

/s/ Celia Goode-Haddock

Celia Goode-Haddock

/s/ Karen C. McCarroll

Karen C. McCarroll

/s/ William C. Lipsey

William C. Lipsey

Exhibit 10.11

BUSINESS/COMMERCIAL LOAN AGREEMENT

(Not Secured by Real Property)

For Bank Use Only:

Loan Account # Customer# Commitment#

This Business/Commercial Loan Agreement ("Agreement") is dated as of October 27, 2016. In this Agreement,


•	The "Borrower" is: Investors Title Company

Borrower's address for notice purposes is: 121 N Columbia Street, Chapel Hill, North Carolina 27514-3502.


•	The "Lender" is First-Citizens Bank & Trust Company, whose address for notice purposes is First-Citizens Bank & Trust Company, ATTN: Loan Servicing Department- DAC20, P.O. Box 26592, Raleigh, North Carolina 27611-6592.

Borrower has applied to Lender for a loan. Lender is willing to make a loan to Borrower, but only under the terms and conditions specified in this Agreement and in the Related Documents. Borrower understands and agrees that: (i) in making, renewing, or extending the loan that is the subject of this Agreement, Lender is relying upon Borrower's representations, warranties, and agreements as set forth in this Agreement; and (ii) the loan shall be and remain subject to the terms and conditions of this Agreement and the Related Documents.

Capitalized words and terms have the meanings given to them in this Agreement. Words and terms not otherwise defined in the body of this Agreement or in the section of this Agreement entitled "Definitions" shall have the meanings given to such words and terms by the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings given to them in accordance with generally accepted accounting principles ("GAAP") as in effect on the date of this Agreement. All references to dollar amounts shall mean amounts in lawful money of the United States of America. "Will" and "shall" are used interchangeably in this Agreement; both denote an obligation. Words and terms used in the singular shall include the plural, and words and terms used in the plural shall include the singular, as the context may require.

THE LOAN, NOTE, AND LOAN PURPOSE.

Loan. The word "Loan" as used in this Agreement means the loan from Lender to Borrower contemplated by this Agreement, and the words "Loan Amount" mean the total amount of the Loan, which is $6,000,000.00.

Note. The word "Note" as used in this Agreement means the promissory note payable to the order of Lender for the Loan Amount that Borrower has executed or will execute to evidence Borrower's obligation to repay the Loan upon the terms and conditions agreed upon, together with all renewals of, extensions of, modifications of, increases in, refinancings of, consolidations of, and substitutions for that promissory note. Repayment of the Note is or will be secured from time to time by various Security Instruments and/or Guaranties. The terms and conditions of the Note and Related Documents are incorporated herein by reference.

Loan Purpose. Except to the extent Lender permits the use of Loan Proceeds for other purposes, Loan Proceeds may be used by Borrower solely for the following purpose(s): Provide funds for the purchase of University Title Company.

TERM. This Agreement is effective as of the date of this Agreement. Except for the provisions of this Agreement that specifically provide they will survive the expiration, termination, or cancellation of this Agreement, this Agreement shall continue in full force and effect until (i) the Indebtedness is paid in full (including principal, interest, costs, expenses, attorneys' fees, and other fees and charges); (ii) this Agreement is terminated or canceled as provided in this Agreement; or (iii) this Agreement is terminated pursuant to a written agreement signed by the parties.

REQUESTS AND APPROVALS. Notwithstanding anything to the contrary in this Agreement, any right Lender has under this Agreement or the Related Documents to request, approve, accept, determine, decide, reserve rights, or make any judgment on any matter shall be in Lender's sole discretion. However, Lender shall exercise any such right and administer the Loan in good faith and in a commercially reasonable manner, using commercially reasonable judgment. Lender shall not unreasonably condition, delay, or withhold any required approval, consent, determination, decision, reservation, or judgment.

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INSURANCE REQUIREMENTS.

Required Insurance. Unless waived by Lender in writing, Borrower shall obtain and maintain for the term of the Loan insurance policies of the kinds described in this section. Each policy must (i) be issued by an insurance company acceptable to Lender; (ii) insure against such risks, provide such coverage, include such endorsements, and be written in such amounts as Lender may reasonably require; (iii) identify Lender and its successors and assigns as an additional insured or loss payee, as Lender may require; (iv) include a stipulation that coverage will not be cancelled or diminished without at least ten (10) days prior written notice to Lender; and (v) include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission, or default of Borrower or any other person. Borrower shall provide Lender with a copy of each insurance policy or evidence thereof that is satisfactory to Lender. Lender may require that the insurance policies include the following:


(i)	Special Form hazard insurance on any Collateral consisting of tangible personal property that secures the Loan.


(ii)	Professional malpractice insurance, if required by Lender.


(iii)	Any other insurance required by this Agreement, the Related Documents, or Lender.

Insurance Reports. At Lender's request, Borrower shall provide Lender reports on each existing insurance policy showing such information as Lender may reasonably request, including, without limitation, the following: (i) the name of the insurer; (ii) the risks insured; (iii) the amount of the policy; (iv) the properties insured; (v) the then-current property values on the basis of which insurance has been obtained; (vi) the manner of determining those values; and (vii) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.

Failure to Maintain Required Insurance. If Lender determines at any time during the term of the Loan that any required insurance is not in force or that the policy is in an amount less than required by Lender and Borrower fails to purchase the required insurance or correct any deficiencies within forty-five (45) days after notice of the deficiency, Lender may purchase the required insurance on Borrower's behalf and charge Borrower the cost of the premiums and fees incurred in purchasing the insurance. If Lender decides to purchase or replace insurance on Borrower's behalf and Lender or one of Lender's related entities sells the required insurance, the replacement insurance may be purchased by Lender from Lender or Lender's related entity. Such lender placed coverage may be substantially more expensive than a policy obtained by Borrower, may not cover Borrower as an insured, may not cover Borrower's equity, and may not provide the same scope of coverage as a policy obtained by Borrower. Lender or one of Lender's affiliates may be paid a commission for placement of the lender-placed coverage, if applicable.

LENDER'S RIGHT TO INSPECT AND TEST. Lender and its agents shall at all times have the following rights, each of which can be exercised at any reasonable time or times: (i) the right to inspect any Collateral and Borrower's other assets; and (ii) the right to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or hereafter maintains any records (including, without limitation, computer-generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower shall, at Lender's request, notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records Lender may request, all at Borrower's expense.

LIMITATION OF LENDER'S RESPONSIBILITY. Each inspection, report, and appraisal requested or required by Lender under this Agreement or made by, on behalf of, or for the benefit of Lender in connection with the Loan shall be solely for Lender's own use and protection and not for the benefit or the protection of Borrower or any other person or entity. Borrower acknowledges and agrees that (i) Lender makes no warranty or representation as to the accuracy, completeness, or sufficiency of any such inspection, report, or appraisal; (ii) neither Borrower nor any other person or entity may rely upon any such inspection, report, or appraisal; and (iii) Borrower will not rely upon any such inspection, report, or appraisal. Such inspections, reports, and appraisals do not constitute any assurance or representation to Borrower or to any other person or entity as to the value or condition of any property. The exercise of any right of inspection, approval, or inquiry granted to Lender in this Agreement is acknowledged to be solely for the protection of Lender's interests, and under no circumstances shall it be construed to impose any responsibility or liability of any nature whatsoever on Lender to Borrower or any other person or entity.

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REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender that, (i) as of the date of this Agreement; (ii) as of the date of any renewal, extension, or modification of the Loan; and (iii) at all times any Indebtedness exists:

Authority to Do Business. Each Borrower is duly authorized to transact business in each state in which Borrower is doing business, having made all necessary filings and having obtained all necessary governmental licenses, permits, and approvals. If Borrower is an entity, Borrower is duly organized and constituted, validly existing, and in good standing in each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified to engage in business in all states in which the failure to so qualify would have a material adverse effect on Borrower's business or financial condition. Borrower has the full power and authority to own Borrower's assets and to transact all businesses in which Borrower is presently engaged or presently proposes to engage.

Authorization. Borrower's execution, delivery, and performance of this Agreement and all of the Related Documents have been duly authorized by all necessary action by Borrower and do not conflict with, result in a violation of, or constitute a default under any provision of (i) Borrower's organizational documents, if Borrower is an entity; (ii) any documents that govern, regulate, or limit Borrower's business activities or affairs; (iii) any agreement or other instrument binding upon Borrower; (iv) any applicable law or governmental regulation; or (v) any court decree or order applicable to Borrower or to Borrower's assets.

Financial Information. Each of Borrower's financial statements supplied to Lender truly and completely disclose Borrower's financial condition in all material respects as of the date of each such statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.

