Investors Title Company — Q1 2020 Form 10-Q
Business context and reporting period
For the three months ended March 31, 2020. Investors Title is primarily a title insurer; title insurance represented 97.7% of company revenue. The first quarter’s results are not necessarily indicative of full-year performance.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Total revenue | $29.9 million | $39.9 million, down 25.1% |
| Net premiums written | $38.6 million | $28.8 million, up 34.1% |
| Operating expenses | $38.4 million | $31.6 million, up 21.5% |
| Pre-tax income (loss) | $(8.5) million | $8.3 million |
| Net income (loss) | $(7.0) million | $6.6 million |
| Diluted EPS | $(3.71) | $3.49 |
| Operating cash flow | $2.0 million | $(0.8) million |
The net loss was principally driven by a $14.5 million decline in the estimated fair value of equity securities, versus a $4.7 million gain in Q1 2019. The company also recorded $0.5 million of other-than-temporary fixed-maturity investment impairment charges. The after-tax profit margin was (23.4%), compared with 16.6% a year earlier.
Purchase activity and lower mortgage rates supporting refinancing drove premium growth through most of the quarter. At March 31, the company had $25.3 million cash, $15.6 million short-term investments, $101.4 million available-for-sale fixed maturities and $48.0 million equity securities. Total assets were $254.1 million, liabilities $70.5 million and stockholders’ equity $183.6 million. The company reported no debt and said it had not taken stimulus funding or added debt. Cash fell $0.6 million during the quarter; investing cash flow was $(1.8) million and financing cash flow $(0.8) million.
Changes, outlook and risks
- Revenue fell despite higher title premiums because investment-related results swung sharply: investment-related revenue was $(13.3) million versus $7.1 million in Q1 2019. Interest and dividends were $1.2 million, down from $1.3 million.
- Agent commissions rose 34.1%; the claims provision increased to $0.9 million from $0.2 million. Claims reserves were $31.4 million, including $27.8 million for incurred-but-not-reported claims. Management considers reserves adequate but notes estimates may change significantly.
- COVID-19 reduced marketable-security values and slowed real-estate purchase activity near quarter-end and into early Q2. Lower rates supported refinancing, but management said the durability of that activity was unclear and that premiums could decline in Q2 versus both Q2 2019 and Q1 2020. The company could not predict the pandemic’s ultimate impact or when real-estate activity would normalize.
- The company remained operational, with much of its workforce working remotely and no workforce reductions. Management cited its working-capital position and operating cash generation as support for near-term needs, while noting uncertainty and ongoing review of capital allocation, including dividends and repurchases. Q1 dividends were $0.44 per share; no shares were repurchased.
- Like-kind exchange deposits and reverse-exchange property of approximately $223.6 million were off balance sheet; the company is contingently responsible for related transfers and disbursements. Legal proceedings and regulatory inquiries were not expected by management to have a material effect. No material subsequent events were identified.
Important facts for investors to verify
- Whether Q2 purchase-volume weakness outweighed refinancing activity and how premiums developed after quarter-end.
- Subsequent investment-portfolio values, realized or credit-related losses, and any recovery or further decline in equity securities.
- Changes in claims development and the adequacy of the $31.4 million claims reserve.
- Liquidity, statutory capital and subsidiary dividend capacity if operating conditions deteriorate; the filing reports no debt at quarter-end.
- The status and potential obligations associated with $223.6 million of customer exchange deposits and property held off balance sheet.