Investors Title Company — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Amounts below are in millions except per-share data; comparisons are with the same 2019 periods. The company primarily underwrites title insurance, with title insurance representing 95.9% of nine-month revenue.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $67.6 | $47.9 | $159.3 | $130.6 |
| Net premiums written | $57.2 | $40.2 | $143.3 | $103.9 |
| Income before taxes | $18.9 | $10.0 | $28.3 | $25.3 |
| Net income | $15.3 | $8.0 | $22.8 | $20.1 |
| Diluted EPS | $8.07 | $4.20 | $12.02 | $10.59 |
| Operating cash flow | Not reported separately | Not reported separately | $21.9 | $10.0 |
- Q3 revenue rose 41.1% and net income rose 92.4%; nine-month revenue increased 21.9% and net income increased 13.5%.
- Net premiums written increased 42.4% in Q3 and 37.9% year to date, primarily on stronger purchase and refinance activity amid lower mortgage rates.
- After-tax profit margins were 22.6% for Q3 and 14.3% for the nine months, versus 16.6% and 15.4%, respectively, in 2019.
- Investment valuation was volatile: equity-security fair-value changes contributed $3.6 million of Q3 revenue but were a $2.9 million loss for the nine-month period, compared with a $6.2 million gain in 2019. The nine-month period also included $482,000 of fixed-maturity impairment charges.
Financial position and liquidity
- At September 30, 2020, cash and cash equivalents were $41.5 million, short-term investments $22.5 million, and total investments $194.6 million. Cash increased $15.6 million from year-end 2019.
- Total assets were $289.7 million; total liabilities were $76.8 million; stockholders’ equity was $212.9 million. The company stated it had not incurred debt or accepted COVID-19 stimulus funding.
- Nine-month investing cash flow was a $3.9 million use, compared with a $17.6 million source in 2019, as investment purchases exceeded proceeds. Dividends paid were $2.5 million, or $1.32 per share.
- The claims reserve was $33.5 million, including $4.0 million for known claims and $29.5 million for incurred-but-not-reported claims. Management considers the reserve adequate but notes estimates may change significantly.
Outlook, risks, and notable items
- Management reported strong Q3 purchase and refinance volumes, supported by low mortgage rates, limited housing supply, and pent-up demand, but said it was unclear whether activity would remain resilient. The filing provides no company-specific earnings or revenue guidance.
- The MBA forecast cited in the filing projected lower mortgage originations in 2021 and 2022; management cautioned that forecasts and COVID-19 effects could change materially.
- COVID-19’s duration and economic effects remain uncertain. The company was fully operational, with much of its workforce remote and no workforce reductions reported in 2020. The pandemic had affected investment values and could disrupt real estate activity, markets, personnel, or technology systems.
- Key exposures include real-estate and mortgage-volume cyclicality, interest rates and securities-market losses, claims-reserve uncertainty, competition, regulation, and concentration in North Carolina, Texas, and Georgia.
- Legal proceedings and regulatory examinations were described as incidental and not expected by management to have a material impact. The company also held $179.5 million of customer exchange deposits and related property off balance sheet and remains contingently liable for their disposition.
- After quarter-end, on November 9, 2020, the board amended the bylaws, including provisions on shareholder meetings and exclusive forums for certain litigation. Management reported effective disclosure controls and no material change in internal controls during the quarter.
Investor verification priorities
- Assess how much Q3 earnings reflected recurring title-insurance operations versus investment fair-value gains, and whether premium growth persists.
- Track claims development, reserve adequacy, and the effect of higher claim provisions as written premiums grow.
- Review operating cash-flow sustainability and the timing effects from receivables, taxes, and payables.
- Evaluate the company’s exposure to COVID-19, mortgage-rate changes, housing supply, and the cited forecast of weaker originations in later years.
- Understand the contingent obligations associated with off-balance-sheet customer funds and the investment portfolio’s exposure to market and credit losses.