Investors Title Company — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; figures are unaudited and in U.S. dollars. Investors Title primarily provides title insurance; title insurance represented 97.1% of six-month revenue.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Total revenue | $70.9 million | $85.0 million | $139.9 million | $157.0 million |
| Income before tax | $3.0 million | $25.3 million | $10.7 million | $42.6 million |
| Net income | $2.3 million | $19.8 million | $8.5 million | $33.6 million |
| Diluted EPS | $1.20 | $10.42 | $4.45 | $17.70 |
| Operating cash flow | — | $8.3 million | $16.5 million |
- Revenue fell about 16.5% year over year in Q2 and 10.9% in the first half. Net income declined about 88.5% and 74.8%, respectively.
- Net premiums written increased 3.1% in Q2 to $69.6 million and 2.9% in the first half to $132.8 million. Escrow and other title-related fees also increased substantially, to $6.2 million in Q2 and $11.3 million in the first half.
- Investment-related results were a major drag: changes in equity-security fair value were losses of $12.2 million in Q2 and $18.1 million in the first half, versus gains of $4.8 million and $8.1 million in the comparable 2021 periods. The company also reported $3.8 million of net realized investment gains for the first half, including a $127,000 impairment charge.
- Operating expenses rose 13.9% in Q2 and 12.9% in the first half. Personnel costs increased with staffing, growth initiatives and employee benefit costs; office, technology and other expenses also rose. The company reported after-tax profit margins of 3.2% for Q2 and 6.1% for the first half, compared with 23.3% and 21.4% in 2021.
Financial position and liquidity
- At June 30, 2022, total assets were $325.2 million, total liabilities $92.0 million and stockholders’ equity $233.2 million. Cash and cash equivalents were $35.5 million; short-term investments were $71.3 million.
- The company reported no debt. Operating lease liabilities totaled $6.7 million. Cash, short-term investments, available-for-sale fixed maturities and equity securities totaled approximately $223.0 million.
- First-half operating cash flow was $8.3 million; investing activities used $8.2 million, including $4.9 million for a subsidiary acquisition, and financing activities used $1.7 million, primarily for dividends. Cash decreased $1.7 million to $35.5 million.
- The claims reserve was $36.6 million, of which $33.2 million was for incurred-but-not-reported claims. Management considers the reserve adequate but notes estimates may change materially as experience and information develop.
Changes, outlook and risks
- Premium growth reflected higher average home prices and stronger Texas business, including contributions from agency acquisitions. North Carolina home-and-branch premiums declined; Texas premiums increased. Management attributed weaker results overall mainly to equity-market losses and higher expenses, while 2021 results benefited from a property-sale gain.
- During the first half, a subsidiary acquired a Texas title agency. Management reported no goodwill or identifiable intangible-asset impairment indicators.
- No company-specific earnings or revenue guidance is provided. Management said current cash, investments and operating cash flows should cover requirements over the next 12 months and thereafter. It cautioned that results depend on real-estate activity, interest rates, inflation, COVID-19 developments and geopolitical conditions.
- The filing cites an MBA forecast—not company guidance—projecting a 68.9% decline in 2022 mortgage refinancing activity and mortgage rates at or above 5% for the remainder of 2022. Rising rates and reduced refinancing may affect transaction volumes; purchase activity and regional mix will also matter.
- Like-kind exchange deposits and reverse-exchange property of approximately $484.4 million are excluded from the balance sheet, but the company remains contingently responsible for their disposition and related obligations. Legal proceedings and regulatory audits were not expected by management to have a material effect.
- Other stated risks include investment-market losses, claims-reserve uncertainty, fraud, cybersecurity incidents, regulatory changes, competition and reliance on key geographic markets. The company said there were no material changes to previously disclosed risk factors; disclosure controls were considered effective.
Investor verification priorities
- Assess how much reported earnings depend on volatile equity-security fair-value changes and realized investment gains.
- Track title premiums, especially Texas growth versus declines in North Carolina and other markets, as mortgage rates and transaction volumes change.
- Review personnel and other expense growth against revenue, and the durability of the reported margin decline.
- Monitor claims-reserve development, particularly the substantial incurred-but-not-reported component and management’s reserve assumptions.
- Confirm liquidity and capital needs alongside the $484.4 million of off-balance-sheet exchange funds, acquisition activity, capital spending and dividends.