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: March 31, 2001
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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
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(Address of Principal Executive Offices) (Zip Code)
(919) 968-2200
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(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 March
31, 2001:
Common Stock, no par value 2,564,094
- ------------------------------ --------------------------------------
Class Shares Outstanding
1
INVESTORS TITLE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000.....3
Consolidated Statements of Income:
Three Months Ended March 31, 2001 and 2000..............................4
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 2001 and 2000..............................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 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 March 31, 2001 and December 31, 2000
(Unaudited)
March 31, 2001 December 31, 2000
---------------------- -------------------------
Assets
Cash and cash equivalents $ 7,167,875 $ 7,850,991
Investments in securities:
Fixed maturities:
Held-to-maturity, at amortized cost 4,965,586 4,375,127
Available-for-sale, at fair value 33,630,405 31,710,705
Equity securities, at fair value 4,533,222 4,970,069
---------------------- -------------------------
Total investments 43,129,213 41,055,901
Premiums receivable
(less allowance for doubtful accounts: 2001 and 2000: $725,000) 4,005,044 3,023,304
Accrued interest and dividends 566,971 616,652
Prepaid expenses and other assets 649,953 1,091,416
Property acquired in settlement of claims 294,510 204,117
Property, net 5,220,494 5,496,626
Deferred income taxes, net 241,805 -
---------------------- -------------------------
Total Assets $ 61,275,865 $ 59,339,007
====================== =========================
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Note 2) $ 18,619,665 $ 17,944,665
Accounts payable and accrued liabilities 1,955,671 1,918,034
Commissions and reinsurance payables 223,669 222,748
Premium taxes payable 71,283 -
Current income taxes payable 478,721 24,069
Deferred income taxes, net - 39,842
---------------------- -------------------------
Total liabilities 21,349,009 20,149,358
---------------------- -------------------------
Stockholders' Equity:
Common stock-no par value (shares authorized 6,000,000;
2,855,744 and 2,855,744 shares issued; and 2,564,094 and
2,566,859 shares outstanding 2001 and 2000, respectively) 1 1
Retained earnings 37,727,661 37,021,270
Accumulated other comprehensive income (net unrealized gain on investments)
(net of deferred taxes: 2001: $1,133,489; 2000: $1,117,615) (Note 3) 2,199,194 2,168,378
---------------------- -------------------------
Total stockholders' equity 39,926,856 39,189,649
---------------------- -------------------------
Total Liabilities and Stockholders' Equity $ 61,275,865 $ 59,339,007
====================== =========================
See notes to consolidated financial statements.
3
Investors Title Company and Subsidiaries
Consolidated Statements of Income
March 31, 2001 and 2000
(Unaudited)
For The Three
Months Ended
March 31
-------------------------------------------------
2001 2000
---- ----
Revenues:
Underwriting income:
Premiums written $ 11,501,245 $ 8,443,307
Less-premiums for reinsurance ceded 63,520 73,169
------------------------ ----------------------
Net premiums written 11,437,725 8,370,138
Investment income-interest and dividends 685,877 591,791
Net realized gain on sales of investments 2,205 62,867
Other 463,445 301,437
------------------------ ----------------------
Total 12,589,252 9,326,233
------------------------ ----------------------
Operating Expenses:
Commissions to agents 5,320,218 3,377,871
Provision for claims (Note 2) 1,410,645 1,244,804
Salaries and employee benefits 2,462,829 2,488,329
Office occupancy and operations 1,217,194 908,464
Business development 331,273 262,556
Taxes, other than payroll and income 60,844 53,461
Premium and retaliatory taxes 286,177 211,624
Professional fees 222,379 171,691
Other 99,569 28,226
------------------------ ----------------------
Total 11,411,128 8,747,026
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Income Before Income Taxes 1,178,124 579,207
------------------------ ----------------------
Provision For Income Taxes 338,000 57,600
------------------------ ----------------------
Net Income $ 840,124 $ 521,607
======================== ======================
Basic Earnings per Common Share $ 0.33 $ 0.20
======================== ======================
Weighted Average Shares Outstanding-Basic 2,566,921 2,643,241
======================== ======================
Diluted Earnings per Common Share $ 0.32 $ 0.20
======================== ======================
Weighted Average Shares Outstanding-Diluted 2,609,470 2,646,215
======================== ======================
Dividends Paid $ 85,672 $ 85,672
======================== ======================
Dividends per Share $ 0.03 $ 0.03
======================== ======================
See notes to consolidated financial statements.
