8-K
INVESTORS TITLE CO (ITIC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): November 4, 2020
INVESTORS TITLE COMPANY
(Exact Name of Registrant as Specified in Charter)
| North Carolina | 0-11774 | 56-1110199 |
|---|---|---|
| (State or Other Jurisdiction | (Commission File Number) | (IRS Employer Identification No.) |
| of Incorporation) | ||
| 121 North Columbia Street, Chapel Hill, North Carolina<br> 27514 | ||
| --- | ||
| (Address of Principal Executive Offices) (Zip Code) |
Registrant's telephone number, including area code: (919) 968-2200
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, no par value | ITIC | The NASDAQ Stock Market LLC |
| Rights to Purchase Series A Junior Participating Preferred Stock | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition
Attached as Exhibit 99.1 and incorporated herein by reference is a copy of the press release of Investors Title Company, dated November 4, 2020, reporting Investors Title Company's financial results for the fiscal quarter ended September 30, 2020.
The information in this Current Report is being furnished and shall not be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act"), or otherwise subject to the liabilities of that Section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, regardless of any general incorporation language in such filing.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits. The following exhibit accompanies this Report:
Exhibit 99.1 - Press Release of Investors Title Company dated November 4, 2020.
Exhibit 104 - Cover Page Interactive Data File (embedded within the Inline XBRL document).
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| INVESTORS TITLE COMPANY | |||
|---|---|---|---|
| Date: | November 4, 2020 | By: | /s/ James A. Fine, Jr. |
| James A. Fine, Jr. | |||
| President, Principal Financial Officer and | |||
| Principal Accounting Officer |
EXHIBIT INDEX
| Exhibit No. | Description |
|---|---|
| 99.1 | Press release<br> issued by Investors Title Company on November 4, 2020 |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Exhibit 99.1
Investors Title Company Announces Record Third Quarter 2020 Financial Results
CHAPEL HILL, N.C.--(BUSINESS WIRE)--November 4, 2020--Investors Title Company today announced results for the third quarter ended September 30, 2020. The Company reported net income of $15.3 million, or $8.07 per diluted share, for the three months ended September 30, 2020, compared to $8.0 million, or $4.20 per diluted share, for the prior year period. All-time quarterly records were set for total revenues, net premiums written, and net income.
Revenues increased 41.1% to $67.6 million, compared with $47.9 million for the prior year quarter. Net premiums written increased 42.4% to $57.2 million, as lower average mortgage interest rates continued to drive increases in refinance activity, while the level of home sales remained strong as well. Revenue from non-title services decreased 23.0%, mainly due to the impact of the interest rate environment on like-kind exchange revenues. Changes in the estimated fair value of equity security investments resulted in the recognition of $3.6 million of revenue as stock values continued to rebound from declines in the first quarter associated with the COVID-19 pandemic.
Operating expenses increased 28.6%, as higher premium volumes drove increases in commissions to agents and claims expense. Personnel costs were 8.6% higher than the prior year due to normal inflationary increases, higher staffing levels to accommodate volume growth, and targeted staff increases to support strategic growth initiatives.
Income before income taxes increased 88.2% to $18.9 million for the current quarter versus $10.0 million in the prior year period. Excluding the impact of changes in the estimated fair value of equity security investments, income before income taxes (non-GAAP) increased 58.5% to $15.2 million for the current quarter versus $9.6 million in the prior year period (see Appendix A for a reconciliation of GAAP to non-GAAP measures used in this press release).
For the nine months ended September 30, 2020, net income increased 13.5% to $22.8 million, or $12.02 per diluted share, versus $20.1 million, or $10.59 per diluted share, for the prior year period. Revenues increased 21.9% to $159.3 million, notwithstanding the recognition of $2.9 million of reductions in the estimated fair value of equity investments, compared with $130.6 million for the prior year period, which included a $6.2 million increase in the estimated fair value of equity investments. Operating expenses increased 24.4% to $131.0 million, mainly due to increases in agent commissions. Aside from the particularly strong revenue growth in the third quarter, overall results for the year-to-date period have been shaped predominantly by the same factors that affected the third quarter.
Chairman J. Allen Fine added, “We are pleased to report an exceptionally strong third quarter, exceeding all prior Company quarterly records for revenues and earnings. As mortgage interest rates hovered just below three percent for most of the quarter, the level of refinance activity continued at a pace similar to the second quarter, and well above the prior year. In addition, title premiums from home sales, sustained by low interest rates and rising real estate values, increased substantially relative to both the previous quarter and the prior year quarter.”
Investors Title Company’s subsidiaries issue and underwrite title insurance policies. The Company also provides investment management services and services in connection with tax-deferred exchanges of like-kind property.
