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Investors Title Company Announces Record Fourth Quarter and Fiscal Year 2020 Results

ITIC

Investors Title Company today announced record results for the fourth quarter and year ended December 31, 2020.

For the quarter, net income increased 46.2% to $16.6 million, or $8.77 per diluted share, versus $11.4 million, or $6.00 per diluted share, in the prior year period. For the year, net income increased 25.3% to $39.4 million, or $20.80 per diluted share, versus $31.5 million, or $16.59 per diluted share, in the prior year. The Company set all-time quarterly and annual records for total revenues, net premiums written and net income.

Quarterly results

Revenues for the quarter increased 45.8% to $77.1 million, compared to $52.9 million in the prior year period. Net premiums written increased 48.2% to $62.1 million, as lower average interest rates continued to drive strong levels of refinance activity and home sales. While escrow and title-related fees increased commensurate with the growth in premiums, revenues from non-title services decreased 10.5% mainly due to the impact of low interest rates on our like-kind exchange business. Changes in the estimated fair value of equity security investments resulted in a benefit to revenues of $7.8 million, $3.7 million higher than the prior year period, as equity markets continued to recover from the initial impacts of the COVID-19 pandemic earlier in the year.

Operating expenses increased 45.4%, mainly due to a 55.5% increase in commissions to agents commensurate with the increase in agent premium volume. Claims expense was $830,000 higher than the prior year period. While claims expense for both periods benefited substantially from recognition of favorable loss development, the prior year quarter also benefited from changes to actuarial estimates for the active policy year. Personnel expenses were 36.7% higher than the prior year due primarily to additions to staffing in support of strategic growth initiatives, additional staffing required to support volume increases, and increased levels of incentive compensation.

Income before income taxes increased 46.9% to $21.4 million. Excluding the impact of changes in the estimated fair value of investments in equity securities, income before income taxes (non-GAAP) increased 30.1% to $13.6 million (see Appendix A for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure).

Annual results

For the year, revenues increased 28.8% to $236.4 million, mainly due to increases in both refinance and home buying activity levels throughout the year, as well as strong increases in real estate values. Changes in the estimated fair value of equity security investments resulted in a benefit to revenues of $4.9 million, which was $5.4 million lower than the prior year period. Operating expenses increased 30.0%, mostly as a result of volume-related increases. Income before income taxes increased 24.7% to $49.7 million. Excluding the impact of changes in the estimated fair value of investments in equity securities, income before income taxes (non-GAAP) increased 51.6% to $44.8 million (see Appendix A for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure).

Chairman’s commentary

Chairman J. Allen Fine commented, “We are pleased to report another year of strong performance for the Company. For both the quarter and the year, the Company set new records for revenues, premiums, and earnings. Despite headwinds from the pandemic, we experienced strong demand for home purchases and ongoing increases in average real estate values in our operating markets. The decline in interest rates during the year supported housing affordability and drove a sharp increase in the level of refinance activity for the second year in a row.

On the expense side, we continued to experience relatively low levels of claims activity. The rate of residential mortgage foreclosures, typically a driver of claims activity, dropped during the year to its lowest level in a decade largely due to moratorium and forbearance programs enacted in response to COVID-19.

Looking forward to 2021, we are cautiously optimistic that the real estate sector is poised for another strong year. Many experts predict that the economy and employment will continue to recover during 2021, boosted by rollout of the coronavirus vaccine. We believe economic recovery will lend support to housing demand, while favorable interest rates will sustain high levels of refinance activity, although likely reduced from 2020. Regardless of market conditions, however, we will remain focused on enhancing our competitive strengths and capitalizing on targeted opportunities to expand our market presence.”

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.

