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, 2022
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, 2022, reporting Investors Title Company's financial results for the fiscal quarter ended September 30,
2022.
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, 2022
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, 2022 | 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 issued by Investors Title Company on November 4, 2022 |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Exhibit 99.1
INVESTORS TITLE COMPANY ANNOUNCES THIRD QUARTER 2022 FINANCIAL RESULTS
Contact: Elizabeth B. Lewter
November 4, 2022
Telephone: (919) 968-2200
Nasdaq Symbol: ITIC
FOR IMMEDIATE RELEASE:
Chapel Hill, NC – Investors Title Company today announced results for the third quarter ended September 30, 2022. The Company reported net income of $7.9 million, or $4.17 per diluted share, for the three months ended September 30, 2022, compared to $14.5 million, or $7.63 per diluted share, for the prior year period.
Revenues decreased 4.2% to $78.0 million, compared with $81.4 million for the prior year quarter. The reduction in revenue is attributable to recognition of a $4.6 million unrealized loss in the Company’s equity portfolio, and a 7.9% decrease in net premiums written, partially offset by realized gains on sales of equity investments as well as increases in revenue from escrow fees and other title-related fees, and non-title services. The reduction in premiums stems from an overall decline in the level of real estate transaction volume following the rise in mortgage interest rates over the course of the year. Although overall premium revenue was down, escrow and other title-related fees increased 54.4% due to an increase in business in markets that generate escrow income, and fee income associated with commercial activity. Revenue from non-title services increased 57.5%, mainly due to an increase in like-kind exchange revenues. Realized gains from sales of equity securities were $2.2 million higher than the prior year period.
Operating expenses increased 7.8% compared to the prior year quarter, primarily due to increases in personnel costs, title fees, and office and technology expenses. Commissions to agents decreased commensurate with the decrease in agent premium volume. Personnel costs were 39.7% higher than the prior year quarter due to staffing of new offices, hiring to support growth initiatives, and increased employee benefit costs. Office, technology, and other operating expenses increased 36.7% in support of expanding our geographic footprint and ongoing technology initiatives. Claims expense was essentially flat compared to the prior year quarter.
Income before income taxes decreased 45.3% to $10.1 million for the current quarter versus $18.4 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) decreased 23.5% to $14.7 million for the third quarter versus $19.2 million in the prior year period (see Appendix A for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure).
For the nine months ended September 30, 2022, net income decreased $31.7 million to $16.4 million, or $8.63 per diluted share, versus $48.1 million, or $25.34 per diluted share, for the prior year period. Revenues decreased 8.6% to $217.9 million compared with $238.5 million for the prior year period. Operating expenses increased 11.1% to $197.1 million, mainly due to increases in personnel and office, technology, and other operating expenses. Aside from a non-recurring gain on the sale of property in the prior year period, 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 commented, “We are pleased to report another quarter of solid operating performance, despite market headwinds. Rising mortgage interest rates resulted in the continued moderation of the real estate market, reducing home affordability which in turn has softened demand.
“Although overall transaction volumes were lower than the prior year quarter, our recent successes in expanding our market footprint materially contributed to lessening the impact of the market slowdown on our operating performance. We believe the Company is well-positioned as we transition to a different stage of the real estate cycle, and plan to continue to make targeted investments in our business to expand our geographic presence, improve our operating performance, and deliver value to our customers and business partners.”
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.
Cautionary Statements Regarding Forward-Looking Statements
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, 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 impact of the COVID-19 pandemic (including any of its variants) 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 regulations; changes in the economy; the potential impact of inflation and responses by government regulators, including the Federal Reserve; 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, 2021 as filed with the Securities and Exchange Commission, and in subsequent filings.
