HG Holdings, Inc. - Quarter Report: 2023 June (Form 10-Q)

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

HG HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

The accompanying notes are an integral part of the consolidated financial statements. 

HG HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

The accompanying notes are an integral part of the consolidated financial statements.

HG HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

The accompanying notes are an integral part of the consolidated financial statements.

HG HOLDINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the Company (as defined below), these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been either condensed or omitted pursuant to SEC rules and regulations. However, the Company believes that the disclosures made are adequate for a fair presentation of results of operations and financial position. Operating results for the interim periods reported herein may not be indicative of the results expected for the year. These consolidated financial statements should be read in conjunction with the financial statements and accompanying notes included in the Company’s latest Annual Report on Form 10-K filed with the SEC on March 30, 2023.

HG Holdings, Inc., together with its consolidated subsidiaries (the “Company,” “we,” ‘us” or “our”), operates through its wholly owned subsidiaries, National Consumer Title Insurance Company (“NCTIC”), National Consumer Title Group, LLC (“NCTG”), Title Agency Ventures, LLC (“TAV”), HG Managing Agency, LLC (“HGMA”), and Omega National Title Agency, LLC (“Omega”), and through an affiliated investment in HC Government Realty Trust, Inc., a Maryland corporation (“HC Realty”).

Description of the Business

Title Insurance

The Company engages in issuing title insurance through its subsidiary, NCTIC, and providing title agency services through its subsidiaries, NCTG, TAV, and Omega. Through NCTIC, the Company underwrites land title insurance for owners and mortgagees as the primary insurer. The Company currently only provides title insurance services in the state of Florida.

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

NCTIC issues title insurance policies in Florida through its home office and through a network of affiliated and independent title agents.  In the State of Florida, issuing agents are independent agents or subsidiaries of community and regional mortgage lending institutions, depending on local customs and regulations.  The ability to attract and retain issuing agents is a key determinant of the Company’s growth in title insurance premiums written.

Revenues for the title insurance segment primarily result from purchases of new and existing residential and commercial real estate, refinance activity and certain other types of mortgage lending such as home equity lines of credit. Title insurance premiums vary from state to state and are subject to extensive regulation. Statutes generally provide that rates must not be excessive, inadequate or unfairly discriminatory. The process of implementing a rate change in most states involves pre-approval by the applicable state insurance regulator.

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

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

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

Historically, the title insurance business tends to be seasonal as well as cyclical. Because home sales are typically strongest in periods of favorable weather, the first calendar quarter tends to have the lowest activity levels, while the spring and summer months tend to be more active. Mortgage refinance activity tends to be influenced less by seasonality and more by economic cycles, with activity levels increasing during times of falling interest rates.

Real Estate Related

The Company engages in rental real estate through its equity investment in HC Realty.  HC Realty is an internally-managed real estate investment trust (“REIT”) focused on acquiring, developing, financing, owning and managing build-to-suit or renovate-to-suit, single-tenant properties leased primarily to the U.S. government and administered by the U.S. General Services Administration or directly by the federal government agencies or sub-agencies occupying such properties (referred to as “Government Properties”).  HC Realty invests primarily in Government Properties ranging from 10,000 to 100,000 rentable square feet that are in their initial lease term after original construction or renovation-to-suit. HC Realty further emphasizes Government Properties that perform law enforcement, public service or other functions that support the mission of the agencies or sub-agencies occupying such properties.  Leases associated with the Government Properties in which HC Realty invests are full faith and credit obligations of the United States of America.  HC Realty intends to grow its portfolio primarily through direct acquisitions and development of Government Properties; although, HC Realty may elect to invest in Government Properties through indirect investments, such as joint ventures.

The Company currently owns 300,000 shares of HC Realty’s Common Stock (the “HC Common Stock”) and 1,025,000 shares of HC Realty’s 10.00% Series B Cumulative Convertible Preferred stock (the “HC Series B Stock”). On March 19, 2019, we purchased 300,000 shares of HC Common Stock for an aggregate purchase price of $3,000,000 and 200,000 shares of HC Series B Stock for an aggregate purchase price of $2,000,000. On April 3, April 9, and June 29, 2020, the Company entered into subscription agreements with HC Realty, pursuant to which we purchased 100,000, 250,000, and 475,000 shares of HC Series B Stock, respectively, for an aggregate purchase price of $8,250,000. As a result of these purchases, we currently own approximately 26.05% of the voting interest of HC Realty.

As of June 30, 2023, HC Realty owned 35 Government Properties, comprised of 33 Government Properties that it owns and two Government Properties that it owns subject to a ground lease, each of which is leased to the United States government and occupied by tenant agencies and sub-agencies such as the Federal Bureau of Investigation, the Department of Veterans Affairs, the Drug Enforcement Administration, the Immigration & Customs Enforcement, the Social Security Administration and the Department of Transportation. HC Realty’s portfolio properties contain approximately 663,000 leased rentable square feet located in 22 states. As of June 30, 2023, its portfolio properties are 98% leased to the United States government and occupied by 12 different federal government agencies. Based on leased rentable square feet, the portfolio has a weighted average remaining lease term of 9.2 years if none of the tenants’ early termination rights are exercised and 5.7 years if all of the tenants’ early termination rights are exercised.

Reinsurance Related

The Company, through the formation of White Rock USA Cell 47, previously engaged in providing another insurance company excess-of-loss reinsurance coverage related to catastrophic weather risk in Texas. The Company does not currently have any reinsurance contracts in-force during the six month period ended June 30, 2023; however, the Company may actively look to provide reinsurance coverage to other carriers as future opportunities arise.

