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: September 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)
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
September 30, 2001:
Common Stock, no par value 2,555,991
-------------------------- ---------
Class Shares Outstanding
1
INVESTORS TITLE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000...3
Consolidated Statements of Income:
Three and Nine Months Ended September 30, 2001 and 2000....................4
Consolidated Statements of Cash Flows:
Three and Nine Months Ended September 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.................................................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk ..........11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................................11
SIGNATURES....................................................................12
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
---------------------
Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of September 30, 2001 and December 31, 2000
(Unaudited)
September 30, 2001 December 31, 2000
--------------------- ---------------------
Assets
Cash and cash equivalents $ 5,778,079 $ 7,850,991
Investments in securities:
Fixed maturities:
Held-to-maturity, at amortized cost 4,966,224 4,375,127
Available-for-sale, at fair value 38,226,166 31,710,705
Equity securities, at fair value 4,517,413 4,970,069
-------------------- -------------------
Total investments 47,709,803 41,055,901
Premiums receivable (less allowance for doubtful accounts:
2001: $850,000 and 2000: $725,000) 5,964,170 3,023,304
Accrued interest and dividends 688,341 616,652
Prepaid expenses and other assets 736,083 1,091,416
Property acquired in settlement of claims 294,510 204,117
Property, net 4,650,735 5,496,626
Deferred income taxes, net 471,565 -
-------------------- -------------------
Total Assets $ 66,293,286 $ 59,339,007
==================== ===================
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Note 2) $ 20,764,665 $ 17,944,665
Accounts payable and accrued liabilities 1,629,955 1,918,034
Commissions and reinsurance payables 296,428 222,748
Premium taxes payable 305,034 -
Current income taxes payable 341,221 24,069
Deferred income taxes, net - 39,842
-------------------- -------------------
Total liabilities 23,337,303 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 2,555,991 and
2,566,859 shares outstanding 2001 and 2000, respectively) 1 1
Retained earnings 40,480,482 37,021,270
Accumulated other comprehensive income (net unrealized
gain on investments) (net of deferred taxes:
2001: $1,275,830; 2000: $1,117,615) (Note 3) 2,475,500 2,168,378
-------------------- -------------------
Total stockholders' equity 42,955,983 39,189,649
-------------------- -------------------
Total Liabilities and Stockholders' Equity $ 66,293,286 $ 59,339,007
==================== ===================
See notes to consolidated financial statements.
3
Investors Title Company and Subsidiaries
Consolidated Statements of Income
September 30, 2001 and 2000
(Unaudited)
For The Three For The Nine
Months Ended Months Ended
September 30 September 30
-------------------------------- --------------------------------
2001 2000 2001 2000
------------- ------------- -------------- -------------
Revenues:
Underwriting income:
Premiums written $ 14,849,202 $ 10,168,696 $ 41,296,179 $ 28,785,819
Less-premiums for reinsurance ceded 119,168 65,878 261,143 247,831
------------- ------------- -------------- -------------
Net premiums written 14,730,034 10,102,818 41,035,036 28,537,988
Investment income-interest and dividends 661,803 624,205 2,019,734 1,792,313
Net realized gain (loss) on sales of investments - (7,456) 2,053 77,310
Other 529,310 587,274 1,429,083 1,262,944
------------- ------------- -------------- -------------
Total 15,921,147 11,306,841 44,485,906 31,670,555
------------- ------------- -------------- -------------
Operating Expenses:
Commissions to agents 6,762,756 4,169,207 18,842,967 11,579,542
Provision for claims (Note 2) 1,765,253 1,488,111 5,117,088 4,555,237
Salaries and employee benefits 2,920,136 2,332,667 8,022,825 7,205,747
Office occupancy and operations 1,048,337 864,881 3,641,988 2,645,794
Business development 404,131 354,653 1,277,590 1,016,869
Taxes, other than payroll and income 31,386 89,206 184,258 271,142
Premium and retaliatory taxes 285,708 176,244 858,385 579,981
Professional fees 158,078 163,845 598,424 594,938
Other 162,818 62,316 316,367 98,722
