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Investors Title Company Announces Record Third Quarter 2020 Financial Results

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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

September 30,

 

Nine Months Ended

September 30,

 

 

2020

 

2019

 

2020

 

2019

Revenues:

 

 

 

 

 

 

 

 

Net premiums written

 

$

57,205

 

 

$

40,169

 

 

$

143,311

 

 

$

103,942

 

Escrow and other title-related fees

 

2,154

 

 

2,393

 

 

6,014

 

 

5,616

 

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 gains

 

186

 

 

423

 

 

327

 

 

1,199

 

Changes in the estimated fair value of equity security investments

 

3,619

 

 

406

 

 

(2,867)

 

 

6,218

 

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 expenses

 

2,456

 

 

2,350

 

 

7,328

 

 

6,803

 

Other expenses

 

3,125

 

 

3,079

 

 

9,276

 

 

8,821

 

Total Operating Expenses

 

48,776

 

 

37,920

 

 

131,032

 

 

105,366

 

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

18,857

 

 

10,019

 

 

28,250

 

 

25,252

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes

 

3,556

 

 

2,067

 

 

5,465

 

 

5,174

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

15,301

 

 

$

7,952

 

 

$

22,785

 

 

$

20,078

 

 

 

 

 

 

 

 

 

 

Basic Earnings per Common Share

 

$

8.09

 

 

$

4.21

 

 

$

12.04

 

 

$

10.63

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding – Basic

 

1,892

 

 

1,889

 

 

1,892

 

 

1,888

 

 

 

 

 

 

 

 

 

 

Diluted Earnings per Common Share

 

$

8.07

 

 

$

4.20

 

 

$

12.02

 

 

$

10.59

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding – Diluted

 

1,895

 

 

1,895

 

 

1,896

 

 

1,896

 

Investors Title Company and Subsidiaries

Consolidated Balance Sheets

As of September 30, 2020 and December 31, 2019

(in thousands)

(unaudited)

 

September 30,

2020

 

December 31,

2019

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

41,534

 

 

$

25,949

 

 

 

 

 

Investments:

 

 

 

Fixed maturity securities, available-for-sale, at fair value

98,428

 

 

104,638

 

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 authorized shares; 1,892 and 1,889 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively, excluding in each period 292 shares of common 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

September 30,

 

Nine Months Ended

September 30,

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Total revenues (GAAP)

$

67,633

 

 

$

47,939

 

 

$

159,282

 

 

$

130,618

 

(Subtract) Add: Changes in the estimated fair value of equity security investments

(3,619)

 

 

(406)

 

 

2,867

 

 

(6,218)

 

Adjusted revenues (non-GAAP)

$

64,014

 

 

$

47,533

 

 

$

162,149

 

 

$

124,400

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

 

 

 

 

 

 

Income before income taxes (GAAP)

$

18,857

 

 

$

10,019

 

 

$

28,250

 

 

$

25,252

 

(Subtract) Add: Changes in the estimated fair value of equity security investments

(3,619)

 

 

(406)

 

 

2,867

 

 

(6,218)

 

Adjusted income before income taxes (non-GAAP)

$

15,238

 

 

$

9,613

 

 

$

31,117

 

 

$

19,034

 

 

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