Management Advisory Services Related

The Company, through its wholly-owned subsidiary HGMA, engages in providing management advisory services including formation, operational, and restructuring services.

Effective April 1, 2023, the Company, through HGMA, engages in providing management advisory services to a related captive managing general agency regarding its anticipated assumption of policies from Citizens Property Insurance Company.  The services include underwriting, modeling, and advising on the subset of potential policies selected for the proposed assumption.  The engagement is for six months from the effective date of the agreement at a monthly fee of $200,000.

Effective April 1, 2023, the Company, through HGMA, engages in providing management advisory services to a related reinsurance intermediary. The services include legal formation, licensure, regulatory approval, and other general operational services to allow the intermediary to adequately perform its business functions. The engagement is for twelve months from the effective date of the agreement at a monthly fee of $50,000.

For information about our reportable segments, refer to Note 9 Segment Information.

Developments Impacting Comparison of the Three- and Six-Month Periods ended June 30, 2023 and 2022

Effective August 1, 2022, Omega acquired substantially all the assets of Omega Title Florida, LLC (“OTF”). In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, the Company has determined that the transaction should be accounted for as a business combination. The acquisition allows Omega to expand into additional geographic areas of Florida and expand its footprint.

For information about our business combinations, refer to Note 12 Business Combinations.

Recent Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendment is effective for public entities for annual reporting periods beginning after December 15, 2022. Early application is permitted for reporting periods beginning after December 15, 2018, although the Company has not opted to do so. The Company has adopted ASU 2016-13 with no related impact to the consolidated financial statements.

The Company received a $7.4 million subordinated secured promissory note (the “Original Note”) from Stanley Furniture Company, LLC, formerly known as Churchill Downs, LLC (the “Buyer”), as partial consideration for the sale of substantially all of our assets to the Buyer during the first quarter of 2018 (the “Asset Sale”). On September 6, 2018, the Buyer sold certain of its assets (the “S&L Asset Sale”), including certain inventory and the Stone & Leigh tradename to Stone & Leigh, LLC (“S&L”), which is owned by a group which includes Matthew W. Smith, the Company’s former interim Chief Executive Officer. As a part of the S&L Asset Sale, the Buyer assigned to S&L certain of its rights and obligations under the Original Note. In connection with the assignment, the Company entered into an Amended and Restated Subordinated Secured Promissory Note with the Buyer (the “A&R Note”) and a new Subordinated Secured Promissory Note with S&L (the “S&L Note”). The A&R Note had a principal amount as of the assignment date of $3.3 million.

S&L Note

The S&L Note had a principal amount of $4.4 million as of the assignment date. The S&L Note matured on March 2, 2023, at which time the total principal amount became due. Interest on the S&L Note accrues at a fixed rate of 10% per annum. No cash interest payments were accrued or received during the three or six months ended June 30, 2023 and 2022.

As a result of the Company’s recording of impairment losses in prior quarters, based on current information and events, including the impact of COVID-19 on S&L’s business and its customers, the Company fully impaired the S&L Note as of December 31, 2022. Upon maturity on March 2, 2023, S&L informed the Company that it will not be able to pay the Company any amounts outstanding including principal or interest due. Any future recoveries from S&L, if any, will be recognized as Other Income on the Company’s Unaudited Consolidated Statements of Operations when the recoveries are recognized.

The HC Series B Stock is not deemed to be in-substance common stock and is accounted for using the measurement alternative for equity investments with no readily determinable fair value. The HC Series B Stock will be reported at cost, adjusted for impairments or any observable price changes in ordinary transactions with identical or similar investments issued by HC Realty.

The following table summarizes the Company’s investment in HC Realty as of June 30, 2023, and December 31, 2022 (in thousands):

The Company’s investment in HC Common Stock is accounted for under the equity method of accounting.

The following table details investments by major investment category, at June 30, 2023 (in thousands):

The following table details investments by major investment category, at December 31, 2022 (in thousands):

The table below summarizes our fixed maturities at June 30, 2023 (dollars in thousands) by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturities of those obligations.

Fair value measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on our Unaudited Consolidated Balance Sheets at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:

Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we can access.

Level 2: Assets and liabilities whose values are based on the following:

Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect our estimates of the assumptions that market participants would use in valuing the assets and liabilities.

We estimate the fair value of our investments using the closing prices on the last business day of the reporting period, obtained from active markets such as the New York Stock Exchange, Nasdaq and NYSE American. For securities for which quoted prices in active markets are unavailable, we use a third-party pricing service that utilizes quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs to estimate the fair value of those securities for which quoted prices are unavailable. Our estimates of fair value reflect the interest rate environment that existed as of the close of business on June 30, 2023. Changes in interest rates subsequent to June 30, 2023 may affect the fair value of our investments.

The fair value of our fixed maturities is initially calculated by a third-party pricing service. Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of proprietary models, produce valuation information in the form of a single fair value for individual fixed-income and other securities for which a fair value has been requested. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial information. The valuation models take into account, among other things, market observable information as of the measurement date, as described above, as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector and, where applicable, collateral quality and other issue or issuer specific information. Executing valuation models effectively requires seasoned professional judgment and experience.

All fixed-income securities are classified as held-to-maturity and are reported at amortized cost as of June 30, 2023 and December 31, 2022. The Company performs ongoing impairment evaluations, and we did not record any other then temporary impairments during the three or six months ended June 30, 2023 and 2022.