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, 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 regulations; changes in the economy; changes resulting from the new administration and Congress; 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 Twelve Months Ended December 31, 2020 and 2019

(in thousands, except per share amounts)

(unaudited)

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2020

2019

2020

2019

Revenues:

Net premiums written

$

62,107

$

41,900

$

205,418

$

145,842

Escrow and other title-related fees

2,307

1,858

8,321

7,474

Non-title services

2,217

2,478

8,693

9,922

Interest and dividends

1,051

1,147

4,393

4,752

Other investment income

1,487

1,147

3,723

3,191

Net realized investment gains

6

141

333

1,340

Changes in the estimated fair value of equity security investments

7,771

4,085

4,904

10,303

Other

180

128

623

678

Total Revenues

77,126

52,884

236,408

183,502

Operating Expenses:

Commissions to agents

33,463

21,519

106,807

72,780

Provision (benefit) for claims

752

(78)

5,204

3,532

Personnel expenses

15,297

11,187

51,929

46,058

Office and technology expenses

2,623

2,451

9,951

9,254

Other expenses

3,580

3,234

12,856

12,055

Total Operating Expenses

55,715

38,313

186,747

143,679

Income before Income Taxes

21,411

14,571

49,661

39,823

Provision for Income Taxes

4,776

3,191

10,241

8,365

Net Income

$

16,635

$

11,380

$

39,420

$

31,458

Basic Earnings per Common Share

$

8.79

$

6.03

$

20.84

$

16.66

Weighted Average Shares Outstanding – Basic

1,892

1,889

1,892

1,888

Diluted Earnings per Common Share

$

8.77

$

6.00

$

20.80

$

16.59

Weighted Average Shares Outstanding – Diluted

1,897

1,896

1,896

1,896

Investors Title Company and Subsidiaries

Consolidated Balance Sheets

As of December 31, 2020 and 2019

(in thousands)

(unaudited)

December 31,
2020

December 31,
2019

Assets

Cash and cash equivalents

$

13,723

$

25,949

Investments:

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

117,713

104,638

Equity securities, at fair value

64,919

61,108

Short-term investments

15,170

13,134

Other investments

15,493

13,982

Total investments

213,295

192,862

Premiums and fees receivable

19,427

12,523

Accrued interest and dividends

1,038

1,033

Prepaid expenses and other receivables

9,418

5,519

Property, net

11,160

9,776

Goodwill and other intangible assets, net

9,771

10,275

Operating lease right-of-use assets

3,533

4,469

Other assets

1,560

1,487

Total Assets

$

282,925

$

263,893

Liabilities and Stockholders’ Equity

Liabilities:

Reserve for claims

$

33,584

$

31,333

Accounts payable and accrued liabilities

36,020

28,318

Operating lease liabilities

3,669

4,502

Current income taxes payable

638

1,340

Deferred income taxes, net

8,592

7,038

Total liabilities

82,503

72,531

Stockholders’ Equity:

Common stock no par value (10,000 authorized shares; 1,892 and 1,889 shares issued and outstanding as of December 31, 2020 and 2019, respectively, excluding in each period 292 shares of common stock held by the Company's subsidiary)

Retained earnings

196,096

188,262

Accumulated other comprehensive income

4,326

3,100

Total stockholders’ equity

200,422

191,362

Total Liabilities and Stockholders’ Equity

$

282,925

$

263,893

Investors Title Company and Subsidiaries

Net Premiums Written By Branch and Agency

For the Three and Twelve Months Ended December 31, 2020 and 2019

(in thousands)

(unaudited)

Three Months Ended December 31,

Twelve Months Ended December 31,

2020

%

2019

%

2020

%

2019

%

Branch

$

14,840

23.9

$

11,527

27.5

$

53,204

25.9

$

40,638

27.9

Agency

47,267

76.1

30,373

72.5

152,214

74.1

105,204

72.1

Total

$

62,107

100.0

$

41,900

100.0

$

205,418

100.0

$

145,842

100.0

Investors Title Company and Subsidiaries

Appendix A

Non-GAAP Measures Reconciliation

For the Three and Twelve Months Ended December 31, 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
December 31,

Twelve Months Ended
December 31,

2020

2019

2020

2019

Revenues

Total revenues (GAAP)

$

77,126

$

52,884

$

236,408

$

183,502

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

(7,771)

(4,085)

(4,904)

(10,303)

Adjusted revenues (non-GAAP)

$

69,355

$

48,799

$

231,504

$

173,199

Income before Income Taxes

Income before income taxes (GAAP)

$

21,411

$

14,571

$

49,661

$

39,823

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

(7,771)

(4,085)

(4,904)

(10,303)

Adjusted income before income taxes (non-GAAP)

$

13,640

$

10,486

$

44,757

$

29,520

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