Assets. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and approved by Lender in writing, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's assets free and clear of all liens and Security Interests and has not executed any security documents or financing statements relating to such assets. All of Borrower's assets are titled in Borrower's legal name, and Borrower has not used, or been named as a "debtor" in any financing statement under, any other name within the last five (5) years.

Litigation and Claims. Other than as has been previously disclosed to and approved by Lender in writing, no litigation, claim, investigation, administrative proceeding, or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may have a material adverse effect on Borrower's financial condition or assets.

Taxes. To the best of Borrower's knowledge, all of Borrower's tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments, and other governmental charges have been paid in full, except those which are presently being, or are going to be, contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided.

Lien Priority. Except as previously disclosed to and approved by Lender in writing, Borrower has not entered into or granted any Security Instruments or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral that would be prior to, or that may in any way be superior to, Lender's Security Interests and rights in and to the Collateral.

Binding Effect. This Agreement, the Note, and all Related Documents are binding upon the signers thereof and their respective successors, representatives, and assigns, and are legally enforceable in accordance with their respective terms.

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AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, until the Indebtedness is paid in full, Borrower will:

Evidence of Authority. Provide to Lender such properly certified resolutions, authorizations, documents, and instruments as Lender may reasonably request from time to time, including, for example, resolutions that (i) authorize the obtaining of the Loan, the encumbrance of Borrower's assets to secure the Loan, and the execution of this Agreement, the Note, and the other Related Documents; (ii) designate those persons authorized to sign and deliver this Agreement, the Note, and the Related Documents on behalf of Borrower; and (iii) ratify and confirm actions previously taken by or on behalf of Borrower.

Loan Fees and Expenses. Pay upon demand (i) all Loan closing costs; (ii) all Loan fees; (iii) all inspection fees, filing and recording fees, and filing and recording taxes; and (iv) all out-of-pocket expenses incurred by Lender in connection with the preparation of Loan documents, the making of the Loan, and the management and oversight of the Loan, including Lender's reasonable attorneys' fees for Lender's outside counsel.

Taxes, Liens, and Claims of Lien. Pay and discharge when due and before they become delinquent all of Borrower's indebtedness and obligations of every kind and nature, including, without limitation, all taxes, assessments, governmental charges, levies, and claims (including all claims for labor done and materials and services furnished) that, if not paid, are or might become a lien, claim of lien, or charge upon all or any portion of the Collateral, the undisbursed Loan principal, or any of Borrower's assets, income, or profits. With respect to claims for labor performed and materials and services furnished, Borrower shall (i) cause all such claims to be fully paid and discharged in a timely manner, and (ii) take all steps necessary to remove or satisfy all liens and claims of lien arising from such claims. However, Borrower shall not be required to pay and discharge any such indebtedness, obligation, tax, assessment, charge, levy, or claim so long as (i) Borrower is in good faith contesting the indebtedness, obligation, tax, assessment, charge, levy, or claim by appropriate proceedings filed and asserted in a timely and proper manner; and (ii) at Lender's option, Borrower has either deposited funds with Lender sufficient to pay, or established on its books adequate reserves in accordance with GAAP with respect to, such contested indebtedness, obligation, tax, assessment, charge, levy, or claim. If the indebtedness, obligation, tax, assessment, charge, levy, or claim does become a lien, claim of lien, or charge upon all or any portion of the Collateral, the undisbursed Loan principal, or any of Borrower's assets, income, or profits, then Lender may demand that Borrower take such action or actions as may be necessary to remove or satisfy the lien, claim of lien, or charge if Lender reasonably believes that the lien, claim of lien, or charge has or may have (i) priority over Lender's Security Interest in any Collateral, or (ii) an adverse effect on Lender's orderly administration of the Loan. If Borrower fails to remove any such lien, claim of lien, or charge within ten (10) days thereafter, then Lender may (i) pay such lien, claim of lien, or charge from funds deposited by Borrower with Lender as provided in this section; (ii) pay such lien, claim of lien, or charge from the undisbursed Loan principal, in which case the disbursement of Loan Proceeds shall be considered as having been duly authorized by Borrower; (iii) pay such lien, claim of lien, or charge as an expense on Borrower's behalf, in which case the payment will be considered an expense paid by Lender that is subject to the section of this Agreement entitled "Lender's Expenditures"; (iv) contest the validity of the lien, claim of lien, or charge, in which case Borrower shall pay all costs and expenses of such contest, including Lender's reasonable attorneys' fees; or (v) take or refrain from taking such other actions as Lender believes to be in Lender's interest.

Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender. Borrower shall notify Lender immediately in writing of any default in connection with any such agreement.

Notices of Claims and Litigation. Promptly inform Lender in writing of (i) all material adverse changes in Borrower's financial condition; and (ii) all existing and all threatened litigation, claims, investigations, administrative proceedings, or similar actions affecting any Collateral, Borrower, any Guarantor, or the owner of any Collateral which could have a material adverse effect on the Collateral or the financial condition of Borrower, any Guarantor, or the owner of any Collateral.

Additional Assurances. Make, execute, and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, corrective instruments, documents, and other agreements as Lender or its counsel may reasonably request to evidence and secure the Loan, to perfect all Security Interests in the Collateral, and to correct any deficiencies or errors in this Agreement or the Related Documents.

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COVENANTS REGARDING FINANCIAL INFORMATION. Borrower covenants and agrees with Lender that, until the Indebtedness is paid in full, Borrower will:

Financial Records. Maintain Borrower's books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times.

Financial Statements and Related Information. Furnish Lender with such financial statements and other related information at such frequencies and in such detail as Lender may reasonably request, including, but not limited to, the following:

Annual Financial Statements . As soon as available, but in no event later than ninety (90) days after the end of each fiscal year, Borrower's balance sheet and income statement for the year ended, audited by a certified public accountant satisfactory to Lender.

Additional Information and Statements . Such additional information and statements, lists of assets and liabilities, aging of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender may reasonably request from time to time.

All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that, until the Indebtedness is paid in full, Borrower will not do any of the following without first obtaining Lender's prior written consent:

Continuity of Operations. (i) Engage in any business activities substantially different than those in which Borrower is presently engaged; (ii) merge with, acquire, or consolidate with any other business entity; (iii) convert to a different kind of business entity; (iv) change Borrower's name; or (v) cease operations, liquidate, or dissolve.

Loans, Acquisitions, and Guaranties. (i) Lend money, invest in, or advance money or assets to any other person, enterprise, or entity; (ii) purchase, create, or acquire any interest in any other enterprise or entity; or (iii) incur any obligation as surety or guarantor other than in the ordinary course of business.

Sale, Transfer, or Lease of Collateral. Sell, transfer, or lease any Collateral, except for the sale or lease of inventory in the ordinary course of business.

Liens on Collateral. Create, or allow to be created, any lien or charge upon the Collateral, other than Permitted Liens.

Agreements. Enter into any agreement containing any provisions which would be violated or breached by the performance of Borrower's obligations under this Agreement or in connection herewith.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender shall have a right of setoff with respect to all of Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower may open in the future. However, this does not include any IRA, Keogh, or trust accounts for which setoff is prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this section. Borrower further authorizes Lender to exercise its right of setoff one or more times to collect any past due payment, any sums then payable, or the entire unpaid outstanding balance of the Indebtedness if the Loan is then due and payable in full. However, Lender shall not exercise its right of setoff under this section unless and until an Event of Default shall have occurred.

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INCREASE IN INTEREST RATE IF DEPOSIT ACCOUNT RELATIONSHIPS NOT ESTABLISHED AND MAINTAINED.

For purposes of this Agreement, each of the following is considered a "Required Depositor": Investors Title Company

The interest rate for the Loan is a competitive rate based, at least in part, on Borrower's assurance and Lender's expectation that each Required Depositor will establish and maintain the Required Depositor's primary business deposit account with Lender. Borrower warrants and represents to Lender that each Required Depositor (i) either currently maintains its primary business deposit account with Lender or will establish its primary business deposit account with Lender before Lender funds the Loan, and (ii) will continuously maintain its primary business deposit account with Lender, at least until the Indebtedness is paid in full. If a Required Depositor ceases for any reason to establish and continuously maintain its primary business deposit account with Lender as required by this section, Lender will, after first giving Borrower at least ten days prior written notice (during which ten day period Borrower may remedy the oversight), increase the rate that interest will accrue on the outstanding principal balance of the Loan to a higher interest rate by adding 300 basis points (3.00 percentage points) to the interest rate that would otherwise apply to the Loan from time to time. In addition, Lender may increase the required periodic payment amount from time to time in order to maintain the same amortization schedule. In the absence of manifest error or bad faith, Lender's determination of the following shall be conclusive: (i) whether a Required Depositor has established its primary business deposit account with Lender and thereafter continuously maintained its primary business deposit account with Lender, (ii) the interest rate that will apply to the Loan if a Required Depositor fails to establish and continuously maintain its primary business deposit account with Lender, and (iii) the required periodic payment amount following any increase in the interest rate.

DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:

Payment Default. The Loan or the Indebtedness is not paid and performed as and when due or is otherwise in default.

Default under Related Documents. The occurrence of an event or condition that constitutes a default under the terms of the Note, any of the Security Instruments, or any of the other Related Documents.

Default under Other Loan. Borrower or any Guarantor defaults under any other loan, extension of credit, or obligation owed to Lender.

Other Defaults. Borrower fails to keep, perform, observe, or comply with any covenant, agreement, term, or condition that Borrower is required to keep, perform, observe, or comply with under provisions of this Agreement, any of the Related Documents, or any other agreement between Lender and Borrower.

Default in an Obligation Owed to a Third Party. Borrower, any Guarantor, or any owner of Collateral defaults under any loan, extension of credit, security instrument, guaranty, purchase or sales agreement, or any other agreement in favor of any other creditor or person that may have a material adverse effect on (i) Borrower's ability to repay the Loan; (ii) the ability of any Guarantor to satisfy the Guarantor's guaranty obligation; (iii) the financial condition of Borrower, any Guarantor, or the owner of any Collateral; (iv) the ability of Borrower, any Guarantor, or any owner of Collateral to perform their respective obligations under this Agreement or any of the Related Documents; or (v) any of the Collateral.

False Statements. Any warranty, representation, or statement made or furnished to Lender by or on behalf of Borrower, any Guarantor, or the owner of any Collateral under this Agreement or the Related Documents (i) is false or misleading in any material respect, either now or at the time made or furnished, or (ii) becomes false or misleading in any material respect at any time thereafter.

Ineffectiveness of Agreements; Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any Security Instrument to create a valid and perfected Security Interest possessing the priority required by this Agreement or the Related Documents) at any time or for any reason.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession, or any other method, by any creditor or any governmental agency against any Collateral, or the garnishment of any account Borrower or any Guarantor maintains with Lender or any of Lender's subsidiaries or affiliates, including any deposit account or securities account. However, this Event of Default shall not apply if (i) there is a good faith dispute as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding, and (ii) Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond protecting Lender from any claim or loss resulting from the creditor or forfeiture proceeding in an amount determined by Lender as being an adequate reserve or bond for the dispute.

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Events Affecting Guarantor. Any Guarantor (i) revokes or disputes the validity of, or Guarantor's liability under, the Guarantor's Guaranty; (ii) fails to provide Lender within the time prescribed by Lender any financial information Guarantor is required to provide Lender; or (iii) breaches any covenant or agreement Guarantor has made to or with Lender relating to Guarantor's guaranty obligations, including any agreement supplemental to Guarantor's Guaranty.

TRIGGER EVENTS: Under the terms of this Agreement and/or the Related Documents, each of the following is or may be identified as an Event of Default: (i) the death or incompetence of an individual; (ii) the withdrawal, resignation, or expulsion of an individual from a business entity; and/or (iii) a change in the ownership structure, control, or management of a business entity. For purposes of this section, each of these events is referred to individually as a "Trigger Event," and collectively they are referred to as "Trigger Events."

For purposes of this section:


(i)	The term "Business Entity" refers to any Borrower or Guarantor that is a corporation, partnership, limited partnership, or limited liability company.

(ii)

The term "declare the Loan to be in default" means that Lender gives written notice to Borrower that an Event of Default has occurred and that the Loan is in default. If Lender does declare the Loan to be in default, Lender may, at that time or at any time thereafter, (i) increase the interest rate on the Loan to a default rate, (ii) terminate Borrower's ability to obtain Advances, (iii) accelerate the Indebtedness and demand the immediate payment of the Indebtedness in full, and/or (iv) take such other actions as Lender is permitted to take following the occurrence of an Event of Default.


(iii)	The term "Key Person" means an individual whose skills, qualifications, experience, business acumen, ownership interest in, and/or position with a Business Entity are considered by Lender to be important to the ongoing ability of the Business Entity to meet its debt obligations, to continue in business, and to prosper and grow.

(iv)

The term "material change in ownership, control, or management" means (i) any sales, transfers, or conveyances that, in the aggregate, total twenty-five percent (25%) or more of the voting stock, partnership interests, or limited liability company interests, as the case may be, of any Business Entity, unless such sales, transfers, or conveyances were approved in advance by Lender in writing; (ii) the death or incompetence of any Key Person; and/or (iii) the withdrawal, resignation, or expulsion of any Key Person from the ownership, management, or control of a Business Entity.


(v)	The term "Remaining Guarantors" refers to all Guarantors other than the individual whose death, incompetence, withdrawal, resignation, or expulsion caused the Trigger Event.


(vi)	The term "Remaining Obligors" refers to all Borrowers and Guarantors other than the individual whose death, incompetence, withdrawal, resignation, or expulsion caused the Trigger Event.


(vii)	The term "Updated Management Information" means detailed information describing the then-current ownership, control, and management structure of a Business Entity, including information about the qualifications, skills, and experience of those individuals who own, control, and are (or will become) responsible for the day-to-day management and operations of the Business Entity.

If Lender determines at any time that a material change in ownership, control, or management of a Business Entity has occurred (whether or not caused by the occurrence of a Trigger Event), Lender may require Borrower to provide Updated Management Information for each Business Entity. Unless Borrower satisfies Lender that the material change in ownership, control, or management of the Business Entity will not have a material adverse effect on the ability of the Business Entity to perform its obligations under the Related Documents, Lender may declare the Loan to be in default.

If the Trigger Event is the death of the sole surviving Borrower and there is no other Borrower remaining, Lender may declare the Loan to be in default. Otherwise, if (i) Lender is notified in writing of the occurrence of a Trigger Event within thirty (30) days after it occurs; (ii) the Loan is not otherwise in default; (iii) no other Event of Default thereafter occurs; and (iv) the Lender has not determined (and does not subsequently determine) that a material change in ownership, control, or management of a Business

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Entity has occurred that will have a material adverse effect on the ability of a Business Entity to perform its obligations under the Related Documents, then Lender will follow the procedures set forth below and will not, except as provided below, declare the Loan to be in default, increase the interest rate on the Loan to a default rate, accelerate the Indebtedness, or take any other adverse action solely because of the occurrence of the Trigger Event. However, Lender may suspend Borrower's ability to obtain Advances while Lender follows the procedures set forth below. If the requirements and conditions set forth below are not timely met, Lender may declare the Loan to be in default solely because of the occurrence of the Trigger Event.

Borrower will have a period of sixty (60) days following the occurrence of a Trigger Event within which to provide Lender with updated financial information concerning the Remaining Obligors. If Borrower fails to provide the required updated information within sixty (60) days following the occurrence of the Trigger Event, Lender may declare the Loan to be in default solely because of the occurrence of the Trigger Event.


2.	Provided Lender receives the required updated information within the time prescribed above, Lender will promptly evaluate the credit worthiness and financial strength of the Remaining Obligors and the nature, value, condition, and sufficiency of the Collateral using its then-current credit underwriting standards. Following that evaluation:

(a)

If Lender determines that (i) the Remaining Obligors continue to have the willingness and financial strength sufficient to enable them to repay the Loan as originally contemplated by Lender; (ii) there has been no material deterioration in the value or condition of the Collateral; (iii) Lender has in place properly executed and enforceable Guaranties from the Remaining Guarantors that are acceptable to, and deemed sufficient by, Lender; and (iv) the likelihood of Lender being repaid in accordance with the terms of this Agreement and the Related Documents has not been materially impaired, then Lender will not declare the Loan to be in default, increase the interest rate on the Loan to a default rate, accelerate the Indebtedness, or take any other adverse action solely because of the occurrence of the Trigger Event. In addition, Lender will (i) reinstate any credit privileges suspended solely because of the occurrence of the Trigger Event; and (ii) consider releasing from any further liability the individual or the estate of the individual whose death, incompetence, withdrawal, resignation, or expulsion caused the Trigger Event.

(b)

If, in Lender's judgment, any of the conditions set forth in section 2(a) above are not met, Lender will promptly notify Borrower of that determination. Borrower will have sixty (60) days thereafter within which to provide to Lender additional guarantors who are acceptable to Lender and who have signed, or have agreed to sign, enforceable Guaranties satisfactory to, and in amounts that are deemed sufficient by, Lender. This may be accomplished by (i) tendering one or more additional guarantors (each a "New Guarantor") acceptable to Lender, and/or (ii) having one or more of the Remaining Guarantors who previously signed a limited Guaranty agree to increase the amount or percentage of their Guaranty ("Consenting Guarantor"). Within that same sixty (60) day period, each New Guarantor and Consenting Guarantor must provide Lender with such financial information as Lender may reasonably request to evaluate the New Guarantor's or Consenting Guarantor's credit worthiness and financial strength.


