Business Wire | Aug 4, 2020 08:29AM EDT

Investors Title Company Announces Record Second Quarter 2020 Financial Results

Aug. 04, 2020

CHAPEL HILL, N.C.--(BUSINESS WIRE)--Aug. 04, 2020--Investors Title Company today announced record results for the second quarter ended June 30, 2020. The Company reported net income of $14.5 million, or $7.65 per diluted share, compared to $5.5 million, or $2.90 per diluted share, for the prior year period.

Revenues increased 44.5% to an all-time quarterly record of $61.7 million, compared with $42.7 million for the prior year quarter. Net premiums written increased 35.7% versus the prior year period, as a strong rebound in the housing market led to record levels of refinance activity as well as an increase in purchase activity. Revenue from non-title services decreased 21.5%, mainly due to reductions associated with like-kind exchange services. Changes in the estimated fair value of equity security investments resulted in the recognition of $8.0 million of revenue as stock values rebounded from declines in the prior quarter associated with the COVID-19 pandemic.

Operating expenses increased 22.4%, as higher premium volumes drove increases in commissions to agents. Notwithstanding premium volume increases, claims expense decreased 16.8% as a result of the recognition of a large claim in the prior year quarter. Personnel costs were 4.8% higher than the prior year period due to normal inflationary increases in salaries and benefits and targeted staff increases to support growth initiatives.

Income before income taxes increased 159.0% to $17.9 million for the current quarter versus $6.9 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 72.2% to $10.0 million for the current quarter versus $5.8 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 six months ended June 30, 2020, net income decreased 38.3% to $7.5 million, or $3.95 per diluted share, versus $12.1 million, or $6.40 per diluted share, for the prior year period. Revenues increased 10.8% to $91.6 million, despite the recognition of $6.5 million of reductions in the estimated fair value of equity investments, compared to a $5.8 million increase in the prior year period. Operating expenses increased 22.0% to $82.3 million, mainly due to increases in agent commissions and claims expense associated with higher levels of premiums written and recognition of favorable loss development in the prior year.

Investors Title continues to closely monitor the COVID-19 pandemic and the associated impacts on the title insurance industry, and to plan accordingly. The Company remains focused on providing uninterrupted service to our customers and business partners, and ensuring the safety and health of our employees. Having been deemed an essential business, all of our issuing offices have been fully operational since the onset of the pandemic. Many of our employees continue working remotely.

COVID-19 continues to highlight and accelerate the importance of technology in our industry. To limit personal interactions, electronic document signing and other tools that enable virtual loan closings are becoming more commonplace. Our investments in technology in recent years have greatly enhanced the ability of our agents and business partners to conduct business remotely, and the ability of our employees to work remotely.

Although several factors contributed to increasing strength in the housing market in the second quarter, there is undoubtedly a high level of risk and uncertainty in the economy. The ultimate impacts of COVID-19 on the overall economy, our industry, and our own business remain unknown at this time. Predictions about the impact of the virus on home sales are constantly evolving, but the outlook is generally more positive than it was a quarter ago. We are optimistic that low interest rates and generally stable home values will result in a continuation of strong demand for housing for the second half of the year.

Chairman J. Allen Fine added, "The housing market demonstrated remarkable resiliency in the second quarter. Supported by further interest rate declines, pent up demand from the first quarter, and initiatives from industry participants to enable loan closings during the pandemic, the overall level of purchase activity improved substantially. This increased level of real estate transaction activity, in conjunction with an increase in refinance volume, led to record levels of revenues for the Company."

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.

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Certain statements contained herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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; 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, as updated by the additional Risk Factor in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and in subsequent filings.

