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, 2002March 31, 2003
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _____________
Commission File Number: 0-11774
-----------
INVESTORS TITLE COMPANY
------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1110199
-------------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
121 North Columbia Street, Chapel Hill, North Carolina 27514
- -------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(919) 968-2200
--------------
(Registrant's Telephone Number Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- Shares outstanding of each---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the issuer's classesExchange Act). Yes No X
--- ---
As of May 1, 2003, there were 2,855,744 outstanding shares of common stock as of
September 30, 2002:
Common Stock, no par value 2,515,349
-------------------------- ---------
Class Shares OutstandingInvestors Title Company, including 365,447 shares held by Investors Title
Insurance Company, a wholly-owned subsidiary of Investors Title Company.
1
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 2002March 31, 2003
and December 31, 2001...32002..............................................1
Consolidated Statements of Income:
Three and Nine Months Ended September 30, 2002March 31, 2003 and 2001.................42002.........................2
Consolidated Statements of Cash Flows:
Three and Nine Months Ended September 30, 2002March 31, 2003 and 2001.................52002.........................3
Notes to Consolidated Financial Statements...................................6Statements.........................4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................8Operations...............................................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk ..........11.........10
Item 4. Controls and Procedures..............................................11Procedures.............................................10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................... 11
SIGNATURES....................................................................12
CERTIFICATIONS................................................................138-K....................................10
SIGNATURES...................................................................11
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ---------------------------------------------------
Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of September 30, 2002March 31, 2003 and December 31, 20012002
September 30, 2002March 31, 2003 December 31, 2001
----------------- -------------------
(Unaudited) (Audited)2002
---------------------------------------------
(Unaudited) (Audited)
Assets
Cash and cash equivalents $ 7,952,3225,289,205 $ 3,452,4553,781,961
Investments in securities:
Fixed maturities:
Held-to-maturity, at amortized cost 4,496,366 4,907,0664,191,196 4,395,081
Available-for-sale, at fair value 47,888,006 42,683,66051,988,574 52,491,648
Equity securities, at fair value 4,359,109 5,433,5577,761,187 7,884,928
Other investments 623,296 64,888
----------------- -------------------1,047,159 564,782
---------------- -------------
Total investments 57,366,777 53,089,17164,988,116 65,336,439
Premiums receivable, (lessless allowance for doubtful accounts:
2002: $1,505,000accounts of 8,052,168 7,949,904
$1,875,000 and 2001: $1,405,000) 6,599,391 7,104,580$1,800,000 for 2003 and 2002, respectively
Accrued interest and dividends 677,044 725,757652,101 720,902
Prepaid expenses and other assets 723,200 765,348927,799 1,095,230
Property acquired in settlement of claims 448,617 294,510759,431 749,562
Property, net 4,235,439 4,433,8554,099,541 4,109,885
Deferred income taxes, net 295,653 354,024
----------------- -------------------681,540 893,263
---------------- -------------
Total Assets (Note 5) $ 78,298,44385,449,901 $ 70,219,700
================= ===================84,637,146
================ =============
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Note 2) $ 24,538,50026,075,000 $ 21,460,00025,630,000
Accounts payable and accrued liabilities 2,568,361 3,700,0952,622,944 4,780,865
Commissions and reinsurance payables 512,152 281,961298,871 401,040
Premium taxes payable 242,878 367,055413,530 268,972
Current income taxes payable 275,060 138,821
----------------- -------------------997,963 888,085
---------------- -------------
Total liabilities 28,136,951 25,947,932
----------------- -------------------30,408,308 31,968,962
---------------- -------------
Stockholders' Equity:
Class A Junior Participating preferred stock
(shares authorized 100,000; no shares issued) - -
Common stock - nostock-no par value (shares authorized 10,000,000;
2,515,3492,510,379 and 2,516,2982,515,804 shares issued and outstanding 2003 and 2002,
respectively, excluding 345,365 and 2001, respectively) (Note 4)339,940 shares 2003 and 2002,
respectively, of common stock held by the Company's subsidiary) 1 1
Retained earnings 47,072,166 41,928,57552,008,343 49,613,044
Accumulated other comprehensive income, (net unrealized gain on investments)
(netnet of deferred taxes: 2002: $1,592,041; 2001: $1,207,670)taxes of
$1,563,154 and $1,574,431 for 2003 and 2002, respectively (Note 3) 3,089,325 2,343,192
----------------- -------------------3,033,249 3,055,139
---------------- -------------
Total stockholders' equity 50,161,492 44,271,768
----------------- -------------------55,041,593 52,668,184
---------------- -------------
Total Liabilities and Stockholders' Equity $ 78,298,44385,449,901 $ 70,219,700
================= ===================84,637,146
================ =============
See notes to consolidated financial statements.