4
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2001 and 2000
(Unaudited)
2001 2000
------------------ --------------
Operating Activities:
Net income $ 840,124 $ 521,607
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 368,668 185,185
Amortization, net 967 3,177
Net gain on disposals of property (8,538) (1,073)
Net realized gain on sales of investments (2,205) (62,867)
Provision (benefit) for deferred income taxes (297,522) 467,200
Provision for claims 1,410,645 1,244,804
Payments of claims, net of recoveries (735,645) (1,144,804)
Changes in assets and liabilities:
Increase in receivables and other assets (616,818) (32,573)
Increase (decrease) in accounts payable
and accrued liabilities 37,637 (552,408)
Increase (decrease) in commissions
and reinsurance payables 921 (17,103)
Increase (decrease) in premium taxes payable 107,112 (15,606)
Increase in current income taxes payable 454,652 -
----------------- --------------
Net cash provided by operating activities 1,559,998 595,539
----------------- --------------
Investing Activities:
Purchases of available-for-sale securities (1,987,090) (1,005,900)
Purchases of held-to-maturity securities (600,000) -
Proceeds from sales of available-for-sale securities 551,706 1,513,376
Proceeds from sales of held-to-maturity securities 10,000 15,000
Purchases of property (103,778) (127,637)
Proceeds from sales of property 19,780 15,316
----------------- --------------
Net cash (used in) provided by investing activities (2,109,382) 410,155
----------------- --------------
Financing Activities:
Repurchases of common stock, net (68,441) (1,844,223)
Exercise of options 20,381 7,580
Dividends paid (85,672) (85,672)
----------------- --------------
Net cash used in investing activities (133,732) (1,922,315)
----------------- --------------
Net Decrease in Cash and Cash Equivalents (683,116) (916,621)
Cash and Cash Equivalents, Beginning of Year 7,850,991 7,554,297
----------------- --------------
Cash and Cash Equivalents, End of Period $ 7,167,875 $ 6,637,676
================= ==============
Supplemental Disclosures:
Cash Paid During the Year for:
Income Taxes $ 191,054 $ 4,298
================= ==============
Noncash Financing Activities:
Accrued bonuses totaling $43,798 and $101,244 were paid for the three months
ended March 31, 2001 and 2000 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
March 31, 2001
(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, 2000 for a description of accounting policies.
Note 2 - Reserves for Claims
Transactions in the reserves for claims for the three months ended
March 31, 2001 were as follows:
Balance, beginning of year $ 17,944,665
Provision, charged to operations 1,410,645
Recoveries 279,064
Payments of claims (1,014,709)
-----------
Balance, September 30, 2000 $ 18,619,665
============
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 March 31, 2001 and
2000 was $870,940 and $868,544, 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 42,549 and 2,974 for the three
months ended March 31, 2001 and 2000, respectively. Options to purchase
279,080 and 93,610 shares of common stock were outstanding for the three
months ended March 31, 2001 and 2000, respectively. Of the total options
outstanding, 56,626 and 72,210 options were not included in the
computation of diluted EPS for the three months ended March 31, 2001 and
2000, 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
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
March 31, 2001
- ------------------------------------------------------------------------------
Title Insurance $12,150,777 $ 978,625 $57,052,468
Exchange Services 260,946 172,955 325,461
All Other 177,529 26,544 3,897,936
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
$12,589,252 $ 1,178,124 $61,275,865
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- ------------------------------------------------------------------------------
March 31, 2000
- ------------------------------------------------------------------------------
Title Insurance $ 9,069,673 $ 396,275 $50,215,229
Exchange Services 169,497 118,599 287,288
All Other 87,063 64,333 3,146,978
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
$ 9,326,233 $ 579,207 $53,649,495
- ------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
--------------------------------------------------------------
The 2000 Form 10-K and the 2000 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 March 31, 2001, net premiums written increased
37% to $11,437,725, investment income increased 16% to $685,877,
revenues increased 35% to $12,589,252 and net income increased 61% to
$840,124, all compared with the same quarter in 2000. Net income per
basic and diluted common share increased 65% and 60%, respectively to
$.33 and $.32, respectively as compared with the year ago period. For
the quarter ended March 31, 2001, the title insurance segment's
revenues increased 34% versus the first three months of 2000, while
the exchange services segment's revenues increased 54% for the three
months ended March 31, 2001 compared with the same quarter in 2000.
