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, 2001
----------------
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 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
June 30, 2001:
Common Stock, no par value 2,559,358
-------------------------- ---------
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, 2001 and December 31, 2000...3
Consolidated Statements of Income:
Three and Six Months Ended June 30, 2001 and 2000..................4
Consolidated Statements of Cash Flows:
Six Months Ended June 30, 2001 and 2000............................5
Notes to Consolidated Financial Statements..............................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk .......11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...............11
Item 6. Exhibits and Reports on Form 8-K................................. 12
SIGNATURES.................................................................13
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ------------------------------
Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of June 30, 2001 and December 31, 2000
(Unaudited)
June 30, 2001 December 31, 2000
----------------- ---------------------
Assets
Cash and cash equivalents $ 5,483,874 $ 7,850,991
Investments in securities:
Fixed maturities:
Held-to-maturity, at amortized cost 4,965,899 4,375,127
Available-for-sale, at fair value 36,371,007 31,710,705
Equity securities, at fair value 4,761,998 4,970,069
----------------- -------------------
Total investments 46,098,904 41,055,901
Premiums receivable (less allowance for doubtful accounts: 5,839,088 3,023,304
2001 and 2000: $725,0000) 644,275 616,652
Accrued interest and dividends 679,891 1,091,416
Prepaid expenses and other assets 294,510 204,117
Property acquired in settlement of claims 4,800,666 5,496,626
Property, net 436,909 -
Deferred income tax asset, net ----------------- -------------------
$ 64,278,117 $ 59,339,007
Total Assets ================= ===================
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Note 2) $ 19,704,665 $ 17,944,665
Accounts payable and accrued liabilities 2,677,663 1,918,034
Commissions and reinsurance payables 253,397 222,748
Premium taxes payable 126,742 -
Current income taxes payable 317,021 24,069
Deferred income taxes, net - 39,842
----------------- ------------------
Total liabilities 23,079,488 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 2,559,358 and
2,566,859 shares outstanding 2001 and 2000, respectively) 1 1
Retained earnings 39,016,718 37,021,270
Accumulated other comprehensive income (net unrealized gain on investments)
(net of deferred taxes: 2001: $1,124,585; 2000: $1,117,615) (Note 3) 2,181,910 2,168,378
----------------- -------------------
Total stockholders' equity 41,198,629 39,189,649
----------------- -------------------
Total Liabilities and Stockholders' Equity $ 64,278,117 $ 59,339,007
================= ===================
See notes to consolidated financial statements.
3
Investors Title Company and Subsidiaries
Consolidated Statements of Income
June 30, 2001 and 2000
(Unaudited)
For The Three For The Six
Months Ended Months Ended
June 30 June 30
-------------------------------- -----------------------------------
------------- ------------- ---------------- -------------
2001 2000 2001 2000
------------- ------------- ---------------- -------------
Revenues:
Underwriting income:
Premiums written $ 14,945,732 $ 10,173,816 $ 26,446,977 $ 18,617,123
Less-premiums for reinsurance ceded 78,455 108,784 141,975 181,953
--------------- -------------- --------------- --------------
Net premiums written 14,867,277 10,065,032 26,305,002 18,435,170
Investment income-interest and dividends 672,054 576,317 1,357,931 1,168,108
Net realized gain (loss)on sales of investments (152) 21,899 2,053 84,766
Other 436,328 374,233 899,773 675,670
--------------- -------------- --------------- --------------
Total 15,975,507 11,037,481 28,564,759 20,363,714
--------------- -------------- --------------- --------------
Operating Expenses:
Commissions to agents 6,759,993 4,032,464 12,080,211 7,410,335
Provision for claims (Note 2) 1,941,190 1,822,322 3,351,835 3,067,126
Salaries and employee benefits 2,639,860 2,384,751 5,102,689 4,873,080
Office occupancy and operations 1,376,457 872,449 2,593,651 1,780,913
Business development 542,186 399,660 873,459 662,216
Taxes, other than payroll and income 92,028 128,475 152,872 181,936
Premium and retaliatory taxes 286,500 192,113 572,677 403,737
Professional fees 217,967 259,402 440,346 431,093
Other 53,980 8,180 153,549 36,406