31
Investors Title Company and Subsidiaries
Consolidated Statements of Income
For the Three and Nine Months Ended September 30,March 31, 2003 and 2002 and 2001
(Unaudited)
For the Three For the Nine
Months Ended Months Ended
September 30 September 30
-------------------------------- --------------------------------2003 2002
2001 2002 2001
------------- ------------- -------------- ------------------------ ----------
Revenues:
Underwriting income:
Premiums written $ 18,135,15619,840,174 $ 14,849,202 $ 47,916,019 $ 41,296,179
Less - premiums14,783,848
Less-premiums for reinsurance ceded 93,735 119,168 322,676 261,143
------------- ------------ ------------- --------------97,189 103,123
----------- -----------
Net premiums written 18,041,421 14,730,034 47,593,343 41,035,03619,742,985 14,680,725
Investment income - interest and dividends 680,991 661,803 2,042,810 2,019,734674,578 669,038
Net realized gain on sales of investments 9,882 - 300,732 2,05323,047 285,807
Other 556,775 529,310 1,513,844 1,429,083
------------- ------------ ------------- --------------662,833 434,003
----------- -----------
Total 19,289,069 15,921,147 51,450,729 44,485,906
------------- ------------ ------------- --------------21,103,443 16,069,573
----------- -----------
Operating Expenses:
Commissions to agents 8,615,016 6,762,756 22,391,778 18,842,9679,392,790 7,009,679
Provision for claims (Note 2) 1,949,054 1,765,253 5,332,105 5,117,0882,083,038 1,679,411
Salaries, employee benefits and payroll taxes 3,106,076 2,920,136 8,773,836 8,022,8253,547,057 2,938,591
Office occupancy and operations 1,067,244 1,048,337 3,538,436 3,641,9881,097,116 1,200,397
Business development 706,341 419,606 1,543,221 1,303,375380,952 388,121
Taxes, other than payroll and income 72,707 31,386 264,301 184,25854,123 76,237
Premium and retaliatory taxes 353,588 285,708 987,446 858,385421,286 329,766
Professional fees 166,974 158,078 567,480 598,424207,344 210,255
Other 142,644 147,343 247,924 290,582
------------- ------------ ------------- --------------126,931 37,937
----------- -----------
Total 16,179,644 13,538,603 43,646,527 38,859,892
------------- ------------ ------------- --------------17,310,637 13,870,394
----------- -----------
Income Before Income Taxes (Note 5) 3,109,425 2,382,544 7,804,202 5,626,014
------------- ------------ ------------- --------------3,792,806 2,199,179
Provision For Income Taxes 963,400 778,100 2,410,000 1,736,900
------------- ------------ ------------- --------------1,184,245 652,000
----------- -----------
Net Income $ 2,146,0252,608,561 $ 1,604,444 $ 5,394,202 $ 3,889,114
============= ============ ============= ==============1,547,179
=========== ===========
Basic Earnings Per Common Share (Note 4) $ 0.851.04 $ 0.63 $ 2.14 $ 1.52
============= ============ ============= ==============0.61
=========== ===========
Weighted Average Shares Outstanding - Basic (Note 4) 2,517,762 2,555,778 2,517,351 2,561,721
============= ============ ============= ==============2,513,507 2,516,555
=========== ===========
Diluted Earnings Per Common Share (Note 4) $ 0.831.00 $ 0.61 $ 2.08 $ 1.49
============= ============ ============= ==============0.60
=========== ===========
Weighted Average Shares Outstanding - Diluted (Note 4) 2,594,915 2,611,806 2,593,984 2,607,741
============= ============ ============= ==============2,610,242 2,585,773
=========== ===========
Dividends Paid $ 73,95575,471 $ 85,672 $ 225,029 $ 257,017
============= ============ ============= ==============73,904
=========== ===========
Dividends Per Share $ 0.03 $ 0.03
$ 0.09 $ 0.09
============= ============ ============= ========================= ===========
See notes to consolidated financial statements.