Stimulated by the decline in mortgage interest rates at the end of
last year, mortgage refinancing picked up significantly in the first
quarter of 2001. This contributed substantially to the increase in
our premiums written. We also experienced continued growth in revenue
from premiums generated in new operating territories. According to
the Freddie Mac Weekly Mortgage Rate Survey, the monthly average
30-year fixed mortgage interest rates decreased to 7.01 % for the
quarter ended March 31, 2001 compared with 8.26% for the quarter
ended March 31, 2000. The volume of business increased in the first
quarter of 2001 as the number of policies and commitments issued rose
to 58,796, an increase of 24.5% compared with 47,228 in the same
period in 2000.
Branch net premiums written as a percentage of total net premiums
written were 38% and 43% for the three months ended March 31, 2001
and 2000, respectively. Net premiums written from branch operations
7
increased 20% and decreased 30% for the three months ended March 31,
2001 and 2000, respectively, as compared with the same period in the
prior year.
Agency net premiums written as a percentage of total net premiums
written were 62% and 57% for the three months ended March 31, 2001
and 2000, respectively. Agency net premiums increased 49% and
decreased 14% for the three months ended March 31, 2001 and 2000,
respectively, as compared with the same period in the prior year.
Shown below is a schedule of premiums written for the three months
ended March 31, 2001 and 2000 in all states where the Company's two
insurance subsidiaries, Investors Title Insurance Company and
Northeast Investors Title Insurance Company, currently underwrite
insurance:
2001 2000
---- ----
Georgia $ 44,237 $ 68,917
Indiana 1,553 112,184
Maryland 186,572 139,672
Michigan 2,182,765 1,452,644
Minnesota 444,314 141,783
Mississippi 5,778 5,541
Nebraska 267,112 316,913
New York 649,551 72,621
North Carolina 4,301,891 3,576,796
Ohio 4,470 -
Pennsylvania 627,132 131,750
South Carolina 807,680 770,103
Tennessee 447,704 244,553
Virginia 1,287,536 1,132,474
West Virginia 241,468 262,846
Wisconsin 921 3,942
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Direct Premiums 11,500,684 8,432,739
Reinsurance Assumed 561 10,568
Reinsurance Ceded (63,520) (73,169)
----------- ----------
Net Premiums $11,437,725 $8,370,138
=========== ==========
Total operating expenses increased 30% for the three-month period
ended March 31, 2001 compared with the same period in 2000. This
increase was due primarily to an increase in commission expense as a
result of increased business from agent sources. 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
12% for the three months ended March 31, 2001 versus 15% for the same
8
period in 2000. The decrease in the percentage of the provision for
claims to net premiums written is primarily the result of a decrease
in claims payments (net of recoveries) in 2001 compared with 2000.
The provision for income taxes was 29% of income before income taxes
for the three months ended March 31, 2001 versus 10% for the same
period in 2000. The increase in the tax provision was primarily due
to a lower mix of tax-exempt investment income to taxable income in
2001 compared with 2000.
Liquidity and Capital Resources:
-------------------------------
Net cash provided by operating activities for the three months ended
March 31, 2001, amounted to $1,559,998 compared with $595,539 for the
same three-month period during 2000. The increase is primarily the
result of an increase in net income, an increase in accounts payable
and accrued liabilities, a decrease in payments of claims (net of
recoveries), an increase in current income taxes payable, partially
offset by an increase in receivables and other assets.
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 181,965 shares at an average
price of $12.28 per share as of March 31, 2001 including 7,731 shares
purchased at an average price of $14.52 during the quarter ended
March 31, 2001.
On May 9, 2000, the Board of Directors approved the repurchase of an
additional 500,000 shares of the Company's common stock. As of May
11, 2001, no shares have been repurchased pursuant to this approval.
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: (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
9
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.
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 2000 Annual Report on Form
10-K.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) 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: May 11, 2001
11