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: JuneSeptember 30, 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 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
JuneSeptember 30, 2002:
Common Stock, no par value 2,519,0312,515,349
-------------------------- ---------
Class Shares Outstanding
1
INVESTORS TITLE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of JuneSeptember 30, 2002 and December 31, 2001...3
Consolidated Statements of Income:
Three and SixNine Months Ended JuneSeptember 30, 2002 and 2001..................42001.................4
Consolidated Statements of Cash Flows:
SixThree and Nine Months Ended JuneSeptember 30, 2002 and 2001............................52001.................5
Notes to Consolidated Financial Statements..............................6Statements...................................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..........11
Item 4. Controls and Procedures..............................................11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...............11
Item 5. Other Information.................................................12
Item 6. Exhibits and Reports on Form 8-K................................. 12
SIGNATURES.................................................................138-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 JuneSeptember 30, 2002 and December 31, 2001
(Unaudited) (Audited)
JuneSeptember 30, 2002 December 31, 2001
----------------- -------------------
(Unaudited) (Audited)
Assets
Cash and cash equivalents $ 5,807,1817,952,322 $ 3,452,455
Investments in securities:
Fixed maturities:
Held-to-maturity, at amortized cost 4,501,0054,496,366 4,907,066
Available-for-sale, at fair value 46,364,02647,888,006 42,683,660
Equity securities, at fair value 4,933,0864,359,109 5,433,557
Other investments 476,834623,296 64,888
----------------- -----------------------------------
Total investments 56,274,95157,366,777 53,089,171
Premiums receivable (less allowance for doubtful accounts:
20022002: $1,505,000 and 2001: $1,405,000) 5,065,3726,599,391 7,104,580
Accrued interest and dividends 711,353677,044 725,757
Prepaid expenses and other assets 675,992723,200 765,348
Property acquired in settlement of claims 197,617448,617 294,510
Property, net 4,382,6104,235,439 4,433,855
Deferred income taxes, net 390,798295,653 354,024
----------------- -------------------
Total Assets (Note 5) $ 73,505,87478,298,443 $ 70,219,700
================= ===================
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Note 2) $ 23,183,50024,538,500 $ 21,460,000
Accounts payable and accrued liabilities 1,945,1102,568,361 3,700,095
Commissions and reinsurance payables 307,957512,152 281,961
Premium taxes payable -242,878 367,055
Current income taxes payable 237,535275,060 138,821
----------------- -------------------
Total liabilities 25,674,10228,136,951 25,947,932
----------------- -------------------
Stockholders' Equity:
Common stock - no par value (shares authorized 10,000,000;
2,855,744 and 2,855,744 shares issued; and 2,519,0312,515,349 and 2,516,298 sharesissued and outstanding
2002 and 2001, respectively) (Note 4) 1 1
Retained earnings 45,066,12947,072,166 41,928,575
Accumulated other comprehensive income (net unrealized gain on investments)
(net of deferred taxes: 2002: $1,425,295;$1,592,041; 2001: $1,207,670) (Note 3) 2,765,6423,089,325 2,343,192
----------------- -------------------
Total stockholders' equity 47,831,77250,161,492 44,271,768
----------------- -------------------
Total Liabilities and Stockholders' Equity $ 73,505,87478,298,443 $ 70,219,700
================= ===================
See notes to consolidated financial statements.