42
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the NineThree Months Ended September 30,March 31, 2003 and 2002 and 2001
(Unaudited)
2003 2002 2001
------------------ ------------------
Operating Activities:
Net income $ 5,394,2022,608,561 $ 3,889,1141,547,179
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 707,490 1,148,316198,341 280,317
Amortization, net 20,060 5,4085,867 5,372
Issuance of common stock in payment of bonuses and fees 5,014 27,338
Provision for losses on premiums receivable 100,000 125,00075,000 -
Net gainloss on disposals of property (12,435) (21,248)2,128 2,320
Net realized gain on sales of investments (300,732) (2,053)
Benefit(23,047) (285,807)
Provision (benefit) for deferred income taxes (326,000) (669,622)
Provision for claims 5,332,105 5,117,088
Payments of claims, net of recoveries (2,253,605) (2,297,088)223,000 (84,400)
Changes in assets and liabilities:
(Increase) decreaseDecrease in receivables and other assets 341,943 (2,908,444)49,099 1,121,530
Decrease in accounts payable and accrued liabilities (1,131,734) (288,079)(2,157,921) (942,952)
Increase (decrease) in commissions and reinsurance
payables 230,191 73,680(102,169) 2,751
Increase (decrease) in premium taxes payable (124,177) 340,863144,558 (171,974)
Increase in current income taxes payable 136,239 317,152
------------- -------------109,878 620,914
Provision for claims 2,083,038 1,679,411
Payments of claims, net of recoveries (1,638,038) (887,411)
------------------ ------------------
Net cash provided by operating activities 8,113,547 4,830,087
------------- -------------1,583,309 2,914,588
------------------ ------------------
Investing Activities:
Purchases of available-for-sale securities (10,357,900) (7,184,820)(2,317,518) (4,160,011)
Purchases of held-to-maturity securities (362,470) (600,000)(3,035) (162,470)
Purchases of other securities (558,408) -(486,000) (257,800)
Proceeds from sales of available-for-sale securities 7,638,598 3,089,4642,928,643 2,676,095
Proceeds from sales of held-to-maturity securities 773,750 10,000205,000 258,750
Proceeds from other securities 5,246 -
Purchases of property (546,272) (339,280)(190,310) (73,988)
Proceeds from sales of property 49,633 58,103
------------- -------------185 665
------------------ ------------------
Net cash used inprovided by (used in) investing activities (3,363,069) (4,966,533)
------------- -------------142,211 (1,718,759)
------------------ ------------------
Financing Activities:
Repurchases of common stock net (39,753) (206,047)(174,691) (14,354)
Exercise of options 14,171 33,16231,886 890
Dividends paid (225,029) (257,017)
------------- -------------(75,471) (73,904)
------------------ ------------------
Net cash used in investingfinancing activities (250,611) (429,902)
------------- -------------(218,276) (87,368)
------------------ ------------------
Net Increase (Decrease) in Cash and Cash Equivalents 4,499,867 (566,348)1,507,244 1,108,461
Cash and Cash Equivalents, Beginning of Year 3,452,455 4,268,713
------------- -------------3,781,961 3,069,929
------------------ ------------------
Cash and Cash Equivalents, End of Period $ 7,952,3225,289,205 $ 3,702,365
============= ==============4,178,390
================== ==================
Supplemental Disclosures:
Cash Paid During the Year for:
Income Taxes, net of refunds $ 2,601,076862,000 $ 2,097,721
============= ==============118,000
================== ==================
Noncash Financing Activities:
Bonuses and fees totaling $51,752$5,014 and $56,155$27,338 were paid for the ninethree months
ended September 30,March 31, 2003 and 2002, and 2001, respectively, by issuance of the Company's common
stock.
See notes to consolidated financial statements.
53
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002------------------------------------------
March 31, 2003
(Unaudited)
Note 1 - Basis of Presentation
- ------------------------------
Reference should be made to the "Notes to Consolidated Financial Statements" of
the Company's Annual Report to Shareholders for the year ended December 31, 2002
for a complete description of the Company's significant accounting policies.