The Company’s other investments include investments in limited partnerships whose purpose is to invest capital in various growth-oriented enterprises. The Company does not have significant influence over any investee and the Company’s investment typically represents less than 5% of the investee’s ownership. These investments do not meet the criteria of accounting under the equity method.

The following table presents the fair value of our financial instruments measured on a recurring basis by level at June 30, 2023 (in thousands):

The following table presents the fair value of our financial instruments measured on a recurring basis by level at December 31, 2022 (in thousands):

The following table presents selected information regarding Level 3 assets and liabilities measured at fair value on a recurring basis during the six month period ended June 30, 2023 (in thousands):

The following table presents selected information regarding Level 3 assets and liabilities measured at fair value on a recurring basis during the year ended December 31, 2022 (in thousands):

NCTIC’s reserves for unpaid losses and loss adjustment expenses are established using estimated amounts required to settle claims for which notice has been received (reported) and the amount estimated to be required to satisfy claims that have been incurred but not yet reported (“IBNR”). Despite the variability of such estimates, management believes that the total reserve for claims is adequate to cover claim losses which might result from pending and future claims under title insurance policies issued through June 30, 2023. We continually update loss reserve estimates as new information becomes known, new loss patterns emerge or as other contributing factors are considered and incorporated into the analysis of reserve for claim losses. Due to the uncertainty inherent in the process and to the judgment used by management, the ultimate liability may be greater or less than our current reserves. If actual claims loss development varies from what is currently expected and is not offset by other factors, it is possible that additional reserve adjustments may be required in future periods in order to maintain our recorded reserve within a reasonable range of our actuary's central estimate.

A reconciliation of the activity in the reserves account for the six month period ended June 30, 2023 and 2022 is as follows (in thousands):

At June 30, 2023, there were no reinsurance recoverables on paid claims or unpaid reserves.

For the six months ended June 30, 2023, there was no development of the net provision for claims attributable to insured events of the prior year as a result of estimation of the reserve for claims. Original estimates are decreased or increased as additional information becomes known regarding individual claims.

A summary of the Company’s loss reserves at June 30, 2023 and December 31, 2022 are as follows (in thousands):

Certain premiums and benefits at NCTIC are ceded to other insurance companies under various reinsurance agreements. The reinsurance agreements provide NCTIC with increased capacity to write more risk and maintain its exposure to loss within its capital resources. For the six month period ended June 30, 2023, NCTIC's reinsurance program consisted of excess of loss reinsurance treaties. The following is a summary of the reinsurance coverage.

Effective January 1, 2023, NCTIC entered into a per risk excess of loss reinsurance agreement that provides coverage of $4,000,000 in excess of $1,000,000 on each and every risk. The contract allows for one full reinstatement at 100% additional premium as to time and pro rata as to amount. This per risk agreement is shared with other non-affiliated companies. Each company pays its share of the reinsurance cost based on separate company earned premiums. The agreement expires December 31, 2023.

Effective January 1, 2022, NCTIC entered into a reinstatement premium protection reinsurance agreement to reinsure the reinstatement premium payment obligations of NCTIC under the shared per risk excess of loss agreement. The coverage was limited to 100% of the original contracted reinsurance placement. This agreement was shared with the other nonaffiliated companies. Each company paid its share of the reinsurance cost based on separate company earned premiums. The agreement expired on December 31, 2022.

NCTIC’s reinsured risks are treated, to the extent of reinsurance, as though they are risks for which the Company is not liable. However, NCTIC remains contingently liable in the event the reinsuring companies do not meet their obligations under these reinsurance contracts. NCTIC uses a broker to place its reinsurance through Lloyd’s syndicates, a group of underwriters who work together to provide insurance coverage for a variety of risks. Chaucer Ltd (“Chaucer”) and Beazley Syndicate (“Beazley”) are each 50% participants in the Lloyd’s syndicate. As such, NCTIC has a concentration of reinsurance risk with these third party reinsurers that could have a material impact on NCTIC’s financial position in the event that either of these reinsurers fail to perform their obligations under the reinsurance treaty. As of June 30, 2023, both reinsurers had an A-issuer credit rating from AM Best, an AA- from Fitch, and an A+ from S&P. The Company monitors both the financial condition of individual reinsurers and risk concentration arising from similar activities and economic characteristics of reinsurers to attempt to reduce the risk of default by such reinsurers. Given the quality of the reinsurers, management believes this possibility to be remote. See Note 5 Reserve for Title Claims for recoveries due from reinsurers relating to paid and unpaid claims under these treaties.

The effects of reinsurance on premiums written and earned at NCTIC are as follows:

NCTIC's assets, liabilities, and results of operations have been reported in accordance with GAAP, which varies from statutory accounting practices (“SAP”) prescribed or permitted by insurance regulatory authorities. Prescribed SAP are found in a variety of publications of the National Association of Insurance Commissioners (“NAIC”), state laws and regulations, as well as through general practices. The principal differences between SAP and GAAP are that under SAP: (1) certain assets that are not admitted assets are eliminated from the balance sheet, (2) a supplemental reserve for claims is charged directly to unassigned surplus rather than provision for claims under GAAP, and (3) differences may arise in the computation of deferred income taxes. The Company must file with applicable state insurance regulatory authorities an “Annual Statement” which reports, among other items, net income (loss) and stockholders' equity (called “surplus as regards policyholders” in statutory reporting).

The Company has four reportable segments, title insurance services, reinsurance, management services, and real estate. The remaining immaterial segments have been combined into a group called “Corporate and Other.” The title insurance segment issues title insurance policies, which insures titles to real estate, and provides title agency services for residential and commercial real estate transactions. The real estate segment, through an affiliate investment in HC Realty, owns and operates a portfolio of single-tenant properties leased primarily to the U.S. government and administered by the U.S. General Services Administration or directly by the federal government agencies or sub-agencies occupying such properties.

