UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 2001
-------------------2002
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _____________
Commission File Number: 0-11774
-----------
INVESTORS TITLE COMPANY
------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1110199
-------------- ----------
(State of Incorporation) (I.R.S. Employer)Employer Identification No.)
121 North Columbia Street, Chapel Hill, North Carolina 27514
- -------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(919) 968-2200
--------------
(Registrant's Telephone Number Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
---
Shares outstanding of each of the issuer's classes of common stock as of
September 30, 2001:2002:
Common Stock, no par value 2,555,9912,515,349
-------------------------- ---------
Class Shares Outstanding
1
INVESTORS TITLE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 20012002 and December 31, 2000...32001...3
Consolidated Statements of Income:
Three and Nine Months Ended September 30, 20012002 and 2000....................42001.................4
Consolidated Statements of Cash Flows:
Three and Nine Months Ended September 30, 20012002 and 2000....................52001.................5
Notes to Consolidated Financial Statements...................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................7Operations.................................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk ..........11
Item 4. Controls and Procedures..............................................11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................................118-K.................................... 11
SIGNATURES....................................................................12
CERTIFICATIONS................................................................13
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
---------------------- ------------------------------
Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of September 30, 20012002 and December 31, 2000
(Unaudited)2001
September 30, 20012002 December 31, 2000
--------------------- ---------------------2001
----------------- -------------------
(Unaudited) (Audited)
Assets
Cash and cash equivalents $ 5,778,0797,952,322 $ 7,850,9913,452,455
Investments in securities:
Fixed maturities:
Held-to-maturity, at amortized cost 4,966,224 4,375,1274,496,366 4,907,066
Available-for-sale, at fair value 38,226,166 31,710,70547,888,006 42,683,660
Equity securities, at fair value 4,517,413 4,970,069
--------------------4,359,109 5,433,557
Other investments 623,296 64,888
----------------- -------------------
Total investments 47,709,803 41,055,90157,366,777 53,089,171
Premiums receivable (less allowance for doubtful accounts:
2002: $1,505,000 and 2001: $850,000 and 2000: $725,000) 5,964,170 3,023,304$1,405,000) 6,599,391 7,104,580
Accrued interest and dividends 688,341 616,652677,044 725,757
Prepaid expenses and other assets 736,083 1,091,416723,200 765,348
Property acquired in settlement of claims 448,617 294,510 204,117
Property, net 4,650,735 5,496,6264,235,439 4,433,855
Deferred income taxes, net 471,565 -
--------------------295,653 354,024
----------------- -------------------
Total Assets (Note 5) $ 66,293,28678,298,443 $ 59,339,007
====================70,219,700
================= ===================
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Note 2) $ 20,764,66524,538,500 $ 17,944,66521,460,000
Accounts payable and accrued liabilities 1,629,955 1,918,0342,568,361 3,700,095
Commissions and reinsurance payables 296,428 222,748512,152 281,961
Premium taxes payable 305,034 -242,878 367,055
Current income taxes payable 341,221 24,069
Deferred income taxes, net - 39,842
--------------------275,060 138,821
----------------- -------------------
Total liabilities 23,337,303 20,149,358
--------------------28,136,951 25,947,932
----------------- -------------------
Stockholders' Equity:
Common stock-nostock - no par value (shares authorized 6,000,000;
2,855,74410,000,000;
2,515,349 and 2,855,744 shares issued;2,516,298 issued and 2,555,991outstanding
2002 and 2,566,859 shares outstanding 2001, and 2000, respectively) (Note 4) 1 1
Retained earnings 40,480,482 37,021,27047,072,166 41,928,575
Accumulated other comprehensive income (net unrealized gain on investments)
(net of deferred taxes: 2002: $1,592,041; 2001: $1,275,830; 2000: $1,117,615)$1,207,670) (Note 3) 2,475,500 2,168,378
--------------------3,089,325 2,343,192
----------------- -------------------
Total stockholders' equity 42,955,983 39,189,649
--------------------50,161,492 44,271,768
----------------- -------------------
Total Liabilities and Stockholders' Equity $ 66,293,28678,298,443 $ 59,339,007
====================70,219,700
================= ===================
See notes to consolidated financial statements.