Certain statements contained herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of words such as “plan,” “expect,” “aim,” “believe,” “project,” “anticipate,” “intend,” “estimate,” “should,” “could,” “would,” and other expressions that indicate future events and trends. Such statements include, among others, any statements regarding the Company’s expected performance for this year, projections regarding U.S. recovery from the COVID-19 pandemic, future home price fluctuations, changes in home purchase or refinance demand, activity and the mix thereof, interest rate changes, expansion of the Company’s market presence, enhancing competitive strengths, positive development in housing affordability, wages, unemployment or overall economic conditions or statements regarding our actuarial assumptions and the application of recent historical claims experience to future periods. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from anticipated and historical results. Such risks and uncertainties include, without limitation: the severity and duration of the COVID-19 pandemic and its effects (and the effects of measures undertaken to combat it) on the economy and the Company’s business; the cyclical demand for title insurance due to changes in the residential and commercial real estate markets; the occurrence of fraud, defalcation or misconduct; variances between actual claims experience and underwriting and reserving assumptions, including the limited predictive power of historical claims experience; declines in the performance of the Company’s investments; government regulation; changes in the economy; the impact of the 2020 U.S. presidential election; loss of agency relationships, or significant reductions in agent-originated business; difficulties managing growth, whether organic or through acquisitions and other considerations set forth under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission, and in subsequent filings.
| Investors Title Company and Subsidiaries<br><br> <br>Consolidated Statements of Operations<br><br> <br>For the Three and Nine Months Ended September 30, 2020 and 2019<br><br> <br>(in thousands, except per share amounts)<br><br> <br>(unaudited) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Three Months Ended <br><br> September 30, | Nine Months Ended <br><br> September 30, | |||||||
| 2020 | 2019 | 2020 | 2019 | |||||
| Revenues: | ||||||||
| Net premiums written | $ | 57,205 | $ | 40,169 | $ | 143,311 | $ | 103,942 |
| Escrow and other title-related fees | 2,154 | 2,393 | 6,014 | 5,616 | ||||
| Non-title services | 1,954 | 2,539 | 6,476 | 7,444 | ||||
| Interest and dividends | 1,060 | 1,156 | 3,342 | 3,605 | ||||
| Other investment income | 1,270 | 708 | 2,236 | 2,044 | ||||
| Net realized investment gains | 186 | 423 | 327 | 1,199 | ||||
| Changes in the estimated fair value of equity security investments | 3,619 | 406 | (2,867) | 6,218 | ||||
| Other | 185 | 145 | 443 | 550 | ||||
| Total Revenues | 67,633 | 47,939 | 159,282 | 130,618 | ||||
| Operating Expenses: | ||||||||
| Commissions to agents | 29,068 | 19,928 | 73,344 | 51,261 | ||||
| Provision for claims | 1,552 | 987 | 4,452 | 3,610 | ||||
| Personnel expenses | 12,575 | 11,576 | 36,632 | 34,871 | ||||
| Office and technology expenses | 2,456 | 2,350 | 7,328 | 6,803 | ||||
| Other expenses | 3,125 | 3,079 | 9,276 | 8,821 | ||||
| Total Operating Expenses | 48,776 | 37,920 | 131,032 | 105,366 | ||||
| Income before Income Taxes | 18,857 | 10,019 | 28,250 | 25,252 | ||||
| Provision for Income Taxes | 3,556 | 2,067 | 5,465 | 5,174 | ||||
| Net Income | $ | 15,301 | $ | 7,952 | $ | 22,785 | $ | 20,078 |
| Basic Earnings per Common Share | $ | 8.09 | $ | 4.21 | $ | 12.04 | $ | 10.63 |
| Weighted Average Shares Outstanding – Basic | 1,892 | 1,889 | 1,892 | 1,888 | ||||
| Diluted Earnings per Common Share | $ | 8.07 | $ | 4.20 | $ | 12.02 | $ | 10.59 |
| Weighted Average Shares Outstanding – Diluted | 1,895 | 1,895 | 1,896 | 1,896 |
| Investors Title Company and Subsidiaries<br> <br>Consolidated Balance Sheets<br><br> <br>As of September 30, 2020 and December 31, 2019<br><br> <br>(in thousands)<br><br> <br>(unaudited) | ||||
|---|---|---|---|---|
| September 30, <br><br> 2020 | December 31, <br><br> 2019 | |||
| Assets | ||||
| Cash and cash equivalents | $ | 41,534 | $ | 25,949 |
| Investments: | ||||