Provided below is selected financial information about the Company’s operations by segment for the six months ended June 30, 2023 (in thousands): 

Provided below is selected financial information about the Company’s operations by segment for the six months ended June 30, 2022 (in thousands):

Provided below is selected financial information about the Company’s operations by segment for the three months ended June 30, 2023 (in thousands):

Provided below is selected financial information about the Company’s operations by segment for the three months ended June 30, 2022 (in thousands):

During the six months ended June 30, 2023, the Company recorded a non-cash credit to its valuation allowance of $168,000, increasing its valuation allowance against deferred tax assets to $7.9 million as of June 30, 2023.  The primary assets covered by this valuation allowance are net operating losses, which are approximately $37.8 million at June 30, 2023.  The Company did not make any cash payments for income tax in the six month period ended June 30, 2023 and 2022 due to its net operating loss carryforwards.

The Company maintains a valuation allowance against deferred tax assets that currently exceed our deferred tax liabilities. The primary assets covered by this valuation allowance are net operating loss carry-forwards. The valuation allowance was calculated in accordance with the provisions of ASC 740, Income Taxes, which requires an assessment of both positive and negative evidence when measuring the need for a valuation allowance. The Company’s results over the most recent four-year period were heavily affected by business restructuring activities. The Company’s cumulative loss represented sufficient negative evidence to require a valuation allowance. The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support its reversal, resulting in no deferred tax asset balance being recognized. Should the Company determine that it will not be able to realize all or part of its deferred tax asset in the future, an adjustment to the deferred tax asset will be charged to income in the period such determination is made.

As of June 30, 2023, the Company has no deferred tax assets not covered by a valuation allowance.

Our effective tax rate for the three and six month periods ended June 30, 2023 was effectively 16.3% and 3.0%, respectively. Our effective tax rate for the three and six month periods ended June 30, 2022 was effectively 0% due to our net operating loss carryforwards.

Basic earnings per common share are based upon the weighted average shares outstanding. Outstanding stock options and restricted stock are treated as potential common stock for purposes of computing diluted earnings per share. Basic and diluted earnings per share are calculated using the following share data (in thousands):

For the three and six month periods ended June 30, 2023 and 2022, there were no stock options or restricted stock awards outstanding. 

On August 5, 2022, the Company’s board of directors (the “Board”) authorized the repurchase of up to $1.5 million of shares of the Company’s common stock. The authorization does not obligate the Company to acquire a specific number of shares during any period and does not have an expiration date, but it may be modified, suspended, or discontinued at any time at the discretion of the Board. Repurchases may be made from time to time in the open market, or through privately negotiated transactions or otherwise, in compliance with applicable laws, rules and regulations, and subject to the Company’s cash requirements for other purposes, and other factors it deems relevant.

During the six months ended June 30, 2023, the Company repurchased 4,435 shares of common stock, at a weighted average price per share of $7.14. The total cost of shares repurchased, inclusive of fees and commissions, during the six month period ended June 30, 2023 was $31,762, or $7.16 per share.

During the three months ended June 30, 2023, the Company repurchased 4,265 shares of common stock, at a weighted average price per share of $7.14. The total cost of shares repurchased, inclusive of fees and commissions, during the three month period ended June 30, 2023 was $30,451, or $7.14 per share.

A reconciliation of the activity in Stockholders’ Equity accounts for the three and six months ended June 30, 2023, is as follows (in thousands):

A reconciliation of the activity in Stockholders’ Equity accounts for the three and six months ended June 30, 2022, is as follows (in thousands):

Right-of-use assets and lease liabilities related to operating leases under ASC Topic 842, Leases (“ASC Topic 842”), are recorded when the Company and its subsidiaries are party to a contract, which conveys the right for it to control an asset for a specified period of time. Substantially all of our operating lease arrangements relate to rented office space and real estate for our title operations. We generally are not a party to any material contracts considered finance leases. Right-of-use assets and lease liabilities under ASC Topic 842 are recorded as Lease assets and Lease liabilities, respectively, on the Unaudited Consolidated Balance Sheets.

Our operating leases range in term from one to three years. As of June 30, 2023, the weighted-average remaining lease term of our operating leases was 2.65 years.

Our lease agreements do not contain material variable lease payments, buyout options, residual value guarantees or restrictive covenants.

Most of our leases include one or more options to renew, with renewal terms that can extend the lease term by varying amounts. The exercise of lease renewal options is at our sole discretion. We do not include options to renew in our measurement of lease assets and lease liabilities as they are not considered reasonably assured of exercise.

The lease liability is determined by discounting future lease payments using a discount rate based on our incremental borrowing rate for similar collateralized borrowing. The discount rate is calculated using estimates of capitalization rates and borrowing rates. As of June 30, 2023, the weighted-average discount rate used to determine our operating lease liability was 6.0%.

Lease expense included in general and administrative expenses on the Unaudited Consolidated Statements of Operations was $177,000 and $172,000 for the three months ended June 30, 2023, and 2022, respectively, and $403,000 and $326,000 for the six months ended June 30, 2023, and 2022, respectively.

Future payments under operating lease arrangements accounted for under ASC Topic 842 for each twelve month period following June 30, 2023 are as follows (in thousands):

ASC 606, Revenue from Contracts with Customers, requires that an entity 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. This guidance does not apply to revenue associated with insurance contracts (including title insurance policies), financial instruments and lease contracts; and therefore, is primarily applicable to the following Company revenue categories.

