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: June 30, 2002March 31, 2003
----------------
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---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the issuer's classesExchange Act). Yes No X
--- ---
As of May 1, 2003, there were 2,855,744 outstanding shares of common stock as of
June 30, 2002:
Common Stock, no par value 2,519,031
-------------------------- ---------
Class Shares OutstandingInvestors Title Company, including 365,447 shares held by Investors Title
Insurance Company, a wholly-owned subsidiary of Investors Title Company.
1
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2002March 31, 2003
and December 31, 2001...32002..............................................1
Consolidated Statements of Income:
Three and Six Months Ended June 30, 2002March 31, 2003 and 2001..................42002.........................2
Consolidated Statements of Cash Flows:
SixThree Months Ended June 30, 2002March 31, 2003 and 2001............................52002.........................3
Notes to Consolidated Financial Statements..............................6Statements.........................4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................7Operations...............................................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk .......11.........10
Item 4. Controls and Procedures.............................................10
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....................................10
SIGNATURES...................................................................11
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ---------------------------------------------------
Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of June 30, 2002March 31, 2003 and December 31, 2001
(Unaudited) (Audited)2002
June 30, 2002March 31, 2003 December 31, 2001
----------------- -------------------2002
---------------------------------------------
(Unaudited) (Audited)
Assets
Cash and cash equivalents $ 5,807,1815,289,205 $ 3,452,4553,781,961
Investments in securities:
Fixed maturities:
Held-to-maturity, at amortized cost 4,501,005 4,907,0664,191,196 4,395,081
Available-for-sale, at fair value 46,364,026 42,683,66051,988,574 52,491,648
Equity securities, at fair value 4,933,086 5,433,5577,761,187 7,884,928
Other investments 476,834 64,888
-----------------1,047,159 564,782
---------------- -------------
Total investments 56,274,951 53,089,17164,988,116 65,336,439
Premiums receivable, (lessless allowance for doubtful accounts:accounts of 8,052,168 7,949,904
$1,875,000 and $1,800,000 for 2003 and 2002, and 2001: $1,405,000) 5,065,372 7,104,580respectively
Accrued interest and dividends 711,353 725,757652,101 720,902
Prepaid expenses and other assets 675,992 765,348927,799 1,095,230
Property acquired in settlement of claims 197,617 294,510759,431 749,562
Property, net 4,382,610 4,433,8554,099,541 4,109,885
Deferred income taxes, net 390,798 354,024
----------------- -------------------681,540 893,263
---------------- -------------
Total Assets (Note 5) $ 73,505,87485,449,901 $ 70,219,700
================= ===================84,637,146
================ =============
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Note 2) $ 23,183,50026,075,000 $ 21,460,00025,630,000
Accounts payable and accrued liabilities 1,945,110 3,700,0952,622,944 4,780,865
Commissions and reinsurance payables 307,957 281,961298,871 401,040
Premium taxes payable - 367,055413,530 268,972
Current income taxes payable 237,535 138,821
----------------- -------------------997,963 888,085
---------------- -------------
Total liabilities 25,674,102 25,947,932
----------------- -------------------30,408,308 31,968,962
---------------- -------------
Stockholders' Equity:
Class A Junior Participating preferred stock
(shares authorized 100,000; no shares issued) - -
Common stock - nostock-no par value (shares authorized 10,000,000;
2,855,7442,510,379 and 2,855,7442,515,804 shares issued;issued and 2,519,031outstanding 2003 and 2,516,2982002,
respectively, excluding 345,365 and 339,940 shares outstanding2003 and 2002,
and 2001, respectively)respectively, of common stock held by the Company's subsidiary) 1 1
Retained earnings 45,066,129 41,928,57552,008,343 49,613,044
Accumulated other comprehensive income, (net unrealized gain on investments)
(netnet of deferred taxes: 2002: $1,425,295;
2001: $1,207,670)taxes of
$1,563,154 and $1,574,431 for 2003 and 2002, respectively (Note 3) 2,765,642 2,343,192
----------------- -------------------3,033,249 3,055,139
---------------- -------------
Total stockholders' equity 47,831,772 44,271,768
----------------- -------------------55,041,593 52,668,184
---------------- -------------
Total Liabilities and Stockholders' Equity $ 73,505,87485,449,901 $ 70,219,700
================= ===================84,637,146
================ =============
See notes to consolidated financial statements.