3.	Provided Lender receives the information and executed agreements required by, and within the time prescribed by, section 2(b) above, Lender will promptly evaluate (or re-evaluate, as the case may be), utilizing its then-current credit underwriting standards, the credit worthiness and financial strength of each New Guarantor and each Consenting Guarantor. Following that evaluation:

(a)

If (i) Lender is satisfied with the credit worthiness and financial strength of each New Guarantor and each Consenting Guarantor; (ii) each New Guarantor and each Consenting Guarantor executes and delivers to Lender a new Guaranty satisfactory in form and content to Lender and to Lender's counsel within fifteen (15) days of Lender's request for a new Guaranty; and (iii) Lender determines thereafter that Lender has in place properly executed and enforceable Guaranties from New Guarantors, Consenting Guarantors, and Remaining Guarantors that are acceptable to and deemed sufficient by Lender, then Lender will not declare the Loan to be in default, increase the interest rate on the Loan to a default rate, accelerate the Indebtedness, or take any other adverse action solely because of the occurrence of the Trigger Event. In addition, Lender will (i) reinstate any credit privileges suspended solely because of the occurrence of the Trigger Event; and (ii) consider releasing from any further liability the individual, or the estate of the individual, whose death, incompetence, withdrawal, resignation, or expulsion caused the Trigger Event.


(b)	If, in Lender's judgment, any of the conditions set forth in section 3(a) above are not met, then Lender may declare the Loan to be in default solely because of the occurrence of the Trigger Event.

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Lender may condition Lender's approval and acceptance of each New Guarantor and each new Guaranty given by a New Guarantor and/or a Consenting Guarantor upon such commercially reasonable requirements as Lender may deem necessary to protect Lender's interests. For example, if a New Guarantor is not a natural person, Lender may require a legal opinion from an attorney acceptable to Lender to the effect that (i) the New Guarantor is duly organized, validly existing, and in good standing; (ii) the Guaranty has been duly authorized, executed, and delivered; and (iii) the Guaranty is valid and enforceable in accordance with its terms. If the New Guarantor is a natural person, Lender may require the New Guarantor to be a resident of a particular state, and, depending on the state in which the New Guarantor resides, require the consent or joinder of the spouse of the New Guarantor.

EFFECT OF AN EVENT OF DEFAULT; NOTICE AND OPPORTUNITY TO CURE. In the administration of the Loan and the enforcement of the Related Documents, the following provisions will apply notwithstanding contrary provisions in this Agreement or the Related Documents:

Remedies. Upon the occurrence of any Event of Default and at any time thereafter until the cure thereof, Lender may, at its option, but without any obligation to do so, and in addition to any other rights Lender may have, do any one or more of the following: (i) cancel this Agreement; (ii) institute appropriate proceedings to enforce the performance of this Agreement; (iii) withhold further disbursements of Loan Proceeds; (iv) expend funds necessary to remedy the default; (v) accelerate the maturity of the Note and/or Indebtedness and demand payment of all sums due under the Note and/or Indebtedness; (vi) bring an action on the Note and/or Indebtedness; (vii) foreclose Lender's Security Instruments, if any, in any manner available under Jaw; and (viii) exercise any other right or remedy which it has under this Agreement, the Note, or other Related Documents, or which is otherwise available at law or in equity or by statute.

Interest after Default. If an Event of Default occurs under this Agreement or any of the Related Documents, Lender's risk of not being paid what Lender is owed increases. To compensate Lender for this risk and to discourage default, the Note may include a provision (a "Default Rate Provision") that permits Lender to increase the interest rate on the Note following the occurrence of an Event of Default. In the interpretation and application of each such Default Rate Provision, Lender may increase the interest rate one or more times to a rate or rates (each a "Default Rate") that Lender determines, not to exceed the lesser of (i) the maximum Default Rate permitted under the terms of the Default Rate Provision, or (ii) the maximum rate allowed by applicable law. However, Lender will not increase the interest rate to a Default Rate without first giving Borrower at least ten (10) days prior written notice of the occurrence of the Event of Default and of Lender's intent to increase the interest rate pursuant to the Default Rate Provision, during which ten (10) day period Borrower may cure the default and thereby avoid an increase in the interest rate to Default Rate.

Notice and Opportunity to Cure before Acceleration. If an Event of Default occurs under this Agreement or any of the Related Documents, Lender will not accelerate the Indebtedness and demand payment of the Loan in full without first giving such notice of default and opportunity to cure as is provided for in the Note or as is otherwise required by law. Notwithstanding the foregoing, following the occurrence of an Event of Default, Lender may take actions other than accelerating the Indebtedness in order to protect its interests without first giving notice or the opportunity to cure, including, but not limited to, requiring tenants to make rental payments directly to Lender, and/or exercising Lender's right of setoff one or more times to collect delinquent Loan payments.

Relationship to State Law. Notwithstanding the foregoing or any other provision of this Agreement and/or the Related Documents, if any provision of applicable law requires that Borrower be granted a longer notice period or a greater opportunity to cure, that provision of law shall control; provided, however, that the applicable notice period set forth in this Agreement or the Related Documents shall run concurrently with the notice period required by law.

LENDER'S EXPENDITURES. If (i) any action or proceeding is commenced or any lien or claim of lien is asserted that could materially affect Lender's interest in any of the Collateral, or (ii) Borrower fails to comply with any provision of this Agreement or any Related Document, including, but not limited to, Borrower's failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Document, then Lender on Borrower's behalf may (but shall not be obligated to) take any action that Lender reasonably deems appropriate, including, but not limited to, discharging or paying all taxes, liens, claims of lien, security interests, encumbrances, and other claims at any time levied or placed on any Collateral and paying all costs for insuring, maintaining, and preserving any Collateral. All such reasonable expenses actually incurred or paid by Lender will (i) be considered expenses incurred for the preservation of the Collateral, (iii) become part of the Indebtedness, (iii) bear interest at the rate charged under the Note from and including the date incurred or paid by Lender to the date of repayment by Borrower, and (iv) be secured by the Security Instruments. All such expenses incurred or paid by Lender will, at Lender's option, (i) be payable on demand, (ii) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due over the remaining term of the Note, or (iii) be added to the balance of the Note and be treated as a balloon payment which will be due and payable at the Note's maturity.

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INDEMNIFICATION OF LENDER. Borrower agrees to indemnify, defend, and hold Lender and its officers, directors, employees, and agents harmless from and against any and all claims, suits, obligations, damages, losses, costs, expenses (including, without limitation, reasonable attorneys', architect's, and engineering fees), demands, liabilities, penalties, fines, and forfeitures of any nature whatsoever and whenever made that may be asserted against or incurred by Lender or its officers, directors, employees, and agents arising out of, relating to, or in any manner occasioned by, (i) this Agreement or the Related Documents; (ii) a breach by Borrower of this Agreement or the Related Documents; or (iii) the exercise of the rights and remedies granted Lender under this Agreement or the Related Documents. Lender shall have the right (i) to commence, appear in, or defend any action or proceeding purporting to affect the rights, duties, or liabilities of the parties to this Agreement, the Related Documents, or the disbursement of Loan Proceeds; and (ii) to appear in any action or proceeding to defend itself against such claims. Lender shall be entitled to settle or compromise any asserted claims against it, and such settlement shall be binding upon Borrower for purposes of this section. All related costs and expenses incurred by Lender (including reasonable attorneys'. fees incurred by Lender) shall be paid by Borrower to Lender. The provisions of this section of the Agreement shall survive the payment of the Indebtedness and the expiration, cancellation, or termination of this Agreement, and shall not be affected by Lender's acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise. However, in interpreting and applying this provision or any similar provision contained in any of the Related Documents that requires a Borrower or Guarantor to indemnify Lender and hold Lender harmless, the indemnity and hold harmless provision shall not be construed so as to require any Borrower or Guarantor to indemnify Lender or hold Lender harmless from or against Lender's own gross negligence, willful misconduct, or wrongful acts.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

Amendments. This Agreement, together with the Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Force Majeure. If either Lender or Borrower is delayed, hindered, or prevented from performing any act required under this Agreement by reason of war, governmental restrictions, civil commotion, shortage of labor or materials, strikes, fire, or any other reason beyond the control of the party obligated to perform, the performance of such act shall be excused for the period of delay, and the period for performance of any such act shall be extended one (1) day for each day in the period of delay. However, the provisions of this section shall not apply to Borrower's obligations to pay make payments on the Loan or any other sums, monies, costs, charges, or expenses required by this Agreement or the Related Documents.

Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of Lender's reasonable costs and expenses actually incurred in connection with the enforcement of this Agreement or the Related Documents, whether or not an action or claim is filed. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Lender's costs and expenses include Lender's reasonable attorneys' fees and legal expenses incurred in connection with litigation, alternative dispute resolution proceedings, bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court. However, to the extent this Agreement or the Related Documents require any Borrower or Guarantor to pay Lender's attorneys' fees following the occurrence of an Event of Default, Lender will be permitted to recover its attorneys' fees only to the extent they are reasonable in amount and are actually incurred by Lender, without regard to any statutory presumption as to the amount of such attorneys' fees or any percentage amount specified in the Related Documents.

Notices. Any notice to Borrower required or permitted by this Agreement will be deemed to be delivered when the notice has been (i) sent postage prepaid by certified or registered mail, return receipt requested, or by any nationally recognized overnight courier to Borrower's address for notification purposes as stated at the beginning of this Agreement or to Borrower's most recent address as appears in Lender's records; (ii) received by telefacsimile; or (iii) personally delivered. Notice delivered to any one Borrower will be deemed delivery to each Borrower. Any notice to Lender required or permitted by this Agreement will be deemed to be delivered when the notice has been received by Lender at Lender's address as set forth on the first page of this Agreement and acknowledged in writing by an officer of Lender responsible for the administration and oversight of the Loan. Either party may change its notification address by notifying the other party in writing of its new address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's notification address.

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Authority to File Notices. Borrower appoints and designates Lender as its attorney-in-fact to file for the record any notice that Lender deems necessary to protect its interest under this Agreement. This power shall be deemed coupled with an interest and shall be irrevocable while any sum or performance remains due and owing under this Agreement or any of the Related Documents.

Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

Governing Law. This Agreement will be governed by federal law and, to the extent not preempted by federal law, the laws of the state whose laws govern the Note, without regard to its conflicts of law provisions. For purposes of this Agreement, the District of Columbia is considered a state.

Consent to Loan Sale/Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of the Loan or one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of the Loan or any participation interests in the Loan, as well as all notices of any repurchase of the Loan or such participation interests. Borrower also agrees that the purchasers of the Loan or any participation interests in the Loan will be considered as the absolute owners of their respective interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of the Loan or such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of the Loan or such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of the Loan or any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Collateral owner, shall constitute a waiver of any of Lender's rights or of any of Borrower's or any Collateral owner's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required.

Marshalling of Assets. To the extent permitted by law, Borrower waives the benefits of (i) all existing and future appraisal, homestead, valuation, stay, extension, reinstatement, and redemption laws relating to the Collateral; and (ii) any legal or equitable doctrine or principle of marshalling.

Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid, and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity, or enforceability of any other provision of this Agreement.

Joint and Several Liability; Successors and Assigns. If there is more than one Borrower, the liability of each Borrower under this Agreement shall be joint and several. All representations, warranties, covenants, and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower's successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower's rights or obligations under this Agreement without Lender's prior written consent.

No Fiduciary Relationship. The relationship between Lender and Borrower is solely that of lender and borrower. The Lender has no fiduciary or other special relationship with or duty to Borrower, and none is created by this Agreement or the Related Documents. Lender has no right to control the business, property, management, or operations of Borrower except as expressly provided in this Agreement and the Related Documents.

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No Third-Party Beneficiaries. This Agreement is for the sole protection and benefit of Lender and Borrower. No other person or persons shall have any right of action on the basis of this Agreement or any right to the Loan Proceeds.

Survival of Warranties and Representations. Borrower understands and agrees that, in making the Loan, Lender is relying on all representations, warranties, covenants, and agreements made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further understands and agrees that regardless of any investigation made by Lender, all such representations, warranties, covenants, and agreements will survive the making of the Loan and delivery to Lender of the Related Documents, shall be continuing in nature, and shall remain in full force and effect until such time as the Indebtedness is paid in full, or until this Agreement is terminated in the manner provided above, whichever is the last to occur.

Relationship to Related Documents. This Agreement is intended to supplement the Related Documents and should be construed, to the extent both reasonable and possible, in a manner consistent with the Related Documents. To the extent the provisions of this Agreement conflict with, and cannot be reconciled with, the provisions of the Related Documents (other than the Note), the provisions of this Agreement shall control. To the extent the provisions of this Agreement conflict with, and cannot be reconciled with, the provisions of the Note, the provisions of the Note shall control.

Interpretation. This Agreement is the result of negotiations between Borrower and Lender and their respective counsel. This Agreement shall not be applied, interpreted, or construed more strictly against a party because that party or that party's counsel drafted this Agreement.

Execution in Counterparts. This Agreement and the Related Documents may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement, and in making proof of this Agreement or any Loan Document, it shall not be necessary to produce or account for more than one such counterpart.

Time is of the Essence. Time is of the essence in the performance of this Agreement.

DEFINITIONS. As used in this Agreement:

Agreement. The word "Agreement" means this Business/Commercial Loan Agreement, as this Business/Commercial Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached from time to time to this Business/Commercial Loan Agreement.

Borrower. The word "Borrower" means the Borrower identified at the beginning of this Agreement and, in addition, all other co signers and co-makers who sign or assume the Note and all of their respective successors and assigns.

Collateral. The word "Collateral" means all property and assets granted as collateral security for the Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, whether owned by Borrower or some other person or entity, and regardless of the form in which it is granted.

Event of Default. The words "Event of Default" mean any of the events of default set forth in the section of this Agreement entitled "Default."

Guaranty. The word "Guaranty" means the guaranty from a Guarantor to Lender, including, without limitation, a guaranty of all or any portion of the Note.

Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents (including all principal and interest), together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents.

Lender. The word "Lender" means First-Citizens Bank & Trust Company and its successors and assigns.

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Loan Proceeds. The words "Loan Proceeds" mean all disbursements of Loan principal made by Lender pursuant to this Agreement and the Related Documents.

Permitted Liens. The words "Permitted Liens" mean (i) liens and security interests in favor of Lender; (ii) liens for taxes, assessments, or similar charges either not yet delinquent or being contested in good faith; (iii) liens of materialmen, mechanics, warehousemen, or carriers, or other similar liens arising in the ordinary course of business and securing obligations which are not yet delinquent and that do not become delinquent; (iv) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement; (v) liens and security interests to secure obligations incurred by an individual Borrower for personal, family, or household purposes; (vi) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by Lender in writing; and (vii) liens and security interests on Borrower's assets (other than assets that constitute Collateral) which, in the aggregate, constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets.

Related Documents. The words "Related Documents" mean all promissory notes (including the Note), credit agreements, loan agreements, Security Instruments, guaranties, indemnity agreements, environmental agreements, affidavits, verifications, and all other instruments, agreements, and documents executed in connection with the Loan, whether currently existing or created and executed in the future.

Security Instrument. The words "Security Instrument" mean and include, without limitation, any agreement, promise, pledge, assignment, covenant, arrangement, understanding, or other agreement, whether created by law, contract, or otherwise, that evidences, governs, represents, or creates a Security Interest. The words "Security Instrument" include, without limitation, security agreements, financing statements, mortgages, deeds of trust, security deeds, deeds to secure debt, assignments, pledges, negative pledge agreements, crop pledges, chattel mortgages, collateral chattel mortgages, chattel trusts, factor's liens, equipment trusts, conditional sales, trust receipts, lien or title retention contracts, leases or consignments intended as security devices, or any other instrument that creates a security or lien interest.

Security Interest. The words "Security Interest" mean any interest in real or personal property that secures payment of the Indebtedness and/or performance under this Agreement and the Related Documents, whether created by law, contract, or otherwise.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS/COMMERCIAL LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS.

IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand or caused this Agreement to be signed in its name by a person or persons duly authorized, all as of the date of this Agreement.



BORROWER:		LENDER:
INVESTORS TITLE COMPANY		FIRST-CITIZENS BANK & TRUST COMPANY
By: /s/ James A. Fine, Jr.		By: /s/ Sam Nichols
Print/Type Name: James A. Fine, Jr.		Print/Type Name: Sam Nichols
Title: President		Title: Senior Vice President

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Exhibit 10.12

PROMISSORY NOTE

References in the boxes above are for Lenders use only and do not limit the applicability of this document to any particular loan or item.

An item above containing "* * *" has been omitted due to text length limitations.