Escrow and other title-related fees – The Company’s title insurance segment recognizes commission revenue and fees related to items such as searches, settlements, commitments, and other ancillary services. Escrow and other title-related fees are recognized as revenue at the time of the related transactions as the earnings process, or performance obligation, is then considered to be complete.

Non-title services –All non-title service fees, such as management fees, are recognized as revenue as performance obligations are completed.

Effective August 1, 2022, Omega acquired substantially all the assets of OTF. In accordance with ASC Topic 805, the Company has determined that the transaction should be accounted for as a business combination. The assets of OTF at the date of acquisition were as follows (in thousands):

The purchase price paid by Omega for the assets of OTF were as follows (in thousands):

The fair value of assets acquired and liabilities assumed represent the final allocation.

The following table presents the unaudited pro forma financial information as if OTF had been included in the Company’s financial results as of January 1, 2022, through the date of acquisition (in thousands):

Goodwill

As of June 30, 2023, the Company recognized $4.5 million in goodwill as the result of the acquisition of 50% of TAV on September 1, 2021, and an additional $2.0 million in goodwill as a result of the business combination with OTF on August 1, 2022.  The fair value of goodwill as of the date of acquisition, a Level 3 input, was principally based on values obtained from public and private market comparisons. In accordance with ASC Topic 350, Intangibles – Goodwill and Other, the Company did not record any goodwill impairment losses during the three or six months ended June 30, 2023 and 2022.

Intangible Assets

The following is a summary of intangible assets excluding goodwill recorded as intangible assets on our Unaudited Consolidated Balance Sheets (in thousands):

Intangible assets subject to amortization consisted of the following as of June 30, 2023 (dollars in thousands):

No impairment in the value of amortizing intangible assets was recognized during the three or six months ended June 30, 2023.

Amortization expense of our intangible assets for the three and six month periods ended June 30, 2023, was $17,000 and $38,000, respectively.

Estimated amortization expense of the intangible assets to be recognized by the Company during the remainder of 2023 and over the next five years is as follows (in thousands):

The demand for the Company’s title insurance services is dependent primarily on the volume of residential and commercial real estate transactions. The volume of these transactions historically has been influenced by such factors as mortgage interest rates, inventory, affordability, availability of financing and the overall state of the economy. The Federal Reserve raised the federal funds rate a total of seven times throughout 2022, and four times in 2023 as of the filing date of this Quarterly Report on Form 10-Q, resulting in a current range from 5.25% to 5.50%. It is expected that the Federal Reserve may continue to increase the federal funds rate during 2023 to, among other things, control inflation. Should the Federal Reserve continue to raise rates in the future, this will likely result in further increases in market interest rates. Typically, when interest rates are increasing or when the economy is experiencing a downturn, real estate activity declines. As a result, the title insurance industry tends to experience decreased revenues and earnings, and potentially increased title claims experience.

A shortage in the supply of homes for sale, increasing home prices, rising mortgage interest rates, inflation and disrupted labor markets created some volatility in the residential real estate market in 2021 and 2022, which has continued into 2023. Additionally, geopolitical uncertainties associated with the war in Ukraine have created additional volatility in the global economy beginning in 2022. At this time, the Company is unable to predict the ultimate impact of such disruptions and geopolitical uncertainties.

The Company continues to evaluate the impact of these uncertainties on its operational and financial performance, specifically the impact on HC Realty, and NCTIC and Omega’s operations.

As of June 30, 2023, the Company has not experienced any adverse impacts to the payment of HC Common Stock and HC Series B Stock dividends.

As disclosed in a Current Report on Form 8-K filed by FedNat Holding Company (“FedNat”) with the SEC on December 12, 2022, on December 11, 2022, FedNat and certain of its wholly owned subsidiaries, including FedNat Underwriters, Inc. (“FNU”), filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida in order to maximize value for all stakeholders.  As part of the Chapter 11 process, FedNat will evaluate all strategic alternatives to maximize value for stakeholders, whether that be a reorganization of its business or a sale of its assets.

On January 26, 2023, the United States Bankruptcy Court for the Southern District of Florida, Ft. Lauderdale Division, entered an order (the “Order”) granting a motion from the debtors (including FNU) pursuant to Section 365(a) of the Bankruptcy Code authorizing such debtors to reject that certain Management Advisory Services Agreement dated and effective as of July 1, 2022 (the “Advisory Services Agreement”) between HGMA and FNU. Based on the Order, the Advisory Services Agreement is deemed rejected as of December 12, 2022.

Effective with the rejection of the Advisory Services Agreement, the Company will no longer earn compensation for the remaining duration of the agreement.  On February 21, 2023, the Company filed a proof of claim for $609,771 of unsecured claims for compensation earned pre-petition pursuant to the Advisory Services Agreement.  The Company also filed a claim for post-petition damages arising from the rejection of the agreement prior to its contractual end date.

On July 27, 2023, FNU and HGMA, amongst other parties, entered into a settlement agreement (the “Settlement Agreement”) addressing both claims identified herein. In the Settlement Agreement, FNU and HGMA agreed that the cumulative amount allowed for both proofs of claim shall be $1,109,771.   On August 11, 2023, the United States Bankruptcy Court for the Southern District  of Florida, Ft. Lauderdale Division, entered an order (the “Settlement Order”) approving the Settlement Agreement. The total amount recovered for the proofs of claim is subject to successful execution of the proposed Chapter 11 plan by FedNat and its affiliates, including FNU.

ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the accompanying Unaudited Consolidated Financial Statements, the notes thereto and the other unaudited financial data included in this Quarterly Report on Form 10-Q. The following discussion should also be read in conjunction with the audited consolidated financial statements and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2023. The terms the “Company”, “we”, “our” or “us” refer to HG Holdings, Inc., together with its consolidated subsidiaries, and unless otherwise defined herein, capitalized terms used herein shall have the same meanings as set forth in our accompanying Unaudited Consolidated Financial Statements and the notes thereto.

Overview

For a description of our business, including descriptions of segments and recent business developments, see the discussion in Note 1 Preparation of Interim Unaudited Financial Statements – Description of the Business in the accompanying Unaudited Consolidated Financial Statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated by reference into this Part I, Item 2.

As of June 30, 2023, our sources of income include earnings from our title insurance subsidiaries, reinsurance premiums earned, management service fees earned and dividends on our HC Common Stock and HC Series B Stock. The Company believes that the revenue generated from these sources and cash on hand is sufficient to fund operating expenses for at least 12 months from the date of the accompanying Unaudited Consolidated Financial Statements.

The Company will continue to pursue acquisition opportunities which will allow us to potentially derive benefit from the Company’s net operating loss carryforwards and also create appropriate risk adjusted returns for stockholders.

Title Insurance Segment Trends and Conditions

Our title insurance segment revenue is closely related to the level of real estate activity that includes sales, mortgage financing and mortgage refinancing. Declines in the level of real estate activity or the average price of real estate sales will adversely affect our title insurance revenues.

We believe that real estate activity is generally dependent on mortgage interest rates, access and availability to mortgage debt, residential housing inventory, home prices, commercial property supply and demand, and the general economic conditions in the U.S. economy.

As of the February 21, 2023 Mortgage Finance Forecast, the Mortgage Bankers Association (“MBA”) expects residential transactions to see continued declines in 2023 due to higher mortgage interest rates before showing increased transaction volumes in 2024 and 2025, as it projects a decrease in mortgage interest rates during this period. Additionally, the MBA expects residential refinance transactions to continue to decrease in 2023 before starting to show increases in 2024 and 2025 as interest rates are expected to start decreasing in the second half of 2024.

The industry as a whole saw a decline in total real estate transactions in 2022, largely due to higher mortgage interest rates. Mortgage rates remained abnormally high after emergency actions taken by the Federal Reserve to substantially increase its benchmark interest rate in the final three quarters of 2022, in an attempt to slow the quarter over quarter inflation. The Federal Reserve raised the federal funds rate a total of seven times throughout 2022 and four times in 2023 as of the filing date of this Quarterly Report on Form 10-Q, resulting in a current range from 5.25% to 5.50%. It is expected that the Federal Reserve may continue to increase the federal funds rate during 2023 to, among other things, control inflation. Should the Federal Reserve continue to raise rates in the future, this will likely result in further increases in market interest rates. Per the MBA’s Mortgage Finance Forecast, interest rates on a Freddie Mac 30-year, fixed rate mortgage averaged 6.4% in the first quarter of 2023 as compared to 3.9% in the first quarter of 2022.

A shortage in the supply of homes for sale, increasing home prices, rising mortgage interest rates, inflation and disrupted labor markets created some volatility in the residential real estate market in 2021 and 2022, which has continued into 2023. Additionally, geopolitical uncertainties associated with the war in Ukraine have created additional volatility in the global economy beginning in 2022.

Because commercial real estate transactions tend to be generally driven by supply and demand for commercial space and occupancy rates in a particular area rather than by interest rate fluctuations, we believe that our commercial real estate title insurance business is less dependent on the industry cycles discussed above than our residential real estate title business. Commercial real estate transaction volume is also often linked to the availability of financing. Factors including U.S. tax reform and a shift in U.S. monetary policy have had, or are expected to have, varying effects on availability of financing in the U.S. Lower corporate and individual tax rates, and corporate tax-deductibility of capital expenditures have provided increased capacity and incentive for investments in commercial real estate.

Historically, real estate transactions have produced seasonal revenue fluctuations in the real estate industry. The first calendar quarter is typically the weakest quarter in terms of revenue due to the generally low volume of home sales during January and February. The second and third calendar quarters are typically the strongest quarters in terms of revenue, primarily due to a higher volume of residential transactions in the spring and summer months. The fourth quarter is typically strong due to the desire of commercial entities to complete transactions by year-end. Seasonality in 2020, 2021 and 2022 deviated from historical patterns due to COVID-19 and the subsequent rapid increase in interest rates. We have noted short-term fluctuations through recent years in resale and refinance transactions as a result of changes in interest rates.

Recent Bank Failures

In March 2023, three banks in the United States were placed into receivership by a federal banking regulator.  In addition, in late March 2023, a large international financial institution suffering distress was forced by its principal regulator to be acquired by its rival. These events have caused great uncertainty and turmoil in the credit markets globally and may cause financial institutions to reduce their lending, which in turn could adversely affect our ability to access capital markets for our liquidity needs and/or cause our cost of capital to increase.

We will endeavor to limit uninsured deposits that we have with banks.  Nevertheless, if a bank in which we hold funds fails or is subject to significant adverse conditions in the financial or credit markets, we could be subject to a risk of loss of all or a portion of such uninsured funds or be subject to a delay in accessing all or a portion of such uninsured funds.

Results from Operations

Comparison of Three and Six Months Ended June 30, 2023 to Three and Six Months Ended June 30, 2022

The Company generated dividend income of $257,000 and $513,000 for the three and six month periods ended June 30, 2023 and 2022, respectively. Dividend income relates primarily to the HC Common Stock and HC Series B Stock held by the Company.