Principles of consolidation - The unaudited consolidated financial statements
include the accounts and operations of Investors Title Company and its
subsidiaries, and have been prepared in conformity with accounting principles
generally accepted in the United States of America. All intercompany balances
and transactions have been eliminated in consolidation.
In the opinion of management, all necessary adjustments have been reflected for
a fair presentation of the financial position, results of operations and cash
flows in the accompanying unaudited consolidated financial statements. All such
adjustments are of a normal recurring nature.
Reclassification - Certain 20012002 amounts have been reclassified to conform to
2003 classifications.
Earnings per share - Basic net income per share information is computed using
the weighted average number of shares of common stock outstanding during the
period. Diluted net income per common share is computed using the weighted
average number of shares of common and dilutive potential common shares
outstanding during the period.
Recent Accounting Pronouncements - In June 2002, classifications.
Reference shouldthe Financial Accounting
Standards Board (the "FASB") issued Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS
No. 146"). SFAS No. 146 addresses accounting and reporting for costs associated
with exit or disposal activities and supercedes Emerging Issues Task Force Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring). SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be maderecognized and measured initially at fair
value when the liability is incurred. SFAS No. 146 is effective for exit or
disposal activities that are initiated after December 31, 2002. The adoption of
this statement had no material impact on the financial statements.
FASB Interpretation No. 45, Guarantor's Accounting and Disclosures Requirements
for Guarantees, including Indirect Guarantees of Indebtedness of Others, became
effective on December 31, 2002. This Interpretation addresses the disclosure
requirements for guarantees and indemnification agreements entered into by the
entity. The implementation of this pronouncement did not have any effect on the
Company's financial statements.
Stock-Based Compensation - The Company accounts for stock-based compensation
based on the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued
4
to Employees ("APB No. 25"), which states that, for fixed plans, no compensation
expense is recorded for stock options or other stock-based awards to employees
that are granted with an exercise price equal to or above the "Notes to Consolidated Financial
Statements"estimated fair
value per share of the Registrant's Annual ReportCompany's common stock on the grant date. In the event
that stock options are granted with an exercise price below the estimated fair
value of the Company's common stock at the grant date, the difference between
the fair value of the Company's common stock and the exercise price of the stock
option is recorded as deferred compensation. Deferred compensation is amortized
to Shareholderscompensation expense over the vesting period of the stock option. The Company
has adopted the disclosure requirements of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"), and
Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment to FASB Statement No.
123, which together require compensation expense to be disclosed based on the
fair value of the options granted at the date of the grant.
Had compensation cost for the year ended December 31, 2001Company's stock option plan been determined based
on the fair value at the grant dates for a description of accounting policies.
No significant accounting policies ofawards under the Companyplan consistent with
the method required by SFAS No. 123, the Company's net income and diluted net
income per common share would have changed since
December 31, 2001.been the pro forma amounts indicated in the
following table:
For the Three-Month Periods Ended
March 31
---------------------------------------
2003 2002
---------------------------------------
Net income as reported $ 2,608,561 $ 1,547,179
Less: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects (37,913) (29,504)
---------------------------------------
Pro forma net income $ 2,570,648 $ 1,517,675
============== ============
Net income per share:
Basic - as reported $ 1.04 $ 0.61
Basic - pro forma $ 1.02 $ 0.60
Diluted - as reported $ 1.00 $ 0.60
Diluted - pro forma $ 0.98 $ 0.59
5
Note 2 - Reserves for Claims
- ----------------------------
Transactions in the reserves for claims for the ninethree months ended September 30, 2002March 31,
2003 and the twelve months ended December 31, 20012002 were as follows:
September 30,March 31, 2003 December 31, 2002
2001
-------------- ------------------------------------ ---------------------------
Balance, beginning of year $ 21,460,00025,630,000 $ 17,944,66521,460,000
Provision, charged to operations 5,332,105 6,786,263
Recoveries 457,146 873,5322,083,038 6,871,822
Payments of claims, (2,710,751) (4,144,460)net of recoveries (1,638,038) (2,701,822)
-------------- -------------
Ending balance $ 24,538,50026,075,000 $ 21,460,00025,630,000
============== =============
In management's opinion, the reserves are adequate to cover claim losses which
might result from pending and possible claims.
