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, 2000
----------------
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
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INVESTORS TITLE COMPANY
------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1110199
-------------- ----------
(State of Incorporation) (I.R.S. Employer)
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
June 30, 2000:
Common Stock, no par value 2,587,159
-------------------------- ---------
Class Shares Outstanding
1
INVESTORS TITLE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999...3
Consolidated Statements of Income:
Three and Six Months Ended June 30, 2000 and June 30, 1999.........4
Consolidated Statements of Cash Flows:
Three and Six Months Ended June 30, 2000 and June 30, 1999.........5
Notes to Consolidated Financial Statements..............................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk .......10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders...............10
Item 6. Exhibits and Reports on Form 8-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, 2000 and December 31, 1999
(Unaudited)
June 30, 2000 December 31, 1999
----------------- -----------------------
Assets
Cash and cash equivalents $ 8,619,670 $ 7,554,297
Investments in securities:
Fixed maturities:
Held-to-maturity, at amortized cost 4,384,246 4,565,871
Available-for-sale, at fair value 25,939,238 25,931,918
Equity securities, at fair value 4,963,176 5,012,259
----------------- -------------------
Total investments 35,286,660 35,510,048
Premiums receivable (less allowance for doubtful accounts:
2000 and 1999: $725,000 and $775,000) 3,358,347 3,292,001
Accrued interest and dividends 517,440 521,624
Prepaid expenses and other assets 1,066,261 930,981
Property acquired in settlement of claims 191,617 191,617
Property, net 5,724,889 5,836,466
Prepaid federal income taxes - 705,437
Deferred income tax asset, net 452,662 614,093
----------------- -------------------
Total Assets $ 55,217,546 $ 55,156,564
================= ===================
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Note 2) $ 16,309,665 $ 15,864,665
Accounts payable and accrued liabilities 1,084,933 1,560,936
Commissions and reinsurance payables 212,981 208,605
Premium taxes payable - 20,618
Current income taxes payable 589,875 -
----------------- -------------------
Total liabilities 18,197,454 17,654,824
----------------- -------------------
Stockholders' Equity:
Common stock-no par value (shares authorized 6,000,000;
2,855,744 and 2,855,744 shares issued; and 2,587,159 and
2,736,961 shares outstanding 2000 and 1999, respectively) 1 1
Retained earnings 35,536,763 36,311,613
Accumulated other comprehensive income (net unrealized gain on investments)
(net of deferred taxes: 2000: $764,698; 1999: $613,667) (Note 3) 1,483,328 1,190,126
----------------- -------------------
Total stockholders' equity 37,020,092 37,501,740
----------------- -------------------
Total Liabilities and Stockholders' Equity $ 55,217,546 $ 55,156,564
================= ===================
See notes to consolidated financial statements.
3
Investors Title Company and Subsidiaries
Consolidated Statements of Income
June 30, 2000 and 1999
(Unaudited)
For The Three For The Six
Months Ended Months Ended
June 30 June 30
-------------------------------- --------------------------------
------------- ------------- -------------- -------------
2000 1999 2000 1999
------------- ------------- -------------- -------------
Revenues:
Underwriting income:
Premiums written $ 10,173,816 $ 12,463,764 $ 18,617,123 $ 23,235,392
Less-premiums for reinsurance ceded 108,784 78,877 181,953 156,268
------------- ------------- -------------- -------------
Net premiums written 10,065,032 12,384,887 18,435,170 23,079,124
Investment income-interest and dividends 576,317 498,650 1,168,108 968,777
Net realized gain on sales of investments 21,899 88,953 84,766 280,358
Other 374,233 224,521 675,670 385,068
------------- ------------- -------------- -------------
Total 11,037,481 13,197,011 20,363,714 24,713,327
------------- ------------- -------------- -------------
Operating Expenses:
Commissions to agents 4,032,464 4,818,820 7,410,335 8,810,108
