Investors Title Company — Q1 2021 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2021, compared with Q1 2020. The company primarily provides title insurance; title operations accounted for 95.9% of Q1 2021 revenue.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $72.1 million | $29.9 million |
| Net premiums written | $61.5 million | $38.6 million |
| Income (loss) before taxes | $17.3 million | $(8.5) million |
| Net income (loss) | $13.8 million | $(7.0) million |
| Diluted earnings (loss) per share | $7.29 | $(3.71) |
| Operating cash flow | $8.2 million | $2.0 million |
- Net premiums written rose 59.2%, driven by increased refinancing and strong purchase activity. Home and branch premiums increased 75.4%; agency premiums increased 53.5%.
- Total operating expenses increased 42.5% to $54.8 million, mainly from higher agent commissions, personnel costs and claims provision. The reported after-tax profit margin was 19.2%, versus (23.4)%.
- Equity-investment fair-value changes contributed a $3.2 million gain in Q1 2021, compared with a $14.5 million loss in Q1 2020. This major year-over-year swing materially affected reported revenue and earnings. Interest and dividend income declined to $1.0 million from $1.2 million.
- At March 31, 2021, total assets were $295.5 million and stockholders’ equity was $212.9 million. Cash was $23.0 million; short-term investments, $30.5 million; available-for-sale fixed maturities, $103.0 million; and equity securities, $64.6 million.
- The company reported no debt. Operating lease liabilities were $3.5 million. Cash and cash equivalents increased $9.2 million during the quarter. Investing activities provided $1.8 million; financing activities used $0.8 million, including $0.8 million of dividends ($0.44 per share).
Changes, outlook and risks
- Compared with Q1 2020, results improved substantially as real estate activity and premiums grew and equity-market performance reversed the prior-year investment loss. The comparison is affected by that unusually large prior-year mark-to-market loss.
- Management said purchase and refinance activity remained strong, supported by low mortgage rates, tight housing supply and pent-up demand, but stated that future real estate activity was uncertain. The filing provides no company-specific earnings or revenue guidance. The cited Mortgage Bankers Association forecast projected 2021 purchase activity to rise 16.4% and refinancing activity to fall 36.7% from 2020; these are third-party estimates, not company guidance.
- COVID-19 duration and economic effects remain uncertain. Other key exposures include cyclical real estate and mortgage volumes, interest-rate and investment-market movements, competition, regulation, and potential inadequacy or volatility in claims reserves.
- The claims reserve was $34.6 million, including $31.1 million for incurred-but-not-reported claims. Management considered it adequate, while noting estimates may change significantly as information develops. No fixed-maturity impairment charge was recorded in Q1 2021; the comparable 2020 period included $0.5 million.
- Like-kind exchange deposits and reverse-exchange property totaled approximately $247.9 million, excluded from the balance sheet but subject to the company’s contingent responsibility for their disposition. Management did not expect legal proceedings or regulatory examinations to have a material financial impact. The company reported no material subsequent events and no material changes to previously disclosed risk factors.
- The cash-flow statement’s comparative column is labeled “2019” in the supplied filing text, although the statements and corresponding comparative amounts identify the period as Q1 2020. The filing text therefore contains an apparent labeling inconsistency.
Important facts for investors to verify
- How much of earnings growth reflects title-premium growth versus equity-investment fair-value changes, and how volatile those investment marks may be.
- Whether strong purchase and refinance activity persists as mortgage rates and housing-market conditions change.
- Claims-reserve adequacy, especially the large incurred-but-not-reported component and sensitivity to new claim information.
- Liquidity and capital requirements at regulated insurance subsidiaries, including restrictions on dividends to the parent.
- The nature and scale of contingent responsibilities related to exchange funds and customer escrow or trust deposits.
- The comparative-period labeling inconsistency in the cash-flow statement.