3
Investors Title Company and Subsidiaries
Consolidated Statements of Income
For the Three and Nine Months Ended September 30, 20012002 and 20002001
(Unaudited)
For Thethe Three For Thethe Nine
Months Ended Months Ended
September 30 September 30
-------------------------------- --------------------------------
2002 2001 20002002 2001 2000
------------- ------------- -------------- -------------
Revenues:
Underwriting income:
Premiums written $ 18,135,156 $ 14,849,202 $ 10,168,69647,916,019 $ 41,296,179
$ 28,785,819
Less-premiumsLess - premiums for reinsurance ceded 93,735 119,168 65,878322,676 261,143
247,831
------------- ------------ ------------- -------------- -------------
Net premiums written 18,041,421 14,730,034 10,102,81847,593,343 41,035,036
28,537,988
Investment income-interestincome - interest and dividends 680,991 661,803 624,2052,042,810 2,019,734 1,792,313
Net realized gain (loss) on sales of investments 9,882 - (7,456)300,732 2,053
77,310
Other 556,775 529,310 587,2741,513,844 1,429,083
1,262,944
------------- ------------ ------------- --------------
Total 19,289,069 15,921,147 51,450,729 44,485,906
------------- Total 15,921,147 11,306,841 44,485,906 31,670,555
------------------------- ------------- -------------- -------------
Operating Expenses:
Commissions to agents 8,615,016 6,762,756 4,169,20722,391,778 18,842,967 11,579,542
Provision for claims (Note 2) 1,949,054 1,765,253 1,488,1115,332,105 5,117,088
4,555,237
Salaries, and employee benefits and payroll taxes 3,106,076 2,920,136 2,332,6678,773,836 8,022,825 7,205,747
Office occupancy and operations 1,067,244 1,048,337 864,8813,538,436 3,641,988 2,645,794
Business development 404,131 354,653 1,277,590 1,016,869706,341 419,606 1,543,221 1,303,375
Taxes, other than payroll and income 72,707 31,386 89,206264,301 184,258 271,142
Premium and retaliatory taxes 353,588 285,708 176,244987,446 858,385 579,981
Professional fees 166,974 158,078 163,845567,480 598,424
594,938
Other 162,818 62,316 316,367 98,722142,644 147,343 247,924 290,582
------------- ------------ ------------- --------------
Total 16,179,644 13,538,603 43,646,527 38,859,892
------------- Total 13,538,603 9,701,130 38,859,892 28,547,972
------------------------- ------------- -------------- -------------
Income Before Income Taxes (Note 5) 3,109,425 2,382,544 1,605,7117,804,202 5,626,014
3,122,583------------- ------------ ------------- --------------
Provision For Income Taxes 963,400 778,100 460,2272,410,000 1,736,900
720,733
------------- ------------ ------------- -------------- -------------
Net Income $ 2,146,025 $ 1,604,444 $ 1,145,4845,394,202 $ 3,889,114
$ 2,401,850
============= ============ ============= ==============
=============
Basic Earnings perPer Common Share $ 0.85 $ 0.63 $ 2.14 $ 1.52
============= ============ ============= ==============
Weighted Average Shares Outstanding - Basic (Note 4) 2,517,762 2,555,778 2,517,351 2,561,721
============= ============ ============= ==============
Diluted Earnings Per Common Share (Note 4) $ 0.630.83 $ 0.440.61 $ 1.522.08 $ 0.921.49
============= ============ ============= ============== =============
Weighted Average Shares Outstanding-BasicOutstanding - Diluted (Note 4) 2,555,778 2,580,062 2,561,721 2,603,4582,594,915 2,611,806 2,593,984 2,607,741
============= ============ ============= ============== =============
Diluted Earnings per Common Share (Note 4) $ 0.61 $ 0.44 $ 1.49 $ 0.92
============= ============= ============== =============
Weighted Average Shares Outstanding-Diluted (Note 4) 2,611,806 2,583,113 2,607,741 2,608,166
============= ============= ============== =============
Dividends Paid $ 85,67273,955 $ 85,672 $ 257,017225,029 $ 257,017
============= ============ ============= ==============
=============
Dividends perPer Share $ 0.03 $ 0.03 $ 0.09 $ 0.09
============= ============ ============= ============== =============
See notes to consolidated financial statements.
