Investors Title Company Announces Fourth Quarter and Fiscal Year 2022 Results

About this update from Investors Title Company

CHAPEL HILL, N.C. --(BUSINESS WIRE)-- Investors Title Company today announced results for the fourth quarter and year ended December 31, 2022 . For the quarter, net income decreased 60.2% to $7.5 million , or $3.97 per diluted share, versus $18.9 million , or $9.94 per diluted share, in the prior year period. For the year, net income decreased 64.3% to $23.9 million , or $12.59 per diluted share, versus $67.0 million , or $35.28 per diluted share, in the prior year. Revenues for the quarter decreased 28.1% to $65.5 million , compared to $91.0 million in the prior year period, primarily as a result of a 32.1% decrease in net premiums written, a $5.9 million decrease in the change in the estimated fair value of equity security investments, and a loss in other investments. These factors were partially offset by net realized gains in our equity portfolio, increases in escrow fees and other title-related fees, and higher levels of revenue derived from non-title services. The reduction in net premiums written is attributable to an overall decline in the level of real estate transaction volumes resulting from higher average mortgage interest rates. Although overall premium revenue declined, escrow and other title-related fees increased 27.1% due to an increase in business in markets that generate escrow income, and fee income associated with commercial activity. Revenues from non-title services increased 97.8% due to increases in income from like-kind exchange revenues. Realized gains from sales of equity securities were $2.4 million higher than the prior year quarter. Operating expenses decreased 16.3% compared to the prior year quarter, mainly due to a 39.5% decline in commissions to agents commensurate with the decrease in agent premium volume. Personnel expenses were 29.5% higher than the prior year due to staffing of new offices and hiring to support growth initiatives. Office expenses increased 11.8% in support of expanding our geographic footprint. Income before income taxes decreased 61.2% to $9.3 million compared with $23.9 million for the prior year quarter. Excluding the impact of changes in the estimated fair value of equity security investments, adjusted income before income taxes (non-GAAP) decreased 53.7% to $7.5 million versus $16.2 million for the prior year period (see Appendix A for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure). For the year, revenues decreased 14.0% to $283.4 million compared with $329.5 million for the prior year. Operating expenses increased 3.6% to $253.3 million compared with $244.6 million for the prior year period, mainly due to increases in personnel and office, technology and other operating expenses, partially offset by a decrease in commissions. Income before income taxes decreased 64.6% to $30.1 million compared with $84.9 million for the prior year. Excluding the impact of changes in the estimated fair value of equity security investments, adjusted income before income taxes (non-GAAP) decreased 27.0% to $51.1 million versus $70.0 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 a non-recurring gain on the sale of property in the prior year period and an increase in technology and other operating expenses, overall results for the year-to-date period have been shaped predominantly by the same factors that affected the fourth quarter. Chairman J. Allen Fine commented, “The impact of Federal Reserve efforts to fight inflation by slowing economic activity came into sharper focus in the fourth quarter. The rapid rise in mortgage interest rates over the course of the year and the appreciation in home prices in recent years combined to dampen financial results for the fourth quarter relative to the record performance of the prior year. Home prices have increased nearly 40% following the pandemic, and mortgage rates doubled since the beginning of 2022. Although home prices in most of our key markets seem to be largely holding steady, transaction volumes were more impacted by these recent trends. “Despite these challenging economic conditions, we reported another year of solid operating results in 2022. The level of claims activity remained low, and we are seeing a partial offset to Fed policy in the opportunity to earn a higher level of return on our investment portfolio from the highest level of interest rates available in over a decade. Operationally we are also benefitting from growth initiatives of the last several years. “While we expect these market headwinds to persist for a while, there are some positive signs on the horizon. Inflation data has moderated in recent months and this recent trend may enable the Fed to moderate or cease its inflation fighting program in the upcoming months. In anticipation of this, mortgage rates have already fallen slightly from their peak in December. We believe this should help affordability and provide support to the market going forward. “Real estate markets are cyclical in nature due in part to sensitivity to changes in interest rates and their impact on borrowing costs. Downturns in market activity require companies to make appropriate adjustments. We are focused on maintaining a disciplined management approach balancing both the need for shorter term cost control with an appropriate level of investment in longer term growth opportunities.” 