# #
Investors Title Company and Subsidiaries
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2022 and 2021
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended<br><br> <br>September 30, | Nine Months Ended<br><br> <br>September 30, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | ||||||||
| Revenues: | |||||||||||
| Net premiums written | $ | 66,658 | $ | 72,345 | $ | 199,409 | $ | 201,349 | |||
| Escrow and other title-related fees | 5,963 | 3,863 | 17,236 | 10,148 | |||||||
| Non-title services | 3,852 | 2,446 | 9,114 | 6,932 | |||||||
| Interest and dividends | 1,229 | 893 | 3,055 | 2,807 | |||||||
| Other investment income | 2,173 | 2,186 | 4,616 | 4,610 | |||||||
| Net realized investment gains | 2,481 | 268 | 6,266 | 771 | |||||||
| Changes in the estimated fair value of equity security investments | (4,635 | ) | (802 | ) | (22,722 | ) | 7,266 | ||||
| Other | 277 | 217 | 924 | 4,572 | |||||||
| Total Revenues | 77,998 | 81,416 | 217,898 | 238,455 | |||||||
| Operating Expenses: | |||||||||||
| Commissions to agents | 33,478 | 37,570 | 97,161 | 102,458 | |||||||
| Provision for claims | 1,966 | 1,993 | 3,452 | 5,020 | |||||||
| Personnel expenses | 21,586 | 15,457 | 63,738 | 47,524 | |||||||
| Office and technology expenses | 4,274 | 3,175 | 12,930 | 9,128 | |||||||
| Other expenses | 6,606 | 4,784 | 19,783 | 13,285 | |||||||
| Total Operating Expenses | 67,910 | 62,979 | 197,064 | 177,415 | |||||||
| Income before Income Taxes | 10,088 | 18,437 | 20,834 | 61,040 | |||||||
| Provision for Income Taxes | 2,175 | 3,934 | 4,457 | 12,932 | |||||||
| Net Income | $ | 7,913 | $ | 14,503 | $ | 16,377 | $ | 48,108 | |||
| Basic Earnings per Common Share | $ | 4.17 | $ | 7.66 | $ | 8.63 | $ | 25.40 | |||
| Weighted Average Shares Outstanding – Basic | 1,897 | 1,894 | 1,897 | 1,894 | |||||||
| Diluted Earnings per Common Share | $ | 4.17 | $ | 7.63 | $ | 8.63 | $ | 25.34 | |||
| Weighted Average Shares Outstanding – Diluted | 1,897 | 1,900 | 1,898 | 1,899 |
Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of September 30, 2022 and December 31, 2021
(in thousands)
(unaudited)
| September 30,<br><br> 2022 | December 31,<br><br> 2021 | ||||
|---|---|---|---|---|---|
| Assets | |||||
| Cash and cash equivalents | $ | 41,380 | $ | 37,168 | |
| Investments: | |||||
| Fixed maturity securities, available-for-sale, at fair value | 55,307 | 79,791 | |||
| Equity securities, at fair value | 52,657 | 76,853 | |||
| Short-term investments | 80,785 | 45,930 | |||
| Other investments | 19,673 | 20,298 | |||
| Total investments | 208,422 | 222,872 | |||
| Premiums and fees receivable | 23,194 | 22,953 | |||
| Accrued interest and dividends | 971 | 817 | |||
| Prepaid expenses and other receivables | 12,527 | 11,721 | |||
| Property, net | 16,613 | 13,033 | |||
| Goodwill and other intangible assets, net | 17,954 | 15,951 | |||
| Operating lease right-of-use assets | 6,258 | 5,202 | |||
| Other assets | 2,320 | 1,771 | |||
| Current income taxes recoverable | 3,164 | — | |||
| Total Assets | $ | 332,803 | $ | 331,488 | |
| Liabilities and Stockholders’ Equity | |||||
| Liabilities: | |||||
| Reserve for claims | $ | 37,630 | $ | 36,754 | |
| Accounts payable and accrued liabilities | 41,938 | 43,868 | |||
| Operating lease liabilities | 6,389 | 5,329 | |||
| Current income taxes payable | — | 3,329 | |||
| Deferred income taxes, net | 7,805 | 13,121 | |||
| Total liabilities | 93,762 | 102,401 | |||
| Stockholders’ Equity: | |||||
| Common stock – no<br> par value (10,000 authorized shares; 1,897 and 1,895 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively, excluding in each<br> period 292 shares of common stock held by the Company's subsidiary) | — | — | |||
| Retained earnings | 239,792 | 225,861 | |||
| Accumulated other comprehensive (loss) income | (751 | ) | 3,226 | ||
| Total stockholders’ equity | 239,041 | 229,087 | |||
| Total Liabilities and Stockholders’ Equity | $ | 332,803 | $ | 331,488 |
Investors Title Company and Subsidiaries
Direct and Agency Net Premiums Written
For the Three and Nine Months Ended September 30, 2022 and 2021
(in thousands)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | % | 2021 | % | 2022 | % | 2021 | % | |||||||||
| Direct | $ | 21,818 | 32.7 | $ | 21,803 | 30.1 | $ | 68,478 | 34.3 | $ | 61,619 | 30.6 | ||||
| Agency | 44,840 | 67.3 | 50,542 | 69.9 | 130,931 | 65.7 | 139,730 | 69.4 | ||||||||
| Total | $ | 66,658 | 100.0 | $ | 72,345 | 100.0 | $ | 199,409 | 100.0 | $ | 201,349 | 100.0 |
Investors Title Company and Subsidiaries
Appendix A
Non-GAAP Measures Reconciliation
For the Three and Nine Months Ended September 30, 2022 and 2021
(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, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | ||||||
| Revenues | |||||||||
| Total revenues (GAAP) | $ | 77,998 | $ | 81,416 | $ | 217,898 | $ | 238,455 | |
| Add (Subtract): Changes in the estimated fair value of equity security investments | 4,635 | 802 | 22,722 | (7,266 | ) | ||||
| Adjusted revenues (non-GAAP) | $ | 82,633 | $ | 82,218 | $ | 240,620 | $ | 231,189 | |
| Income before Income Taxes | |||||||||
| Income before income taxes (GAAP) | $ | 10,088 | $ | 18,437 | $ | 20,834 | $ | 61,040 | |
| Add (Subtract): Changes in the estimated fair value of equity security investments | 4,635 | 802 | 22,722 | (7,266 | ) | ||||
| Adjusted income before income taxes (non-GAAP) | $ | 14,723 | $ | 19,239 | $ | 43,556 | $ | 53,774 |