4
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 20012002 and 20002001
(Unaudited)
2002 2001
2000
------------- ------------------------------ ------------------
Operating Activities:
Net income $ 3,889,1145,394,202 $ 2,401,8503,889,114
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 707,490 1,148,316
580,783
Amortization, (accretion), net 20,060 5,408
(1,421)
Provision (benefit) for losses on premiums receivable 100,000 125,000 (50,000)
Net gain on disposals of property (12,435) (21,248) (4,355)
Net realized gain on sales of investments (300,732) (2,053)
(77,310)
Provision (benefit)Benefit for deferred income taxes (326,000) (669,622) 94,800
Provision for claims 5,332,105 5,117,088 4,555,237
Payments of claims, net of recoveries (2,253,605) (2,297,088) (3,150,237)
Changes in assets and liabilities:
(Increase) decrease in receivables and other assets 341,943 (2,908,444) 356,637
Decrease in accounts payable and accrued liabilities (1,131,734) (288,079)
(344,651)
Increase (decrease) in commissions and reinsurance payables 230,191 73,680 (15,605)
Increase (decrease) in premium taxes payable (124,177) 340,863 (185,624)
Increase in current income taxes payable 136,239 317,152
1,131,789
---------------- ---------------------------- -------------
Net cash provided by operating activities 8,113,547 4,830,087
5,291,893
---------------- ---------------------------- -------------
Investing Activities:
Purchases of available-for-sale securities (10,357,900) (7,184,820) (2,827,132)
Purchases of held-to-maturity securities (362,470) (600,000)
Purchases of other securities (558,408) -
Proceeds from sales of available-for-sale securities 1,582,900 2,834,0387,638,598 3,089,464
Proceeds from sales of held-to-maturity securities 773,750 10,000 192,000
Purchases of property (546,272) (339,280) (372,977)
Proceeds from sales of property 49,633 58,103
24,429
---------------- ---------------------------- -------------
Net cash used in investing activities (6,473,097) (149,642)
---------------- ---------------(3,363,069) (4,966,533)
------------- -------------
Financing Activities:
Repurchases of common stock, net (39,753) (206,047) (1,995,005)
Exercise of options 14,171 33,162 15,830
Dividends paid (225,029) (257,017)
(257,017)
---------------- --------------------------- -------------
Net cash used in investing activities (250,611) (429,902)
(2,236,192)
---------------- ---------------------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents (2,072,912) 2,906,0594,499,867 (566,348)
Cash and Cash Equivalents, Beginning of Year 7,850,991 7,554,297
--------------- ---------------3,452,455 4,268,713
------------- -------------
Cash and Cash Equivalents, End of Period $ 5,778,0797,952,322 $ 10,460,356
=============== ===============3,702,365
============= ==============
Supplemental Disclosures:
Cash Paid During the Year for:
Income Taxes, net of refunds $ 2,601,076 $ 2,097,721
$ 571,756
================ ============================ ==============
Noncash Financing Activities:
Bonuses and fees totaling $56,155$51,752 and $121,851$56,155 were paid for the nine months
ended September 30, 20012002 and 2000,2001, respectively, by issuance of the Company's
common stock.
See notes to consolidated financial statements.
5
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 20012002
(Unaudited)
Note 1 - Basis of Presentation
- ------------------------------
The consolidated financial statements include Investors Title Company
and its subsidiaries, and have been prepared in conformity with
accounting principles generally accepted in the United States of
America.
In the opinion of management all necessary adjustments have been
reflected for a fair presentation of the financial position, results
of operations and cash flows in the accompanying unaudited
consolidated financial statements. All such adjustments are of a
normal recurring nature.
Certain 2001 amounts have been reclassified to conform to 2002
classifications.
Reference should be made to the "Notes to Consolidated Financial
Statements" of the Registrant's Annual Report to Shareholders for the
year ended December 31, 20002001 for a description of accounting policies.
No significant accounting policies of the Company have changed since
December 31, 2001.
