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
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _____________
North Carolina 56-1110199 -------------- ---------- (State of Incorporation) (I.R.S. Employer Identification No.) |
Common Stock, no par value 2,519,031 -------------------------- --------- Class Shares Outstanding |
INVESTORS TITLE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001...3
Consolidated Statements of Income:
Three and Six Months Ended June 30, 2002 and 2001..................4
Consolidated Statements of Cash Flows:
Six Months Ended June 30, 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 .......11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...............11
Item 5. Other Information.................................................12
Item 6. Exhibits and Reports on Form 8-K................................. 12
SIGNATURES.................................................................13
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PART I. FINANCIAL INFORMATION
Investors Title Company and Subsidiaries Consolidated Balance Sheets As of June 30, 2002 and December 31, 2001
(Unaudited) (Audited)
June 30, 2002 December 31, 2001
----------------- -------------------
Assets
Cash and cash equivalents $ 5,807,181 $ 3,452,455
Investments in securities:
Fixed maturities:
Held-to-maturity, at amortized cost 4,501,005 4,907,066
Available-for-sale, at fair value 46,364,026 42,683,660
Equity securities, at fair value 4,933,086 5,433,557
Other investments 476,834 64,888
----------------- ----------------
Total investments 56,274,951 53,089,171
Premiums receivable (less allowance for doubtful accounts:
2002 and 2001: $1,405,000) 5,065,372 7,104,580
Accrued interest and dividends 711,353 725,757
Prepaid expenses and other assets 675,992 765,348
Property acquired in settlement of claims 197,617 294,510
Property, net 4,382,610 4,433,855
Deferred income taxes, net 390,798 354,024
----------------- -------------------
Total Assets (Note 5) $ 73,505,874 $ 70,219,700
================= ===================
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Note 2) $ 23,183,500 $ 21,460,000
Accounts payable and accrued liabilities 1,945,110 3,700,095
Commissions and reinsurance payables 307,957 281,961
Premium taxes payable - 367,055
Current income taxes payable 237,535 138,821
----------------- -------------------
Total liabilities 25,674,102 25,947,932
----------------- -------------------
Stockholders' Equity:
Common stock - no par value (shares authorized 10,000,000;
2,855,744 and 2,855,744 shares issued; and 2,519,031 and
2,516,298 shares outstanding 2002 and 2001, respectively) 1 1
Retained earnings 45,066,129 41,928,575
Accumulated other comprehensive income
(net unrealized gain on investments)
(net of deferred taxes: 2002: $1,425,295;
2001: $1,207,670) (Note 3) 2,765,642 2,343,192
----------------- -------------------
Total stockholders' equity 47,831,772 44,271,768
----------------- -------------------
Total Liabilities and Stockholders' Equity $ 73,505,874 $ 70,219,700
================= ===================
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See notes to consolidated financial statements.
Investors Title Company and Subsidiaries Consolidated Statements of Income For the Three and Six Months Ended June 30, 2002 and 2001
(Unaudited)
-------------------------------- --------------------------------
2002 2001 2002 2001
------------- ------------- -------------- -------------
Revenues:
Underwriting income:
Premiums written $ 14,997,015 $ 14,945,732 $ 29,780,863 $ 26,446,977
Less - premiums for reinsurance ceded 125,818 78,455 228,941 141,975
------------- ------------- -------------- -------------
Net premiums written 14,871,197 14,867,277 29,551,922 26,305,002
Investment income - interest and dividends 692,781 672,054 1,361,819 1,357,931
Net realized gain (loss) on sales of investments 5,043 (152) 290,850 2,053
Other 523,066 436,328 957,069 899,773
------------- ------------- -------------- -------------
Total 16,092,087 15,975,507 32,161,660 28,564,759
------------- ------------- -------------- -------------
Operating Expenses:
Commissions to agents 6,767,083 6,759,993 13,776,762 12,080,211
Provision for claims (Note 2) 1,703,640 1,941,190 3,383,051 3,351,835
Salaries, employee benefits and payroll taxes 2,729,169 2,639,860 5,667,760 5,102,689
Office occupancy and operations 1,270,795 1,376,457 2,471,192 2,593,651
Business development 430,484 542,186 808,305 873,459
Taxes, other than payroll and income 115,357 92,028 191,594 152,872
Premium and retaliatory taxes 304,092 286,500 633,858 572,677
Professional fees 190,251 217,967 400,506 440,346
Other 85,618 53,980 133,855 153,549
------------- ------------- -------------- -------------
Total 13,596,489 13,910,161 27,466,883 25,321,289
------------- ------------- -------------- -------------
Income Before Income Taxes (Note 5) 2,495,598 2,065,346 4,694,777 3,243,470
Provision For Income Taxes 794,600 620,800 1,446,600 958,800
------------- ------------- -------------- -------------
Net Income $ 1,700,998 $ 1,444,546 $ 3,248,177 $ 2,284,670
============= ============= ============== =============
Basic Earnings Per Common Share (Note 4) $ 0.68 $ 0.56 $ 1.29 $ 0.89
============= ============= ============== =============
Weighted Average Shares Outstanding - Basic (Note 4) 2,517,739 2,562,467 2,517,148 2,564,695
============= ============= ============== =============
Diluted Earnings Per Common Share (Note 4) $ 0.65 $ 0.56 $ 1.25 $ 0.88
============= ============= ============== =============
Weighted Average Shares Outstanding - Diluted (Note 4) 2,600,191 2,602,006 2,593,565 2,605,812
============= ============= ============== =============
Dividends Paid $ 77,170 $ 85,673 $ 151,074 $ 171,345
============= ============= ============== =============
Dividends Per Share $ 0.03 $ 0.03 $ 0.06 $ 0.06
============= ============= ============== =============
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See notes to consolidated financial statements.
