UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: March 31, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _________________
Commission File Number: 0-11774
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INVESTORS TITLE COMPANY
-----------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1110199
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(State of Incorporation) (I.R.S. Employer)
121 North Columbia Street, Chapel Hill, North Carolina 27514
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(Address of Principal Executive Offices) (Zip Code)
(919) 968-2200
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(Registrant's Telephone Number Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
---- ----
Shares outstanding of each of the issuer's classes of common stock as of March
31, 2002:
Common Stock, no par value 2,517,070
- ------------------------------ --------------------------------------
Class Shares Outstanding
1
INVESTORS TITLE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001.....3
Consolidated Statements of Income:
Three Months Ended March 31, 2002 and 2001..............................4
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 2002 and 2001..............................5
Notes to Consolidated Financial Statements.................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk............10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................10
SIGNATURES....................................................................11
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of March 31, 2002 and December 31, 2001
(Unaudited) (Audited)
March 31, 2002 December 31, 2001
---------------------- ----------------------
Assets
Cash and cash equivalents $ 4,597,312 $ 3,452,455
Investments in securities:
Fixed maturities:
Held-to-maturity, at amortized cost 9,097,283 7,152,336
Available-for-sale, at fair value 40,035,594 40,438,390
Equity securities, at fair value 5,150,023 5,433,557
Other investments, at cost 257,800 -
------------------ -------------------
Total investments 54,540,700 53,024,283
Premiums receivable (less allowance for doubtful accounts:
2002 and 2001: $1,405,000) 5,694,015 7,104,580
Accrued interest and dividends 671,211 725,757
Prepaid expenses and other assets 1,270,710 830,236
Property acquired in settlement of claims 197,617 294,510
Property, net 4,224,541 4,433,855
Deferred income taxes, net 565,264 354,024
------------------ -------------------
Total Assets (Note 5) $ 71,761,370 $ 70,219,700
================== ===================
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Note 2) $ 22,252,000 $ 21,460,000
Accounts payable and accrued liabilities 2,757,143 3,700,095
Commissions and reinsurance payables 284,712 281,961
Premium taxes payable 195,081 367,055
Current income taxes payable 759,735 138,821
------------------ -------------------
Total liabilities 26,248,671 25,947,932
------------------ -------------------
Stockholders' Equity:
Common stock-no par value (shares authorized 6,000,000;
2,855,744 and 2,855,744 shares issued; and 2,517,070 and
2,516,298 shares outstanding 2002 and 2001, respectively) 1 1
Retained earnings 43,415,724 41,928,575
Accumulated other comprehensive income (net unrealized gain on investments)
(net of deferred taxes: 2002: $1,080,831; 2001: $1,207,670) (Note 3) 2,096,974 2,343,192
----------------- ------------------
Total stockholders' equity 45,512,699 44,271,768
----------------- ------------------
Total Liabilities and Stockholders' Equity $ 71,761,370 $ 70,219,700
================= ==================
See notes to consolidated financial statements.
3
Investors Title Company and Subsidiaries
Consolidated Statements of Income
For the Three Months Ended March 31, 2002 and 2001
(Unaudited)
2002 2001
---------------- ---------------
Revenues:
Underwriting income:
Premiums written $ 14,783,848 $ 11,501,245
Less-premiums for reinsurance ceded 103,123 63,520
---------------- ---------------
Net premiums written 14,680,725 11,437,725
Investment income-interest and dividends 669,038 685,877
Net realized gain on sales of investments 285,807 2,205
Other 434,003 463,445
---------------- ---------------
Total 16,069,573 12,589,252
---------------- ---------------
Operating Expenses:
Commissions to agents 7,009,679 5,320,218
Provision for claims (Note 2) 1,679,411 1,410,645
Salaries, employee benefits and payroll taxes 2,938,591 2,462,829
Office occupancy and operations 1,200,397 1,217,194
Business development 377,821 331,273
Taxes, other than payroll and income 76,237 60,844
Premium and retaliatory taxes 329,766 286,177
Professional fees 210,255 222,379
Other 48,237 99,569
---------------- ---------------
Total 13,870,394 11,411,128
---------------- ---------------
Income Before Income Taxes (Note 5) 2,199,179 1,178,124
---------------- ---------------
Provision For Income Taxes 652,000 338,000
---------------- ---------------
Net Income $ 1,547,179 $ 840,124
================ ===============
Basic Earnings Per Common Share (Note 4) $ 0.61 $ 0.33
================ ===============
Weighted Average Shares Outstanding - Basic (Note 4) 2,516,555 2,566,921
================ ===============
Diluted Earnings Per Common Share (Note 4) $ 0.60 $ 0.32
================ ===============
Weighted Average Shares Outstanding - Diluted (Note 4) 2,585,773 2,609,470
================ ===============
Dividends Paid $ 73,904 $ 85,672
================ ===============
Dividends Per Share $ 0.03 $ 0.03
================ ===============
See notes to consolidated financial statements.