3
Investors Title Company and Subsidiaries
Consolidated Statements of Income
For the Three and SixNine Months Ended JuneSeptember 30, 2002 and 2001
(Unaudited)
For the Three For the Nine
Months Ended Months Ended
September 30 September 30
-------------------------------- --------------------------------
2002 2001 2002 2001
------------- ------------- -------------- -------------
Revenues:
Underwriting income:
Premiums written $ 14,997,01518,135,156 $ 14,945,73214,849,202 $ 29,780,86347,916,019 $ 26,446,97741,296,179
Less - premiums for reinsurance ceded 125,818 78,455 228,941 141,97593,735 119,168 322,676 261,143
------------- ------------ ------------- -------------- -------------
Net premiums written 14,871,197 14,867,277 29,551,922 26,305,00218,041,421 14,730,034 47,593,343 41,035,036
Investment income - interest and dividends 692,781 672,054 1,361,819 1,357,931680,991 661,803 2,042,810 2,019,734
Net realized gain (loss) on sales of investments 5,043 (152) 290,8509,882 - 300,732 2,053
Other 523,066 436,328 957,069 899,773556,775 529,310 1,513,844 1,429,083
------------- ------------ ------------- --------------
Total 19,289,069 15,921,147 51,450,729 44,485,906
------------- Total 16,092,087 15,975,507 32,161,660 28,564,759
------------------------- ------------- -------------- -------------
Operating Expenses:
Commissions to agents 6,767,083 6,759,993 13,776,762 12,080,2118,615,016 6,762,756 22,391,778 18,842,967
Provision for claims (Note 2) 1,703,640 1,941,190 3,383,051 3,351,8351,949,054 1,765,253 5,332,105 5,117,088
Salaries, employee benefits and payroll taxes 2,729,169 2,639,860 5,667,760 5,102,6893,106,076 2,920,136 8,773,836 8,022,825
Office occupancy and operations 1,270,795 1,376,457 2,471,192 2,593,6511,067,244 1,048,337 3,538,436 3,641,988
Business development 430,484 542,186 808,305 873,459706,341 419,606 1,543,221 1,303,375
Taxes, other than payroll and income 115,357 92,028 191,594 152,87272,707 31,386 264,301 184,258
Premium and retaliatory taxes 304,092 286,500 633,858 572,677353,588 285,708 987,446 858,385
Professional fees 190,251 217,967 400,506 440,346166,974 158,078 567,480 598,424
Other 85,618 53,980 133,855 153,549142,644 147,343 247,924 290,582
------------- ------------ ------------- --------------
Total 16,179,644 13,538,603 43,646,527 38,859,892
------------- Total 13,596,489 13,910,161 27,466,883 25,321,289
------------------------- ------------- -------------- -------------
Income Before Income Taxes (Note 5) 2,495,598 2,065,346 4,694,777 3,243,4703,109,425 2,382,544 7,804,202 5,626,014
------------- ------------ ------------- --------------
Provision For Income Taxes 794,600 620,800 1,446,600 958,800963,400 778,100 2,410,000 1,736,900
------------- ------------ ------------- -------------- -------------
Net Income $ 1,700,9982,146,025 $ 1,444,5461,604,444 $ 3,248,1775,394,202 $ 2,284,6703,889,114
============= ============ ============= ============== =============
Basic Earnings Per Common Share (Note 4) $ 0.680.85 $ 0.560.63 $ 1.292.14 $ 0.891.52
============= ============ ============= ============== =============
Weighted Average Shares Outstanding - Basic (Note 4) 2,517,739 2,562,467 2,517,148 2,564,6952,517,762 2,555,778 2,517,351 2,561,721
============= ============ ============= ============== =============
Diluted Earnings Per Common Share (Note 4) $ 0.650.83 $ 0.560.61 $ 1.252.08 $ 0.881.49
============= ============ ============= ============== =============
Weighted Average Shares Outstanding - Diluted (Note 4) 2,600,191 2,602,006 2,593,565 2,605,8122,594,915 2,611,806 2,593,984 2,607,741
============= ============ ============= ============== =============
Dividends Paid $ 77,17073,955 $ 85,67385,672 $ 151,074225,029 $ 171,345257,017
============= ============ ============= ============== =============
Dividends Per Share $ 0.03 $ 0.03 $ 0.060.09 $ 0.060.09
============= ============ ============= ============== =============
See notes to consolidated financial statements.