------------- ------------- -------------- -------------
Total 13,538,603 9,701,130 38,859,892 28,547,972
------------- ------------- -------------- -------------
Income Before Income Taxes 2,382,544 1,605,711 5,626,014 3,122,583
Provision For Income Taxes 778,100 460,227 1,736,900 720,733
------------- ------------- -------------- -------------
Net Income $ 1,604,444 $ 1,145,484 $ 3,889,114 $ 2,401,850
============= ============= ============== =============
Basic Earnings per Common Share (Note 4) $ 0.63 $ 0.44 $ 1.52 $ 0.92
============= ============= ============== =============
Weighted Average Shares Outstanding-Basic (Note 4) 2,555,778 2,580,062 2,561,721 2,603,458
============= ============= ============== =============
Diluted Earnings per Common Share (Note 4) $ 0.61 $ 0.44 $ 1.49 $ 0.92
============= ============= ============== =============
Weighted Average Shares Outstanding-Diluted (Note 4) 2,611,806 2,583,113 2,607,741 2,608,166
============= ============= ============== =============
Dividends Paid $ 85,672 $ 85,672 $ 257,017 $ 257,017
============= ============= ============== =============
Dividends per Share $ 0.03 $ 0.03 $ 0.09 $ 0.09
============= ============= ============== =============
See notes to consolidated financial statements.
4
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2001 and 2000
(Unaudited)
2001 2000
------------- ------------
Operating Activities:
Net income $ 3,889,114 $ 2,401,850
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,148,316 580,783
Amortization (accretion), net 5,408 (1,421)
Provision (benefit) for losses on premiums receivable 125,000 (50,000)
Net gain on disposals of property (21,248) (4,355)
Net realized gain on sales of investments (2,053) (77,310)
Provision (benefit) for deferred income taxes (669,622) 94,800
Provision for claims 5,117,088 4,555,237
Payments of claims, net of recoveries (2,297,088) (3,150,237)
Changes in assets and liabilities:
(Increase) decrease in receivables and other assets (2,908,444) 356,637
Decrease in accounts payable and accrued liabilities (288,079) (344,651)
Increase (decrease) in commissions and reinsurance payables 73,680 (15,605)
Increase (decrease) in premium taxes payable 340,863 (185,624)
Increase in current income taxes payable 317,152 1,131,789
---------------- ---------------
Net cash provided by operating activities 4,830,087 5,291,893
---------------- ---------------
Investing Activities:
Purchases of available-for-sale securities (7,184,820) (2,827,132)
Purchases of held-to-maturity securities (600,000) -
Proceeds from sales of available-for-sale securities 1,582,900 2,834,038
Proceeds from sales of held-to-maturity securities 10,000 192,000
Purchases of property (339,280) (372,977)
Proceeds from sales of property 58,103 24,429
---------------- ---------------
Net cash used in investing activities (6,473,097) (149,642)
---------------- ---------------
Financing Activities:
Repurchases of common stock, net (206,047) (1,995,005)
Exercise of options 33,162 15,830
Dividends paid (257,017) (257,017)
---------------- --------------
Net cash used in investing activities (429,902) (2,236,192)
---------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents (2,072,912) 2,906,059
Cash and Cash Equivalents, Beginning of Year 7,850,991 7,554,297
--------------- ---------------
Cash and Cash Equivalents, End of Period $ 5,778,079 $ 10,460,356
=============== ===============
Supplemental Disclosures:
Cash Paid During the Year for:
Income Taxes, net of refunds $ 2,097,721 $ 571,756
================ ===============
Noncash Financing Activities:
Bonuses and fees totaling $56,155 and $121,851 were paid for the nine months
ended September 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
September 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 nine months ended
September 30, 2001 were as follows:
Balance, beginning of year $ 17,944,665
Provision, charged to operations 5,117,088
Recoveries 739,566
Payments of claims (3,036,654)
-----------
Balance, September 30, 2001 $ 20,764,665
============
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 September 30, 2001
and 2000 was $1,898,034 and $1,505,391, respectively. Total comprehensive
income for the nine months ended September 30, 2001 and 2000 was
$4,196,236 and $3,054,959, 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 56,028 and 3,051 for the three
months ended September 30, 2001 and 2000, respectively and 46,020 and
4,708 for the nine months ended September 30, 2001 and 2000, respectively.