Note 2 - Reserves for Claims
- ----------------------------
Transactions in the reserves for claims for the nine months ended
September 30, 2002 and the twelve months ended December 31, 2001 were
as follows:
Balance, beginning of year $ 17,944,665
Provision, charged to operations 5,117,088
Recoveries 739,566
Payments of claims (3,036,654)
-----------
Balance, September 30, 2001 $ 20,764,665
============
September 30, December 31,
2002 2001
-------------- --------------
Balance, beginning of year $ 21,460,000 $ 17,944,665
Provision, charged to operations 5,332,105 6,786,263
Recoveries 457,146 873,532
Payments of claims (2,710,751) (4,144,460)
-------------- -------------
Ending balance $ 24,538,500 $ 21,460,000
============== =============
In management's opinion, the reserves are adequate to cover claim losses
which might result from pending and possible claims.
Note 3 - Comprehensive Income
- -----------------------------
Total comprehensive income for the three months ended September 30,
2002 and 2001 was $2,469,708 and 2000 was $1,898,034, and $1,505,391, respectively. Total
comprehensive income for the nine months ended September 30, 2002 and
2001 was $6,140,335 and 2000 was
$4,196,236, and $3,054,959, respectively. Other comprehensive
income is comprised solely of unrealized gains or losses on the
Company's available-for-sale securities.
6
Note 4 - Earnings Per Common Share
- ----------------------------------
Employee stock options are considered outstanding for the diluted
earnings per common share calculation and are computed using the
treasury stock method. The total increase in the weighted average
shares outstanding related to these equivalent shares was 56,02877,153 and
3,05156,028 for the three months ended September 30, 20012002 and 2000,2001,
respectively and 46,02076,633 and 4,70846,020 for the nine months ended September
30, 20012002 and 2000,2001, respectively. Options to purchase 55,62673,686 and 207,11055,626
shares of common stock were outstanding for the three months ended
September 30, 20012002 and 2000,2001, respectively and 57,62673,686 and 188,36057,626 for
the nine months ended September 30, 20012002 and 2000,2001, respectively but
were not included in the computation of diluted EPS because the
options' exercise prices were greater than the average market price of
the common shares.
6
Issued and outstanding shares for the nine months ended September 30,
2002 and 2001 do not include 340,395 and 339,446 shares, respectively,
of common stock held by the Company's subsidiary, Investors Title
Insurance Company.
Note 5 - Segment Information
- -----------------------------
Income
Three Months Operating Before
Ended Revenues Income Taxes Assets
- -------------------------------------------------------------------------------
September 30, 2001
- -------------------------------------------------------------------------------
Title Insurance $15,469,347 $ 2,165,734 $61,865,185
Exchange Services 245,962 138,651 312,777
All Other 205,838 78,159 4,115,324
- -------------------------------------------------------------------------------
$15,921,147 $ 2,382,544 $66,293,286
- -------------------------------------------------------------------------------
September 30, 2000
- -------------------------------------------------------------------------------
Title Insurance $10,746,247 $ 1,242,599 $53,641,906
Exchange Services 266,175 210,908 389,804
All Other 294,419 152,204 3,394,098
- -------------------------------------------------------------------------------
$11,306,841 $ 1,605,711 $57,425,808
- -------------------------------------------------------------------------------
Income
Nine Months Operating Before
Ended Revenues Income Taxes Assets
- -------------------------------------------------------------------------------
September 30, 2001
- -------------------------------------------------------------------------------
Title Insurance $43,179,400 $ 5,023,551 $61,865,185
Exchange Services 747,112 433,454 312,777
All Other 559,394 169,009 4,115,324
- -------------------------------------------------------------------------------
$44,485,906 $ 5,626,014 $66,293,286
- -------------------------------------------------------------------------------
September 30, 2000
- -------------------------------------------------------------------------------
Title Insurance $30,538,522 $ 2,445,162 $53,641,906
Exchange Services 659,414 496,155 389,804
All Other 472,619 181,266 3,394,098
- -------------------------------------------------------------------------------
$31,670,555 $ 3,122,583 $57,425,808
- -----------------------------------------------------------------------------------------------------------
Income
Three Months Operating Before
Ended Revenues Income Taxes Assets
- --------------------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------------------
Title Insurance $18,260,367 $ 2,970,073 $71,019,015
Exchange Services 282,083 172,386 449,687