--------------- -------------- --------------- --------------
Total 13,910,161 10,099,816 25,321,289 18,846,842
--------------- -------------- --------------- --------------
Income Before Income Taxes 2,065,346 937,665 3,243,470 1,516,872
Provision For Income Taxes 620,800 202,906 958,800 260,506
--------------- -------------- --------------- --------------
Net Income $ 1,444,546 $ 734,759 $ 2,284,670 $ 1,256,366
=============== ============== =============== ==============
Basic Earnings per Common Share (Note 4) $ 0.56 $ 0.28 $ 0.89 $ 0.48
=============== ============== =============== ==============
Weighted Average Shares Outstanding-Basic (Note 4) 2,562,467 2,587,075 2,564,695 2,615,159
=============== ============== =============== ==============
Diluted Earnings per Common Share (Note 4) $ 0.56 $ 0.28 $ 0.88 $ 0.48
=============== ============== =============== ==============
Weighted Average Shares Outstanding-Diluted (Note 4) 2,602,006 2,588,244 2,605,812 2,619,077
=============== ============== =============== ==============
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, 2001 and 2000
(Unaudited)
2001 2000
--------------- -------------
Operating Activities:
Net income $ 2,284,670 $ 1,256,366
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 884,611 382,052
Amortization, net 1,743 785
Net gain on disposals of property (9,872) (4,355)
Net realized gain on sales of investments (2,053) (84,766)
Provision (benefit) for deferred income taxes (483,721) 10,400
Provision for claims 3,351,835 3,067,126
Payments of claims, net of recoveries (1,591,835) (2,622,126)
Changes in assets and liabilities:
Increase in receivables and other assets (2,522,275) (73,957)
Increase (decrease) in accounts payable
and accrued liabilities 759,629 (476,003)
Increase in commissions and reinsurance payables 30,649 4,376
Increase (decrease)in premium taxes payable 126,742 (144,103)
Increase in current income taxes payable 292,952 1,295,312
---------------- ---------------
Net cash provided by operating activities 3,123,075 2,611,107
---------------- ---------------
Investing Activities:
Purchases of available-for-sale securities (5,259,412) (1,058,856)
Purchases of held-to-maturity securities (600,000) -
Proceeds from sales of available-for-sale securities 827,221 1,628,458
Proceeds from sales of held-to-maturity securities 10,000 182,000
Purchases of property (219,499) (290,549)
Proceeds from sales of property 40,720 24,429
--------------- --------------
Net cash (used in) provided by investing activities (5,200,970) 485,482
--------------- --------------
Financing Activities:
Repurchases of common stock, net (138,258) (1,867,451)
Exercise of options 20,381 7,580
Dividends paid (171,345) (171,345)
--------------- --------------
Net cash used in investing activities (289,222) (2,031,216)
--------------- --------------
Net Increase (Decrease)in Cash and Cash Equivalents (2,367,117) 1,065,373
Cash and Cash Equivalents, Beginning of Year 7,850,991 7,554,297
--------------- --------------
Cash and Cash Equivalents, End of Period $ 5,483,874 $ 8,619,670
=============== ==============
Supplemental Disclosures:
Cash Paid During the Year for:
Income Taxes $ 1,159,754 $ 26,210
=============== ==============
Noncash Financing Activites:
Bonuses and fees totaling $48,809 and $116,848 were paid for the six months
ended June 30, 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
June 30, 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 six months ended June 30,
2001 were as follows:
Balance, beginning of year $ 17,944,665
Provision, charged to operations 3,351,835
Recoveries 513,350
Payments of claims (2,105,185)
-------------
Balance, June 30, 2001 $ 19,704,665
=============
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, 2001 and
2000 was $1,427,262 and $681,024, respectively. Total comprehensive income
for the six months ended June 30, 2001 and 2000 was $2,298,202 and
$1,549,568, 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 39,539 and 1,169 for the three
months ended June 30, 2001 and 2000, respectively, and 41,117 and 3,918
for the six months ended June 30, 2001 and 2000, respectively. Of the
total options outstanding, 82,821 and 132,060 options were not included
in the computation of diluted EPS for the three months ended June 30, 2001
and 2000, respectively; and 57,626 and 71,560 options were not included in
the computation of diluted EPS for the six months ended June 30, 2001 and
2000, respectively, because the options' exercise prices were greater than
the average market price of the common shares.