31
Investors Title Company and Subsidiaries
Consolidated Statements of Income
For the Three and Six Months Ended June 30,March 31, 2003 and 2002 and 2001
(Unaudited)
-------------------------------- --------------------------------2003 2002
2001 2002 2001
------------- ------------- -------------- ------------------------ ----------
Revenues:
Underwriting income:
Premiums written $ 14,997,01519,840,174 $ 14,945,732 $ 29,780,863 $ 26,446,977
Less - premiums14,783,848
Less-premiums for reinsurance ceded 125,818 78,455 228,941 141,975
------------- ------------- -------------- -------------97,189 103,123
----------- -----------
Net premiums written 14,871,197 14,867,277 29,551,922 26,305,00219,742,985 14,680,725
Investment income - interest and dividends 692,781 672,054 1,361,819 1,357,931674,578 669,038
Net realized gain (loss) on sales of investments 5,043 (152) 290,850 2,05323,047 285,807
Other 523,066 436,328 957,069 899,773
------------- ------------- -------------- -------------662,833 434,003
----------- -----------
Total 16,092,087 15,975,507 32,161,660 28,564,759
------------- ------------- -------------- -------------21,103,443 16,069,573
----------- -----------
Operating Expenses:
Commissions to agents 6,767,083 6,759,993 13,776,762 12,080,2119,392,790 7,009,679
Provision for claims (Note 2) 1,703,640 1,941,190 3,383,051 3,351,8352,083,038 1,679,411
Salaries, employee benefits and payroll taxes 2,729,169 2,639,860 5,667,760 5,102,6893,547,057 2,938,591
Office occupancy and operations 1,270,795 1,376,457 2,471,192 2,593,6511,097,116 1,200,397
Business development 430,484 542,186 808,305 873,459380,952 388,121
Taxes, other than payroll and income 115,357 92,028 191,594 152,87254,123 76,237
Premium and retaliatory taxes 304,092 286,500 633,858 572,677421,286 329,766
Professional fees 190,251 217,967 400,506 440,346207,344 210,255
Other 85,618 53,980 133,855 153,549
------------- ------------- -------------- -------------126,931 37,937
----------- -----------
Total 13,596,489 13,910,161 27,466,883 25,321,289
------------- ------------- -------------- -------------17,310,637 13,870,394
----------- -----------
Income Before Income Taxes (Note 5) 2,495,598 2,065,346 4,694,777 3,243,4703,792,806 2,199,179
Provision For Income Taxes 794,600 620,800 1,446,600 958,800
------------- ------------- -------------- -------------1,184,245 652,000
----------- -----------
Net Income $ 1,700,9982,608,561 $ 1,444,546 $ 3,248,177 $ 2,284,670
============= ============= ============== =============1,547,179
=========== ===========
Basic Earnings Per Common Share (Note 4) $ 0.681.04 $ 0.56 $ 1.29 $ 0.89
============= ============= ============== =============0.61
=========== ===========
Weighted Average Shares Outstanding - Basic (Note 4) 2,517,739 2,562,467 2,517,148 2,564,695
============= ============= ============== =============2,513,507 2,516,555
=========== ===========
Diluted Earnings Per Common Share (Note 4) $ 0.651.00 $ 0.56 $ 1.25 $ 0.88
============= ============= ============== =============0.60
=========== ===========
Weighted Average Shares Outstanding - Diluted (Note 4) 2,600,191 2,602,006 2,593,565 2,605,812
============= ============= ============== =============2,610,242 2,585,773
=========== ===========
Dividends Paid $ 77,17075,471 $ 85,673 $ 151,074 $ 171,345
============= ============= ============== =============73,904
=========== ===========
Dividends Per Share $ 0.03 $ 0.03
$ 0.06 $ 0.06
============= ============= ============== ======================== ===========
See notes to consolidated financial statements.
