Investors Title Company (Nasdaq: ITIC) today announced results for the fourth quarter and year ended December 31, 2023. For the quarter, net income decreased 22.5% to $5.8 million, or $3.09 per diluted share, versus $7.5 million, or $3.97 per diluted share, in the prior year period. For the year, net income decreased 9.3% to $21.7 million, or $11.45 per diluted share, versus $23.9 million, or $12.59 per diluted share, in the prior year.

Revenues for the quarter decreased 18.0% to $53.7 million, compared with $65.5 million for the prior year period, primarily as the result of decreases in the Company’s title insurance business and net investment gains, partially offset by increases in interest and dividend income and other investment income. The reduction in title insurance revenues is attributable to an overall decline in the level of real estate transaction volumes resulting from higher average mortgage interest rates, which started to trend downwards to some extent towards the end of the current year period, and ongoing housing inventory constraints. The decrease in net investment gains was mostly due to a reduction in net realized gains from the sale of investments compared to the prior year period. These decreases were partially offset by increases in other investment income and interest income. Changes in other investment income are due to fluctuations in the market value of the underlying investments and distributions received during the quarter. Interest income levels are primarily a function of general market performance, interest rates and the level of cash balances.

Operating expenses for the quarter decreased 15.6% compared to the prior year period, primarily due to reductions in expenses which fluctuate with title insurance volume. Commissions to agents decreased by $4.8 million, commensurate with the decrease in agent premium volume. Personnel expenses decreased by $3.3 million, primarily due to reductions in incentive compensation and reductions in staffing levels. Other expenses were down $552 thousand, mainly due to the impact of lower title insurance volumes. The provision for claims, and office and technology expenses, remained consistent with the prior year period.

Income before income taxes decreased to $6.2 million for the current quarter, versus $9.3 million in the prior year period. Excluding the impact of net investment gains (losses), adjusted income before income taxes (non-GAAP) decreased 13.8% to $3.5 million for the quarter, versus $4.0 million in the prior year period (see Appendix A for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure). Income tax expense, including federal and state taxes, as a percentage of income before income taxes was 6.1% for the current year, compared with 18.8% for the prior year period. The lower effective income tax rate was primarily due to the impact of tax adjustments and tax credits.

For the year, revenues decreased 20.7% to $224.8 million, compared with $283.4 million for the prior year. Operating expenses decreased 21.6% to $198.5 million, compared with $253.3 million for the prior year period. Income before income taxes decreased 12.9% to $26.2 million, compared with $30.1 million for the prior year. Excluding the impact of net investment gains (losses), adjusted income before income taxes (non-GAAP) decreased 44.9% to $22.8 million, versus $41.3 million for the prior year (see Appendix A for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure). Aside from an increase in revenue from non-title services and an improvement in net investment gains (losses), overall results for the full year were shaped predominantly by the same factors that affected the fourth quarter. The increase in revenue from non-title services was mainly due to an increase in like-kind exchange revenues. Positive changes in the estimated fair value of equity security investments resulted in an improvement in net investment gains (losses) compared to the prior year.

Chairman J. Allen Fine commented, “Results for the quarter reflect the ongoing slowdown in real estate transaction activity, as well as typical seasonal patterns. Elevated levels of interest rates continue to negatively impact home sales and mortgage refinancing. At the same time, a constrained inventory of homes for sale coupled with the lowest levels of home turnover in at least a decade has kept real estate values near their post-pandemic peaks. These factors have all converged to reduce housing affordability to historically low levels.

“Early in the fourth quarter, mortgage rates reached a 20-year high of 7.8%. After public comments made by the Federal Reserve in October, however, rates reversed their upward trend and declined steadily over the balance of the quarter. By year-end, the average 30-year mortgage rate stood at 6.6%, more than a full percentage point below the high. We believe this decline and any accommodative policy by the Federal Reserve should help improve affordability and provide general market support in 2024.