6
Subsequent to June 30, 2001, the Company repurchased 5,100 common shares
at a price of $14.80 per share under a stock repurchase program.
Note 5 - Segment Information
- -----------------------------
Income
Three Months Operating Before
Ended Revenues Income Taxes Assets
- --------------------------------------------------------------------------------------------------
June 30, 2001
- --------------------------------------------------------------------------------------------------
Title Insurance $15,559,276 $ 1,879,192 $59,967,759
Exchange Services 240,204 121,848 501,273
All Other 176,027 64,306 3,809,085
- --------------------------------------------------------------------------------------------------
$15,975,507 $ 2,065,346 $64,278,117
- --------------------------------------------------------------------------------------------------
June 30, 2000
- --------------------------------------------------------------------------------------------------
Title Insurance $10,722,602 $ 806,288 $51,344,014
Exchange Services 223,742 166,648 311,713
All Other 91,137 (35,271) 3,561,819
- --------------------------------------------------------------------------------------------------
$11,037,481 $ 937,665 $55,217,546
- --------------------------------------------------------------------------------------------------
Income
Six Months Operating Before
Ended Revenues Income Taxes Assets
- --------------------------------------------------------------------------------------------------
June 30, 2001
- --------------------------------------------------------------------------------------------------
Title Insurance $27,710,053 $ 2,857,817 $59,967,759
Exchange Services 501,150 294,803 501,273
All Other 353,556 90,850 3,809,085
- --------------------------------------------------------------------------------------------------
$28,564,759 $ 3,243,470 $64,278,117
- --------------------------------------------------------------------------------------------------
June 30, 2000
- --------------------------------------------------------------------------------------------------
Title Insurance $19,792,275 $ 1,202,563 $51,344,014
Exchange Services 393,239 285,247 311,713
All Other 178,200 29,062 3,561,819
- --------------------------------------------------------------------------------------------------
$20,363,714 $ 1,516,872 $55,217,546
- --------------------------------------------------------------------------------------------------
7
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 June 30, 2001, net premiums written increased
48% to $14,867,277, investment income increased 17% to $672,054,
revenues increased 45% to $15,975,507 and net income increased 97% to
$1,444,546, all compared with the same quarter in 2000. Net income
per basic and diluted common share increased 100% to $.56 as compared
with the year ago period. For the quarter ended June 30, 2001, the
title insurance segment's revenues increased 45% versus the second
quarter of 2000, while the exchange services segment's revenues
increased 7% for the three months ended June 30, 2001 compared with
the prior year quarter.
For the six months ended June 30, 2001, net premiums written
increased 43% to $26,305,002, investment income increased 16% to
$1,357,931, revenues increased 40% to $28,564,759 and net income
increased 82% to $2,284,670, all compared with the same period in
2000. Net income per basic and diluted common share increased 85% and
83%, respectively, to $.89 and $.88, respectively, as compared with
the year ago period. For the six months ended June 30, 2001, the
title insurance segment's revenues increased 40% versus the same
period in 2000, while the exchange services segment's revenues
increased 27% for the six months ended June 30, 2001, compared with
the same period in 2000.
The increase in premiums reflects success in our marketing efforts
and ongoing strength in mortgage lending. Home sales remained
robust during the six-month period, and the accelerated pace of
mortgage refinancing which began in the first quarter carried through
the first six months of the year. According to the Freddie Mac Weekly
Mortgage Rate Survey, the monthly average 30-year fixed mortgage
interest rates decreased to 7.07% for the six months ended June 30,
2001, compared with 8.26% for the six months ended June 30, 2000.
The volume of business increased in the second quarter of 2001 as the
number of policies and commitments issued rose to 74,859, an increase
of 42.9% compared with 52,374 in the same period in 2000. Policies
and commitments issued for the six months ended June 30, 2001 were
133,655 compared with 99,602 in 2000, an increase of 34.2%.
8
Branch net premiums written as a percentage of total net premiums
written were 39% and 43% for the three months ended June 30, 2001 and
2000, respectively, and 38% and 43% for the six months ended June 30,
2001 and 2000, respectively. Net premiums written from branch
operations increased 33% and decreased 22% for the three months ended
June 30, 2001 and 2000, respectively, as compared with the same
periods in the prior year. For the six months ended June 30, 2001 and
2000, net premiums written from branch operations increased 27% and
decreased 26%, respectively, as compared with the same prior year
periods.
