Investors Title Company (Nasdaq: ITIC) today announced results for the third quarter ended September 30, 2022. The Company reported net income of $7.9 million, or $4.17 per diluted share, for the three months ended September 30, 2022, compared to $14.5 million, or $7.63 per diluted share, for the prior year period.

Revenues decreased 4.2% to $78.0 million, compared with $81.4 million for the prior year quarter. The reduction in revenue is attributable to recognition of a $4.6 million unrealized loss in the Company’s equity portfolio, and a 7.9% decrease in net premiums written, partially offset by realized gains on sales of equity investments as well as increases in revenue from escrow fees and other title-related fees, and non-title services. The reduction in premiums stems from an overall decline in the level of real estate transaction volume following the rise in mortgage interest rates over the course of the year. Although overall premium revenue was down, escrow and other title-related fees increased 54.4% due to an increase in business in markets that generate escrow income, and fee income associated with commercial activity. Revenue from non-title services increased 57.5%, mainly due to an increase in like-kind exchange revenues. Realized gains from sales of equity securities were $2.2 million higher than the prior year period.

Operating expenses increased 7.8% compared to the prior year quarter, primarily due to increases in personnel costs, title fees, and office and technology expenses. Commissions to agents decreased commensurate with the decrease in agent premium volume. Personnel costs were 39.7% higher than the prior year quarter due to staffing of new offices, hiring to support growth initiatives, and increased employee benefit costs. Office, technology, and other operating expenses increased 36.7% in support of expanding our geographic footprint and ongoing technology initiatives. Claims expense was essentially flat compared to the prior year quarter.

Income before income taxes decreased 45.3% to $10.1 million for the current quarter versus $18.4 million in the prior year period. Excluding the impact of changes in the estimated fair value of equity security investments, income before income taxes (non-GAAP) decreased 23.5% to $14.7 million for the third quarter versus $19.2 million in the prior year period (see Appendix A for a reconciliation of this non-GAAP measure to the most directly comparable GAAP measure).

For the nine months ended September 30, 2022, net income decreased $31.7 million to $16.4 million, or $8.63 per diluted share, versus $48.1 million, or $25.34 per diluted share, for the prior year period. Revenues decreased 8.6% to $217.9 million compared with $238.5 million for the prior year period. Operating expenses increased 11.1% to $197.1 million, mainly due to increases in personnel and office, technology, and other operating expenses. Aside from a non-recurring gain on the sale of property in the prior year period, overall results for the year-to-date period have been shaped predominantly by the same factors that affected the third quarter.

Chairman J. Allen Fine commented, “We are pleased to report another quarter of solid operating performance, despite market headwinds. Rising mortgage interest rates resulted in the continued moderation of the real estate market, reducing home affordability which in turn has softened demand.

“Although overall transaction volumes were lower than the prior year quarter, our recent successes in expanding our market footprint materially contributed to lessening the impact of the market slowdown on our operating performance. We believe the Company is well-positioned as we transition to a different stage of the real estate cycle, and plan to continue to make targeted investments in our business to expand our geographic presence, improve our operating performance, and deliver value to our customers and business partners.”

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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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, projections regarding U.S. recovery from the COVID-19 pandemic, 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 impact of the COVID-19 pandemic (including any of its variants) on the economy and the Company’s business; 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; 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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