All Other 55,746 (33,034) 6,829,741
- --------------------------------------------------------------------------------------------
$18,598,196 $ 3,109,425 $78,298,443
- --------------------------------------------------------------------------------------------
September 30, 2001
- --------------------------------------------------------------------------------------------
Title Insurance $14,831,527 $ 2,165,734 $61,865,185
Exchange Services 242,711 138,651 312,777
All Other 185,106 78,159 4,115,324
- --------------------------------------------------------------------------------------------
$15,259,344 $ 2,382,544 $66,293,286
- --------------------------------------------------------------------------------------------
Income
Nine Months Operating Before
Ended Revenues Income Taxes Assets
- --------------------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------------------
Title Insurance $48,105,439 $ 7,480,851 $71,019,015
Exchange Services 568,880 222,782 449,687
All Other 432,868 100,569 6,829,741
- --------------------------------------------------------------------------------------------
$49,107,187 $ 7,804,202 $78,298,443
- --------------------------------------------------------------------------------------------
September 30, 2001
- --------------------------------------------------------------------------------------------
Title Insurance $41,218,843 $ 5,023,551 $61,865,185
Exchange Services 732,910 433,454 312,777
All Other 512,366 169,009 4,115,324
- --------------------------------------------------------------------------------------------
$42,464,119 $ 5,626,014 $66,293,286
- --------------------------------------------------------------------------------------------
7
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------------------------------------------------------------------
The 20002001 Form 10-K and the 20002001 Annual Report should be read in
conjunction with the following discussion since they contain important
information for evaluating the Company's operating results and
financial condition.
Results of Operations:
-------------------------------------------
For the quarter ended September 30, 2001,2002, net premiums written
increased 46%22% to $14,730,034,$18,041,421, investment income increased 6%3% to
$661,803,$680,991, total revenues increased 41%21% to $15,921,147$19,289,069 and net income
increased 40%34% to $1,604,444,$2,146,025, all compared with the same quarter in
2000.2001. Net income per basic and diluted common share increased 43%35% and
39%36% to $.63$.85 and $.61,$.83, respectively, as compared with the year ago
period. For the quarter ended September 30, 2001,2002, the title insurance
segment's operating revenues increased 44%23% versus the third quarter of
2000,2001, while the exchange services segment's revenues decreased 8%increased 16% for
the three months ended September 30, 20012002 compared with the prior year
quarter.
For the nine months ended September 30, 2001,2002, net premiums written
increased 44%16% to $41,035,036,$47,593,343, investment income increased 13%1% to
$2,019,734,$2,042,810, revenues increased 40%16% to $44,485,906,$51,450,729, net income
increased 62%39% to $3,889,114,$5,394,202, and net income per basic and diluted
common share increased 65%41% and 62%40% to $1.52$2.14 and $1.49,$2.08, respectively,
as compared with the same period in 2000.2001. For the nine months ended
September 30, 2001,2002, the title insurance segment's operating revenues
increased 41%17% versus the same period in 2000,2001, while the exchange
services segment's operating revenues increased 13%decreased 22% for the nine
months ended September 30, 20012002 compared with the same period in 2000.
Mortgage2001.
Fueled by near 40-year lows in interest rates, mortgage lending and sales of existing homes, which are primary
drivers of title insurance premiums, remained strong despite weakness in the
economy. Declining mortgage interest rates spurred higher
levelsthird quarter rose dramatically. Led by consumer demand for
refinancing, the volume of mortgage refinancing, which was also a significant driver
of our revenue.total loan originations is on pace to
surpass the previous year's record level. According to the Freddie Mac
Weekly Mortgage Rate Survey, the monthly average 30-year fixed
mortgage interest rates decreased to 6.69% for the nine months ended
September 30, 2002 compared with 7.04% for the nine months ended
September 30, 2001
compared with 8.20% for the nine months ended September 30, 2000.2001. The volume of business increased in the third
quarter of 20012002 as the number of policies and commitments issued rose
to 82,322,86,589, an increase of 59%5% compared with 51,86182,322 in the same period
in 2000.2001. Policies and commitments issued for the nine months ended
September 30, 20012002 were 215,663230,172 compared with 151,498215,663 in 2000,2001, an
increase of 42%7%.