4
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the SixNine Months Ended JuneSeptember 30, 2002 and 2001
(Unaudited)
2002 2001
------------------ ------------------
Operating Activities:
Net income $ 3,248,1775,394,202 $ 2,284,6703,889,114
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 497,858 884,611707,490 1,148,316
Amortization, net 14,867 1,74320,060 5,408
Provision for losses on premiums receivable 100,000 125,000
Net gain on disposals of property (7,108) (9,872)(12,435) (21,248)
Net realized gain on sales of investments (290,850)(300,732) (2,053)
Benefit for deferred income taxes (254,400) (483,721)(326,000) (669,622)
Provision for claims 3,383,051 3,351,8355,332,105 5,117,088
Payments of claims, net of recoveries (1,659,551) (1,591,835)(2,253,605) (2,297,088)
Changes in assets and liabilities:
(Increase) decrease in receivables and other assets 2,245,828 (2,522,275)
Increase (decrease)341,943 (2,908,444)
Decrease in accounts payable and accrued liabilities (1,754,985) 759,629(1,131,734) (288,079)
Increase in commissions and reinsurance payables 25,996 30,649230,191 73,680
Increase (decrease) in premium taxes payable (373,022) 126,742(124,177) 340,863
Increase in current income taxes payable 98,714 292,952
------------------ ------------------136,239 317,152
------------- -------------
Net cash provided by operating activities 5,174,575 3,123,075
------------------ ------------------8,113,547 4,830,087
------------- -------------
Investing Activities:
Purchases of available-for-sale securities (5,557,892) (5,259,412)(10,357,900) (7,184,820)
Purchases of held-to-maturity securities (362,470) (600,000)
Purchases of held-at-costother securities (411,946)(558,408) -
Proceeds from sales of available-for-sale securities 3,293,836 827,2217,638,598 3,089,464
Proceeds from sales of held-to-maturity securities 768,750 963,689773,750 10,000
Purchases of property (456,858) (219,499)(546,272) (339,280)
Proceeds from sales of property 17,353 40,720
------------------ ------------------49,633 58,103
------------- -------------
Net cash used in investing activities (2,709,227) (4,247,281)
------------------ ------------------(3,363,069) (4,966,533)
------------- -------------
Financing Activities:
Distributions (repurchases)Repurchases of common stock, net 26,281 (138,258)(39,753) (206,047)
Exercise of options 14,171 20,38133,162
Dividends paid (151,074) (171,345)
------------------ ------------------(225,029) (257,017)
------------- -------------
Net cash used in investing activities (110,622) (289,222)
------------------ ------------------(250,611) (429,902)
------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents 2,354,726 (1,413,428)4,499,867 (566,348)
Cash and Cash Equivalents, Beginning of Year 3,452,455 4,268,712
------------------ ------------------4,268,713
------------- -------------
Cash and Cash Equivalents, End of Period $ 5,807,1817,952,322 $ 2,855,284
================== ==================3,702,365
============= ==============
Supplemental Disclosures:
Cash Paid During the Year for:
Income Taxes, net of refunds $ 1,603,6012,601,076 $ 1,159,754
================== ==================2,097,721
============= ==============
Noncash Financing Activities:
Bonuses and fees totaling $41,728$51,752 and $48,809$56,155 were paid for the sixnine months
ended JuneSeptember 30, 2002 and 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
JuneSeptember 30, 2002
(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 withto 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, 2001 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 sixnine months ended
JuneSeptember 30, 2002 and the twelve months ended December 31, 2001 were
as follows:
Balance, beginning of year $ 21,460,000
Provision, charged to operations 3,383,051
Recoveries 323,985
Payments of claims (1,983,536)
---------------
Balance, June 30, 2002 $ 23,183,500
===============
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 JuneSeptember 30,
2002 and 2001 was $2,369,666$2,469,708 and $1,427,262,$1,898,034, respectively. Total
comprehensive income for the sixnine months ended JuneSeptember 30, 2002 and
2001 was $3,670,627$6,140,335 and $2,298,202,$4,196,236, 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 82,45277,153 and
39,53956,028 for the three months ended JuneSeptember 30, 2002 and 2001,
respectively and 76,41776,633 and 41,11746,020 for the sixnine months ended JuneSeptember
30, 2002 and 2001, respectively. OfOptions to purchase 73,686 and 55,626
shares of common stock were outstanding for the total options outstanding, 68,686three months ended
September 30, 2002 and 82,821 options2001, respectively and 73,686 and 57,626 for
the nine months ended September 30, 2002 and 2001, respectively but
were not included in the computation of diluted EPS for the three months ended June 30, 2002
and 2001, respectively; and 68,686 and 57,626 options were not included in
the computation of diluted EPS for the six months ended June 30, 2002 and
2001, respectively, 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
- ---------------------------------------------------------------------------------------
