Investors Title Company — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with 2021. This filing reports annual results, not standalone fourth-quarter results.
Business context and financial performance
The company is a holding company whose sole reportable segment is title insurance, conducted through ITIC and NITIC. Title insurance represented 94.9% of 2022 revenue. Other activities include tax-deferred exchange, investment and trust, and agency management services. Operations are concentrated in North Carolina, Texas, South Carolina, and Georgia.
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Total revenue | $283.4 million | $329.5 million | Down 14.0% |
| Net premiums written | $248.6 million | $273.9 million | Down 9.2% |
| Income before income taxes | $30.1 million | $84.9 million | Down 64.6% |
| Net income | $23.9 million | $67.0 million | Down 64.3% |
| Basic earnings per share | $12.60 | $35.38 | Down 64.4% |
| After-tax profit margin | 8.4% | 20.3% | Down 11.9 percentage points |
| Net cash from operating activities | $36.2 million | $51.9 million | Down 30.3% |
Revenue and earnings were pressured by lower real estate transaction activity following rising mortgage rates, higher operating costs, and a $21.0 million loss from changes in equity-security fair value, versus a $14.9 million gain in 2021. Net realized investment gains rose to $9.7 million from $1.9 million, partly offsetting these pressures. Interest and dividends increased to $4.7 million from $3.8 million. The effective income tax rate was 20.6%, versus 21.1%.
Margins, balance sheet, and liquidity
- Operating expenses rose 3.6% to $253.3 million. Personnel expense increased 32.9% to $85.3 million, reflecting hiring, new offices, and acquisitions; office and technology expense rose to $17.3 million from $13.1 million.
- Agent commissions declined 14.9% to $121.6 million, broadly in line with lower agency premiums. The claims provision declined to $4.3 million from $5.7 million; the provision was 1.7% of net premiums written, versus 2.1%.
- At year-end, total assets were $339.8 million, total liabilities $98.7 million, and shareholders’ equity $241.0 million. The company states it carries no debt; reported lease liabilities were $6.8 million.
- Cash and cash equivalents were $35.3 million; short-term investments $103.6 million; available-for-sale fixed maturities $54.0 million; and equity securities $51.7 million. The company says these liquid resources and operating cash flows should cover requirements for the next 12 months and thereafter.
- Cash declined $1.9 million during 2022. Capital expenditures were $5.7 million. Dividends paid totaled $4.84 per share, including a $3.00 special dividend, compared with $19.82 per share in 2021, including an $18.00 special dividend.
- Approximately $110.3 million of consolidated equity was restricted from transfer to the parent without regulatory approval. Insurance subsidiaries met applicable statutory capital, surplus, and reserve requirements; approximately $30.9 million could be distributed to the parent in 2023 without prior approval.
Material changes, outlook, and risks
- Direct premiums increased 4.4% to $85.7 million, while agency premiums fell 15.0% to $163.0 million. Texas premiums rose with agency acquisitions; North Carolina remained the largest market. The four principal states generated 35.6%, 29.0%, 9.4%, and 9.2% of premiums, respectively.
- Escrow and other title-related fees increased 58.8% to $21.7 million; non-title services revenue increased 50.2% to $14.5 million, primarily due to like-kind exchange activity.
- Management identified higher mortgage rates, inflation, geopolitical uncertainty, real estate market weakness, and continued cost management as relevant conditions. The company provided no company-specific earnings or premium guidance. It cited an MBA January 2023 forecast for 2023 mortgage originations to decline 15.9% from 2022; this is an industry forecast, not company guidance.
- Key risks include cyclical real estate and mortgage volumes; concentration in four states; claims-reserve uncertainty; investment-market volatility; reliance on agents and key personnel; regulatory and pricing restrictions; cyber incidents and funds-transfer fraud; and limits on upstreaming insurance-subsidiary capital.
- The year-end claims reserve was $37.2 million, including $33.9 million for incurred-but-not-reported claims. Management considers the reserve adequate, but actual claims may differ; a three-percentage-point change in the loss ratio would affect after-tax income by approximately $5.9 million.
- Customer escrow and trust deposits of $24.2 million and like-kind exchange deposits and reverse-exchange property of $432.0 million are excluded from the balance sheet, but the company remains contingently responsible for their disposition. Legal proceedings and regulatory inquiries were not expected by management to have a material aggregate effect.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The reserve for claims was identified as a critical audit matter because it depends on significant actuarial assumptions and estimates.
Important facts for investors to verify
- Whether premium volumes and earnings stabilize as mortgage rates and real estate activity evolve, particularly in the four concentrated states.
- How much of the earnings decline reflects recurring operating performance versus equity fair-value movements and realized investment gains.
- Claims-reserve development, including IBNR assumptions, prior-year reserve releases, and large or fraud-related claims.
- Acquisition performance and the resulting personnel, technology, and other cost increases, alongside the growth in Texas direct premiums.
- Investment portfolio exposure to market movements and uninsured bank deposits; $33.8 million of year-end cash was not FDIC-insured.
- Regulatory limits on subsidiary distributions, the contingent obligations tied to customer and exchange funds, and future dividend and repurchase decisions.