Branch net premiums written as a percentage of total net premiums
written were 38%35% and 41%38% for the three months ended September 30, 20012002
and 2000,2001, respectively, and 38%36% and 43%38% for the nine months ended
September 30, 20012002 and 2000,2001, respectively. Net premiums written from
branch operations increased 34%13% and decreased 17%34% for the three months ended
September 30, 20012002 and 2000,2001, respectively, as compared with the same
periods in the prior year. For the nine months ended September 30,
20012002 and 2000,2001, net premiums written from branch operations increased
29%10% and decreased 23%29%, respectively, as compared with the same prior year
periods.
8
Agency net premiums written as a percentage of total net premiums
written were 62%65% and 59%62% for the three months ended September 30, 20012002
and 2000,2001, respectively, and 62%64% and 57%62% for the nine months ended
September 30, 20012002 and 2000,2001, respectively. Agency net premiums
increased 54%28% and decreased 5%54% for the three months ended September 30, 20012002
and 2000,2001, respectively, as compared with the same periods in the prior
year. For the nine months ended September 30, 20012002 and 2000,2001, net
premiums written from agency operations increased 54%20% and decreased 11%54%,
respectively, as compared with the same prior year periods.
8
Shown below is a schedule of premiums written for the nine months
ended September 30, 20012002 and 20002001 in all states and districts where
the Company's two insurance subsidiaries, Investors Title Insurance
Company and Northeast Investors Title Insurance Company, currently
underwrite insurance:
2002 2001 2000
---- ----
Alabama $ 445,882 $ 632
$Arkansas 39,550 -
District of Columbia 250 -
Florida 1,745 -
Georgia 45,182 218,410
175,662Illinois 6,816 -
Indiana 106,159 1,452
369,691
Iowa - 3,788
Kentucky 823,431 -
Maryland 1,029,080 680,890
396,796
Michigan 7,478,133 7,812,916
4,937,780
Minnesota 873,195 1,069,902
605,537
Mississippi 695,708 20,103
30,609
Nebraska 842,352 710,497
856,611New Jersey 23,130 -
New York 2,356,430 2,411,705 407,239
North Carolina 17,178,141 15,644,222
12,077,523
Ohio 26,210 30,736
1,513
Pennsylvania 2,677,715 2,309,698 667,236
South Carolina 4,106,633 2,940,957
2,916,553
Tennessee 2,369,835 1,699,465
814,941
Virginia 5,579,815 4,820,625 3,589,110
West Virginia 1,183,924 886,986
908,323
Wisconsin 10,776 22,783
5,638
--------------- ------------------------- -----------
Direct Premiums 47,900,092 41,285,767 28,760,762
Reinsurance Assumed 15,927 10,412 25,057
Reinsurance Ceded (322,676) (261,143)
(247,831)
--------------- ------------------------- -----------
Net Premiums $47,593,343 $41,035,036
$28,537,988
=============== =========================== ============
Total operating expenses increased 40%20% and 36%12% for the three and
nine-month periods ended September 30, 20012002 compared with the same
periods in 2000.2001. This increase was due primarily to theadditional
commissions relating to increase in premium volume.
9
The provision for claims as a percentage of net premiums written was
12%11% for the three and nine months ended September 30, 2001,2002, versus 15% and 16%12%
for the same periods in 2000. The decrease in the
percentage of the provision for claims to net premiums written is
primarily the result of a decrease in claims payments (net of
recoveries) in 2001 compared with 2000.2001.
The provision for income taxes was 33%31% of income before income taxes
for the three months ended September 30, 20012002 versus 29%33% for the same
period in 2000.2001. For the nine months ended September 30, 20012002 and 2000,2001,
the provision for income taxes was 31% and 23% of income before income taxes, respectively. The increase in the tax provision was
primarily due to a lower mix of tax-exempt investment income to total
income before taxes in 2001 compared with 2000.taxes.
Liquidity and Capital Resources:
--------------------------------
Net cash provided by operating activities for the nine months ended
September 30, 2001,2002, amounted to $4,830,087$8,113,547 compared with $5,291,893$4,830,087
for the same nine-month period during 2000.2001. The decreaseincrease is primarily
the result of an increasea decrease in receivables and other assets, offset by
an increase
in net income a net increase in liabilities and a net increasedecrease in noncash adjustments to reconcile
net income to net cash.cash, offset by a decrease in the total payables.
