Investors Title Company — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; comparisons are with the same periods in 2020 unless stated otherwise. Investors Title primarily underwrites title insurance. Title insurance represented 94.5% of nine-month revenue.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $81.4 million | $67.6 million | $238.5 million | $159.3 million |
| Net premiums written | $72.3 million | $57.2 million | $201.3 million | $143.3 million |
| Income before taxes | $18.4 million | $18.9 million | $61.0 million | $28.3 million |
| Net income | $14.5 million | $15.3 million | $48.1 million | $22.8 million |
| Diluted EPS | $7.63 | $8.07 | $25.34 | $12.02 |
- Q3 revenue rose about 20%, while net income declined about 5%; nine-month revenue rose about 50% and net income more than doubled. Q3 after-tax profit margin was 17.8%, versus 22.6%; the nine-month margin was 20.2%, versus 14.3%.
- Net premiums increased 26.5% in Q3 and 40.5% year to date. Management attributed growth mainly to higher average home prices and continued low mortgage rates. Agency operations generated 73.7% of nine-month premiums.
- Investment-related results were volatile: Q3 equity-security fair-value changes were a loss of $0.8 million, versus a gain of $3.6 million a year earlier; nine-month changes were a gain of $7.3 million, versus a loss of $2.9 million.
- Nine-month other revenue included a $4.0 million gain on property disposal. Interest and dividends declined to $2.8 million from $3.3 million for the nine months, primarily due to lower rates and lower balances.
- Operating expenses rose 29% in Q3 and 35% year to date, primarily reflecting higher agent commissions and personnel costs. The nine-month effective tax rate was 21.2%, compared with 19.3%.
Cash flow, financial position and capital
- Nine-month operating cash flow was $35.7 million, up from $21.9 million. Investing activities provided $1.7 million, versus using $3.9 million; financing activities used $2.6 million, mainly for dividends.
- Cash and cash equivalents were $48.5 million at September 30, 2021, up from $13.7 million at year-end 2020. The company also held $51.2 million in short-term investments, $82.3 million in fixed maturities and $69.5 million in equity securities.
- Total assets were $335.4 million; stockholders’ equity was $245.3 million. The company reported no debt and stated it had not incurred debt or taken pandemic stimulus funding. Operating lease liabilities were $3.4 million.
- Dividends paid were $2.6 million for the first nine months, or $1.36 per share. No shares were repurchased during the period. Management said operating cash generation should meet foreseeable operating needs, while noting that acquisitions could require additional capital.
Outlook, risks and unusual items
- No specific company earnings or revenue guidance is provided. Management reported strong purchase and refinance activity through the first three quarters, but warned that interest-rate variability, supply constraints and building-material costs could reduce future purchase volumes.
- The cited MBA forecast expected 2021 purchase mortgage activity to increase 7.1% and refinancing activity to decrease 13.9% from 2020; it projected fewer total originations in 2022 and 2023. These are third-party projections, not company guidance. Management noted that mortgage rates and market forecasts may change.
- COVID-19 and its variants remain sources of uncertainty for operations, transaction volumes and investment values. The company remained operational, with many employees working remotely.
- The claims reserve was $36.8 million, including $33.4 million for incurred-but-not-reported claims. Management considers the reserve adequate, but estimates may change materially as claims experience develops.
- In Q3, the company detected a ransomware attack limited to one entity, temporarily interrupting that entity’s network during remediation. The company said the incident had not had, and was not expected to have, a material impact; further cyber incidents could still cause operational, financial or reputational harm.
- Like-kind exchange deposits and reverse-exchange property held for customers totaled approximately $525.2 million, excluded from company assets but subject to contingent obligations regarding the funds and property. Legal proceedings and regulatory inquiries were described as not expected to have a material impact.
Important facts for investors to verify
- Whether premium growth can continue if mortgage refinancing slows, interest rates rise or housing-market constraints worsen.
- How recurring operating performance compares with results affected by equity-market fair-value movements and the property-sale gain.
- Whether claim-reserve assumptions remain adequate as the portfolio of insured policies grows.
- The final operational and financial consequences of the ransomware incident and the company’s ongoing cybersecurity controls.
- Whether customer exchange deposits, regulatory capital requirements or subsidiary dividend restrictions affect liquidity and capital allocation.