“Despite the most challenging economic conditions since the great financial crisis of 2008, with mortgage transaction volumes dipping to levels not seen in over two decades, we reported another year of solid operating results in 2023, with a pre-tax profit margin of 11.7%. The level of claims activity remained low, and investment earnings continued to benefit from higher interest rates and stock market gains. Additionally, we continue to make select investments in software and other initiatives, which will help make us a more competitive and efficient company over the course of the market cycle.”

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, 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 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, including those resulting from a potential shutdown of the U.S. Government; the impact of inflation and responses by government regulators, including the Federal Reserve, such as changes in interest rates; 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, 2022 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 Twelve Months Ended December 31, 2023 and 2022

(in thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended

December 31,

 

Twelve Months Ended

December 31,

 

 

 

2023

 

 

2022

 

 

 

2023

 

 

2022

 

Revenues:

 

 

 

 

 

 

 

 

Net premiums written

 

$

38,365

 

$

49,223

 

 

$

171,158

 

$

248,632

 

Escrow and other title-related fees

 

 

4,167

 

 

4,853

 

 

 

17,109

 

 

22,314

 

Non-title services

 

 

4,724

 

 

5,042

 

 

 

19,237

 

 

13,931

 

Interest and dividends

 

 

2,518

 

 

1,649

 

 

 

9,055

 

 

4,704

 

Other investment income (loss)

 

 

837

 

 

(720

)

 

 

3,752

 

 

3,896

 

Net investment gains (losses)

 

 

2,728

 

 

5,230

 

 

 

3,448

 

 

(11,226

)

Other

 

 

344

 

 

217

 

 

 

991

 

 

1,141

 

Total Revenues

 

 

53,683

 

 

65,494

 

 

 

224,750

 

 

283,392

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

Commissions to agents

 

 

19,639

 

 

24,405

 

 

 

83,374

 

 

121,566

 

Provision for claims

 

 

865

 

 

803

 

 

 

4,762

 

 

4,255

 

Personnel expenses

 

 

18,255

 

 

21,593

 

 

 

76,706

 

 

85,331

 

Office and technology expenses

 

 

4,237

 

 

4,393

 

 

 

17,359

 

 

17,323

 

Other expenses

 

 

4,474

 

 

5,026

 

 

 

16,319

 

 

24,809

 

Total Operating Expenses

 

 

47,470

 

 

56,220

 

 

 

198,520

 

 

253,284

 

 

 

 

 

 

 

 

 

 

Income before Income Taxes

 

 

6,213

 

 

9,274

 

 

 

26,230

 

 

30,108

 

 

 

 

 

 

 

 

 

 

Provision for Income Taxes

 

 

377

 

 

1,748

 

 

 

4,544

 

 

6,205

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

5,836

 

$

7,526

 

 

$

21,686

 

$

23,903

 

 

 

 

 

 

 

 

 

 

Basic Earnings per Common Share

 

$

3.09

 

$

3.97

 

 

$

11.45

 

$

12.60

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding – Basic

 

 

1,891

 

 

1,897

 

 

 

1,893

 

 

1,897

 

 

 

 

 

 

 

 

 

 

Diluted Earnings per Common Share

 

$

3.09

 

$

3.97

 

 

$

11.45

 

$

12.59

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding – Diluted

 

 

1,891

 

 

1,897

 

 

 

1,893

 

 

1,898

 

 
 

Investors Title Company and Subsidiaries

Consolidated Balance Sheets

As of December 31, 2023 and 2022

(in thousands)

(unaudited)

 

 

December 31,
2023

 

December 31,
2022

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

24,031

 

$

35,311

 

 

 

 

Investments:

 

 

 

Fixed maturity securities, available-for-sale, at fair value

 

63,847

 

 

53,989

Equity securities, at fair value

 

37,212

 

 

51,691

Short-term investments

 

110,224

 

 

103,649

Other investments

 

17,385

 

 

18,368

Total investments

 

228,668

 

 

227,697

 

 

 

 

Premiums and fees receivable

 

13,338

 

 