Borrower:	Investors Title Company	Lender:	First-Citizens Bank & Trust
	121 N. Columbia St.		Durham Main Office
	Chapel Hill, NC 27514-3502		c/o Loan Servicing Department DAC20
			P.O. Box 26592
			Raleigh, NC 27611-6592

Principal Amount: $6,000,000.00 Date of Note: October 27, 2016

PROMISE TO PAY. INVESTORS TITLE COMPANY ("Borrower") promises to pay to First-Citizens Bank & Trust Company ("Lender"), or order, in lawful money of the United States of America, the principal amount of Six Million & 00/100 Dollars ($6,000,000.00), together with interest on the unpaid principal balance from October 27, 2016, until paid in full.

PAYMENT. Borrower will pay this loan in one principal payment of $6,000,000.00 plus interest on December 27, 2016. This payment due on December 27, 2016, will be for all principal and all accrued interest not yet paid. Unless otherwise agreed or required by applicable law, payments will be applied to the following in the order specified: (i) unpaid interest accrued to the date of payment or the date payment is due (at Lender's option); (ii) the unpaid principal component of any payment then due; (iii) unpaid late charges, returned check fees, prepayment penalties, collection costs, and other charges than due; and (iv) the unpaid principal balance. Applying payments in the foregoing manner, Lender may, at its option, satisfy sums owing in the order in which they were billed, assessed, charged, or accrued. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing.

VARIABLE INTEREST RATE . The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the one month London Interbank Offered Rate (LIBOR) as published in the Money Rates table of The Wall Street Journal on the last business day of the month (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notifying Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. The interest rate change will not occur more often than each month. Any change in the interest rate will take effect on the first day of the calendar month based on the latest Index rate as published in the Money Rates table of The Wall Street Journal on the last business day of the preceding calendar month. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 0.627% per annum. Interest on the unpaid principal balance of this Note will be calculated as described in the "INTEREST CALCULATION METHOD" paragraph using a rate of 1.752 percentage points over the Index, resulting in an initial rate of 2.279%. NOTICE: Under no circumstances will the interest rate on this Note be more than (except for any higher default rate shown below) the lesser of 18.000% per annum or the maximum rate allowed by applicable law.

INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method. This calculation method results in a higher effective interest rate than the numeric interest rate stated in this Note.

PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: First Citizens Bank, Loan Servicing Department-DAC20, PO Box 26592 Raleigh, NC 27611-6592.

LATE CHARGE . If a payment is 15 days or more late, Borrower will be charged 4.000% of the unpaid portion of the regularly scheduled payment. This late charge shall be paid to Lender by Borrower to compensate Lender for Lender's extra costs and expenses caused by the late payment.

INTEREST AFTER DEFAULT . Upon default, including failure to pay upon final maturity, the interest rate on this Note shall be increased to 15.000% ("Default Rate"). If judgment is entered in connection with this Note, interest will continue to accrue after the date of judgment at the Default Rate. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.

DEFAULT . Each of the following shall constitute an event of default ("Event of Default") under this Note:

Payment Default. Borrower fails to make any payment when due under this Note.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower .

Default In Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the related documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes,

subject to any limits under applicable law, Lender's reasonable attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including reasonable attorneys' fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of North Carolina without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of North Carolina.

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if Borrower makes a payment on Borrower's loan and the check or preauthorized charge with which Borrower pays is later dishonored.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph.

SIMPLE INTEREST. This Note is a simple-interest note. Interest continues to accrue until payments are received by Lender. The payment schedule contained in this Note assumes that all payments will be made on the scheduled due dates.

RIGHT TO CURE; ACCELERATION . Except as provided in this section, if an Event of Default is curable and no notice has been previously given by Lender of the same or any other Event of Default within the preceding 12 months, Borrower shall have 30 days following Lender's giving of written notice of default within which to cure the default before Lender may require the immediate payment of this Note in full. If the default is curable but cannot reasonably be cured within the 30-day cure period, and if Borrower commences to cure the default during the 30-day cure period and diligently proceeds thereafter to cure such default, then the cure period shall be extended for a reasonable time not to exceed an additional 30 days (for a total of 60 days) in order to provide Borrower the opportunity to cure the default. However, Borrower shall not be entitled to notice of default or the opportunity to cure a default if Lender has previously given notice of a default within the preceding 12 months or if the default occurs because of (a) failure to pay any payment of principal or interest or other sums as and when due under the terms of this Note, (b) the commencement by Borrower of any proceeding for protection under any bankruptcy or insolvency laws, (c) failure to maintain in continuous full force and effect any required insurance on any collateral that secures repayment of this Note, or (d) any waste or any uninsured damage or injury to any collateral securing repayment of this Note that substantially reduces the value of the collateral, or the immediate threat of any such waste or uninsured damage or injury. Lender's notice of default shall be given in writing and shall be deemed given when (a) mailed by first class or certified mail to Borrower at an address Lender has for Borrower in Lender's records, or (b) when actually received by Borrower, whichever first occurs. Notice to any Borrower shall constitute notice to all Borrowers. The provisions of this section are in addition to and do not supersede or limit the application of any controlling provisions of state law concerning notice of default, the right to cure, or the right to reinstate, and nothing in this Note shall be deemed a waiver of those provisions; provided, however, that the provisions of this section and any such state law shall run concurrently.

If (a) an Event of Default occurs and Borrower is not entitled under this section to notice of default and the opportunity to cure, or (b) an Event of Default occurs and the default is not cured during any applicable cure period following the giving of any required notice of default, then this Note shall, at Lender's option, become due and payable in full without demand or notice of any kind. In addition, if Lender has the right to accelerate this Note under the provisions of any security instrument as a result of collateral being sold, transferred, conveyed or encumbered, Lender shall not be further obligated to advance loan proceeds and this Note shall, at Lender's option, become due and payable in full without demand or notice of any kind. Lender's failure to exercise any of the foregoing options shall not constitute a waiver of the right to exercise such options. Waiver by Lender of any default or right to accelerate shall not operate as a waiver of any other default or right to accelerate or of the same default or right to accelerate on a future occasion. Except as otherwise provided by law, acceptance by Lender of payment of less than the entire unpaid balance after acceleration of this Note shall not waive the acceleration, and Lender shall be entitled to proceed with its rights and remedies as noteholder (and as secured party, if applicable).

Notwithstanding any rights Borrower may have to notice of default and opportunity to cure, Lender will have no obligation to advance funds under this Note if: (a) Borrower is in default under the terms of this Note or any agreement that Borrower has with Lender, including any agreement made in connection with the signing of this Note, (b) any instrument securing repayment of this Note is in default, (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender, or (d) Borrower has applied funds advanced pursuant to this Note for purposes other than those authorized by Lender.

LOAN AGREEMENT. This Note is subject to the provisions of each loan agreement given, received, or signed in connection with this loan transaction, the terms and conditions of which are incorporated herein by reference. Any failure to comply with the terms and conditions of any such loan agreement shall constitute an additional "Event of Default" under the terms of this Note. If the terms of any such loan agreement conflict with the terms of this Note, the terms of this Note shall control.

INFORMATION ABOUT OTHER OBLIGATIONS. Lender is authorized to obtain such information about each Borrower's other obligations as Lender may reasonably request from the creditors of each Borrower. The information requested may include, but is not limited to, the Borrower's credit limit, the amount then owing to the creditor, the terms of repayment, whether the obligation is being paid as agreed, whether the Borrower is entitled to obtain additional credit advances, and the current payoff amount. The creditors of each Borrower are authorized and directed to promptly provide to Lender the information requested by Lender.

BORROWER'S FINANCIAL INFORMATION. For purposes of this section. "Financial Information" means information relating to Borrower's finances. Borrower covenants and agrees with Lender that, until this Note is paid in full and Borrower is no longer entitled to obtain credit advances, Borrower will furnish Lender with such Financial Information at such times and in such detail as Lender may reasonably request, including, but not limited to, the following: (i) Borrower's personal financial statement (if Borrower is an individual); (ii) Borrower's quarterly and year-end balance sheet and profit and loss statements (if Borrower is engaged in business activities); (iii) copies of Borrower's federal and state tax returns and all schedules relating thereto, including Schedule K-1 (if applicable); and (iv) such additional information and statements, lists of assets and liabilities, aging of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender may reasonably request from time to time.