Note 3 - Comprehensive Income
- -----------------------------
Total comprehensive income for the three months ended September 30,March 31, 2003 and 2002
was $2,586,671 and 2001 was $2,469,708 and $1,898,034, respectively. Total
comprehensive income for the nine months ended September 30, 2002 and
2001 was $6,140,335 and $4,196,236,$1,300,961, respectively. Other comprehensive income is
comprised solely of unrealized gains or losses on the Company's
available-for-sale securities.
6
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 77,15396,735 and 56,02869,218 for the three months ended September 30,March 31,
2003 and 2002, and 2001,
respectively and 76,633 and 46,020 for the nine months ended September
30, 2002 and 2001, respectively. Options to purchase 73,686313,021 and 55,626288,566 shares of
common stock were outstanding for the three months ended September 30,March 31, 2003 and
2002, respectively. Of the total options outstanding, 60,436 and 2001, respectively and 73,686 and 57,626 for
the nine months ended September 30, 2002 and 2001, respectively but54,686 options
were not included in the computation of diluted EPS for the three months ended
March 31, 2003 and 2002, respectively because the options' exercise prices were
greater than the average market price of the common shares.
Issued and outstanding shares for the nine months ended September 30,
2002 and 2001 do not include 340,395 and 339,446 shares, respectively,
of common stock held by the Company's subsidiary, Investors Title
Insurance Company.
Note 5 - Segment Information
- ----------------------------
Income
Three Months Operating Before
Ended Revenues Income Taxes Assets
- --------------------------------------------------------------------------------------------
September 30, 2002
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
March 31, 2003
---------------------------------------------------------------------------------------------------------
Title Insurance $18,260,367$20,066,446 $ 2,970,073 $71,019,0153,733,657 $78,237,765
Exchange Services 282,083 172,386 449,687101,089 (34,880) 336,576
All Other 55,746 (33,034) 6,829,741
- --------------------------------------------------------------------------------------------
$18,598,196238,283 94,029 6,875,560
---------------------------------------------------------------------------------------------------------
$20,405,818 $ 3,109,425 $78,298,443
- --------------------------------------------------------------------------------------------
September 30, 2001
- --------------------------------------------------------------------------------------------3,792,806 $85,449,901
---------------------------------------------------------------------------------------------------------
March 31, 2002
---------------------------------------------------------------------------------------------------------
Title Insurance $14,831,527$14,823,720 $ 2,165,734 $61,865,1852,147,332 $66,951,379
Exchange Services 242,711 138,651 312,777106,255 (20,302) 242,881
All Other 185,106 78,159 4,115,324
- --------------------------------------------------------------------------------------------
$15,259,344184,753 72,149 4,567,110
---------------------------------------------------------------------------------------------------------
$15,114,728 $ 2,382,544 $66,293,286
- --------------------------------------------------------------------------------------------
Income
Nine Months Operating Before
Ended Revenues Income Taxes Assets
- --------------------------------------------------------------------------------------------
September 30, 2002
- --------------------------------------------------------------------------------------------
Title Insurance $48,105,439 $ 7,480,851 $71,019,015
Exchange Services 568,880 222,782 449,687
All Other 432,868 100,569 6,829,741
- --------------------------------------------------------------------------------------------
$49,107,187 $ 7,804,202 $78,298,443
- --------------------------------------------------------------------------------------------
September 30, 2001
- --------------------------------------------------------------------------------------------
Title Insurance $41,218,843 $ 5,023,551 $61,865,185
Exchange Services 732,910 433,454 312,777
All Other 512,366 169,009 4,115,324
- --------------------------------------------------------------------------------------------
$42,464,119 $ 5,626,014 $66,293,286
- --------------------------------------------------------------------------------------------2,199,179 $71,761,370
---------------------------------------------------------------------------------------------------------
76
Operating revenues represent net premiums written and other revenues, excluding
investment income and net realized gain on sales of investments.
Note 6 - Commitments and Contingencies
- --------------------------------------
The Company and its subsidiaries are involved in various routine legal
proceedings that are incidental to their business. All of these proceedings
arose in the ordinary course of business and, in the Company's opinion, any
potential liability of the Company or its subsidiaries with respect to these
legal proceedings will not, in the aggregate, be material to the Company's
consolidated financial condition or operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
------------------------------------------------------------------------
of Operations
-------------------------------------------------------------------------
The 2001Company's 2002 Form 10-K and the 20012002 Annual Report to Shareholders should be
read in conjunction with the following discussion since they contain important
information for evaluating the Company's operating results and financial
condition.