As a result of the Company’s title insurance operations, the Company generated title premium and other title fee revenue of $2.7 million and $4.6 million for the three and six month periods ended June 30, 2023, respectively, compared to $1.9 million and $3.4 million for the three and six month periods ended June 30, 2022, respectively.  The title insurance subsidiaries’ cost of revenue consists primarily of a provision for title claim losses and underwriting expenses, which primarily consist of commissions to title agencies.  The title insurance operating expenses consist primarily of personnel expenses, office and technology expenses and professional fees. Operating expenses for the three and six month periods ended June 30, 2023 were $3.0 million and $5.7 million, respectively, consisting primarily of $2.0 million and $3.7 million in wages, $258,000 and $484,000 of rent expense, and $456,000 and $590,000 in professional and legal fees, respectively.  Operating expenses for the three and six month periods ended June 30, 2022 were $2.0 million and $3.85 million, respectively, consisting primarily of $1.3 million and $2.5 million in wages, $172,000 and $326,000 of rent expense, and $220,000 and $532,000 in professional and legal fees, respectively. 

Corporate general and administrative expenses are not directly allocable to any of our reporting segments and consist primarily of wages and personnel costs, legal and professional fees, insurance expense, and stock based compensation. Corporate general and administrative expenses incurred were $427,000 and $810,000 for the three and six month periods ended June 30, 2023, respectively, compared to $281,000 and $566,000 for the three and six month periods ended June 30, 2022, respectively. General and administrative expenses for the three and six month periods ended June 30, 2023 consisted of $164,000 and $221,000 of professional fees, $143,000 and $326,000 of wages and personnel costs, and $120,000 and $263,000 of other operating expenses, respectively. General and administrative expenses for the three and six month periods ended June 30, 2022 consisted of $63,000 and $188,000 of professional fees, $63,000 and $125,000 of wages and personnel costs, $20,000 and $41,000 of stock based compensation expense, and $135,000 and $212,000 of other operating expenses, respectively.

Our effective tax rate for the three and six month periods ended June 30, 2023 was effectively 16.3% and 3.0%, respectively. Our effective tax rate for the three and six month periods ended June 30, 2022 was effectively 0% due to our net operating loss carryforwards.

Financial Condition, Liquidity and Capital Resources

Sources of liquidity include cash on hand, earnings from our title insurance subsidiaries, and dividends from our HC Common Stock and HC Series B Stock. At June 30, 2023, we had $8.8 million in cash and an additional $12.3 million in restricted cash, substantially all of which is cash held in escrow for title insurance transactions. A portion of our unrestricted and restricted cash is currently held in savings accounts earning interest at approximately 4.4% annually. We also received quarterly dividends on our HC Realty Common Stock and HC Series B Stock at annual rates of 5.5% and 10%, respectively, during the three and six months ended June 30, 2023.

We believe that the resources stated above will be sufficient to satisfy our operating requirements for the foreseeable future, and we do not anticipate a need to raise funds from sources other than those described above within the next 12 months.

Cash flows from operating activities differ from net income due to adjustments for non-cash items, such as gains and losses on investments and affiliates, the timing of disbursements for taxes, claims and other accrued liabilities, and collections or changes in receivables and other assets. Net cash provided by operations for the six month period ended June 30, 2023 of $5.9 million consisted of dividends on our HC Common Stock of $83,000, dividends on our HC Series B Stock of $513,000, and an increase of $6.7 million in escrow liabilities on the title insurance subsidiaries, partially offset primarily by personnel costs of $4.1 million, title policy software, processing and printing costs of $351,000, office rent of $484,000 and legal and professional fees of $590,000. Net cash used in operations for the six month period ended June 30, 2022 of $1.3 million primarily consisted of personnel costs of $2.2 million, title policy software, processing and printing costs of $466,000, office rent of $326,000 and legal and professional fees of $511,000, partially offset by revenue from our title operations, dividends on our HC Common Stock of $83,000, dividends on our HC Series B Stock of $512,000, and a decrease of $165,000 in escrow liabilities on the title insurance subsidiaries.

Cash flows from investing activities differ from net income due to adjustments such as purchases and sales of plant, property, and equipment, purchases and proceeds from sales of investments. Net cash provided by investing activities for the six month period ended June 30, 2023 was $151,000 consisted of proceeds of the maturity of securities of $201,000 offset by purchases of equipment of $50,000. Net cash used in investing activities for the six month period ended June 30, 2022, was $2.03 million consisting of $204,000 of proceeds from the sale of assets offset by $89,000 purchases of equipment and $2.145 million of securities.

Cash flows from financing activities differ from net income due to adjustments such as loan proceeds, payments of principal on outstanding loans, capital contributions, dividends to shareholders, and the repurchase of outstanding shares of common stock. Cash flows used in financing activities for the six month period ended June 30, 2023 consisted of $33,000 related to the repurchase of shares of common stock. There was no cash flow used in financing activities for the six month period ended June 30, 2022.

Critical Accounting Policies

Our critical accounting policies and estimates are provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our Annual Report on Form 10-K for the year ended December 31, 2022. We believe there have been no new critical accounting policies or material changes to our existing critical accounting policies and estimates during the six months ended June 30, 2023.