June--------------------------------------------------------------------------------------------
September 30, 2002
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Title Insurance $15,021,352$18,260,367 $ 2,363,446 $69,338,8052,970,073 $71,019,015
Exchange Services 180,542 70,698 295,038282,083 172,386 449,687
All Other 192,369 61,454 3,872,03155,746 (33,034) 6,829,741
- ---------------------------------------------------------------------------------------
$15,394,263--------------------------------------------------------------------------------------------
$18,598,196 $ 2,495,598 $73,505,8743,109,425 $78,298,443
- ---------------------------------------------------------------------------------------
June--------------------------------------------------------------------------------------------
September 30, 2001
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Title Insurance $14,905,837$14,831,527 $ 1,879,192 $59,967,7592,165,734 $61,865,185
Exchange Services 236,889 121,848 501,273242,711 138,651 312,777
All Other 160,879 64,306 3,809,085185,106 78,159 4,115,324
- ---------------------------------------------------------------------------------------
$15,303,605--------------------------------------------------------------------------------------------
$15,259,344 $ 2,065,346 $64,278,1172,382,544 $66,293,286
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Income
SixNine Months Operating Before
Ended Revenues Income Taxes Assets
- ---------------------------------------------------------------------------------------
June--------------------------------------------------------------------------------------------
September 30, 2002
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Title Insurance $29,845,072$48,105,439 $ 4,510,778 $69,338,8057,480,851 $71,019,015
Exchange Services 286,797 50,396 295,038568,880 222,782 449,687
All Other 377,122 133,603 3,872,031432,868 100,569 6,829,741
- ---------------------------------------------------------------------------------------
$30,508,991--------------------------------------------------------------------------------------------
$49,107,187 $ 4,694,777 $73,505,8747,804,202 $78,298,443
- ---------------------------------------------------------------------------------------
June--------------------------------------------------------------------------------------------
September 30, 2001
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Title Insurance $26,387,316$41,218,843 $ 2,857,817 $59,967,7595,023,551 $61,865,185
Exchange Services 490,199 294,803 501,273732,910 433,454 312,777
All Other 327,260 90,850 3,809,085512,366 169,009 4,115,324
- ---------------------------------------------------------------------------------------
$27,204,775--------------------------------------------------------------------------------------------
$42,464,119 $ 3,243,470 $64,278,1175,626,014 $66,293,286
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
--------------------------------------------------------------------------------------------------------------------------
The 2001 Form 10-K and the 2001 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.
7
Results of Operations:
----------------------
For the quarter ended JuneSeptember 30, 2002, net premiums written
increased 22% to $14,871,197 from $14,867,277,$18,041,421, investment income increased 3% to
$692,781,$680,991, total revenues increased 1%21% to $16,092,087$19,289,069 and net income
increased 18%34% to $1,700,998,$2,146,025, all compared with the same quarter in
2001. Net income per basic and diluted common share increased 21%35% and
16%, respectively,36% to $.68$.85 and $.65,$.83, respectively, as compared with the prior year ago
period. For the quarter ended JuneSeptember 30, 2002, the title insurance
segment's operating revenues increased 1%23% versus the secondthird quarter of
2001, while the exchange services segment's operating
revenues decreased 24%increased 16% for
the three months ended JuneSeptember 30, 2002 compared with the prior year
quarter.
See Note 5 to the consolidated
financial statements contained in this report.
For the sixnine months ended JuneSeptember 30, 2002, net premiums written
increased 12%16% to $29,551,922,$47,593,343, investment income was virtually flat at
$1,361,819,increased 1% to
$2,042,810, revenues increased 13%16% to $32,161,660 and$51,450,729, net income
increased 42%39% to $3,248,177, all compared with the same period in
2001. Net$5,394,202, and net income per basic and diluted
common share increased 45%41% and 42%, respectively,40% to $1.29$2.14 and $1.25,$2.08, respectively,
as compared with the prior year period.same period in 2001. For the sixnine months ended
JuneSeptember 30, 2002, the title insurance segment's operating revenues
increased 13%17% versus the same period in 2001, while the exchange
services segment's operating revenues decreased 41%22% for the sixnine
months ended JuneSeptember 30, 2002 compared with the same period in 2001.
The exchange services
segment's operating revenues decreased primarily due to a declineFueled by near 40-year lows in
fee income tied to interest rates, paid by depositories. These
interest rates have declinedmortgage lending in the
past year.