Options to purchase 55,626 and 207,110 shares of common stock were
outstanding for the three months ended September 30, 2001 and 2000,
respectively and 57,626 and 188,360 for the nine months ended September
30, 2001 and 2000, 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
Note 5 - Segment Information
- -----------------------------
Income
Three Months Operating Before
Ended Revenues Income Taxes Assets
- -------------------------------------------------------------------------------
September 30, 2001
- -------------------------------------------------------------------------------
Title Insurance $15,469,347 $ 2,165,734 $61,865,185
Exchange Services 245,962 138,651 312,777
All Other 205,838 78,159 4,115,324
- -------------------------------------------------------------------------------
$15,921,147 $ 2,382,544 $66,293,286
- -------------------------------------------------------------------------------
September 30, 2000
- -------------------------------------------------------------------------------
Title Insurance $10,746,247 $ 1,242,599 $53,641,906
Exchange Services 266,175 210,908 389,804
All Other 294,419 152,204 3,394,098
- -------------------------------------------------------------------------------
$11,306,841 $ 1,605,711 $57,425,808
- -------------------------------------------------------------------------------
Income
Nine Months Operating Before
Ended Revenues Income Taxes Assets
- -------------------------------------------------------------------------------
September 30, 2001
- -------------------------------------------------------------------------------
Title Insurance $43,179,400 $ 5,023,551 $61,865,185
Exchange Services 747,112 433,454 312,777
All Other 559,394 169,009 4,115,324
- -------------------------------------------------------------------------------
$44,485,906 $ 5,626,014 $66,293,286
- -------------------------------------------------------------------------------
September 30, 2000
- -------------------------------------------------------------------------------
Title Insurance $30,538,522 $ 2,445,162 $53,641,906
Exchange Services 659,414 496,155 389,804
All Other 472,619 181,266 3,394,098
- -------------------------------------------------------------------------------
$31,670,555 $ 3,122,583 $57,425,808
- -------------------------------------------------------------------------------
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 September 30, 2001, net premiums written
increased 46% to $14,730,034, investment income increased 6% to
$661,803, revenues increased 41% to $15,921,147 and net income
increased 40% to $1,604,444, all compared with the same quarter in
2000. Net income per basic and diluted common share increased 43% and
39% to $.63 and $.61, respectively, as compared with the year ago
period. For the quarter ended September 30, 2001, the title insurance
segment's revenues increased 44% versus the third quarter of 2000,
while the exchange services segment's revenues decreased 8% for the
three months ended September 30, 2001 compared with the prior year
quarter.
For the nine months ended September 30, 2001, net premiums written
increased 44% to $41,035,036, investment income increased 13% to
$2,019,734, revenues increased 40% to $44,485,906, net income
increased 62% to $3,889,114, and net income per basic and diluted
common share increased 65% and 62% to $1.52 and $1.49, respectively,
as compared with the same period in 2000. For the nine months ended
September 30, 2001, the title insurance segment's revenues increased
41% versus the same period in 2000, while the exchange services
segment's revenues increased 13% for the nine months ended September
30, 2001 compared with the same period in 2000.