Critical Accounting Policies:
- ------------------------------
During the quarter ended March 31, 2003, the Company made no changes in its
critical accounting policies as previously disclosed within the Company's Annual
Report on Form 10-K for the year ended December 31, 2002.
Results of Operations:
- ----------------------
For the quarter ended September 30, 2002,March 31, 2003, net premiums written increased 22%34% to
$18,041,421,$19,742,985, investment income increased 3%1% to $680,991, total$674,578, revenues increased 21%31%
to $19,289,069$21,103,443 and net income increased 34%69% to $2,146,025,$2,608,561, all compared with the
same quarter in 2001.2002. Net income per basic and diluted common share increased
35%70% and 36%67%, respectively, to $.85$1.04 and $.83, respectively,$1.00, as compared with the same prior
year ago period. For the quarter ended September 30, 2002,March 31, 2003, the title insurance segment's
operating revenues increased 23%35% versus the third quarterfirst three months of 2001,2002, while
the exchange services segment's revenues increased 16%decreased 5% for the three months ended
September 30, 2002 compared with the prior year
quarter.
For the nine months ended September 30, 2002, net premiums written
increased 16% to $47,593,343, investment income increased 1% to
$2,042,810, revenues increased 16% to $51,450,729, net income
increased 39% to $5,394,202, and net income per basic and diluted
common share increased 41% and 40% to $2.14 and $2.08, respectively,
asMarch 31, 2003, compared with the same periodquarter in 2001. For the nine months ended
September 30, 2002, the title insurance segment's operating revenues
increased 17% versus the same period in 2001, while the exchange
services segment's operating revenues decreased 22% for the nine
months ended September 30, 2002 compared with the same period in 2001.
Fueled2002.
Operating results continued to be driven by near 40-year lows inlow interest rates and ongoing
strength in mortgage lendinglending. Mortgage interest rates drifted lower from the
levels of the previous quarter supporting strong demand for both refinancing and
home sales in the third quarter rose dramatically. Led by consumer demand for
refinancing, the volumeface of total loan originations is on pace to
surpass the previous year's record level.a sluggish economy. According to the Freddie Mac
Weekly Mortgage Rate Survey, the monthly average 30-year fixed mortgage interest
rates decreased to 6.69%an average of 5.84% for the nine monthsquarter ended September 30, 2002March 31, 2003,
compared with 7.04%6.97% for the nine monthsquarter ended September 30, 2001.March 31, 2002. The volume of business
increased in the thirdfirst quarter of 20022003 as the number of policies and commitments
issued rose to 86,589,98,227, an increase of 5%34.4% compared with 82,32273,082 in the same
period in 2001. Policies and commitments issued for the nine months ended
September 30, 2002 were 230,172 compared with 215,663 in 2001, an
increase of 7%.2002.
Branch net premiums written as a percentage of total net premiums written were
35% and 38%36% for both the three months ended September 30, 2002March 31, 2003 and 2001, respectively, and 36% and 38% for the nine months ended
September 30, 2002 and 2001, respectively.2002. Net premiums
written from branch operations increased 13%34% and 34%22% for the three months ended
September 30,March 31, 2003 and 2002, and 2001, respectively, as compared with the same periodsperiod in the
prior year.
For the nine months ended September 30,
2002 and 2001, net premiums written from branch operations increased
10% and 29%, respectively, as compared with the same prior year
periods.7
Agency net premiums written as a percentage of total net premiums written were
65%64% for both the three months ended March 31, 2003 and 62%2002. Agency net premiums
increased 35% and 32% for the three months ended September 30,March 31, 2003 and 2002,
and 2001, respectively, and 64% and 62% for the nine months ended
September 30, 2002 and 2001, respectively. Agency net premiums
increased 28% and 54% for the three months ended September 30, 2002
and 2001,
respectively, as compared with the same periodsperiod in the prior year. For the nine months ended September 30, 2002 and 2001, net
premiums written from agency operations increased 20% and 54%,
respectively, as compared with the same prior year periods.
