Investors Title Company — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; balance-sheet comparisons are with December 31, 2014. The company primarily underwrites title insurance through its insurance subsidiaries; title insurance represented 95.1% of revenue.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 / prior date |
|---|---|---|
| Total revenue | $28.30 million | $28.45 million |
| Net premiums written | $24.96 million | $24.91 million |
| Income before taxes | $2.37 million | $1.36 million |
| Net income attributable to company | $1.73 million | $0.99 million |
| Diluted EPS | $0.86 | $0.48 |
| Cash from operating activities | $(0.41) million | $(1.93) million |
| Cash and cash equivalents | $15.64 million | $15.83 million at Dec. 31, 2014 |
| Total investments | $157.83 million | $159.41 million at Dec. 31, 2014 |
| Total assets / liabilities | $197.00 million / $58.64 million | $198.04 million / $60.48 million at Dec. 31, 2014 |
| Claims reserves | $37.06 million | $36.68 million at Dec. 31, 2014 |
Net income margin was approximately 6.1%, versus 3.5% a year earlier; pretax margin was approximately 8.4%, versus 4.8%. The filing does not present a debt balance or a standalone debt metric. No debt line is shown among the reported liabilities.
Changes versus the prior comparable period
- Revenue decreased approximately 0.5%, while net premiums written were nearly flat. Title orders rose 13.3% to 52,107, largely on increased refinancing; those transactions typically generate lower premiums than purchases.
- Net income attributable to the company rose approximately 75%. Operating expenses fell 4.3%, led by lower claims provision and agent commissions, partly offset by higher salaries, benefits, occupancy, and premium taxes.
- The claims provision declined to $0.79 million from $2.38 million. Management attributed the decrease mainly to favorable loss development and several large claims in the prior-year period; it estimated the lower provision rate reduced reserves by about $1.59 million versus applying the prior-year rate.
- Investment income increased to $1.18 million from $1.03 million, but realized investment gains fell to $0.01 million from $0.49 million. The prior-year figure included substantial realized gains on securities and other assets.
- Operating cash use improved year over year but remained negative. Cash declined by $0.19 million in the quarter. The company repurchased 15,036 shares for approximately $1.07 million and paid $0.08 per share in dividends.
Outlook, commentary, and risks
- Management said it expected operating cash, investment income, and subsidiary distributions to meet foreseeable needs, while noting results depend on real estate activity, claims experience, investment markets, and subsidiary dividend restrictions.
- The company provided no specific earnings or revenue guidance. Its discussion cited an MBA forecast for 2015 mortgage originations to rise 9.7% from 2014, including projected increases in purchase and refinance activity; these are third-party estimates, not company guidance.
- Management identified preparation for the CFPB’s integrated mortgage disclosure rules, effective August 2015, as an operational and compliance focus. The company also described technology and system-development investment plans.
- Key risks include real estate and mortgage-volume cyclicality, possible inadequacy of claims reserves, investment and interest-rate risk, concentration in Texas and North Carolina and reliance on a significant agent, regulatory changes, and technology or cybersecurity disruption.
- Claims reserves include $31.65 million for incurred-but-not-reported claims (85.4% of total reserves); management considers reserves adequate but says estimates may change significantly. Legal proceedings and regulatory inquiries were not expected by management to have a material impact.
- Escrow/trust deposits and like-kind exchange funds or property are excluded from company assets, but the company remains contingently responsible for their disposition. Like-kind exchange deposits and reverse-exchange property totaled approximately $103.66 million at quarter-end, up from $82.48 million at year-end.
- Unrealized investment losses were considered temporary by management. Student-loan auction-rate securities had a $0.94 million fair value and remain subject to valuation uncertainty because auctions have failed.
Important facts for investors to verify
- Whether the unusually low claims provision and favorable loss development persist, and whether reserve estimates remain adequate as claims emerge.
- Premium trends by channel and geography, especially the decline in Texas agency premiums and the company’s exposure to Texas, North Carolina, and a significant title agent.
- Whether higher staffing and technology costs translate into operating benefits, and the costs of implementing the August 2015 disclosure rules.
- Investment portfolio valuation and exposure to interest-rate, credit-spread, and liquidity risks, including auction-rate securities.
- Liquidity and capital needs, subsidiary dividend restrictions, continued share repurchases, and contingent responsibilities related to customer escrow and exchange funds.