Forward-Looking Statements

Certain statements made in this report are not based on historical facts, but are forward-looking statements. These statements can be identified by the use of forward-looking terminology such as “believes,” “estimates,” “expects,” “may,” “will,” “should,” “could,” or “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. These statements reflect our reasonable judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include the occurrence of events that negatively impact the Company’s liquidity in such a way as to limit or eliminate the Company’s ability to use its cash on hand to fund further asset acquisitions, an inability on the part of the Company to identify additional suitable businesses to acquire or develop, and the occurrence of events that negatively impact the title insurance operations and/or the business or assets of HC Realty and the value of our investment in HC Realty. Any forward-looking statement speaks only as of the date of this filing and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise.

ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk

Not required to be provided by a smaller reporting company.

ITEM 4.  Controls and Procedures

Evaluation of disclosure controls and procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of June 30, 2023 was conducted under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures, as of June 30, 2023, were effective at the reasonable assurance level.

Changes in internal controls over financial reporting.

Changes in internal controls over financial reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) that occurred during the three months ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1.  Legal Proceedings

Hollie Drive Litigation   

In November 2019, we received notice that the Company and the Buyer were defendants in a pending case in the Circuit Court for Henry County, Virginia.  The case, which had been instituted on September 18, 2019 by Hollie Drive Associates, LLC (“Hollie”), raises issues arising from the purported breach of a lease for warehouse space in Henry County, Virginia, which is owned by Hollie and was previously rented by the Company.  The relevant lease was assigned to the Buyer in connection with the previously disclosed Asset Sale.  The complaint asserts that the Buyer breached various provisions of the lease including failure to make certain rental payments and failure to pay for certain clean-up and reconstruction after the Buyer vacated the property. The complaint seeks damages in the amount of approximately $555,000 and attorney’s fees.  Hollie named the Company as a party because the Company was the original tenant under the lease.   Under the asset purchase agreement entered into in connection with the Asset Sale, the Buyer agreed to assume and indemnify the Company against post-closing liabilities arising under the lease including those asserted in the complaint.  The Buyer’s filings in the case do not dispute the obligation to indemnify the Company for any damages awarded in the case.  Based upon discussions with the Buyer and documents produced to date by Hollie, it appears Hollie has asserted damages greatly exceeding the likely recovery in the case.  Given the relatively low damages amount and the Buyer’s indemnity obligation, the Company believes it is not probable the case will result in a material adverse effect on its financial statements.                      

Fednat Underwriters, Inc. Bankruptcy & Related Proof of Claim

As disclosed in a Current Report on Form 8-K filed by FedNat Holding Company (“FedNat”) with the SEC on December 12, 2022, on December 11, 2022, FedNat and certain of its wholly owned subsidiaries, including FedNat Underwriters, Inc. (“FNU”), filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida in order to maximize value for all stakeholders.  As part of the Chapter 11 process, FedNat will evaluate all strategic alternatives to maximize value for stakeholders, whether that be a reorganization of its business or a sale of its assets.

On January 26, 2023, the United States Bankruptcy Court for the Southern District of Florida, Ft. Lauderdale Division, entered an order (the “Order”) granting a motion from the debtors (including FNU) pursuant to Section 365(a) of the Bankruptcy Code authorizing such debtors to reject that certain Management Advisory Services Agreement dated and effective as of July 1, 2022 (the “Advisory Services Agreement”) between HGMA and FNU. Based on the Order, the Advisory Services Agreement is deemed rejected as of December 12, 2022.

Effective with the rejection of the Advisory Services Agreement, the Company will no longer earn compensation for the remaining duration of the agreement.  On February 21, 2023, the Company filed a proof of claim for $609,771 of unsecured claims for compensation earned pre-petition pursuant to the Advisory Services Agreement.  The Company also filed a claim for post-petition damages arising from the rejection of the agreement prior to its contractual end date.

On July 27, 2023, FNU and HGMA, amongst other parties, entered into a settlement agreement (the “Settlement Agreement”) addressing both claims identified herein. In the Settlement Agreement, FNU and HGMA agreed that the cumulative amount allowed for both proofs of claims shall be $1,109,771.   On August 11, 2023, the United States Bankruptcy Court for the Southern District  of Florida, Ft. Lauderdale Division, entered an order (the “Settlement Order”) approving the Settlement Agreement. The total amount recovered for the proofs of claim is subject to successful execution of the proposed Chapter 11 plan by FedNat and its affiliates, including FNU.

Anchor Title Litigation

During the second quarter of 2023, one of the Company’s subsidiaries, Omega National Title Agency, LLC (“Omega”), became involved in litigation in the United States District Court of the Northern District of Florida. The case, instituted by Anchor Title & Escrow, LLC (“Anchor”) raises issues arising from Omega hiring former employees of said entity. While Anchor’s first two complaints were dismissed by the Court, the current pleading, and Anchor’s second amended complaint, asserts that Omega misappropriated trade secrets and violated the Florida Uniform Trade Secret Act amongst other counts. Omega has retained outside counsel and the Company believes that there is no merit to the any claims being made against Omega. Therefore, the Company believes it is unlikely that the case will result in a material adverse effect on the Company’s financial statements.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

On August 5, 2022, the Board authorized the repurchase of up to $1.5 million of shares of the Company’s common stock. The authorization does not obligate the Company to acquire a specific number of shares during any period and does not have an expiration date, but it may be modified, suspended, or discontinued at any time at the discretion of the Board. Repurchases may be made from time to time in the open market, or through privately negotiated transactions or otherwise, in compliance with applicable laws, rules and regulations, and subject to the Company’s cash requirements for other purposes, and other factors it deems relevant.

The following table summarizes the Company’s repurchase activity under the share repurchase program for the three months ended June 30, 2023.

ITEM 6.  Exhibits

SIGNATURE

Pursuant to the requirements 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.