Investors Title Company Announces Fourth Quarter and Fiscal Year 2023 Financial Results

Rhea-AI Summary

Investors Title Company (ITIC) reported a decrease in net income for the fourth quarter and year ended December 31, 2023, with revenues and operating expenses also showing declines. The company attributes these decreases to lower real estate transaction volumes due to higher mortgage interest rates and housing inventory constraints. Despite these challenges, the company remains optimistic about market improvements in 2024 and continues to invest in software and other initiatives for future competitiveness.

Positive

• Investors Title Company (ITIC) reported a decrease in net income for the fourth quarter and year ended December 31, 2023.
• Revenues for the quarter decreased by 18.0% to $53.7 million compared to the prior year period.
• Operating expenses for the quarter decreased by 15.6% compared to the prior year period.
• The reduction in title insurance revenues is attributed to lower real estate transaction volumes due to higher mortgage interest rates and housing inventory constraints.
• The company remains optimistic about market improvements in 2024.
• Investors Title Company continues to invest in software and other initiatives for future competitiveness.

Negative

• Net income decreased by 22.5% for the quarter and 9.3% for the year.
• Revenues decreased by 20.7% for the year.
• Adjusted income before income taxes (non-GAAP) decreased by 13.8% for the quarter and 44.9% for the year.
• The company reported a decline in income before income taxes for both the quarter and the year.
• Lower effective income tax rate was primarily due to tax adjustments and credits.

Insights

Financial Analyst

The reported decrease in net income and revenues for Investors Title Company reflects broader economic headwinds, particularly in the real estate sector. The significant reduction in title insurance revenues due to lower real estate transaction volumes is a direct consequence of increased mortgage interest rates. This has a pronounced effect on the company's profitability, as title insurance is a core business segment. The decline in net investment gains, although partially offset by other investment incomes, suggests a challenging environment for investment portfolios, which could be indicative of market volatility.

Furthermore, the operational cost reductions, including decreased commissions and personnel expenses, highlight the company's responsiveness to the downturn by managing its expense base. However, these cuts could also impact the company's ability to scale quickly once the market conditions improve. Investors should consider the company's pre-tax profit margin of 11.7%, which remains robust despite the downturn, signaling effective cost control and operational efficiency.

Economist

The commentary on mortgage rates reaching a 20-year high and their subsequent decline after Federal Reserve comments suggests a responsive relationship between monetary policy and the real estate market. The potential for Federal Reserve accommodation could indeed improve housing affordability and stimulate market activity in 2024. However, the long-term trend of housing inventory constraints and low home turnover rates could persist, posing ongoing challenges to the real estate and title insurance industries.

Investors should be aware of the macroeconomic factors at play, including the Federal Reserve's policy decisions, which have a significant influence on mortgage rates and, by extension, the real estate transaction volumes that drive title insurance demand. The lower effective income tax rate due to tax adjustments and credits is a positive note, but it's crucial to assess whether such benefits are sustainable or merely a temporary relief.

Market Research Analyst

Investors Title Company's performance is closely tied to the health of the real estate market and its results can serve as a barometer for sector activity. The described decline in housing affordability to historically low levels could have broader implications for consumer spending and the overall economy. Stakeholders should note the company's strategic investments in software and initiatives aimed at increasing competitiveness and efficiency, which could pay dividends in a market recovery scenario.

The company's ability to maintain low levels of claims activity and benefit from higher interest rates and stock market gains is commendable. However, the market's reception to these results may be tempered by the broader economic concerns and the company's stock price could reflect the mixed sentiment. The insights into seasonal patterns and the impact of interest rates on home sales and refinancing activities are crucial for stakeholders to understand the cyclical nature of the title insurance business.

CHAPEL HILL, N.C.--(BUSINESS WIRE)-- 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

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240212524733/en/

Elizabeth B. Lewter

(919) 968-2200

Source: Investors Title Company

FAQ

Why did Investors Title Company report a decrease in net income for the fourth quarter and year ended December 31, 2023?

The decrease in net income was due to lower real estate transaction volumes caused by higher mortgage interest rates and housing inventory constraints.

What factors contributed to the reduction in title insurance revenues?

The reduction in title insurance revenues was primarily due to lower real estate transaction volumes resulting from higher mortgage interest rates and ongoing housing inventory constraints.

How did operating expenses change in the fourth quarter compared to the prior year period?

Operating expenses decreased by 15.6% in the fourth quarter compared to the prior year period.

What is the outlook for market improvements in 2024 according to Investors Title Company?

Investors Title Company remains optimistic about market improvements in 2024.

What initiatives is Investors Title Company undertaking for future competitiveness?

Investors Title Company continues to invest in software and other initiatives for future competitiveness.