8
Shown below is a schedule of premiums written for the ninethree months ended September 30,March
31, 2003 and 2002 and 2001 in all states and districts wherein which the Company's two insurance
subsidiaries, Investors Title Insurance Company and Northeast Investors Title
Insurance Company, currently underwrite insurance:
2002 2001
---- ----
Alabama $ 445,882 $ 632
Arkansas 39,550 -
District of Columbia 250 -
Florida 1,745 -
Georgia 45,182 218,410
Illinois 6,816 -
Indiana 106,159 1,452
Iowa - 3,788
Kentucky 823,431 -
Maryland 1,029,080 680,890
Michigan 7,478,133 7,812,916
Minnesota 873,195 1,069,902
Mississippi 695,708 20,103
Nebraska 842,352 710,497
New Jersey 23,130 -
New York 2,356,430 2,411,705
North Carolina 17,178,141 15,644,222
Ohio 26,210 30,736
Pennsylvania 2,677,715 2,309,698
South Carolina 4,106,633 2,940,957
Tennessee 2,369,835 1,699,465
Virginia 5,579,815 4,820,625
West Virginia 1,183,924 886,986
Wisconsin 10,776 22,783
----------- -----------
Direct Premiums 47,900,092 41,285,767
Reinsurance Assumed 15,927 10,412
Reinsurance Ceded (322,676) (261,143)
----------- -----------
Net Premiums $47,593,343 $41,035,036
============= ============
State 2003 2002
----- ---- ----
Alabama $ 283,964 $ 144,395
Arkansas 12,018 -
District of Columbia 3,025 -
Florida 14,980 -
Georgia (9,487) (33,505)
Illinois 313,331 -
Indiana 86,965 2,984
Kentucky 431,100 257,156
Louisiana 1,204 -
Maryland 404,913 300,362
Michigan 1,896,418 2,227,176
Minnesota 607,769 392,241
Mississippi 237,484 223,025
Missouri 6,582 -
Nebraska 494,856 200,666
New Jersey 17,084 3,545
New York 1,412,888 825,582
North Carolina 7,067,357 5,229,578
Ohio 24,286 1,440
Pennsylvania 1,563,339 916,885
South Carolina 1,572,149 1,127,063
Tennessee 925,698 737,215
Virginia 2,024,708 1,831,338
West Virginia 444,058 382,719
Wisconsin (100) 3,330
--------------------- ---------------------
Direct Premiums 19,836,589 14,773,195
Reinsurance Assumed 3,585 10,653
Reinsurance Ceded (97,189) (103,123)
--------------------- ---------------------
Net Premiums $19,742,985 $14,680,725
===================== =====================
Total operating expenses increased 20% and 12%25% for the three and
nine-month periodsthree-month period ended September 30, 2002March
31, 2003, compared with the same periodsperiod in 2001.2002. This increase was due primarily to additional
commissions relating toan
increase in premium volume.
9commission expense as a result of increased business from agent
sources. The increase in volume of premiums
8
and costs associated with entering and supporting new markets also contributed
to the increase in operating expenses.
The provision for claims as a percentage of net premiums written was 11%10.55% for
the three and nine months ended September 30, 2002,March 31, 2003, versus 12%11.44% for the same periodsperiod in
2001.2002. The decrease in the percentage of the provision for claims to net premiums
written is primarily the result of improved claims experience.
The provision for income taxes was 31%31.22% of income before income taxes for the
three months ended September 30, 2002March 31, 2003, versus 33%29.65% for the same period in 2001. For2002.
The increase in the nine months ended September 30, 2002 and 2001,
thetax provision forwas primarily due to a lower mix of tax-exempt
investment income taxes was 31% ofto taxable income before income taxes.in 2003 compared with 2002.
Liquidity and Capital Resources:
- --------------------------------
Net cash provided by operating activities for the ninethree months ended September 30, 2002,March 31,
2003, amounted to $8,113,547$1,578,295 compared with $4,830,087$2,887,250 for the same nine-monththree-month
period during 2001.of 2002. The increasedecrease is primarily the result of a decrease in receivablesaccounts
payable and other assets,accrued liabilities, primarily due to the payment of accrued bonuses
and retirement contributions, and an increase in payments of claims, net of
recoveries offset by an increase in net income and a net decrease in noncash adjustments to reconcile
net income to net cash, offset by a decrease in the total payables.