Borrower warrants and represents that (i) all Financial Information Borrower has provided and that has been provided on Borrower's behalf to date is true and accurate in all material respects and fairly presents Borrower's financial condition and business transactions as of the date of the Financial Information provided, and (ii) Financial Information Borrower provides and that is provided on Borrower's behalf in the future will be true and accurate in all material respects and will fairly present Borrower's financial condition and business transactions as of the date of the Financial Information provided. Borrower further warrants and represents that, except as specifically disclosed in the Financial Information, (i) Borrower has no direct or contingent liabilities; (ii) title to all assets listed in the Financial Information is solely in Borrower's name, and no other person or entity has an interest in such assets; (iii) there exist no liens, encumbrances, or defects in or upon the assets listed in the Financial Information; (iv) all taxes owed by Borrower have been fully paid and discharged, except taxes not then due and payable without penalty; (v) there are no claims, actions, or proceedings pending or threatened against Borrower or any of Borrower's property; and (vi) there are no judgments or liens against Borrower or any of Borrower's property. With respect to each copy of Borrower's tax returns given to Lender, Borrower warrants and represents that (i) the copy is a true and accurate copy of the return, as filed; (ii) the original of the return was properly signed or electronically authenticated by Borrower or on Borrower's behalf and submitted to the appropriate tax authority; and (c) the return accurately states Borrower's income, deductions and tax liability for the period staled. Borrower acknowledges that Lender has relied and will rely on Borrower's Financial Information.

Borrower covenants and agrees to send written notice to Lender within five (5) business days after the occurrence of any change that is both material and adverse in (a) Borrower's financial condition or business transactions, (b) Borrower's ability to perform Borrower's obligations to Lender, or (c) Financial Information previously given.

Borrower authorizes Lender and its affiliates to make such credit, employment, and investigative inquires about Borrower from time to time as Lender and its affiliates deem appropriate to evaluate Borrower's financial strength, character, and credit history, to administer the loan evidenced by this Note, and to collect any sums owing. Lender is authorized to verify information about Borrower and obtain consumer report(s) about each individual who signs this Note as a Borrower or in a representative capacity on behalf of a Borrower.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns .

GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.

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PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

BORROWER:

INVESTORS TITLE COMPANY

BY: /S/ JAMES A. FINE JR

JAMES A. FINE JR, President of INVESTORS TITLE COMPANY

LENDER:

FIRST-CITIZENS BANK & TRUST COMPANY

X: /S/ AUTHORIZED SIGNER

Authorized Signer

- 3 -

Exhibit 10.13

COMMERCIAL SECURITY AGREEMENT

References in the boxes above are for Lenders use only and do not limit the applicability of this document to any particular loan or item.

An item above containing "* * *" has been omitted due to text length limitations



Grantor:	INVESTORS TITLE COMPANY	Lender:	First-Citizens Bank & Trust
	121 N. Columbia St.		Durham Main Office
	Chapel Hill, NC 27514-3502		c/o Loan Servicing Department DAC20
			P.O. Box 26592
			Raleigh, NC 27611-6592

THIS COMMERCIAL SECURITY AGREEMENT dated October 27, 2016, is made and executed between INVESTORS TITLE COMPANY ("Grantor') and First-Citizens Bank & Trust Company ("Lender").

GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.

COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means the following described property, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located, in which Grantor is giving to Lender a security interest for the payment of the Indebtedness and performance of all other obligations under the Note and this Agreement:

All Accounts, General Intangibles, Inventory, Equipment, Furniture, Furnishings, and Other Goods

In addition, the word "Collateral" also includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:

(A) All accessions, attachments, accessories, replacements of and additions to any of the collateral described herein, whether added now or later.

(B) All products and produce of any of the property described in this Collateral section.


(C)	All accounts, general intangibles, instruments, rents, monies, payments; and all other rights, arising out of a sale, lease, consignment or other disposition of any of the property described in this Collateral section.


(D)	All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section, and sums due from a third party who has damaged or destroyed the Collateral or from that party's insurer, whether due to judgment, settlement or other process.


(E)	All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media.

CROSS COLLATERALIZATION. In addition to the Note, this Agreement secures all obligations, debts and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well as all claims by Lender against Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated, whether Grantor may be liable individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts may be or hereafter may become barred by any statute of limitations, and whether the obligation to repay such amounts may be or hereafter may become otherwise unenforceable.

FUTURE ADVANCES. In addition to the Note, this Agreement secures all future advances made by Lender to Grantor regardless of whether the advances are made a) pursuant to a commitment or b) for the same purposes.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Grantors accounts with Lender (whether checking, savings, or some other account). This includes all accounts Grantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lenders option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph.

GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor represents and promises to Lender that:

Perfection of Security Interest. Grantor agrees to take whatever actions are requested by Lender to perfect and continue Lender's security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender's interest upon any and all chattel paper and instruments if not delivered to Lender for possession by Lender. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness is paid in full and even though for a period of time Grantor may not be indebted to Lender .

Notices to Lender. Grantor will promptly notify Lender in writing at Lenders address shown above (or such other addresses as Lender may designate from time to time) prior to any (1) change in Grantors name; (2) change in Grantor's assumed business name(s); (3) change in the management of the Corporation Grantor; (4) change in the authorized signer(s); (5) change in Grantor's principal office address; (6) change in Grantors state of organization; (7) conversion of Grantor to a new or different type of business entity; or (8) change in any other aspect of Grantor that directly or indirectly relates to any agreements between Grantor and Lender. No change in Grantors name or state of organization will take effect until after Lender has received notice.

No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement.

Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, as defined by the Uniform Commercial Code, the Collateral is enforceable in accordance with its terms, is genuine, and fully complies with all applicable laws and regulations concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. There shall be no setoffs or counterclaims against any of the Collateral, and no agreement shall have been made under which any deductions or discounts may be claimed concerning the Collateral except those disclosed to Lender in writing.

Location of the Collateral. Except in the ordinary course of Grantor's business, Grantor agrees to keep the Collateral at Grantor's address shown above or at such other locations as are acceptable to Lender. Upon Lenders request, Grantor will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantors operations, including without limitation the following: (1) all real property Grantor owns or is purchasing; (2) all real property Grantor is renting or leasing; (3) all storage facilities Grantor owns, rents, leases, or uses; and (4) all other properties where Collateral is or may be located.

Removal of the Collateral. Except in the ordinary course of Grantor's business, Grantor shall not remove the Collateral from its existing location without Lenders prior written consent. Grantor shall, whenever requested, advise Lender of the exact location of the Collateral.

Transactions Involving Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantors business, or as otherwise provided for in this Agreement, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender.

Title. Grantor represents and warrants to Lender that Grantor holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender's rights in the Collateral against the claims and demands of all other persons.

Repairs and Maintenance. Grantor agrees to keep and maintain, and to cause others to keep and maintain, the Collateral in good order, repair and condition at all times while this Agreement remains in effect. Grantor further agrees to pay when due all claims for work done on, or services rendered or material furnished in connection with the Collateral so that no lien or encumbrance may ever attach to or be filed against the Collateral.

Inspection of Collateral. Lender and Lender's designated representatives and agents shall have the right at all reasonable times to examine and inspect the Collateral wherever located.

Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is subjected lo a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, reasonable attorneys' fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings. Grantor further agrees to furnish Lender with evidence that such taxes, assessments, and governmental and other charges have been paid in full and in a timely manner. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized.

Compliance with Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral, including all laws or regulations relating to the undue erosion of highly-erodible land or relating to the conversion of wetlands for the production of an agricultural product or commodity. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender’s interest in the Collateral, in Lender's opinion, is not jeopardized.

Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used in violation of any Environmental Laws or for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any Hazardous Substance. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Collateral for Hazardous Substances. Grantor hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any Environmental Laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify and defend shall survive the payment of the Indebtedness and the satisfaction of this Agreement.

Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis reasonably acceptable to Lender and issued by a company or companies reasonably acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' prior written notice to Lender and not including any disclaimer of the insurer's liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if Lender so chooses "single interest insurance," which will cover only Lender's interest in the Collateral.

Application of Insurance Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral, whether or not such casualty or loss is covered by insurance. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness.

Insurance Reserves . Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be held by Lender as a general deposit and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for Grantor, and Lender is not the agent of Grantor for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of premiums shall remain Grantor's sole responsibility.

Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the property insured; (5) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (6) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral.

Financing Statements. Grantor authorizes Lender to file a UCC financing statement, or alternatively, a copy of this Agreement to perfect Lender's security interest. At Lender's request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, and continue Lender's security interest in the Property. Grantor will pay all filing fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute documents necessary to transfer title if there is a default. Lender may file a copy of this Agreement as a financing statement. If Grantor changes Grantor's name or address, or the name or address of any person granting a security interest under this Agreement changes, Grantor will promptly notify the Lender of such change.

GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor's right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender’s security interest in such Collateral. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender's sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness.

LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Grantor fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor's failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor’s behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. The Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon default.

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DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:

Payment Default. Grantor fails to make any payment when due under the Indebtedness.

Other Defaults. Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Grantor.