Notwithstanding uncertainty inthird quarter rose dramatically. Led by consumer demand for
refinancing, the financial markets, thevolume of total loan originations is on pace of
mortgage lending has remained strong. Home sales have trackedto
surpass the previous year's record levels and low interest rates continue to
stimulate a healthy demand for mortgage refinancing.level. According to the Freddie Mac
Weekly Mortgage Rate Survey, the monthly average 30-year fixed
mortgage interest rates decreased to 6.89%6.69% for the sixnine months ended
JuneSeptember 30, 2002 compared with 7.07%7.04% for the sixnine months ended
JuneSeptember 30, 2001. The volume of business remained strongincreased in the secondthird
quarter of 2002 as the number of policies and commitments issued totaled 70,501rose
to 86,589, an increase of 5% compared with 74,85982,322 in the same period
in 2001. Policies and commitments issued for the sixnine months ended
JuneSeptember 30, 2002 were 143,583230,172 compared with 133,655215,663 in 2001, an
increase of 7.4%7%.
Branch net premiums written as a percentage of total net premiums
written were 38%35% and 39%38% for the three months ended JuneSeptember 30, 2002
and 2001, respectively, and 37%36% and 38% for the sixnine months ended
JuneSeptember 30, 2002 and 2001, respectively. Net premiums written from
branch operations decreased 3%increased 13% and increased 33%34% for the three months ended
JuneSeptember 30, 2002 and 2001, respectively, as compared with the same
periods in the prior year. For the sixnine months ended JuneSeptember 30,
2002 and 2001, net premiums written from branch operations increased
8%10% and 27%29%, respectively, as compared with the same prior year
periods.
Though refinancing activity remained strong in the first half of
2002, the accelerated pace experienced in 2001 began to slow down in
2002.
8
Agency net premiums written as a percentage of total net premiums
written were 62%65% and 61%62% for the three months ended JuneSeptember 30, 2002
and 2001, respectively, and 63%64% and 62% for the sixnine months ended
JuneSeptember 30, 2002 and 2001, respectively. Agency net premiums
increased 2%28% and 59%54% for the three months ended JuneSeptember 30, 2002
and 2001, respectively, as compared with the same periods in the prior
year. For the sixnine months ended JuneSeptember 30, 2002 and 2001, net
premiums written from agency operations increased 15%20% and 55%54%,
respectively, as compared with the same prior year periods.
8
Shown below is a schedule of premiums written for the sixnine months
ended JuneSeptember 30, 2002 and 2001 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
---- ----
Alabama $ 275,440 $ -
Arkansas 7,638 -
Georgia 1,836 94,171
Indiana 5,114 1,446
Kentucky 503,741 -
Maryland 636,148 400,203
Michigan 4,419,751 5,166,760
Minnesota 652,130 726,983
Mississippi 413,665 12,607
Nebraska 387,291 458,816
New Jersey 11,943 -
New York 1,527,021 1,514,598
North Carolina 10,817,167 10,020,400
Ohio 11,673 16,631
Pennsylvania 1,551,870 1,549,390
South Carolina 2,616,019 1,747,074
Tennessee 1,521,794 1,101,852
Virginia 3,625,674 3,033,952
West Virginia 772,049 583,387
Wisconsin 7,234 14,997
------------------ ------------------
Direct Premiums 29,765,198 26,443,267
Reinsurance Assumed 15,665 3,710
Reinsurance Ceded (228,941) (141,975)
------------------ ------------------
Net Premiums $29,551,922 $26,305,002
================== ==================
2002 2001
---- ----
Alabama $ 445,882 $ 632
Arkansas 39,550 -
District of Columbia 250 -
Florida 1,745 -
Georgia 45,182 218,410
Illinois 6,816 -
Indiana 106,159 1,452
Iowa - 3,788
Kentucky 823,431 -
Maryland 1,029,080 680,890
Michigan 7,478,133 7,812,916
Minnesota 873,195 1,069,902
Mississippi 695,708 20,103
Nebraska 842,352 710,497
New Jersey 23,130 -
New York 2,356,430 2,411,705
North Carolina 17,178,141 15,644,222
Ohio 26,210 30,736
Pennsylvania 2,677,715 2,309,698
South Carolina 4,106,633 2,940,957
Tennessee 2,369,835 1,699,465
Virginia 5,579,815 4,820,625
West Virginia 1,183,924 886,986
Wisconsin 10,776 22,783
----------- -----------
Direct Premiums 47,900,092 41,285,767
Reinsurance Assumed 15,927 10,412
Reinsurance Ceded (322,676) (261,143)
----------- -----------
Net Premiums $47,593,343 $41,035,036
============= ============
Total operating expenses decreased 2%increased 20% and increased 8%12% for the three and
six-monthnine-month periods ended JuneSeptember 30, 2002 compared with the same
periods in 2001. Part of the decrease in operating expenses for the
second quarterThis increase was due primarily to the decreaseadditional
commissions relating to increase in depreciation expense. The
depreciable life of a large majority of the Company's electronic data
processing equipment ended in the first quarter of 2002, which
resulted in less depreciation for the second quarter of 2002 as
compared to the second quarter 2001.premium volume.
