Investors Title Company — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. Investors Title primarily underwrites title insurance through its subsidiaries; title insurance represented 95.4% of revenue for the nine-month period.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $34.54 million | $29.51 million | $98.32 million | $91.18 million |
| Net income attributable to the Company | $4.49 million | $2.59 million | $10.34 million | $6.95 million |
| Diluted EPS | $2.28 | $1.28 | $5.17 | $3.41 |
| Operating cash flow | — | — | $12.11 million | $4.85 million |
- Net premiums written were $30.95 million in Q3, up 17.4%, and $86.37 million year to date, up 6.5%. Title orders rose 15.6% year to date to 175,890.
- Management reported combined after-tax profit margins of 13.0% for Q3 and 10.5% year to date, versus 8.8% and 7.6% in 2014, respectively.
- At September 30, total assets were $202.55 million, total liabilities $63.22 million, and stockholders’ equity $139.32 million. Cash and cash equivalents were $19.29 million; short-term investments were $13.88 million. The balance sheet presents no debt balance.
- Investments totaled $157.12 million. The claim reserve was $37.90 million, including $32.62 million for incurred-but-not-reported claims.
- Cash increased $3.46 million during the nine months. Investing activities used $3.08 million and financing activities used $5.56 million, including $5.17 million for share repurchases and $0.48 million in dividends.
Changes versus prior periods
- Q3 revenue increased 17.1% and Company-attributable net income increased 73.1% year over year; nine-month revenue increased 7.8% and net income increased 48.6%.
- Q3 operating expenses rose 8.5%; year-to-date expenses rose 2.7%. Q3 commissions increased with premium volume, while the claims provision fell to $0.70 million from $1.51 million. Year-to-date claims provision declined to $3.62 million from $4.18 million.
- Q3 reported a $0.34 million realized investment loss, compared with a small gain a year earlier. Year-to-date realized investment gains were broadly comparable, at $0.60 million versus $0.59 million.
- Year-to-date operating cash flow improved, which management attributed principally to higher earnings, timing of payables and taxes, and lower claim payments. Accumulated other comprehensive income declined to $9.61 million from $12.86 million, mainly reflecting unrealized investment losses.
Outlook, risks and unusual items
- No company-specific earnings guidance was provided. Management said operating cash flows should meet current needs for the foreseeable future, while noting that results depend on real estate activity, interest rates, claims experience and investment markets. The business is seasonal and cyclical.
- Management cited improving real estate activity and lower mortgage rates; third-party forecasts discussed in the filing projected increased 2015 purchase and refinance originations. These are market forecasts, not company guidance.
- A Texas title agent that generated 12.2% of nine-month 2015 net premiums was acquired by a competing title insurer on July 1. The agent has no minimum-remittance commitment, creating a risk that business could be diverted. Texas premiums fell to $21.05 million year to date from $29.87 million.
- The claims reserve depends on estimates that may change materially as experience develops. Management considered reserves adequate, but noted uncertainty in future claims and possible significant reserve adjustments.
- Other-than-temporary investment impairment charges included in year-to-date realized investment results were $0.67 million for securities; MD&A also cites $0.90 million of Q3 impairment charges on investments and other assets. Unrealized losses on remaining securities were considered temporary by management, but values may decline further.
- Like-kind exchange deposits and reverse-exchange property of approximately $205.86 million were held for customers off balance sheet, up from $82.48 million at year-end. The Company remains contingently liable for handling these funds and related property. It also administers escrow and trust deposits for which it is contingently liable.
- Legal proceedings and regulatory audits were not expected by management to have a material effect. The RESPA/TILA mortgage disclosure rule took effect October 3, 2015; the Company did not expect a material financial impact. The Board approved additional share-repurchase authorization on November 9, 2015.
Important facts for investors to verify
- Whether the acquired Texas agent shifts business to its new owner, and the resulting effect on premiums and earnings.
- Whether favorable claims experience persists and whether the $37.90 million reserve proves adequate as claims develop.
- Investment portfolio performance, impairment judgments and the effect of interest-rate or market changes on realized results and accumulated other comprehensive income.
- Whether the unusually strong operating cash flow is sustainable, given working-capital timing and claim-payment variability.
- The scale and pace of future repurchases, capital expenditures and any further acquisitions, alongside insurance-subsidiary capital and dividend restrictions.