Default In Favor of Third Parties. Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Grantor's property or ability to perform Grantor's obligations under this Agreement or any of the Related Documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.

Insolvency. The dissolution or termination of Grantor's existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against any collateral securing the Indebtedness. This includes a garnishment of any of Grantor's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the Indebtedness or guarantor, endorser, surety, or accommodation party dies or becomes incompetent or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.

Adverse Change. A material adverse change occurs in Grantor's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired.

RIGHTS AND REMEDIES ON DEFAULT . If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the North Carolina Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies:

Accelerate Indebtedness. Lender may declare the entire Indebtedness, including any prepayment penalty which Grantor would be required to pay, immediately due and payable, without notice of any kind to Grantor.

Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession.

Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender's own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor, and other persons as required by law, reasonable notice of the time and place of any public sale, or the time after which any private sale or any other disposition of the Collateral is to be made. However, no notice need be provided to any person who, after Event of Default occurs, enters into and authenticates an agreement waiving that person's right to notification of sale. The requirements of reasonable notice shall be met if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid.

Appoint Receiver. Lender shall have the right to have a receiver appointed to take possession of all or any part of the Collateral, with the power to protect and preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the rents from the Collateral and apply the proceeds, over and above the cost of the receivership, against the Indebtedness. The receiver may serve without bond if permitted by law. Lender's right to the appointment of a receiver shall exist whether or not the apparent value of the Collateral exceeds the Indebtedness by a substantial amount. Employment by Lender shall not disqualify a person from serving as a receiver.

Collect Revenues, Apply Accounts. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in Lenders discretion transfer any Collateral into Lender's own name or that of Lender's nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security for the Indebtedness or apply it to payment of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not Indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender.

Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper.

Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise.

Election of Remedies. Except as may be prohibited by applicable law, all of Lenders rights and remedies, whether evidenced by this Agreement, the Related Documents, or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and exercise its remedies.

RIGHT TO CURE . Prior to accelerating the Indebtedness secured by this instrument, Lender shall give such notice and opportunity to cure as may be required by the Note or Credit Agreement secured by this instrument. The provisions of this section shall not supersede or limit the application of any controlling provisions of state law concerning notice of default, the right to cure, or the right to reinstate, and nothing in this instrument shall be deemed a waiver of those provisions; provided, however, that the provisions of the Note or Credit Agreement and any such state law requirements shall run concurrently.

GRANTOR'S ADDITIONAL WAIVERS. To the extent permitted by applicable law, Grantor also expressly waives all benefits, claims, rights and defenses Grantor may have or acquire that are based on: (A) any statutory or common law provision limiting the liability of or requiring the discharge or exoneration of a guarantor or surety; (B) suretyship or impairment of collateral, including any benefits, claims, rights or defenses Guarantor may have or acquire pursuant to sections 3-419 and 3-605 of the Uniform Commercial Code as adopted and amended from time to time by the various states; (C) any statutory or common law provision that releases, discharges, or limits the liability of a remaining obligor following the release of a joint obligor; (D) homestead or exemption laws and any rights thereunder with respect to any collateral taken as security for the Indebtedness; (E) any "one action," "anti-deficiency" or other statutory or common law provision limiting the right of Lender to obtain a judgment against or to otherwise proceed against any person or entity obligated for payment of the Indebtedness (including Grantor, if that is the case), whether before or after the foreclosure, sale or other disposition of any collateral taken as security for the Indebtedness; and (F) any legal or equitable doctrine or principle of marshalling. Lender shall not be required to sell or dispose of collateral in inverse order of alienation or in any other particular order. Without affecting or lessening Lender's rights under this instrument, Lender may do or not do any of the following with respect to the Indebtedness or Note without Grantor's knowledge, consent or joinder: (A) grant extensions of time for payment, (B) grant renewals, (C) permit modifications of payment terms or other terms or conditions, (D) permit assumptions of the

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Indebtedness or Note, (E) release one or more borrowers or guarantors from liability, and (F) exchange or release any collateral or other security.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of Lender's costs and expenses, including Lender's reasonable attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's reasonable attorneys' fees and legal expenses whether or not there is a lawsuit, including reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court.

Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of North Carolina without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of North Carolina.

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor's current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors.

Power of Attorney. Grantor hereby appoints Lender as Grantor's irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect, amend, or to continue the security interest granted in this Agreement or to demand termination of filings of other secured parties. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender's security interest in the Collateral.

Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.

Successors and Assigns. Subject to any limitations stated in this Agreement on transfer of Grantor's interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness.

Survival of Representations and Warranties. All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor's Indebtedness shall be paid in full.

Time is of the Essence. Time is of the essence in the performance of this Agreement.

DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code:

Agreement The word "Agreement" means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time.

Borrower. The word "Borrower" means INVESTORS TITLE COMPANY and includes all co-signers and co-makers signing the Note and all their successors and assigns.

Collateral. The word "Collateral" means all of Grantor's right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement.

Default. The word "Default" means the Default set forth in this Agreement in the section titled "Default".

Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.

Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement.

Grantor. The word "Grantor" means INVESTORS TITLE COMPANY.

Guaranty. The word "Guaranty" means the guaranty from guarantor, endorser, surety, or accommodation party to Lender, including without limitation a guaranty of all or part of the Note.

Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.

Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. Specifically, without limitation, Indebtedness includes the future advances set forth in the Future Advances provision, together with all interest thereon and all amounts that may be indirectly secured by the Cross-Collateralization provision of this Agreement.

Lender. The word "Lender'' means First-Citizens Bank & Trust Company , its successors and assigns.

Note. The word "Note" means the Note dated October 27, 2016 and executed by INVESTORS TITLE COMPANY in the principal amount of $6,000,000.00, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement .

Property. The word "Property" means all of Grantor's right, title and interest in and to all the Property as described in the "Collateral Description" section of this Agreement.

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Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.

GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED OCTOBER 27, 2016.

GRANTOR:

INVESTORS TITLE COMPANY



BY:	/S/ JAMES A. FINE JR.
	JAMES A. FINE JR, President of INVESTORS TITLE COMPANY

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Exhibit 21

SUBSIDIARIES OF REGISTRANT



	Percent	Names Under Which	State of
Name of Subsidiary	Ownership	Subsidiaries Do Business	Incorporation

Investors Title Insurance Company	100%	Investors Title Insurance Company	North Carolina

National Investors Title Insurance Company	100%	National Investors Title Insurance Company	Texas

Investors Title Exchange Corporation	100%	Investors Title Exchange Corporation	North Carolina

Investors Title Accommodation Corporation	100%	Investors Title Accommodation Corporation	South Carolina

Investors Title Management Services, Inc.	100%	Investors Title Management Services, Inc.	North Carolina

Investors Capital Management Company	100%	Investors Capital Management Company	North Carolina

Investors Title Commercial Agency, LLC	100%	Investors Title Commercial Agency, LLC	North Carolina

Investors Trust Company	100%	Investors Trust Company	North Carolina

National Investors Holdings, LLC	100%	National Investors Holdings, LLC	Texas

United Title Agency, LLC	100%	United Title Agency, LLC	Michigan

University Title Company	100%	University Title Company	Texas

1st Investors Title Agency, LLC	68.1%	1st Investors Title Agency, LLC	Michigan

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Investors Title Company

Chapel Hill, North Carolina

We consent to the incorporation by reference in the registration statements (Nos. 333-109279 and 333-161209) on Forms S-8 of Investors Title Company of our reports dated March 10, 2017, with respect to the consolidated financial statements and schedules of Investors Title Company and the effectiveness of internal control over financial reporting, which reports appear in Investors Title Company’s 2016 Annual Report on Form 10-K.

/s/ Dixon Hughes Goodman LLP

High Point, North Carolina

March 10, 2017

Exhibit 31(i)

Certification

I, J. Allen Fine, certify that:


1.	I have reviewed this annual report on Form 10-K of Investors Title Company;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 10, 2017

/s/ J. Allen Fine

J. Allen Fine

Chief Executive Officer

Exhibit 31(ii)

Certification

I, James A. Fine, Jr., certify that:


1.	I have reviewed this annual report on Form 10-K of Investors Title Company;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 10, 2017

/s/ James A. Fine, Jr.

James A. Fine, Jr.

Chief Financial Officer

Exhibit 32

Certifications

Pursuant to 18 U.S.C. Section 1350,

As adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Investors Title Company, a North Carolina corporation (the "Company") for the year ended December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company does hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


(i)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and


(ii)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.




Dated:	March 10, 2017	/s/ J. Allen Fine
		J. Allen Fine
		Chief Executive Officer


Dated:	March 10, 2017	/s/ James A. Fine, Jr.
		James A. Fine, Jr.
		Chief Financial Officer