Investors Title Company Announces Third Quarter 2022 Financial Results
Investors Title Company (Nasdaq: ITIC) today announced results for the third quarter ended September 30, 2022. The Company reported net income of $7.9 million, or $4.17 per diluted share, for the three months ended September 30, 2022, compared to $14.5 million, or $7.63 per diluted share, for the prior year period.
Revenues decreased 4.2% to $78.0 million, compared with $81.4 million for the prior year quarter. The reduction in revenue is attributable to recognition of a $4.6 million unrealized loss in the Company’s equity portfolio, and a 7.9% decrease in net premiums written, partially offset by realized gains on sales of equity investments as well as increases in revenue from escrow fees and other title-related fees, and non-title services. The reduction in premiums stems from an overall decline in the level of real estate transaction volume following the rise in mortgage interest rates over the course of the year. Although overall premium revenue was down, escrow and other title-related fees increased 54.4% due to an increase in business in markets that generate escrow income, and fee income associated with commercial activity. Revenue from non-title services increased 57.5%, mainly due to an increase in like-kind exchange revenues. Realized gains from sales of equity securities were $2.2 million higher than the prior year period.
Operating expenses increased 7.8% compared to the prior year quarter, primarily due to increases in personnel costs, title fees, and office and technology expenses. Commissions to agents decreased commensurate with the decrease in agent premium volume. Personnel costs were 39.7% higher than the prior year quarter due to staffing of new offices, hiring to support growth initiatives, and increased employee benefit costs. Office, technology, and other operating expenses increased 36.7% in support of expanding our geographic footprint and ongoing technology initiatives. Claims expense was essentially flat compared to the prior year quarter.
Income before income taxes decreased 45.3% to $10.1 million for the current quarter versus $18.4 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) decreased 23.5% to $14.7 million for the third quarter versus $19.2 million in the prior year period (see Appendix A for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure).
For the nine months ended September 30, 2022, net income decreased $31.7 million to $16.4 million, or $8.63 per diluted share, versus $48.1 million, or $25.34 per diluted share, for the prior year period. Revenues decreased 8.6% to $217.9 million compared with $238.5 million for the prior year period. Operating expenses increased 11.1% to $197.1 million, mainly due to increases in personnel and office, technology, and other operating expenses. Aside from a non-recurring gain on the sale of property in the prior year period, 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 commented, “We are pleased to report another quarter of solid operating performance, despite market headwinds. Rising mortgage interest rates resulted in the continued moderation of the real estate market, reducing home affordability which in turn has softened demand.
“Although overall transaction volumes were lower than the prior year quarter, our recent successes in expanding our market footprint materially contributed to lessening the impact of the market slowdown on our operating performance. We believe the Company is well-positioned as we transition to a different stage of the real estate cycle, and plan to continue to make targeted investments in our business to expand our geographic presence, improve our operating performance, and deliver value to our customers and business partners.”