Provision for claims (Note 2) 1,822,322 1,712,861 3,067,126 3,293,729
Salaries and employee benefits 2,384,751 2,538,340 4,873,080 5,081,092
Office occupancy and operations 872,449 1,019,035 1,780,913 1,907,368
Business development 399,660 363,574 662,216 638,484
Taxes, other than payroll and income 128,475 105,533 181,936 147,941
Premium and retaliatory taxes 192,113 216,290 403,737 478,200
Professional fees 259,402 225,348 431,093 391,506
Other 8,180 55,385 36,406 103,254
------------- ------------- -------------- -------------
Total 10,099,816 11,055,186 18,846,842 20,851,682
------------- ------------- -------------- -------------
Income Before Income Taxes 937,665 2,141,825 1,516,872 3,861,645
Provision For Income Taxes 202,906 669,798 260,506 1,213,300
------------- ------------- -------------- -------------
Net Income $ 734,759 $ 1,472,027 $ 1,256,366 $ 2,648,345
============= ============= ============== =============
Basic Earnings per Common Share (Note 4) $ 0.28 $ 0.53 $ 0.48 $ 0.95
============= ============= ============== =============
Weighted Average Shares Outstanding-Basic (Note 4) 2,587,075 2,782,431 2,615,159 2,793,929
============= ============= ============== =============
Diluted Earnings per Common Share (Note 4) $ 0.28 $ 0.53 $ 0.48 $ 0.94
============= ============= ============== =============
Weighted Average Shares Outstanding-Diluted (Note 4) 2,588,244 2,791,298 2,619,077 2,806,542
============= ============= ============== =============
Dividends Paid $ 85,673 $ 85,673 $ 171,345 $ 171,345
============= ============= ============== =============
Dividends per Share $ 0.03 $ 0.03 $ 0.06 $ 0.06
============= ============= ============== =============
See notes to consolidated financial statements.
4
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
---------------- -------------------
Operating Activities:
Net income $ 1,256,366 $ 2,648,345
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 382,052 192,810
Amortization, net 785 46,965
Net (gain) loss on disposals of property (4,355) 2,431
Net realized gain on sales of investments (84,766) (280,358)
Provision (benefit) for deferred income taxes 10,400 (278,000)
Provision for claims 3,067,126 3,293,729
Payments of claims, net of recoveries (2,622,126) (1,503,729)
Changes in assets and liabilities:
(Increase) decrease in receivables and other assets (73,957) 562,146
Decrease in accounts payable and accrued liabilities (476,003) (49,088)
Increase in commissions and reinsurance payables 4,376 94,903
Decrease in premium taxes payable (144,103) (341,626)
Increase (decrease) in current income taxes payable 1,295,312 (157,627)
---------------- -------------------
Net cash provided by operating activities 2,611,107 4,230,901
---------------- -------------------
Investing Activities:
Purchases of available-for-sale securities (1,058,856) (3,077,623)
Purchases of held-to-maturity securities - (100,986)
Proceeds from sales of available-for-sale securities 1,628,458 1,326,147
Proceeds from sales of held-to-maturity securities 182,000 449,086
Purchases of property (290,549) (1,076,198)
Proceeds from sales of property 24,429 4,875
---------------- -------------------
Net cash provided by (used in) investing activities 485,482 (2,474,699)
---------------- -------------------
Financing Activities:
Repurchases of common stock (1,867,451) (874,740)
Exercise of options 7,580 -
Dividends paid (171,345) (171,345)
---------------- -------------------
Net cash used in investing activities (2,031,216) (1,046,085)
---------------- -------------------
Net Increase in Cash and Cash Equivalents 1,065,373 710,117
Cash and Cash Equivalents, Beginning of Year 7,554,297 8,141,354
---------------- -------------------
Cash and Cash Equivalents, End of Period $ 8,619,670 $ 8,851,471
================ ===================
Supplemental Disclosures:
Cash Paid During the Year for:
Income Taxes $ 26,210 $ 1,638,827
================ ===================
Noncash Financing Activites:
Accrued bonuses totaling $116,848 and $150,323 were paid for the six months
ended June 30, 2000 and 1999, 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
June 30, 2000
(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.