19,047

Accrued interest and dividends

 

978

 

 

872

Prepaid expenses and other receivables

 

13,525

 

 

11,095

Property, net

 

23,886

 

 

17,785

Goodwill and other intangible assets, net

 

16,249

 

 

17,611

Lease assets

 

6,303

 

 

6,707

Other assets

 

2,500

 

 

2,458

Current income taxes recoverable

 

1,081

 

 

1,174

Total Assets

$

330,559

 

$

339,757

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Liabilities:

 

 

 

Reserve for claims

$

37,147

 

$

37,192

Accounts payable and accrued liabilities

 

31,864

 

 

47,050

Lease liabilities

 

6,449

 

 

6,839

Deferred income taxes, net

 

3,546

 

 

7,665

Total liabilities

 

79,006

 

 

98,746

 

 

 

 

Stockholders’ Equity:

 

 

 

Common stock – no par value (10,000 authorized shares; 1,891 and 1,897 shares issued and outstanding as of December 31, 2023 and 2022, respectively, excluding in each period 292 shares of common stock held by the Company's subsidiary)

 

—

 

 

—

Retained earnings

 

250,915

 

 

240,811

Accumulated other comprehensive income

 

638

 

 

200

Total stockholders’ equity

 

251,553

 

 

241,011

Total Liabilities and Stockholders’ Equity

$

330,559

 

$

339,757

 
 

Investors Title Company and Subsidiaries

Direct and Agency Net Premiums Written

For the Three and Twelve Months Ended December 31, 2023 and 2022

(in thousands)

(unaudited)

 

 

Three Months Ended December 31,

Twelve Months Ended December 31,

 

 

2023

%

 

2022

%

 

2023

%

 

2022

%

Direct

$

12,088

31.5

$

16,230

33.0

$

58,063

33.9

$

85,676

34.5

 

 

 

 

 

 

 

 

 

Agency

 

26,277

68.5

 

32,993

67.0

 

113,095

66.1

 

162,956

65.5

 

 

 

 

 

 

 

 

 

Total

$

38,365

100.0

$

49,223

100.0

$

171,158

100.0

$

248,632

100.0

 

Investors Title Company and Subsidiaries
Appendix A
Non-GAAP Measures Reconciliation
For the Three and Twelve Months Ended December 31, 2023 and 2022
(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 net investment gains and losses, which are recognized in net income under GAAP. Net investment gains and losses include realized gains and losses on sales of investment securities and changes in the estimated fair value of equity security investments. For the three and twelve months ended December 31, 2023, management has decided to exclude realized gains and losses on sales of investment securities in addition to changes in the estimated fair value of equity security investments for consistency with a similar change in the presentation in the Consolidated Statement of Operations. The non-GAAP financial measures for prior year periods included in this Appendix have also been updated for consistency with this presentation. Therefore adjusted revenues (non-GAAP) and adjusted income before income taxes (non-GAAP) below are not comparable with previously published non-GAAP financial measures for the Company. 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
December 31,

Twelve Months Ended
December 31,

 

 

2023

 

 

 

2022

 

 

2023

 

 

 

2022

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

Total revenues (GAAP)

$

53,683

 

 

$

65,494

 

$

224,750

 

 

$

283,392

(Subtract) Add: Net investment (gains) losses

 

(2,728

)

 

 

(5,230

)

 

(3,448

)

 

 

11,226

Adjusted revenues (non-GAAP)

$

50,955

 

 

$

60,264

 

$

221,302

 

 

$

294,618

 

 

 

 

 

 

 

Income before Income Taxes

 

 

 

 

 

 

Income before income taxes (GAAP)

$

6,213

 

 

$

9,274

 

$

26,230

 

 

$

30,108

(Subtract) Add: Net investment (gains) losses

 

(2,728

)

 

 

(5,230

)

 

(3,448

)

 

 

11,226

Adjusted income before income taxes (non-GAAP)

$

3,485

 

 

$

4,044

 

$

22,782

 

 

$

41,334