42
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the SixThree Months Ended June 30,March 31, 2003 and 2002 and 2001
(Unaudited)
2003 2002 2001
------------------ ------------------
Operating Activities:
Net income $ 3,248,1772,608,561 $ 2,284,6701,547,179
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 497,858 884,611198,341 280,317
Amortization, net 14,867 1,7435,867 5,372
Issuance of common stock in payment of bonuses and fees 5,014 27,338
Provision for losses on premiums receivable 75,000 -
Net gainloss on disposals of property (7,108) (9,872)2,128 2,320
Net realized gain on sales of investments (290,850) (2,053)
Benefit(23,047) (285,807)
Provision (benefit) for deferred income taxes (254,400) (483,721)223,000 (84,400)
Changes in assets and liabilities:
Decrease in receivables and other assets 49,099 1,121,530
Decrease in accounts payable and accrued liabilities (2,157,921) (942,952)
Increase (decrease) in commissions and reinsurance
payables (102,169) 2,751
Increase (decrease) in premium taxes payable 144,558 (171,974)
Increase in current income taxes payable 109,878 620,914
Provision for claims 3,383,051 3,351,8352,083,038 1,679,411
Payments of claims, net of recoveries (1,659,551) (1,591,835)
Changes in assets and liabilities:
(Increase) decrease in receivables and other assets 2,245,828 (2,522,275)
Increase (decrease) in accounts payable
and accrued liabilities (1,754,985) 759,629
Increase in commissions and reinsurance payables 25,996 30,649
Increase (decrease) in premium taxes payable (373,022) 126,742
Increase in current income taxes payable 98,714 292,952(1,638,038) (887,411)
------------------ ------------------
Net cash provided by operating activities 5,174,575 3,123,0751,583,309 2,914,588
------------------ ------------------
Investing Activities:
Purchases of available-for-sale securities (5,557,892) (5,259,412)(2,317,518) (4,160,011)
Purchases of held-to-maturity securities (362,470) (600,000)(3,035) (162,470)
Purchases of held-at-costother securities (411,946) -(486,000) (257,800)
Proceeds from sales of available-for-sale securities 3,293,836 827,2212,928,643 2,676,095
Proceeds from sales of held-to-maturity securities 768,750 963,689205,000 258,750
Proceeds from other securities 5,246 -
Purchases of property (456,858) (219,499)(190,310) (73,988)
Proceeds from sales of property 17,353 40,720185 665
------------------ ------------------
Net cash provided by (used in) investing activities 142,211 (1,718,759)
------------------ ------------------
Financing Activities:
Repurchases of common stock (174,691) (14,354)
Exercise of options 31,886 890
Dividends paid (75,471) (73,904)
------------------ ------------------
Net cash used in investingfinancing activities (2,709,227) (4,247,281)
------------------ ------------------
Financing Activities:
Distributions (repurchases) of common stock, net 26,281 (138,258)
Exercise of options 14,171 20,381
Dividends paid (151,074) (171,345)(218,276) (87,368)
------------------ ------------------
Net cash used in investing activities (110,622) (289,222)
------------------ ------------------
Net Increase (Decrease) in Cash and Cash Equivalents 2,354,726 (1,413,428)1,507,244 1,108,461
Cash and Cash Equivalents, Beginning of Year 3,452,455 4,268,7123,781,961 3,069,929
------------------ ------------------
Cash and Cash Equivalents, End of Period $ 5,807,1815,289,205 $ 2,855,2844,178,390
================== ==================
Supplemental Disclosures:
Cash Paid During the Year for:
Income Taxes, net of refunds $ 1,603,601862,000 $ 1,159,754118,000
================== ==================
Noncash Financing Activities:
Bonuses and fees totaling $41,728$5,014 and $48,809$27,338 were paid for the sixthree months
ended June 30,March 31, 2003 and 2002, and 2001, respectively, by issuance of the Company's common
stock.
See notes to consolidated financial statements.
53
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2002------------------------------------------
March 31, 2003
(Unaudited)
Note 1 - Basis of Presentation
---------------------- ------------------------------
Reference should be made to the "Notes to Consolidated Financial Statements" of
the Company's Annual Report to Shareholders for the year ended December 31, 2002
for a complete description of the Company's significant accounting policies.
Principles of consolidation - The unaudited consolidated financial statements
include the accounts and operations of Investors Title Company and its
subsidiaries, and have been prepared in conformity with accounting principles
generally accepted in the United States of America. All intercompany balances
and transactions have been eliminated in consolidation.
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.
Reclassification - Certain 20012002 amounts have been reclassified to conform to
2003 classifications.
