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Investors Title Company Announces Record Second Quarter 2020 Financial Results

Investors Title Company Announces Record Second Quarter 2020 Financial Results

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
June 30,

 

Six Months Ended
June 30,

 

 

2020

 

2019

 

2020

 

2019

Revenues:

 

 

 

 

 

 

 

 

Net premiums written

 

$

47,479

 

 

$

34,978

 

 

$

86,106

 

 

$

63,773

 

Escrow and other title-related fees

 

2,018

 

 

1,901

 

 

3,860

 

 

3,223

 

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 gains (losses)

 

553

 

 

(14)

 

 

141

 

 

776

 

Changes in the estimated fair value of equity security investments

 

7,972

 

 

1,142

 

 

(6,486)

 

 

5,812

 

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 expenses

 

2,457

 

 

2,230

 

 

4,872

 

 

4,453

 

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 Share

 

$

7.66

 

 

$

2.91

 

 

$

3.96

 

 

$

6.42

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding – Basic

 

1,892

 

 

1,889

 

 

1,891

 

 

1,888

 

 

 

 

 

 

 

 

 

 

Diluted Earnings per Common Share

 

$

7.65

 

 

$

2.90

 

 

$

3.95

 

 

$

6.40

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding – Diluted

 

1,895

 

 

1,896

 

 

1,895

 

 

1,896

 

Investors Title Company and Subsidiaries

Consolidated Balance Sheets

As of June 30, 2020 and December 31, 2019

(in thousands)

(unaudited)

 

 

June 30,
2020

 

December 31,
2019

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

29,709

 

 

$

25,949

 

 

 

 

 

Investments:

 

 

 

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

102,115

 

 

104,638

 

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

Net 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 Subsidiaries
Appendix A
Non-GAAP Measures Reconciliation
For 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
June 30,

 

Six Months Ended
June 30,

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

Total revenues (GAAP)

$

61,748

 

 

$

42,733

 

 

$

91,649

 

 

$

82,679

 

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

(7,972)

 

 

(1,142)

 

 

6,486

 

 

(5,812)

 

Adjusted revenues (non-GAAP)

$

53,776

 

 

$

41,591

 

 

$

98,135

 

 

$

76,867

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

 

 

 

 

 

 

Income before income taxes (GAAP)

$

17,922

 

 

$

6,920

 

 

$

9,393

 

 

$

15,233

 

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

(7,972)

 

 

(1,142)

 

 

6,486

 

 

(5,812)

 

Adjusted income before income taxes (non-GAAP)

$

9,950

 

 

$

5,778

 

 

$

15,879

 

 

$

9,421

 

 

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

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