4
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2002 and 2001
(Unaudited)
2002 2001
--------------- ----------------
Operating Activities:
Net income $ 1,547,179 $ 840,124
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 280,317 368,668
Amortization, net 5,372 967
Net (gain) loss on disposals of property 2,320 (8,538)
Net realized gain on sales of investments (285,807) (2,205)
Benefit for deferred income taxes (84,400) (297,522)
Provision for claims 1,679,411 1,410,645
Payments of claims, net of recoveries (887,411) (735,645)
Changes in assets and liabilities:
(Increase) decrease in receivables and other assets 1,121,530 (616,818)
Increase (decrease) in accounts payable an
accrued liabilities (942,952) 37,637
Increase in commissions and reinsurance payables 2,751 921
Increase (decrease) in premium taxes payable (171,974) 107,112
Increase in current income taxes payable 620,914 454,652
--------------- ----------------
Net cash provided by operating activities 2,887,250 1,559,998
--------------- ----------------
Investing Activities:
Purchases of available-for-sale securities (4,123,615) (2,023,163)
Purchases of held-to-maturity securities (162,470) (600,000)
Purchases of held-at-cost securities (257,800) -
Proceeds from sales of available-for-sale securities 2,676,095 551,706
Proceeds from sales of held-to-maturity securities 258,750 10,000
Purchases of property (73,988) (103,778)
Proceeds from sales of property 665 19,780
--------------- ----------------
Net cash used in investing activities (1,682,363) (2,145,455)
--------------- ----------------
Financing Activities:
Distributions (repurchases) of common stock, net 12,984 (68,441)
Exercise of options 890 20,381
Dividends paid (73,904) (85,672)
--------------- ----------------
Net cash used in investing activities (60,030) (133,732)
--------------- ----------------
Net Increase (Decrease) in Cash and Cash Equivalents 1,144,857 (719,189)
Cash and Cash Equivalents, Beginning of Year 3,452,455 4,268,713
--------------- ----------------
Cash and Cash Equivalents, End of Period $ 4,597,312 $ 3,549,524
=============== ================
Supplemental Disclosures:
Cash Paid During the Year for:
Income Taxes, net of refunds $ 118,000 $ 191,000
=============== ================
Noncash Financing Activities:
Bonuses and fees totaling $27,338 and $43,798 were paid for the three months
ended March 31, 2002 and 2001, respectively, by issuance of the Company's common
stock.
See notes to consolidated financial statements.
5
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2002
(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.
Certain 2001 amounts have been reclassified to conform with 2002
classifications.
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, 2001 for a description of accounting policies.
Note 2 - Reserves for Claims
- ----------------------------
Transactions in the reserves for claims for the three months ended
March 31, 2002 were as follows:
Balance, beginning of year $ 21,460,000
Provision, charged to operations 1,679,411
Recoveries 171,567
Payments of claims (1,058,978)
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Balance, March 31, 2002 $ 22,252,000
==============
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 March 31, 2002 and
2001 was $1,300,961 and $870,940, 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 69,218 and 42,549 for the three
months ended March 31, 2002 and 2001, respectively. Options to purchase
288,566 and 279,080 shares of common stock were outstanding for the three
months ended March 31, 2002 and 2001, respectively. Of the total options
outstanding, 54,686 and 56,626 options were not included in the
computation of diluted EPS for the three months ended March 31, 2002 and
2001, respectively because the options' exercise prices were greater than
the average market price of the common shares.
6
Note 5 - Segment Information
- -----------------------------
Three Months Operating Income Before
Ended Revenues Income Taxes Assets
- ------------------------------------------------------------------------------
March 31, 2002
- ------------------------------------------------------------------------------
Title Insurance $14,823,720 $ 2,147,332 $66,951,379
Exchange Services 106,255 (20,302) 242,881
All Other 184,753 72,149 4,567,110
- ------------------------------------------------------------------------------
$15,114,728 $ 2,199,179 $71,761,370
- ------------------------------------------------------------------------------
March 31, 2001
- ------------------------------------------------------------------------------
Title Insurance $11,481,479 $ 978,625 $57,052,468
Exchange Services 253,310 172,955 325,461
All Other 166,381 26,544 3,897,936
- ------------------------------------------------------------------------------
$11,901,170 $ 1,178,124 $61,275,865
- ------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
----------------------------------------------------------------------
The 2001 Form 10-K and the 2001 Annual Report should be read in
conjunction with the following discussion since they contain
important information for evaluating the Company's operating results
and financial condition.
Results of Operations:
----------------------
For the quarter ended March 31, 2002, net premiums written increased
28% to $14,680,725, investment income decreased 2% to $669,038,
revenues increased 28% to $16,069,573 and net income increased 84% to
$1,547,179, all compared with the same quarter in 2001. Net income
per basic and diluted common share increased 85% and 88%,
respectively to $.61 and $.60, respectively as compared with the year
ago period. For the quarter ended March 31, 2002, the title insurance
segment's operating revenues increased 29% versus the first three
months of 2001, while the exchange services segment's revenues
decreased 58% for the three months ended March 31, 2002 compared with
the same quarter in 2001.