Investors Title Company and Subsidiaries

Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2020 and 2019

(in thousands, except per share amounts)

(unaudited)

Three Months Ended Six Months Ended June 30, June 30,

2020 2019 2020 2019

Revenues:

Net premiums written $ 47,479 $ 34,978 $ 86,106 $ 63,773

Escrow and other 2,018 1,901 3,860 3,223 title-related fees

Non-title services 1,975 2,517 4,522 4,905

Interest and dividends 1,105 1,193 2,282 2,449

Other investment income 526 926 966 1,336

Net realized investment 553 (14) 141 776 gains (losses)

Changes in the estimatedfair value of equity 7,972 1,142 (6,486) 5,812 security investments

Other 120 90 258 405

Total Revenues 61,748 42,733 91,649 82,679



Operating Expenses:

Commissions to agents 24,089 16,275 44,276 31,333

Provision for claims 1,994 2,397 2,900 2,623

Personnel expenses 12,248 11,683 24,057 23,295

Office and technology 2,457 2,230 4,872 4,453 expenses

Other expenses 3,038 3,228 6,151 5,742

Total Operating Expenses 43,826 35,813 82,256 67,446



Income before Income Taxes 17,922 6,920 9,393 15,233



Provision for Income Taxes 3,427 1,420 1,909 3,107



Net Income $ 14,495 $ 5,500 $ 7,484 $ 12,126



Basic Earnings per Common $ 7.66 $ 2.91 $ 3.96 $ 6.42 Share



Weighted Average Shares 1,892 1,889 1,891 1,888 Outstanding - Basic



Diluted Earnings per Common $ 7.65 $ 2.90 $ 3.95 $ 6.40 Share



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

Investors Title Company and SubsidiariesConsolidated Balance Sheets

As of June 30, 2020 and December 31, 2019

(in thousands)

(unaudited)

June 30, December 2020 31, 2019

Assets



Cash and cash equivalents $ 29,709 $ 25,949



Investments:

Fixed maturity securities, available-for-sale, at 102,115 104,638 fair value

Equity securities, at fair value 55,830 61,108

Short-term investments 24,723 13,134

Other investments 14,880 13,982

Total investments 197,548 192,862



Premiums and fees receivable 15,258 12,523

Accrued interest and dividends 1,005 1,033

Prepaid expenses and other receivables 10,486 5,519

Property, net 10,263 9,776

Goodwill and other intangible assets, net 10,023 10,275

Operating lease right-of-use assets 4,055 4,469

Other assets 1,561 1,487

Total Assets $ 279,908 $ 263,893



Liabilities and Stockholders' Equity



Liabilities:

Reserve for claims $ 32,694 $ 31,333

Accounts payable and accrued liabilities 37,469 28,318

Operating lease liabilities 4,093 4,502

Current income taxes payable 1,121 1,340

Deferred income taxes, net 6,066 7,038

Total liabilities 81,443 72,531



Stockholders' Equity:

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

Retained earnings 194,235 188,262

Accumulated other comprehensive income 4,230 3,100

Total stockholders' equity 198,465 191,362

Total Liabilities and Stockholders' Equity $ 279,908 $ 263,893

Investors Title Company and SubsidiariesNet Premiums Written By Branch and Agency

For the Three and Six Months Ended June 30, 2020 and 2019

(in thousands)

(unaudited)

Three Months Ended June 30, Six Months Ended June 30,

2020 % 2019 % 2020 % 2019 %

Branch $ 12,973 27.3 $ 10,388 29.7 $ 22,868 26.6 $ 17,554 27.5



Agency 34,506 72.7 24,590 70.3 63,238 73.4 46,219 72.5



Total $ 47,479 100.0 $ 34,978 100.0 $ 86,106 100.0 $ 63,773 100.0

Investors Title Company and SubsidiariesAppendix ANon-GAAP Measures ReconciliationFor the Three and Six Months Ended June 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 Six Months Ended June 30, June 30,

2020 2019 2020 2019



Revenues

Total revenues (GAAP) $ 61,748 $ 42,733 $ 91,649 $ 82,679

(Subtract) Add: Changes inthe estimated fair value of (7,972) (1,142) 6,486 (5,812) equity security investments

Adjusted revenues (non-GAAP) $ 53,776 $ 41,591 $ 98,135 $ 76,867



Income before Income Taxes

Income before income taxes $ 17,922 $ 6,920 $ 9,393 $ 15,233 (GAAP)

(Subtract) Add: Changes inthe estimated fair value of (7,972) (1,142) 6,486 (5,812) equity security investments

Adjusted income before income $ 9,950 $ 5,778 $ 15,879 $ 9,421 taxes (non-GAAP)

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CONTACT: Elizabeth B. Lewter Telephone: (919) 968-2200