Mortgage lending and sales of existing homes, which are primary
drivers of title insurance premiums, remained strong despite weakness
in the economy. Declining mortgage interest rates spurred higher
levels of mortgage refinancing, which was also a significant driver
of our revenue. According to the Freddie Mac Weekly Mortgage Rate
Survey, the monthly average 30-year fixed mortgage interest rates
decreased to 7.04% for the nine months ended September 30, 2001
compared with 8.20% for the nine months ended September 30, 2000. The
volume of business increased in the third quarter of 2001 as the
number of policies and commitments issued rose to 82,322, an increase
of 59% compared with 51,861 in the same period in 2000. Policies and
commitments issued for the nine months ended September 30, 2001 were
215,663 compared with 151,498 in 2000, an increase of 42%.
Branch net premiums written as a percentage of total net premiums
written were 38% and 41% for the three months ended September 30,
2001 and 2000, respectively, and 38% and 43% for the nine months
ended September 30, 2001 and 2000, respectively. Net premiums written
from branch operations increased 34% and decreased 17% for the three
months ended September 30, 2001 and 2000, respectively, as compared
with the same periods in the prior year. For the nine months ended
September 30, 2001 and 2000, net premiums written from branch
operations increased 29% and decreased 23%, respectively, as compared
with the same prior year periods.
8
Agency net premiums written as a percentage of total net premiums
written were 62% and 59% for the three months ended September 30,
2001 and 2000, respectively, and 62% and 57% for the nine months
ended September 30, 2001 and 2000, respectively. Agency net premiums
increased 54% and decreased 5% for the three months ended September
30, 2001 and 2000, respectively, as compared with the same periods
in the prior year. For the nine months ended September 30, 2001 and
2000, net premiums written from agency operations increased 54% and
decreased 11%, respectively, as compared with the same prior year
periods.
Shown below is a schedule of premiums written for the nine months
ended September 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
---- ----
Alabama $ 632 $ -
Georgia 218,410 175,662
Indiana 1,452 369,691
Iowa 3,788 -
Maryland 680,890 396,796
Michigan 7,812,916 4,937,780
Minnesota 1,069,902 605,537
Mississippi 20,103 30,609
Nebraska 710,497 856,611
New York 2,411,705 407,239
North Carolina 15,644,222 12,077,523
Ohio 30,736 1,513
Pennsylvania 2,309,698 667,236
South Carolina 2,940,957 2,916,553
Tennessee 1,699,465 814,941
Virginia 4,820,625 3,589,110
West Virginia 886,986 908,323
Wisconsin 22,783 5,638
--------------- --------------
Direct Premiums 41,285,767 28,760,762
Reinsurance Assumed 10,412 25,057
Reinsurance Ceded (261,143) (247,831)
--------------- --------------
Net Premiums $41,035,036 $28,537,988
=============== ==============
Total operating expenses increased 40% and 36% for the three and
nine-month periods ended September 30, 2001 compared with the same
periods in 2000. This increase was due primarily to the increase in
premium volume.
9
The provision for claims as a percentage of net premiums written was
12% for the three and nine months ended September 30, 2001, versus
15% and 16% 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 33% of income before income taxes
for the three months ended September 30, 2001 versus 29% for the same
period in 2000. For the nine months ended September 30, 2001 and
2000, the provision for income taxes was 31% and 23% 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 total
income before taxes in 2001 compared with 2000.
Liquidity and Capital Resources:
--------------------------------
Net cash provided by operating activities for the nine months ended
September 30, 2001, amounted to $4,830,087 compared with $5,291,893
for the same nine-month period during 2000. The decrease is primarily
the result of an increase in receivables and other assets, offset by
an increase in net income, a net increase in liabilities and a net
increase in noncash adjustments to reconcile net income to net cash.
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 192,148 shares at an average
price of $12.41 per share as of September 30, 2001, including 17,914
shares purchased at an average price of $14.66 in the nine months
ended September 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
October 24, 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 October 24, 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.
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.
10
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) Exhibits
--------
None.
(b) Reports on Form 8-K
-------------------
There were no reports filed on Form 8-K for this quarter.
11
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: November 9, 2001
12