Investors Title Company — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020; comparisons are with the corresponding 2019 periods. Amounts below are in millions unless noted. The company primarily provides title insurance; title operations accounted for 95.8% of first-half revenue.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $61.7 | $42.7 | $91.6 | $82.7 |
| Net premiums written | $47.5 | $35.0 | $86.1 | $63.8 |
| Income before taxes | $17.9 | $6.9 | $9.4 | $15.2 |
| Net income | $14.5 | $5.5 | $7.5 | $12.1 |
| Diluted EPS | $7.65 | $2.90 | $3.95 | $6.40 |
| Operating cash flow | Not separately presented | Not separately presented | $16.0 | $0.8 |
- Q2 revenue rose about 44% and net income about 164% year over year. First-half revenue rose about 11%, while net income fell about 38%.
- Reported after-tax profit margin was 23.5% for Q2 and 8.2% for the first half, versus 12.9% and 14.7%, respectively, in 2019.
- Investment valuation changes were a major earnings swing: equity securities generated a $8.0 million fair-value gain in Q2, but a $6.5 million loss for the first half. The first-half results also included $0.5 million of fixed-maturity impairment charges.
- Net premiums increased 35% in both the quarter and first half. Management attributed the growth mainly to stronger refinancing and purchase activity amid lower mortgage rates. Agent commissions rose faster than premiums, reflecting agency growth and geographic mix.
Financial position and liquidity
- At June 30, cash and cash equivalents were $29.7 million; total investments were $197.5 million, including $24.7 million of short-term investments, $102.1 million of fixed-maturity securities, and $55.8 million of equity securities.
- Total assets were $279.9 million and stockholders’ equity was $198.5 million. Total liabilities were $81.4 million, including a $32.7 million claims reserve and $4.1 million of operating lease liabilities.
- The company reported no debt and stated it had not used COVID-19 stimulus funding. Operating cash flow was $16.0 million for the first half, versus $0.8 million in 2019; cash increased $3.8 million to $29.7 million.
- First-half dividends were $1.7 million ($0.88 per share). No shares were repurchased during the first half.
Outlook, risks, and contingencies
- Management said the company remained fully operational, with no workforce reductions and many employees working remotely. Q2 real-estate activity strengthened, but management could not predict whether that resilience would continue or the pandemic’s ultimate business impact. No company-specific earnings guidance was provided.
- The filing cites an MBA forecast for 2020 mortgage originations to increase 29.6% from 2019, but notes that pandemic-related uncertainty could materially change projections; this is an industry forecast, not company guidance.
- Key risks include COVID-19 and economic disruption, real-estate and mortgage volume changes, interest-rate and securities-market volatility, claims-reserve uncertainty, competition, regulation, and dependence on certain geographic markets.
- The $32.7 million claims reserve includes $4.0 million for known claims and $28.7 million for incurred-but-not-reported claims. Management considers the reserve adequate, while warning estimates may change materially.
- Legal proceedings and regulatory reviews were not expected by management to have a material effect. The company also administers customer escrow and trust funds and held approximately $171.4 million of like-kind exchange deposits and reverse-exchange property off balance sheet at June 30; it remains contingently responsible for their proper disposition.
- Management reported no material subsequent events and said disclosure controls were effective as of June 30, 2020.
Important facts for investors to verify
- How much future earnings depend on investment-market recoveries versus underwriting and premium growth.
- Whether refinancing and purchase volumes remain strong as pandemic conditions and mortgage rates evolve.
- Claims development and the adequacy of the large incurred-but-not-reported reserve.
- Liquidity and capital needs, including statutory limits on dividends from insurance subsidiaries and contingent responsibilities for customer funds.
- Whether the MBA industry forecast and management’s stated uncertainty remain relevant to subsequent periods.