FOURTH QUARTER AND FISCAL YEAR 2022 RESULTS

     Contact:  Elizabeth B. Lewter

February 14, 2023

Telephone: (919) 968-2200

        Nasdaq Symbol: ITIC

Chapel Hill, NC – 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.

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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.

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		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

		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

		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

		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