| Fixed maturity securities, available-for-sale, at fair value | 98,428 | 104,638 | ||
| Equity securities, at fair value | 58,851 | 61,108 | ||
| Short-term investments | 22,516 | 13,134 | ||
| Other investments | 14,829 | 13,982 | ||
| Total investments | 194,624 | 192,862 | ||
| Premiums and fees receivable | 17,291 | 12,523 | ||
| Accrued interest and dividends | 1,187 | 1,033 | ||
| Prepaid expenses and other receivables | 9,185 | 5,519 | ||
| Property, net | 10,669 | 9,776 | ||
| Goodwill and other intangible assets, net | 9,897 | 10,275 | ||
| Operating lease right-of-use assets | 3,798 | 4,469 | ||
| Other assets | 1,560 | 1,487 | ||
| Total Assets | $ | 289,745 | $ | 263,893 |
| Liabilities and Stockholders’ Equity | ||||
| Liabilities: | ||||
| Reserve for claims | $ | 33,532 | $ | 31,333 |
| Accounts payable and accrued liabilities | 31,565 | 28,318 | ||
| Operating lease liabilities | 3,937 | 4,502 | ||
| Current income taxes payable | 813 | 1,340 | ||
| Deferred income taxes, net | 6,971 | 7,038 | ||
| Total liabilities | 76,818 | 72,531 | ||
| Stockholders’ Equity: | ||||
| Common stock – no par value (10,000 authorized shares; 1,892 and 1,889 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively, excluding in each<br> period 292 shares of common stock held by the Company's subsidiary) | — | — | ||
| Retained earnings | 208,647 | 188,262 | ||
| Accumulated other comprehensive income | 4,280 | 3,100 | ||
| Total stockholders’ equity | 212,927 | 191,362 | ||
| Total Liabilities and Stockholders’ Equity | $ | 289,745 | $ | 263,893 |
| Investors Title Company and Subsidiaries<br> <br>Net Premiums Written By Branch and Agency<br><br> <br>For the Three and Nine Months Ended September 30, 2020 and 2019<br><br> <br>(in thousands)<br><br> <br>(unaudited) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2020 | % | 2019 | % | 2020 | % | 2019 | % | |||||
| Branch | $ | 15,496 | 27.1 | $ | 11,557 | 28.8 | $ | 38,364 | 26.8 | $ | 29,111 | 28.0 |
| Agency | 41,709 | 72.9 | 28,612 | 71.2 | 104,947 | 73.2 | 74,831 | 72.0 | ||||
| Total | $ | 57,205 | 100.0 | $ | 40,169 | 100.0 | $ | 143,311 | 100.0 | $ | 103,942 | 100.0 |
Investors Title Company and Subsidiaries Appendix A Non-GAAP Measures Reconciliation For the Three and Nine Months Ended September 30, 2020 and 2019 (in thousands) (unaudited)
Management uses various financial and operational measurements, including financial information not prepared in accordance with generally accepted accounting principles ("GAAP"), to analyze Company performance. This includes adjusting revenues to remove the impact of changes in the estimated fair value of equity security investments, which are recognized in net income under GAAP. Management believes that these measures are useful to evaluate the Company's internal operational performance from period to period because they eliminate the effects of external market fluctuations. The Company also believes users of the financial results would benefit from having access to such information, and that certain of the Company’s peers make available similar information. This information should not be used as a substitute for, or considered superior to, measures of financial performance prepared in accordance with GAAP, and may be different from similarly titled non-GAAP financial measures used by other companies.
The following tables reconcile non-GAAP financial measurements used by Company management to the comparable measurements using GAAP:
| Three Months Ended <br><br> September 30, | Nine Months Ended <br><br> September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||
| Revenues | ||||||||
| Total revenues (GAAP) | $ | 67,633 | $ | 47,939 | $ | 159,282 | $ | 130,618 |
| (Subtract) Add: Changes in the estimated fair value of equity security investments | (3,619) | (406) | 2,867 | (6,218) | ||||
| Adjusted revenues (non-GAAP) | $ | 64,014 | $ | 47,533 | $ | 162,149 | $ | 124,400 |
| Income before Income Taxes | ||||||||
| Income before income taxes (GAAP) | $ | 18,857 | $ | 10,019 | $ | 28,250 | $ | 25,252 |
| (Subtract) Add: Changes in the estimated fair value of equity security investments | (3,619) | (406) | 2,867 | (6,218) | ||||
| Adjusted income before income taxes (non-GAAP) | $ | 15,238 | $ | 9,613 | $ | 31,117 | $ | 19,034 |
Contacts
Elizabeth B. Lewter
Telephone: \(919\) 968-2200