Growth in our agent-based business and continued strength in mortgage
lending drove the increase in our premiums written and net income.
Significant mortgage refinance activity carried over from the fourth
quarter of last year, although at a slower pace, and home sales were
very strong in a seasonally weak period of the year. According to the
Freddie Mac Weekly Mortgage Rate Survey, the monthly average 30-year
fixed mortgage interest rates decreased to 6.97% for the quarter
ended March 31, 2002 compared with 7.01% for the quarter ended March
31, 2001. The volume of business increased in the first quarter of
2002 as the number of policies and commitments issued rose to 73,082,
an increase of 24.3% compared with 58,796 in the same period in 2001.
7
Branch net premiums written as a percentage of total net premiums
written were 36% and 38% for the three months ended March 31, 2002
and 2001, respectively. Net premiums written from branch operations
increased 22% and 20% for the three months ended March 31, 2002 and
2001, respectively, as compared with the same period in the prior
year.
Agency net premiums written as a percentage of total net premiums
written were 64% and 62% for the three months ended March 31, 2002
and 2001, respectively. Agency net premiums increased 32% and 49% for
the three months ended March 31, 2002 and 2001, respectively, as
compared with the same period in the prior year.
Shown below is a schedule of premiums written for the three months
ended March 31, 2002 and 2001 in all states where the Company's two
insurance subsidiaries, Investors Title Insurance Company and
Northeast Investors Title Insurance Company, currently underwrite
insurance:
State
2002 2001
------------ ------------
Alabama $ 144,395 $ -
Georgia (33,505) 44,237
Indiana 2,984 1,553
Kentucky 257,156 -
Maryland 300,362 186,572
Michigan 2,227,176 2,182,765
Minnesota 392,241 444,314
Mississippi 223,025 5,778
Nebraska 200,666 267,112
New Jersey 3,545 -
New York 825,582 649,551
North Carolina 5,229,578 4,301,891
Ohio 1,440 4,470
Pennsylvania 916,885 627,132
South Carolina 1,127,063 807,680
Tennessee 737,215 447,704
Virginia 1,831,338 1,287,536
West Virginia 382,719 241,468
Wisconsin 3,330 921
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Direct Premiums 14,773,195 11,500,684
Reinsurance Assumed 10,653 561
Reinsurance Ceded (103,123) (63,520)
------------ ------------
Net Premiums $14,680,725 $11,437,725
============ ============
8
Total operating expenses increased 22% for the three-month period
ended March 31, 2002 compared with the same period in 2001. This
increase was due primarily to an increase in commission expense as a
result of increased business from agent sources. The increase in
volume of premiums and costs associated with entering and supporting
new markets also contributed to the increase in opertaing expenses.
The provision for claims as a percentage of net premiums written was
11.44% for the three months ended March 31, 2002 versus 12.33% for
the same period in 2001. The decrease in the percentage of the
provision for claims to net premiums written is primarily the result
of an increase in net premiums written in 2002 compared with 2001.
The provision for income taxes was 29.65% of income before income
taxes for the three months ended March 31, 2002 versus 28.69% for the
same period in 2001. The increase in the tax provision was primarily
due to a lower mix of tax-exempt investment income to taxable income
in 2002 compared with 2001.
Liquidity and Capital Resources:
--------------------------------
Net cash provided by operating activities for the three months ended
March 31, 2002, amounted to $2,887,250 compared with $1,559,998 for
the same three-month period of 2001. The increase is primarily
the result of an increase in net income and an increase in
receivables and other assets, partially offset by a decrease in
accounts payable and accrued liabilities.
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 all 200,000 shares prior to 2002 at
an average price of $12.50 per share including 7,731 shares purchased
at an average purchase price of $14.52 during the quarter ended March
31, 2001.
On May 9, 2000, the Board of Directors approved the repurchase of an
additional 500,000 shares of the Company's common stock. Pursuant to
this approval, the Company repurchased a total of 32,959 shares at an
average price of $14.84, of which 775 shares were repurchased during
the first quarter of 2002 at an average per share price of $18.52. No
shares were purchased under this plan in the first quarter of 2001.
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.
9
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 such that reserves for
possible claims are inadequate; (3) that unanticipated adverse
changes in securities markets could result in material losses on
investments made by the Company; and (4) the dependence of the
Company on key management personnel the loss of whom could have a
material adverse effect on the Company's business. Other risks and
uncertainties may be described from time to time in the Company's
other reports and filings with the Securities and Exchange
Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company's market risk exposure has not changed materially from
the exposure as disclosed in the Company's 2001 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.
10
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed in its behalf by the
undersigned hereunto duly authorized.
INVESTORS TITLE COMPANY
(Registrant)
By: /s/ James A. Fine, Jr.
----------------------
James A. Fine, Jr.
President
(Principal Financial Officer and
Principal Accounting Officer)
Dated: May 13, 2002
11