Investors Title Company — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Investors Title primarily underwrites title insurance, which generated 93.6% of first-half 2021 revenue. Amounts below are in U.S. dollars; financial figures are in millions unless noted.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $85.0 | $61.7 | $157.0 | $91.6 |
| Net premiums written | $67.5 | $47.5 | $129.0 | $86.1 |
| Income before taxes | $25.3 | $17.9 | $42.6 | $9.4 |
| Net income | $19.8 | $14.5 | $33.6 | $7.5 |
| Diluted EPS | $10.42 | $7.65 | $17.70 | $3.95 |
- Q2 revenue rose 37.6% and net income rose 36.5% year over year. First-half revenue increased 71.3%; net income was about 4.5 times the prior-year period.
- Premium growth reflected strong refinance activity and home sales, attributed by management to low mortgage rates and economic recovery. First-half premiums rose 49.8%.
- First-half comparisons were significantly affected by investment-market movements: equity fair-value changes contributed $8.1 million of revenue in 2021 versus a $6.5 million loss in 2020. A $4.1 million property-sale gain was the main driver of the increase in “Other” revenue to $4.4 million for the first half.
- Interest and dividend income declined to $1.9 million for the first half from $2.3 million, primarily because of lower yields and dividends. Other investment income increased to $2.4 million from $1.0 million.
- Operating expenses increased 36.2% in Q2 and 39.1% in the first half, mainly from higher agent commissions and personnel costs. Combined after-tax profit margin was 23.3% in Q2 and 21.4% for the first half, versus 23.5% and 8.2%, respectively, in 2020.
- Claims provision was $3.0 million for the first half, up 4.4%; as a share of premiums it was 2.3%, versus 3.4%. The Q2 provision declined 28%, with management citing improved claims experience and favorable prior-year loss development.
Cash flow, balance sheet and capital
- First-half operating cash flow was $16.5 million, compared with $16.0 million. Investing activities provided $3.1 million, versus using $10.6 million in 2020. Cash increased $17.9 million to $31.6 million.
- At June 30, 2021, total assets were $316.9 million and stockholders’ equity was $231.9 million. Cash was $31.6 million, short-term investments $44.4 million, available-for-sale fixed maturities $89.0 million and equity securities $69.9 million.
- The company reported no debt and said it had not incurred debt or accepted pandemic stimulus funding. Management believes operating cash flows should meet foreseeable operating needs, while noting uncertainty around real estate markets and the pandemic.
- Claims reserves were $35.3 million, including $32.1 million for incurred-but-not-reported claims; reserves increased from $33.6 million at year-end 2020. Management considers them adequate, but acknowledges estimates may change significantly as claims experience develops.
- Dividends paid were $1.7 million in the first half ($0.90 per share). No shares were repurchased during the period. First-half capital expenditures were approximately $6.1 million, including technology and system initiatives.
Outlook, risks and unusual items
- No company-specific earnings or revenue guidance was provided. Management said purchase and refinance activity remained strong into the first half, but supply constraints, building-material cost and availability, and interest-rate variability could reduce purchase volumes in the second half of 2021.
- The company cited an MBA forecast projecting 2021 purchase activity growth and refinance activity decline, with lower total mortgage originations projected in 2022 and 2023. Management cautioned that pandemic-related uncertainty could materially change forecasts and results.
- COVID-19 could affect staffing, transaction volumes and investment values; the company remained operational and had no workforce reductions through the first half. Interest rates, real estate cyclicality, concentrated exposure to North Carolina, Texas and Georgia, regulation, competition, claim-reserve uncertainty and investment-market losses are notable risks.
- In a risk-factor update, the company disclosed a ransomware attack detected during Q3 2021, after the reporting period. It said the incident was believed limited to one entity, required a temporary network interruption, and was under investigation and remediation; based on information then known, management did not expect a material impact.
- Legal proceedings and regulatory examinations were described as routine and not expected to have a material aggregate impact. The company also administers customer escrow and like-kind exchange funds off balance sheet; exchange deposits and reverse-exchange property totaled approximately $370.5 million, for which it has contingent responsibilities.
Important facts for investors to verify
- Whether premium growth and housing transaction volumes continued after June 30, especially amid rate, inventory and building-material changes.
- How much reported earnings depend on equity fair-value movements and the property-sale gain, versus recurring underwriting and service results.
- Subsequent claims development and whether the $35.3 million reserve remains adequate as new claims information emerges.
- Updates on the Q3 ransomware incident, including scope, remediation, any customer or regulatory effects, and any resulting costs.
- Liquidity and capital needs, including planned technology spending, subsidiary dividend restrictions, and the company’s capital-allocation decisions.