On May 11, 1999, the Board of Directors approved the repurchase of
200,000 shares of the Company's common stock. Pursuant to this
approval, the Company has repurchased 192,148200,000 shares prior to 2002 at an
average price of $12.41$12.50 per share as of September 30, 2001, including 17,914 shares purchased at
an average price of $14.66 in the nine months ended September 30,
2001.
On May 9, 2000, the Board of Directors approved the repurchase of an
additional 500,000 shares of the Company's common stock. As of
October 24, 2001, no shares have been repurchased pursuantPursuant to
this approval.approval, the Company repurchased a total of 37,238 shares at an
average price of $15.20, of which 5,054 shares were purchased at an
average purchase price of $18.11 in the nine months ended September
30, 2002.
On May 16, 2001, the Board of Directors approved the 2001 Stock Option
and Restricted Stock Plan. Pursuant to the Plan, 250,000 shares of
common stock are available. For the nine months ended September 30,
2002, 23,000 options have been granted. As of October 24, 2001,November 5, 2002, no options
or
shares have been issued under this plan.
Management believes that funds generated from operations (primarily
underwriting and investment income) will enable the Company to
adequately meet its operating needs and is unaware of any trend likely
to result in adverse liquidity changes. In addition to operational
liquidity, the Company maintains a high degree of liquidity within theits
investment portfolio in the form of short-term investments and other
readily marketable securities.
10
Safe Harbor Statement
---------------------
Except for the historical information presented, the matters disclosed
in the foregoing discussion and analysis and other parts of this
report include forward-looking statements. These statements represent
the Company's current judgment on the future and are subject to risks
and uncertainties that could cause actual results to differ
materially. Such factors include, without limitation: (1) that the
demand for title insurance will vary with factors beyond the control
of the Company, such as changes in mortgage interest rates,
availability of mortgage funds, level of real estate activity, cost of
real estate, consumer confidence, supply and demand for real estate,
inflation and general economic conditions; (2) that losses from claims
may be greater than anticipated renderingsuch that reserves for possible claims
are inadequate; (3) that unanticipated adverse changes in securities
markets could result in material losses on investments made by the
Company; and (4) the dependence of the Company on key management
personnel the loss of whom could have a material adverse effect on the
Company's business. Other risks and uncertainties may be described
from time to time in the Company's other reports and filings with the
Securities and Exchange Commission.
10
Item. 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company's market risk exposure has not changed materially from the
exposure as disclosed in the Company's 20002001 Annual Report on Form
10-K.
Item. 4. Controls and Procedures
-----------------------
Based on their evaluation of the Company's disclosure controls and
procedures, which was completed within 90 days prior to the filing of
this report, the Chief Executive Officer and the Chief Financial
Officer of the Company have concluded that the Company's disclosure
controls and procedures are effective to ensure that information
required to be disclosed by the Company in the reports that it files
or submits under the Securities and Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported, within the time
periods specified by the Securities and Exchange Commission's rules
and forms. In reaching this conclusion, the Company's Chief Executive
Officer and Chief Financial Officer determined that the Company's
disclosure controls and procedures are effective in ensuring that such
information is accumulated and communicated to the Company's
management to allow timely decisions regarding required disclosure.
There were no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------------------------------
(a) Exhibits
--------
None.(99)(i) Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section
1350, Chapter 63 of Title 18, United States Code)
(b) Reports on Form 8-K
---------------------------------------
There were no reports filed on Form 8-K for this
quarter.
11
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this Report to be signed
in its behalf by the undersigned hereunto duly authorized.
INVESTORS TITLE COMPANY
(Registrant)
By: /s/ James A. Fine, Jr.
----------------------
James A. Fine, Jr.
President
By: /s/ Elizabeth P. Bryan
-----------------------
Elizabeth P. Bryan
Vice President
(Principal(Chief Financial Officer and
Chief Accounting Officer)
Dated: November 9, 2001
12, 2002
12
Certifications
I, J. Allen Fine, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Investors Title
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
----------------
/s/ J. Allen Fine
- -----------------
J. Allen Fine
Chief Executive Officer
13
Certifications (continued)
I, James A. Fine, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Investors Title
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
-----------------
/s/ James A. Fine, Jr.
- ---------------------
James A. Fine, Jr.
Chief Financial Officer
14