Earnings per share - Basic net income per share information is computed using
the weighted average number of shares of common stock outstanding during the
period. Diluted net income per common share is computed using the weighted
average number of shares of common and dilutive potential common shares
outstanding during the period.
Recent Accounting Pronouncements - In June 2002, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with 2002
classifications.
Reference shouldExit or Disposal Activities ("SFAS
No. 146"). SFAS No. 146 addresses accounting and reporting for costs associated
with exit or disposal activities and supercedes Emerging Issues Task Force Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring). SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be maderecognized and measured initially at fair
value when the liability is incurred. SFAS No. 146 is effective for exit or
disposal activities that are initiated after December 31, 2002. The adoption of
this statement had no material impact on the financial statements.
FASB Interpretation No. 45, Guarantor's Accounting and Disclosures Requirements
for Guarantees, including Indirect Guarantees of Indebtedness of Others, became
effective on December 31, 2002. This Interpretation addresses the disclosure
requirements for guarantees and indemnification agreements entered into by the
entity. The implementation of this pronouncement did not have any effect on the
Company's financial statements.
Stock-Based Compensation - The Company accounts for stock-based compensation
based on the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued
4
to Employees ("APB No. 25"), which states that, for fixed plans, no compensation
expense is recorded for stock options or other stock-based awards to employees
that are granted with an exercise price equal to or above the "Notes to Consolidated Financial
Statements"estimated fair
value per share of the Registrant's Annual ReportCompany's common stock on the grant date. In the event
that stock options are granted with an exercise price below the estimated fair
value of the Company's common stock at the grant date, the difference between
the fair value of the Company's common stock and the exercise price of the stock
option is recorded as deferred compensation. Deferred compensation is amortized
to Shareholderscompensation expense over the vesting period of the stock option. The Company
has adopted the disclosure requirements of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"), and
Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment to FASB Statement No.
123, which together require compensation expense to be disclosed based on the
fair value of the options granted at the date of the grant.
Had compensation cost for the year
ended December 31, 2001Company's stock option plan been determined based
on the fair value at the grant dates for a description of accounting policies.awards under the plan consistent with
the method required by SFAS No. 123, the Company's net income and diluted net
income per common share would have been the pro forma amounts indicated in the
following table:
For the Three-Month Periods Ended
March 31
---------------------------------------
2003 2002
---------------------------------------
Net income as reported $ 2,608,561 $ 1,547,179
Less: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects (37,913) (29,504)
---------------------------------------
Pro forma net income $ 2,570,648 $ 1,517,675
============== ============
Net income per share:
Basic - as reported $ 1.04 $ 0.61
Basic - pro forma $ 1.02 $ 0.60
Diluted - as reported $ 1.00 $ 0.60
Diluted - pro forma $ 0.98 $ 0.59
5
Note 2 - Reserves for Claims
-------------------- ----------------------------
Transactions in the reserves for claims for the sixthree months ended June 30,March 31,
2003 and the twelve months ended December 31, 2002 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
===============
March 31, 2003 December 31, 2002
---------------------- ---------------------------
Balance, beginning of year $ 25,630,000 $ 21,460,000
Provision, charged to operations 2,083,038 6,871,822
Payments of claims, net of recoveries (1,638,038) (2,701,822)
-------------- -------------
Ending balance $ 26,075,000 $ 25,630,000
============== =============
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 June 30,March 31, 2003 and 2002
was $2,586,671 and 2001 was $2,369,666 and $1,427,262, respectively. Total comprehensive
income for the six months ended June 30, 2002 and 2001 was $3,670,627 and
$2,298,202,$1,300,961, respectively. Other comprehensive income is
comprised solely of unrealized gains or losses on the Company's
available-for-sale securities.