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, 1999 for a description of accounting policies.
Note 2 - Reserves for Claims
- ----------------------------
Transactions in the reserves for claims for the six months ended June 30,
2000 were as follows:
Balance, beginning of year $ 15,864,665
Provision, charged to operations 3,067,126
Recoveries 225,161
Payments of claims (2,847,287)
-------------
Balance, June 30, 2000 $ 16,309,665
==============
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, 2000 and
1999 was $681,024 and $963,831, respectively. Total comprehensive income
for the six months ended June 30, 2000 and 1999 was $1,549,568 and
$1,972,402, 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 1,169 and 8,867 for the three
months ended June 30, 2000 and 1999, respectively and 3,918 and 12,613 for
the six months ended June 30, 2000 and 1999, respectively. Options to
purchase 132,060 and 59,106 shares of common stock were outstanding for
the three months ended June 30, 2000 and 1999, respectively and 71,560 and
54,606 for the six months ended June 30, 2000 and 1999, 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
Subsequent to June 30, 2000 the Company repurchased 5,000 common shares at
a price of $10.63 per share under a stock repurchase program.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
----------------------------------------------------------------
The 1999 Form 10-K and the 1999 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 June 30, 2000, net premiums written decreased
19% to $10,065,032, investment income increased 16% to $576,317,
revenues decreased 16% to $11,037,481 and net income decreased 50% to
$734,759 all compared with the same quarter in 1999. Net income per
basic and diluted common share both decreased 47% to $.28 as compared
with the year ago period.
For the six months ended June 30, 2000, net premiums written
decreased 20% to $18,435,170, investment income increased 21% to
$1,168,108, revenues decreased 18% to $20,363,714, net income
decreased 53% to $1,256,366, and both net income per basic and
diluted common share decreased 49% to $.48 as compared with the same
period in 1999.
Premiums written continue to be adversely affected by the impact of
higher interest rates on mortgage refinance activity. Mortgage
refinancing represented less than 15% of loan applications in the
second quarter. Nationwide existing home sales, which represent the
bulk of residential activity, remained slightly below prior year
levels. According to the Mortgage Bankers Association of America, the
monthly average 30-year fixed mortgage interest rates increased to
8.26% for the six months ended June 30, 2000 compared with 7.04% for
the six months ended June 30, 1999. The volume of business decreased
in the second quarter of 2000 as the number of policies and
commitments issued declined to 52,374, a decrease of 27% compared
with 71,731 in the same period in 1999. Policies and commitments
issued for the six months ended June 30, 2000 were 99,602 compared
with 139,922 in 1999.
Branch net premiums written as a percentage of total net premiums
written were 43% and 45% for the three months ended June 30, 2000 and
1999, respectively and 43% and 47% for the six months ended June 30,
2000 and 1999, respectively. Net premiums written from branch
operations decreased 22% and increased 2% for the three months ended
June 30, 2000 and 1999, respectively, as compared with the same
periods in the prior year. For the six months ended June 30, 2000 and
1999, net premiums written from branch operations decreased 26% and
increased 7%, respectively, as compared with the same prior year
periods.
7
Agency net premiums written as a percentage of total net premiums
written were 57% and 55% for the three months ended June 30, 2000 and
1999, respectively. Agency net premiums decreased 16% and increased
17% for the three months ended June 30, 2000 and 1999, respectively,
as compared with the same periods in the prior year. For the six
months ended June 30, 2000 and 1999, net premiums written from agency
operations decreased 15% and increased 16%, respectively, as compared
with the same prior year periods.