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 repurchased 200,000 shares prior to 2002 at an
average price of $12.50 per share including 17,914 shares purchased at
an average price of $14.66 in the nine months ended September 30,
2001.income.
On May 9, 2000, the Board of Directors approved the repurchase of an
additional 500,000 shares
of the Company's common stock. Pursuant to this approval, the Company
repurchased a total of 37,23859,172 shares at an average price of $15.20,$17.06 per share. For the three
months ended March 31, 2003 and 2002, a total of which 5,0547,854 and 775 shares were purchased at an
average purchase price of $18.11 in$22.24 and $18.52 per share, respectively, were repurchased.
During the ninethree months ended September
30, 2002.
On May 16, 2001,March 31, 2003, the Board of Directors approved the 2001 Stock Option
and Restricted Stock Plan. Pursuant to the Plan, 250,000 shares ofCompany repurchased common
stock are available. For the nine months ended September 30,
2002, 23,000 options have been granted. Asfor $174,691 and issued common stock totaling $36,900 in satisfaction of
November 5, 2002, no
shares have been issued under this plan.stock option exercises, stock bonuses and other stock issuances.
Management believes that funds generated from operations (primarily underwriting
and investment income) will enable the Company to adequately meet its operating
needs and is unaware of any trend likely to result in adverse liquidity changes.
In addition to operational liquidity, the Company maintains a high degree of
liquidity within itsthe investment portfolio in the form of short-term investments
and other readily marketable securities.
10
Safe Harbor Statement
- ---------------------
Except for the historical information presented, the matters disclosed in the
foregoing discussion and analysis and other parts of this report include
forward-looking statements. These statements represent the Company's current
judgment on the future and are subject to risks and uncertainties that could
cause actual results to differ materially. Such factors include, without
limitation: (1) that the demand for title insurance will vary withdue to factors
beyond the control of the Company such as changes in mortgage interest rates,
availability of mortgage funds, level of real estate activity, cost of real
estate, consumer confidence, supply and demand for real estate, inflation and
general economic conditions; (2) that losses from claims may be greater than
anticipated such that reserves for possible claims are inadequate; (3) that
unanticipated adverse changes in securities markets could result in material
losses on investments made by the Company; and (4) the
9
Company's dependence of the Company on key management personnel, the loss of whom could have a
material adverse effect on the Company's business. Other risks and uncertainties
may be described from time to time in the Company's other reports and filings
with the Securities and Exchange Commission.
Item.Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company's market risk exposure has not changed materially from the exposure
as disclosed in the Company's 20012002 Annual Report on Form 10-K.
Item.Item 4. Controls and Procedures
-----------------------
Based on their evaluation of the Company's disclosure controls and procedures,
which was completed within 90 days prior to the filing of this report, the Chief
Executive Officer and the Chief Financial Officer of the Company have concluded that
the Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities and Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported, within the time periods specified
by the Securities and Exchange Commission's rules and forms. In reaching this
conclusion, the Company's Chief Executive Officer and Chief Financial Officer
determined that the Company's disclosure controls and procedures are effective
in ensuring that such information is accumulated and communicated to the
Company's management to allow timely decisions regarding required disclosure.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------------------------------
(a) Exhibits
--------
(99)(i)3(iv) Articles of Amendment to Articles of Incorporation
99(i) Certification Pursuantof Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section
1350, Chapter 63 of Title 18, United States Code)
(b) Reports on Form 8-K
--------------------
There were noDuring the quarterly period covered by this report, the Company did not
file any reports filed on Form 8-K for this
quarter.
118-K.
10
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this Report to be signed in its
behalf by the undersigned hereunto duly authorized.
INVESTORS TITLE COMPANY
By: /s/ James A. Fine, Jr.
----------------------
James A. Fine, Jr.
President, (ChiefPrincipal Financial Officer and
ChiefPrincipal Accounting Officer)Officer
Dated: November 12, 2002
12
Certifications
I, J. Allen Fine, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Investors Title
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
----------------
/s/ J. Allen Fine
- -----------------
J. Allen Fine
Chief Executive Officer
13
Certifications (continued)
I, James A. Fine, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Investors Title
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 12, 2002
-----------------
/s/ James A. Fine, Jr.
- ---------------------
James A. Fine, Jr.
Chief Financial OfficerMay 14, 2003
11