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 82,45296,735 and 39,53969,218 for the three months ended June 30,March 31,
2003 and 2002, respectively. Options to purchase 313,021 and 2001, respectively, and 76,417 and 41,117288,566 shares of
common stock were outstanding for the sixthree months ended June 30,March 31, 2003 and
2002, and 2001, respectively. Of the total options outstanding, 68,68660,436 and 82,82154,686 options
were not included in the computation of diluted EPS for the three months ended
June 30,March 31, 2003 and 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
Note 5 - Segment Information
---------------------- ----------------------------
Income
Three Months Operating Before
Ended Revenues Income Taxes Assets
- ---------------------------------------------------------------------------------------
June 30, 2002
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
March 31, 2003
---------------------------------------------------------------------------------------------------------
Title Insurance $15,021,352$20,066,446 $ 2,363,446 $69,338,8053,733,657 $78,237,765
Exchange Services 180,542 70,698 295,038101,089 (34,880) 336,576
All Other 192,369 61,454 3,872,031
- ---------------------------------------------------------------------------------------
$15,394,263238,283 94,029 6,875,560
---------------------------------------------------------------------------------------------------------
$20,405,818 $ 2,495,598 $73,505,874
- ---------------------------------------------------------------------------------------
June 30, 2001
- ---------------------------------------------------------------------------------------3,792,806 $85,449,901
---------------------------------------------------------------------------------------------------------
March 31, 2002
---------------------------------------------------------------------------------------------------------
Title Insurance $14,905,837$14,823,720 $ 1,879,192 $59,967,7592,147,332 $66,951,379
Exchange Services 236,889 121,848 501,273106,255 (20,302) 242,881
All Other 160,879 64,306 3,809,085
- ---------------------------------------------------------------------------------------
$15,303,605184,753 72,149 4,567,110
---------------------------------------------------------------------------------------------------------
$15,114,728 $ 2,065,346 $64,278,117
- ---------------------------------------------------------------------------------------
Income
Six Months Operating Before
Ended Revenues Income Taxes Assets
- ---------------------------------------------------------------------------------------
June 30, 2002
- ---------------------------------------------------------------------------------------
Title Insurance $29,845,072 $ 4,510,778 $69,338,805
Exchange Services 286,797 50,396 295,038
All Other 377,122 133,603 3,872,031
- ---------------------------------------------------------------------------------------
$30,508,991 $ 4,694,777 $73,505,874
- ---------------------------------------------------------------------------------------
June 30, 2001
- ---------------------------------------------------------------------------------------
Title Insurance $26,387,316 $ 2,857,817 $59,967,759
Exchange Services 490,199 294,803 501,273
All Other 327,260 90,850 3,809,085
- ---------------------------------------------------------------------------------------
$27,204,775 $ 3,243,470 $64,278,117
- ---------------------------------------------------------------------------------------2,199,179 $71,761,370
---------------------------------------------------------------------------------------------------------
6
Operating revenues represent net premiums written and other revenues, excluding
investment income and net realized gain on sales of investments.
Note 6 - Commitments and Contingencies
- --------------------------------------
The Company and its subsidiaries are involved in various routine legal
proceedings that are incidental to their business. All of these proceedings
arose in the ordinary course of business and, in the Company's opinion, any
potential liability of the Company or its subsidiaries with respect to these
legal proceedings will not, in the aggregate, be material to the Company's
consolidated financial condition or operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
------------------------------------------------------------------------
of Operations
---------------------------------------------------------------------------
The 2001Company's 2002 Form 10-K and the 20012002 Annual Report to Shareholders 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
Critical Accounting Policies:
- ------------------------------
During the quarter ended March 31, 2003, the Company made no changes in its
critical accounting policies as previously disclosed within the Company's Annual
Report on Form 10-K for the year ended December 31, 2002.
Results of Operations:
- ----------------------
For the quarter ended June 30, 2002,March 31, 2003, net premiums written increased 34% to
$14,871,197 from $14,867,277,$19,742,985, investment income increased 3%1% to $692,781,$674,578, revenues increased 1%31%
to $16,092,087$21,103,443 and net income increased 18%69% to $1,700,998,$2,608,561, all compared with the
same quarter in 2001.2002. Net income per basic and diluted common share increased
21%70% and 16%67%, respectively, to $.68$1.04 and $.65, respectively,$1.00, as compared with the same prior
year period. For the quarter ended June 30, 2002,March 31, 2003, the title insurance segment's
operating revenues increased 1%35% versus the second
quarterfirst three months of 2001,2002, while
the exchange services segment's operating
revenues decreased 24%5% for the three months ended
June 30, 2002
compared with the prior year quarter. See Note 5 to the consolidated
financial statements contained in this report.