Shown below is a schedule of premiums written for the six months
ended June 30, 2000 and 1999 in all states where the Company's two
insurance subsidiaries, Investors Title Insurance Company and
Northeast Investors Title Insurance Company, currently underwrite
insurance:
2000 1999
---- ----
Georgia $ 124,170 $ 261,038
Indiana 243,773 167,864
Kentucky - 3,833
Maryland 297,741 288,138
Michigan 3,165,216 3,675,834
Minnesota 357,216 907,518
Mississippi 13,727 11,268
Nebraska 617,651 525,574
New York 164,799 287,743
North Carolina 7,944,430 10,698,551
Pennsylvania 363,203 -
South Carolina 1,733,832 2,302,900
Tennessee 500,641 258,146
Virginia 2,453,869 3,352,962
West Virginia 614,663 468,504
Wisconsin 4,938 1,433
--------------- --------------
Direct Premiums 18,599,869 23,211,306
Reinsurance, net (164,699) (132,182)
---------------- --------------
Net Premiums $18,435,170 $ 23,079,124
================ ===============
Total operating expenses decreased 9% and 10% for the three and
six-month periods ended June 30, 2000 compared with the same period
in 1999. This decrease was due in part to the decrease in premiums
written. Certain operating expenses increased due to continued
ongoing investments in technology and costs associated with entering
and supporting new markets.
The provision for claims as a percentage of net premiums written was
18% and 17% for the three and six months ended June 30, 2000, versus
14% for the same periods in 1999. The increase in the percentage of
the provision for claims to net premiums written is the result of a
recent increase in claims coupled with a decrease in premium volume.
8
The provision for income taxes was 22% of income before income taxes
for the three months ended June 30, 2000 versus 31% for the same
period in 1999. For the six months ended June 30, 2000 and 1999, the
provision for income taxes was 17% and 31% of income before income
taxes. The decrease in the tax provision was primarily due to a
higher mix of tax-exempt investment income to total income before
taxes in 2000 compared with 1999.
Liquidity and Capital Resources:
-------------------------------
Net cash provided by operating activities for the six months ended
June 30, 2000, amounted to $2,611,107 compared with $4,230,901 for
the same six-month period during 1999. The decrease is primarily the
result of a decrease in net income, an increase in payments of
claims, (net of recoveries), an increase in receivables and a
decrease in payables, partially offset by an increase in current
income taxes payable.
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 152,034 shares in the
six-months ended June 30, 2000 at an average price of $12.33 per
share.
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 July
27, 2000, no shares have been repurchased.
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 the investment portfolio in the form of short-term
investments and other readily marketable securities.
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: (i) 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; (ii) that losses
from claims may be greater than anticipated such that reserves for
possible claims are inadequate; (iii) that unanticipated adverse
changes in securities markets could result in material losses on
investments made by the Company; and (iv) 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.
9
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 1999 Annual Report on Form
10-K.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Investors Title Company's Annual Meeting of Shareholders was held May
9, 2000. The proposals voted upon and the results of the voting were
as follows:
Election of three Directors for a three-year term.
Broker
For Against Abstentions Withheld Non-votes
--- ------- ---------- -------- ---------
James A. Fine, Jr. 2,208,049 N/A N/A 53,118 N/A
James R. Morton 2,206,761 N/A N/A 54,406 N/A
Lillard H. Mount 2,207,199 N/A N/A 53,968 N/A
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
(10)(xii) Form of Amendment to Incentive Stock Option Agreement
between Investors Title Company and James Allen Fine,
James Allen Fine, Jr., William Morris Fine, George
Abbitt Snead, Ralph Nichols Strayhorn, III and Raeford
Wilder Wall, Jr., respectively.
(27) Financial Data Schedule included herewith.
(b) Reports on Form 8-K
-------------------
There were no reports filed on Form 8-K for this quarter.
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
By: /s/ Elizabeth P. Bryan
----------------------
Elizabeth P. Bryan
Vice President
(Principal Accounting Officer)
Dated: August 11, 2000
11
Exhibit Index
(10)(xii) Form of Amendment to Incentive Stock Option Agreement
between Investors Title Company and James Allen Fine,
James Allen Fine, Jr., William Morris Fine, George
Abbitt Snead, Ralph Nichols Strayhorn, III and Raeford
Wilder Wall, Jr., respectively.
(27) Financial Data Schedule included herewith.