Business Wire | Nov 4, 2020 08:29AM EST

Investors Title Company Announces Record Third Quarter 2020 Financial Results

Nov. 04, 2020

CHAPEL HILL, N.C.--(BUSINESS WIRE)--Nov. 04, 2020--Investors Title Company today announced results for the third quarter ended September 30, 2020. The Company reported net income of $15.3 million, or $8.07 per diluted share, for the three months ended September 30, 2020, compared to $8.0 million, or $4.20 per diluted share, for the prior year period. All-time quarterly records were set for total revenues, net premiums written, and net income.

Revenues increased 41.1% to $67.6 million, compared with $47.9 million for the prior year quarter. Net premiums written increased 42.4% to $57.2 million, as lower average mortgage interest rates continued to drive increases in refinance activity, while the level of home sales remained strong as well. Revenue from non-title services decreased 23.0%, mainly due to the impact of the interest rate environment on like-kind exchange revenues. Changes in the estimated fair value of equity security investments resulted in the recognition of $3.6 million of revenue as stock values continued to rebound from declines in the first quarter associated with the COVID-19 pandemic.

Operating expenses increased 28.6%, as higher premium volumes drove increases in commissions to agents and claims expense. Personnel costs were 8.6% higher than the prior year due to normal inflationary increases, higher staffing levels to accommodate volume growth, and targeted staff increases to support strategic growth initiatives.

Income before income taxes increased 88.2% to $18.9 million for the current quarter versus $10.0 million in the prior year period. Excluding the impact of changes in the estimated fair value of equity security investments, income before income taxes (non-GAAP) increased 58.5% to $15.2 million for the current quarter versus $9.6 million in the prior year period (see Appendix A for a reconciliation of GAAP to non-GAAP measures used in this press release).

For the nine months ended September 30, 2020, net income increased 13.5% to $22.8 million, or $12.02 per diluted share, versus $20.1 million, or $10.59 per diluted share, for the prior year period. Revenues increased 21.9% to $159.3 million, notwithstanding the recognition of $2.9 million of reductions in the estimated fair value of equity investments, compared with $130.6 million for the prior year period, which included a $6.2 million increase in the estimated fair value of equity investments. Operating expenses increased 24.4% to $131.0 million, mainly due to increases in agent commissions. Aside from the particularly strong revenue growth in the third quarter, overall results for the year-to-date period have been shaped predominantly by the same factors that affected the third quarter.

Chairman J. Allen Fine added, "We are pleased to report an exceptionally strong third quarter, exceeding all prior Company quarterly records for revenues and earnings. As mortgage interest rates hovered just below three percent for most of the quarter, the level of refinance activity continued at a pace similar to the second quarter, and well above the prior year. In addition, title premiums from home sales, sustained by low interest rates and rising real estate values, increased substantially relative to both the previous quarter and the prior year quarter."

Investors Title Company's subsidiaries issue and underwrite title insurance policies. The Company also provides investment management services and services in connection with tax-deferred exchanges of like-kind property.

Certain statements contained herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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. Such statements include, among others, any statements regarding the Company's expected performance for this year, projections regarding U.S. recovery from the COVID-19 pandemic, future home price fluctuations, changes in home purchase or refinance demand, activity and the mix thereof, interest rate changes, expansion of the Company's market presence, enhancing competitive strengths, positive development in housing affordability, wages, unemployment or overall economic conditions or statements regarding our actuarial assumptions and the application of recent historical claims experience to future periods. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from anticipated and historical results. Such risks and uncertainties include, without limitation: the severity and duration of the COVID-19 pandemic and its effects (and the effects of measures undertaken to combat it) on the economy and the Company's business; the cyclical demand for title insurance due to changes in the residential and commercial real estate markets; the occurrence of fraud, defalcation or misconduct; variances between actual claims experience and underwriting and reserving assumptions, including the limited predictive power of historical claims experience; declines in the performance of the Company's investments; government regulation; changes in the economy; the impact of the 2020 U.S. presidential election; loss of agency relationships, or significant reductions in agent-originated business; difficulties managing growth, whether organic or through acquisitions and other considerations set forth under the caption "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission, and in subsequent filings.

Investors Title Company and Subsidiaries

Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2020 and 2019

(in thousands, except per share amounts)

(unaudited)

Three Months Ended Nine Months Ended September 30, September 30,

2020 2019 2020 2019

Revenues:

Net premiums written $ 57,205 $ 40,169 $ 143,311 $ 103,942

Escrow and other 2,154 2,393 6,014 5,616 title-related fees

Non-title services 1,954 2,539 6,476 7,444

Interest and dividends 1,060 1,156 3,342 3,605

Other investment income 1,270 708 2,236 2,044

Net realized investment 186 423 327 1,199 gains

Changes in the estimatedfair value of equity 3,619 406 (2,867) 6,218 security investments

Other 185 145 443 550

Total Revenues 67,633 47,939 159,282 130,618



Operating Expenses:

Commissions to agents 29,068 19,928 73,344 51,261

Provision for claims 1,552 987 4,452 3,610

Personnel expenses 12,575 11,576 36,632 34,871

Office and technology 2,456 2,350 7,328 6,803 expenses

Other expenses 3,125 3,079 9,276 8,821

Total Operating Expenses 48,776 37,920 131,032 105,366



Income before Income 18,857 10,019 28,250 25,252 Taxes



Provision for Income 3,556 2,067 5,465 5,174 Taxes



Net Income $ 15,301 $ 7,952 $ 22,785 $ 20,078



Basic Earnings per Common $ 8.09 $ 4.21 $ 12.04 $ 10.63 Share



Weighted Average Shares 1,892 1,889 1,892 1,888 Outstanding - Basic



Diluted Earnings per $ 8.07 $ 4.20 $ 12.02 $ 10.59 Common Share



Weighted Average Shares 1,895 1,895 1,896 1,896 Outstanding - Diluted

Investors Title Company and Subsidiaries

Consolidated Balance Sheets

As of September 30, 2020 and December 31, 2019

(in thousands)

(unaudited)

September December 30, 31, 2020 2019

Assets



Cash and cash equivalents $ 41,534 $ 25,949



Investments:

Fixed maturity securities, available-for-sale, at 98,428 104,638 fair value

Equity securities, at fair value 58,851 61,108

Short-term investments 22,516 13,134

Other investments 14,829 13,982

Total investments 194,624 192,862



Premiums and fees receivable 17,291 12,523

Accrued interest and dividends 1,187 1,033

Prepaid expenses and other receivables 9,185 5,519

Property, net 10,669 9,776

Goodwill and other intangible assets, net 9,897 10,275

Operating lease right-of-use assets 3,798 4,469

Other assets 1,560 1,487

Total Assets $ 289,745 $ 263,893



Liabilities and Stockholders' Equity



Liabilities:

Reserve for claims $ 33,532 $ 31,333

Accounts payable and accrued liabilities 31,565 28,318

Operating lease liabilities 3,937 4,502

Current income taxes payable 813 1,340

Deferred income taxes, net 6,971 7,038

Total liabilities 76,818 72,531



Stockholders' Equity:

Common stock - no par value (10,000 authorizedshares; 1,892 and 1,889 shares issued and outstandingas of September 30, 2020 and December 31, 2019, - - respectively, excluding in each period 292 shares ofcommon stock held by the Company's subsidiary)

Retained earnings 208,647 188,262

Accumulated other comprehensive income 4,280 3,100

Total stockholders' equity 212,927 191,362

Total Liabilities and Stockholders' Equity $ 289,745 $ 263,893

Investors Title Company and Subsidiaries

Net Premiums Written By Branch and Agency

For the Three and Nine Months Ended September 30, 2020 and 2019

(in thousands)

(unaudited)

Three Months Ended September 30, Nine Months Ended September 30,

2020 % 2019 % 2020 % 2019 %

Branch $ 15,496 27.1 $ 11,557 28.8 $ 38,364 26.8 $ 29,111 28.0



Agency 41,709 72.9 28,612 71.2 104,947 73.2 74,831 72.0



Total $ 57,205 100.0 $ 40,169 100.0 $ 143,311 100.0 $ 103,942 100.0

Investors Title Company and Subsidiaries Appendix A Non-GAAP Measures Reconciliation For the Three and Nine Months Ended September 30, 2020 and 2019 (in thousands) (unaudited)

Management uses various financial and operational measurements, including financial information not prepared in accordance with generally accepted accounting principles ("GAAP"), to analyze Company performance. This includes adjusting revenues to remove the impact of changes in the estimated fair value of equity security investments, which are recognized in net income under GAAP. Management believes that these measures are useful to evaluate the Company's internal operational performance from period to period because they eliminate the effects of external market fluctuations. The Company also believes users of the financial results would benefit from having access to such information, and that certain of the Company's peers make available similar information. This information should not be used as a substitute for, or considered superior to, measures of financial performance prepared in accordance with GAAP, and may be different from similarly titled non-GAAP financial measures used by other companies.

The following tables reconcile non-GAAP financial measurements used by Company management to the comparable measurements using GAAP:

Three Months Ended Nine Months Ended September 30, September 30,

2020 2019 2020 2019



Revenues

Total revenues (GAAP) $ 67,633 $ 47,939 $ 159,282 $ 130,618

(Subtract) Add: Changes inthe estimated fair value of (3,619) (406) 2,867 (6,218) equity security investments

Adjusted revenues $ 64,014 $ 47,533 $ 162,149 $ 124,400 (non-GAAP)



Income before Income Taxes

Income before income taxes $ 18,857 $ 10,019 $ 28,250 $ 25,252 (GAAP)

(Subtract) Add: Changes inthe estimated fair value of (3,619) (406) 2,867 (6,218) equity security investments

Adjusted income before $ 15,238 $ 9,613 $ 31,117 $ 19,034 income taxes (non-GAAP)

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