For the six months ended June 30, 2002, net premiums written
increased 12% to $29,551,922, investment income was virtually flat at
$1,361,819, revenues increased 13% to $32,161,660 and net income
increased 42% to $3,248,177, allMarch 31, 2003, compared with the same periodquarter in 2001. Net income per basic and diluted common share increased 45% and
42%, respectively,2002.
Operating results continued to $1.29 and $1.25, respectively, as compared with
the prior year period. For the six months ended June 30, 2002, the
title insurance segment's operating revenues increased 13% versus the
same period in 2001, while the exchange services segment's operating
revenues decreased 41% for the six months ended June 30, 2002
compared with the same period in 2001. The exchange services
segment's operating revenues decreased primarily due to a decline in
fee income tied to interest rates paidbe driven by depositories. These
interest rates have declined in the past year.
Notwithstanding uncertainty in the financial markets, the pace of
mortgage lending has remained strong. Home sales have tracked the
previous year's record levels and low interest rates continue to
stimulate a healthyand ongoing
strength in mortgage lending. Mortgage interest rates drifted lower from the
levels of the previous quarter supporting strong demand for mortgage refinancing.both refinancing and
home sales in the face of a sluggish economy. According to the Freddie Mac
Weekly Mortgage Rate Survey, the monthly average 30-year fixed mortgage interest
rates decreased to 6.89%an average of 5.84% for the six monthsquarter ended June 30, 2002March 31, 2003,
compared with 7.07%6.97% for the six monthsquarter ended June
30, 2001.March 31, 2002. The volume of business
remained strongincreased in the secondfirst quarter of 20022003 as the number of policies and commitments
issued totaled 70,501rose to 98,227, an increase of 34.4% compared with 74,85973,082 in the same
period in 2001.
Policies and commitments issued for the six months ended June 30,
2002 were 143,583 compared with 133,655 in 2001, an increase of 7.4%.2002.
Branch net premiums written as a percentage of total net premiums written were
38% and 39%36% for both the three months ended June 30, 2002March 31, 2003 and 2001, respectively, and 37% and 38% for the six months ended June 30,
2002 and 2001, respectively.2002. Net premiums
written from branch operations decreased 3%increased 34% and increased 33%22% for the three months ended
June 30,March 31, 2003 and 2002, and 2001, respectively, as compared with the same periodsperiod in the
prior year.
For the six months ended June 30, 2002 and
2001, net premiums written from branch operations increased 8% and
27%, 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.
87
Agency net premiums written as a percentage of total net premiums written were
62%64% for both the three months ended March 31, 2003 and 61%2002. Agency net premiums
increased 35% and 32% for the three months ended June 30,March 31, 2003 and 2002, and
2001, respectively, and 63% and 62% for the six months ended June 30,
2002 and 2001, respectively. Agency net premiums increased 2% and 59%
for the three months ended June 30, 2002 and 2001,
respectively, as compared with the same periodsperiod in the prior year. For the six months
ended June 30, 2002 and 2001, net premiums written from agency
operations increased 15% and 55%, respectively, as compared with the
same prior year periods.