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; the potential impact of inflation and responses by government regulators, including the Federal Reserve ; the impact of the COVID-19 pandemic (including any of its variants) on the economy and the Company’s business; 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 Twelve Months Ended December 31, 2022 and 2021 (in thousands, except per share amounts) (unaudited) Three Months Ended December 31 , Twelve Months Ended December 31 , 2022 2021 2022 2021 Revenues: Net premiums written $ 49,223 $ 72,536 $ 248,632 $ 273,885 Escrow and other title-related fees 4,485 3,530 21,721 13,678 Non-title services 5,410 2,735 14,524 9,667 Interest and dividends 1,649 966 4,704 3,773 Other investment (loss) income (720 ) 2,310 3,896 6,920 Net realized investment gains 3,469 1,098 9,735 1,869 Changes in the estimated fair value of equity security investments 1,761 7,668 (20,961 ) 14,934 Other 217 200 1,141 4,772 Total Revenues 65,494 91,043 283,392 329,498 Operating Expenses: Commissions to agents 24,405 40,357 121,566 142,815 Provision for claims 803 666 4,255 5,686 Personnel expenses 21,593 16,669 85,331 64,193 Office and technology expenses 4,393 3,931 17,323 13,059 Other expenses 5,026 5,528 24,809 18,813 Total Operating Expenses 56,220 67,151 253,284 244,566 Income before Income Taxes 9,274 23,892 30,108 84,932 Provision for Income Taxes 1,748 4,980 6,205 17,912 Net Income $ 7,526 $ 18,912 $ 23,903 $ 67,020 Basic Earnings per Common Share $ 3.97 $ 9.98 $ 12.60 $ 35.38 Weighted Average Shares Outstanding – Basic 1,897 1,895 1,897 1,894 Diluted Earnings per Common Share $ 3.97 $ 9.94 $ 12.59 $ 35.28 Weighted Average Shares Outstanding – Diluted 1,897 1,903 1,898 1,900 Investors Title Company and Subsidiaries Consolidated Balance Sheets As of December 31, 2022 and 2021 (in thousands) (unaudited) December 31 , 2022 December 31 , 2021 Assets Cash and cash equivalents $ 35,311 $ 37,168 Investments: Fixed maturity securities, available-for-sale, at fair value 53,989 79,791 Equity securities, at fair value 51,691 76,853 Short-term investments 103,649 45,930 Other investments 18,368 20,298 Total investments 227,697 222,872 Premiums and fees receivable 19,047 22,953 Accrued interest and dividends 872 817 Prepaid expenses and other receivables 11,095 11,721 Property, net 17,785 13,033 Goodwill and other intangible assets, net 17,611 15,951 Lease assets 6,707 5,202 Other assets 2,458 1,771 Current income taxes recoverable 1,174 — Total Assets $ 339,757 $ 331,488 Liabilities and Stockholders’ Equity Liabilities: Reserve for claims $ 37,192 $ 36,754 Accounts payable and accrued liabilities 47,050 43,868 Lease liabilities 6,839 5,329 Current income taxes payable — 3,329 Deferred income taxes, net 7,665 13,121 Total liabilities 98,746 102,401 Stockholders’ Equity: Common stock – no par value (10,000 authorized shares; 1,897 and 1,895 shares issued and outstanding as of December 31, 2022 and 2021, respectively, excluding in each period 292 shares of common stock held by the Company's subsidiary) — — Retained earnings 240,811 225,861 Accumulated other comprehensive income 200 3,226 Total stockholders’ equity 241,011 229,087 Total Liabilities and Stockholders’ Equity $ 339,757 $ 331,488 Investors Title Company and Subsidiaries Direct and Agency Net Premiums Written For the Three and Twelve Months Ended December 31, 2022 and 2021 (in thousands) (unaudited) Three Months Ended December 31 , Twelve Months Ended December 31 , 2022 % 2021 % 2022 % 2021 % Direct $ 16,230 33.0 $ 19,363 26.7 $ 85,676 34.5 $ 82,085 30.0 Agency 32,993 67.0 53,173 73.3 162,956 65.5 191,800 70.0 Total $ 49,223 100.0 $ 72,536 100.0 $ 248,632 100.0 $ 273,885 100.0 Investors Title Company and Subsidiaries Appendix A Non-GAAP Measures Reconciliation For the Three and Twelve Months Ended December 31, 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 December 31 , Twelve Months Ended December 31 , 2022 2021 2022 2021 Revenues Total revenues (GAAP) $ 65,494 $ 91,043 $ 283,392 $ 329,498 (Subtract) Add: Changes in the estimated fair value of equity security investments (1,761 ) (7,668 ) 20,961 (14,934 ) Adjusted revenues (non-GAAP) $ 63,733 $ 83,375 $ 304,353 $ 314,564 Income before Income Taxes Income before income taxes (GAAP) $ 9,274 $ 23,892 $ 30,108 $ 84,932 (Subtract) Add: Changes in the estimated fair value of equity security investments (1,761 ) (7,668 ) 20,961 (14,934 ) Adjusted income before income taxes (non-GAAP) $ 7,513 $ 16,224 $ 51,069 $ 69,998 View source version on businesswire.com : https://www.businesswire.com/news/home/20230214005112/en/ Elizabeth B. Lewter Telephone: (919) 968-2200 Source: Investors Title Company

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