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

About this update from Investors Title Company

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

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