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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Cautionary Statements Regarding Forward-Looking Statements
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, 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 impact of the COVID-19 pandemic (including any of its variants) 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 regulations; changes in the economy; the potential impact of inflation and responses by government regulators, including the Federal Reserve; 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, 2021 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, 2022 and 2021
(in thousands, except per share amounts)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Revenues:
Net premiums written
$
66,658
$
72,345
$
199,409
$
201,349
Escrow and other title-related fees
5,963
3,863
17,236
10,148
Non-title services
3,852
2,446
9,114
6,932
Interest and dividends
1,229
893
3,055
2,807
Other investment income
2,173
2,186
4,616
4,610
Net realized investment gains
2,481
268
6,266
771
Changes in the estimated fair value of equity security investments
(4,635
)
(802
)
(22,722
)
7,266
Other
277
217
924
4,572
Total Revenues
77,998
81,416
217,898
238,455
Operating Expenses:
Commissions to agents
33,478
37,570
97,161
102,458
Provision for claims
1,966
1,993
3,452
5,020
Personnel expenses
21,586
15,457
63,738
47,524
Office and technology expenses
4,274
3,175
12,930
9,128
Other expenses
6,606
4,784
19,783
13,285
Total Operating Expenses
67,910
62,979
197,064
177,415
Income before Income Taxes
10,088
18,437
20,834
61,040
Provision for Income Taxes
2,175
3,934
4,457
12,932
Net Income
$
7,913
$
14,503
$
16,377
$
48,108
Basic Earnings per Common Share
$
4.17
$
7.66
$
8.63
$
25.40
Weighted Average Shares Outstanding – Basic
1,897
1,894
1,897
1,894
Diluted Earnings per Common Share
$
4.17
$
7.63
$
8.63
$
25.34
Weighted Average Shares Outstanding – Diluted
1,897
1,900
1,898
1,899
Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of September 30, 2022 and December 31, 2021
(in thousands)
(unaudited)
September 30,
2022
December 31,
2021
Assets
Cash and cash equivalents
$
41,380
$
37,168
Investments:
Fixed maturity securities, available-for-sale, at fair value
55,307
79,791
Equity securities, at fair value
52,657
76,853
Short-term investments
80,785
45,930
Other investments
19,673
20,298
Total investments
208,422
222,872
Premiums and fees receivable
23,194
22,953
Accrued interest and dividends
971
817
Prepaid expenses and other receivables
12,527
11,721
Property, net
16,613
13,033
Goodwill and other intangible assets, net
17,954
15,951
Operating lease right-of-use assets
6,258
5,202
Other assets
2,320
1,771
Current income taxes recoverable
3,164
—
Total Assets
$
332,803
$
331,488
Liabilities and Stockholders’ Equity
Liabilities:
Reserve for claims
$
37,630
$
36,754
Accounts payable and accrued liabilities
41,938
43,868
Operating lease liabilities
6,389
5,329
Current income taxes payable
—
3,329
Deferred income taxes, net
7,805
13,121
Total liabilities
93,762
102,401
Stockholders’ Equity:
Common stock – no par value (10,000 authorized shares; 1,897 and 1,895 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively, excluding in each period 292 shares of common stock held by the Company's subsidiary)
—
—
Retained earnings
239,792
225,861
Accumulated other comprehensive (loss) income
(751
)
3,226
Total stockholders’ equity
239,041
229,087
Total Liabilities and Stockholders’ Equity
$
332,803
$
331,488
Investors Title Company and Subsidiaries
Direct and Agency Net Premiums Written
For the Three and Nine Months Ended September 30, 2022 and 2021
(in thousands)
(unaudited)
Three Months Ended September 30,
Nine Months Ended September 30,
2022
%
2021
%
2022
%
2021
%
Direct
$
21,818
32.7
$
21,803
30.1
$
68,478
34.3
$
61,619
30.6
Agency
44,840
67.3
50,542
69.9
130,931
65.7
139,730
69.4
Total
$
66,658
100.0
$
72,345
100.0
$
199,409
100.0
$
201,349
100.0
Investors Title Company and Subsidiaries
Appendix A
Non-GAAP Measures Reconciliation
For the Three and Nine Months Ended September 30, 2022 and 2021
(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,
2022
2021
2022
2021
Revenues
Total revenues (GAAP)
$
77,998
$
81,416
$
217,898
$
238,455
Add (Subtract): Changes in the estimated fair value of equity security investments
4,635
802
22,722
(7,266
)
Adjusted revenues (non-GAAP)
$
82,633
$
82,218
$
240,620
$
231,189
Income before Income Taxes
Income before income taxes (GAAP)
$
10,088
$
18,437
$
20,834
$
61,040
Add (Subtract): Changes in the estimated fair value of equity security investments
4,635
802
22,722
(7,266
)
Adjusted income before income taxes (non-GAAP)
$
14,723
$
19,239
$
43,556
$
53,774
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