Shown below is a schedule of premiums written for the sixthree months ended June 30,March
31, 2003 and 2002 and 2001 in all states wherein which the Company's two insurance
subsidiaries, Investors Title Insurance Company and Northeast Investors Title
Insurance Company, currently underwrite insurance:
State 2003 2002
2001----- ---- ----
Alabama $ 275,440283,964 $ 144,395
Arkansas 12,018 -
Arkansas 7,638District of Columbia 3,025 -
Florida 14,980 -
Georgia 1,836 94,171(9,487) (33,505)
Illinois 313,331 -
Indiana 5,114 1,44686,965 2,984
Kentucky 503,741431,100 257,156
Louisiana 1,204 -
Maryland 636,148 400,203404,913 300,362
Michigan 4,419,751 5,166,7601,896,418 2,227,176
Minnesota 652,130 726,983607,769 392,241
Mississippi 413,665 12,607237,484 223,025
Missouri 6,582 -
Nebraska 387,291 458,816494,856 200,666
New Jersey 11,943 -17,084 3,545
New York 1,527,021 1,514,5981,412,888 825,582
North Carolina 10,817,167 10,020,4007,067,357 5,229,578
Ohio 11,673 16,63124,286 1,440
Pennsylvania 1,551,870 1,549,3901,563,339 916,885
South Carolina 2,616,019 1,747,0741,572,149 1,127,063
Tennessee 1,521,794 1,101,852925,698 737,215
Virginia 3,625,674 3,033,9522,024,708 1,831,338
West Virginia 772,049 583,387444,058 382,719
Wisconsin 7,234 14,997
------------------ ------------------(100) 3,330
--------------------- ---------------------
Direct Premiums 29,765,198 26,443,26719,836,589 14,773,195
Reinsurance Assumed 15,665 3,7103,585 10,653
Reinsurance Ceded (228,941) (141,975)
------------------ ------------------(97,189) (103,123)
--------------------- ---------------------
Net Premiums $29,551,922 $26,305,002
================== ==================$19,742,985 $14,680,725
===================== =====================
Total operating expenses decreased 2% and increased 8%25% for the three
and six-month periodsthree-month period ended June 30, 2002,March
31, 2003, compared with the same periodsperiod in 2001. Part2002. This was due primarily to an
increase in commission expense as a result of increased business from agent
sources. The increase in volume of premiums
8
and costs associated with entering and supporting new markets also contributed
to the decreaseincrease in operating expenses for the
second quarter was due to the decrease 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.
9
expenses.
The provision for claims as a percentage of net premiums written was 11%10.55% for
the three and six months ended June 30, 2002March 31, 2003, versus 13%11.44% for the same periodsperiod in
2001.2002. The decrease in the percentage of the provision for claims to net premiums
written is primarily the result of improved claims experience.
The provision for income taxes was 32%31.22% of income before income taxes for the
three months ended June 30, 2002March 31, 2003, versus 30%29.65% for the same period in 2001. For the six months ended June 30, 2002 and 2001, the
provision for income taxes was 31% and 30% of income before income
taxes, respectively.2002.
The slight changeincrease in the tax provision
percentage was primarily due to a change in thelower mix of tax-exempt
investment income to taxable income.income in 2003 compared with 2002.
Liquidity and Capital Resources:
- --------------------------------
Net cash provided by operating activities for the sixthree months ended June 30, 2002,March 31,
2003, amounted to $5,174,575,$1,578,295 compared with $3,123,075$2,887,250 for the same six-monththree-month
period during 2001.of 2002. The increasedecrease is primarily the result of an increase in net income, a decrease in receivables and
other assets, partially offset by a decrease in premium taxes payable
and accounts
payable and accrued liabilities, compared withprimarily due to the prior
year.
On May 11, 1999, the Boardpayment of Directors approved the repurchaseaccrued bonuses
and retirement contributions, and an increase in payments of 200,000 sharesclaims, net of
the Company's common stock. Pursuant to this
approval, the Company repurchased 200,000 shares prior to 2002 atrecoveries offset by an average price of $12.50 per share including 12,804 shares purchased
at an average price of $14.61 during the six months ended June 30,
2001.increase in net income.
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 33,01359,172 shares at an average price of $14.85,$17.06 per share. For the three
months ended March 31, 2003 and 2002, a total of which 8297,854 and 775 shares were purchased at an
average purchase price of $18.63 in$22.24 and $18.52 per share, respectively, were repurchased.
During the sixthree months ended June 30,
2002.
On May 16, 2001,March 31, 2003, the Board of Directors approved the 2001 Stock
Option and Restricted Stock Plan. Pursuant to the Plan, 250,000
shares ofCompany repurchased common
stock are available. Asfor $174,691 and issued common stock totaling $36,900 in satisfaction of
July 31, 2002, no options
or shares have been issued under this plan.stock option exercises, stock bonuses and other stock issuances.
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 itsthe 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 withdue to 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
9
Company's 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.
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 20012002 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 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)3(iv) Articles of Amendment to Articles of Investors Title Company
filed May 28, 2002
(99)(i)Incorporation
99(i) Certification Pursuantof Chief Executive Officer and Chief Financial
Officer 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 noDuring the quarterly period covered by this report, the Company did not
file any reports filed on Form 8-K for this quarter.
128-K.
10
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, (ChiefPrincipal Financial Officer and
ChiefPrincipal Accounting Officer)Officer
Dated: AugustMay 14, 2002
132003
11