9
The provision for claims as a percentage of net premiums written was
11% for the three and sixnine months ended JuneSeptember 30, 2002, versus 13%12%
for the same periods in 2001.
The provision for income taxes was 32%31% of income before income taxes
for the three months ended JuneSeptember 30, 2002 versus 30%33% for the same
period in 2001. For the sixnine months ended JuneSeptember 30, 2002 and 2001,
the provision for income taxes was 31% and 30% of income before income taxes, respectively. The slight change in the tax provision
percentage was primarily due to a change in the mix of tax-exempt
investment income to taxable income.taxes.
Liquidity and Capital Resources:
--------------------------------
Net cash provided by operating activities for the sixnine months ended
JuneSeptember 30, 2002, amounted to $5,174,575,$8,113,547 compared with $3,123,075$4,830,087
for the same six-monthnine-month period during 2001. The increase is primarily
the result of an increase in net income, a decrease in receivables and other assets, partiallyan increase
in net income and a net decrease in noncash adjustments to reconcile
net income to net cash, offset by a decrease in premium taxes payable
and accounts payable and accrued liabilities compared with the prior
year.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 repurchased 200,000 shares prior to 2002 at an
average price of $12.50 per share including 12,80417,914 shares purchased at
an average price of $14.61 during$14.66 in the sixnine months ended JuneSeptember 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. Pursuant to
this approval, the Company repurchased a total of 33,01337,238 shares at an
average price of $14.85,$15.20, of which 8295,054 shares were purchased at an
average purchase price of $18.63$18.11 in the sixnine months ended JuneSeptember
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 July 31,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 its
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 such 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.
ItemItem. 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 2001 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 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) Investors Title Company's Annual Meeting of Shareholders was held
May 15, 2002.
(b) No response is required.
(c) The proposals voted upon and the results of the voting were as follows:
1. Election of four Directors for a three-year term.
Broker
For Against Abstentions Withheld Non-votes
W. Morris Fine 2,270,453 N/A N/A 23,566 N/A
Loren B. Harrell 2,116,975 N/A N/A 177,044 N/A
H. Joe King, Jr. 2,282,961 N/A N/A 11,058 N/A
William J. Kennedy III 2,287,469 N/A N/A 6,550 N/A
2. Approval to amend the Articles of Incorporation to Limit Director
Liability
Broker
For Against Abstentions Withheld Non-votes
2,246,857 42,123 5,839 N/A N/A
11
3. Approval to amend the Articles of Incorporation to Increase Authorized
Capital Stock
Broker
For Against Abstentions Withheld Non-votes
1,497,990 316,776 6,153 N/A N/A
Item 5. Other Information
-----------------
On August 9, 2002, the Company's Audit Committee approved Deloitte and
Touche, LLP to perform the following services for the year ending
December 31, 2002:
(a) Insurance services for Investors Title Insurance Company
and Northeast Investors Title Insurance Company, two wholly owned
subsidiaries of the Company;
(b) Audit services for the Company and its wholly owned
subsidiaries.
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------------------------------
(a) Exhibits
--------
(3)(iii) Articles of Amendment of Investors Title Company
filed May 28, 2002
(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.
1211
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
(Chief Financial Officer and
Chief Accounting Officer)
Dated: AugustNovember 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
2002
13