Agency net premiums written as a percentage of total net premiums
written were 61% and 57% for the three months ended June 30, 2001 and
2000, respectively, and 62% and 57% for the six months ended June 30,
2001 and 2000, respectively. Agency net premiums increased 59% and
decreased 16% for the three months ended June 30, 2001 and 2000,
respectively, as compared with the same periods in the prior year.
For the six months ended June 30, 2001 and 2000, net premiums written
from agency operations increased 55% and decreased 15%, respectively,
as compared with the same prior year periods.
Shown below is a schedule of premiums written for the six months
ended June 30, 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 $ 94,171 $ 124,170
Indiana 1,446 243,773
Maryland 400,203 297,741
Michigan 5,166,760 3,165,216
Minnesota 726,983 357,216
Mississippi 12,607 13,727
Nebraska 458,816 617,651
New York 1,514,598 164,799
North Carolina 10,020,400 7,944,430
Ohio 16,631 -
Pennsylvania 1,549,390 363,203
South Carolina 1,747,074 1,733,832
Tennessee 1,101,852 500,641
Virginia 3,033,952 2,453,869
West Virginia 583,387 614,663
Wisconsin 14,997 4,938
-------------- ---------------
Direct Premiums 26,443,267 18,599,869
Reinsurance Assumed 3,710 17,254
Reinsurance Ceded (141,975) (181,953)
-------------- ---------------
Net Premiums $26,305,002 $18,435,170
============== ===============
9
Total operating expenses increased 38% and 34% for the three and
six-month periods ended June 30, 2001, compared with the same periods
in 2000. This increase was due primarily to an increase in commission
expense as a result of increased business from agent sources. The
increase was also due to the increase in premium volume, 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
13% for the three and six months ended June 30, 2001 versus 18% and
17% for the same periods in 2000. The decrease in the percentage of
the provision for claims to net premiums written is primarily the
result of a decrease in claims payments (net of recoveries) in 2001
compared with 2000.
The provision for income taxes was 30% of income before income taxes
for the three months ended June 30, 2001 versus 22% for the same
period in 2000. For the six months ended June 30, 2001 and 2000, the
provision for income taxes was 30% and 17% of income before income
taxes, respectively. The increase in the tax provision was primarily
due to a lower mix of tax-exempt investment income to taxable income
in 2001 compared with 2000.
Liquidity and Capital Resources:
--------------------------------
Net cash provided by operating activities for the six months ended
June 30, 2001, amounted to $3,123,075, compared with $2,611,107 for
the same six-month period during 2000. The increase is primarily the
result of an increase in net income, an increase in accounts payable
and accrued liabilities, and a decrease in payments of claims (net of
recoveries), partially offset by an increase in receivables and other
assets and a smaller increase in current income taxes payable
compared with the prior year.
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 187,038 shares at an average
price of $12.35 per share as of June 30, 2001, including 12,804
shares purchased at an average price of $14.61 in the six months
ended June 30, 2001.
On May 9, 2000, the Board of Directors approved the repurchase of an
additional 500,000 shares of the Company's common stock. As of July
31, 2001, no shares have been repurchased pursuant to this approval.
On May 16, 2001, the Board of Directors approved the 2001 Stock
Option and Restricted Stock Plan. As of July 31, 2001, 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 the 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, rendering reserves for
possible claims 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 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) Investors Title Company's Annual Meeting of Shareholders was held
May 16, 2001.
(b) No response is required.
(c) The proposals voted upon and the results of the voting were
as follows:
1. Election of three Directors for a three-year term.
Broker
For Against Abstentions Withheld Non-votes
J. Allen Fine 2,166,148 N/A N/A 117,906 N/A
David Francis 2,178,889 N/A N/A 105,165 N/A
A. Scott Parker III 2,178,889 N/A N/A 105,165 N/A
2. Approval of the 2001 Stock Option and Restricted Stock Plan.
Broker
For Against Abstentions Withheld Non-votes
- 1,456,475 366,807 66,841 N/A N/A
11
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
None
(b) Reports on Form 8-K
-------------------
There were no reports filed on Form 8-K for this quarter.
12
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 14, 2001
13