Investors Title Company and Subsidiaries Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
------------------ ------------------
Operating Activities:
Net income $ 3,248,177 $ 2,284,670
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 497,858 884,611
Amortization, net 14,867 1,743
Net gain on disposals of property (7,108) (9,872)
Net realized gain on sales of investments (290,850) (2,053)
Benefit for deferred income taxes (254,400) (483,721)
Provision for claims 3,383,051 3,351,835
Payments of claims, net of recoveries (1,659,551) (1,591,835)
Changes in assets and liabilities:
(Increase) decrease in receivables and other assets 2,245,828 (2,522,275)
Increase (decrease) in accounts payable
and accrued liabilities (1,754,985) 759,629
Increase in commissions and reinsurance payables 25,996 30,649
Increase (decrease) in premium taxes payable (373,022) 126,742
Increase in current income taxes payable 98,714 292,952
------------------ ------------------
Net cash provided by operating activities 5,174,575 3,123,075
------------------ ------------------
Investing Activities:
Purchases of available-for-sale securities (5,557,892) (5,259,412)
Purchases of held-to-maturity securities (362,470) (600,000)
Purchases of held-at-cost securities (411,946) -
Proceeds from sales of available-for-sale securities 3,293,836 827,221
Proceeds from sales of held-to-maturity securities 768,750 963,689
Purchases of property (456,858) (219,499)
Proceeds from sales of property 17,353 40,720
------------------ ------------------
Net cash used in investing activities (2,709,227) (4,247,281)
------------------ ------------------
Financing Activities:
Distributions (repurchases) of common stock, net 26,281 (138,258)
Exercise of options 14,171 20,381
Dividends paid (151,074) (171,345)
------------------ ------------------
Net cash used in investing activities (110,622) (289,222)
------------------ ------------------
Net Increase (Decrease) in Cash and Cash Equivalents 2,354,726 (1,413,428)
Cash and Cash Equivalents, Beginning of Year 3,452,455 4,268,712
------------------ ------------------
Cash and Cash Equivalents, End of Period $ 5,807,181 $ 2,855,284
================== ==================
Supplemental Disclosures:
Cash Paid During the Year for:
Income Taxes, net of refunds $ 1,603,601 $ 1,159,754
================== ==================
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Noncash Financing Activities:
Bonuses and fees totaling $41,728 and $48,809 were paid for the six months ended
June 30, 2002 and 2001, respectively, by issuance of the Company's common stock.
See notes to consolidated financial statements.
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
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.
Balance, beginning of year $ 21,460,000
Provision, charged to operations 3,383,051
Recoveries 323,985
Payments of claims (1,983,536)
---------------
Balance, June 30, 2002 $ 23,183,500
===============
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In management's opinion, the reserves are adequate to cover claim losses which might result from pending and possible claims.
Income
Three Months Operating Before
Ended Revenues Income Taxes Assets
---------------------------------------------------------------------------------------
June 30, 2002
---------------------------------------------------------------------------------------
Title Insurance $15,021,352 $ 2,363,446 $69,338,805
Exchange Services 180,542 70,698 295,038
All Other 192,369 61,454 3,872,031
---------------------------------------------------------------------------------------
$15,394,263 $ 2,495,598 $73,505,874
---------------------------------------------------------------------------------------
June 30, 2001
---------------------------------------------------------------------------------------
Title Insurance $14,905,837 $ 1,879,192 $59,967,759
Exchange Services 236,889 121,848 501,273
All Other 160,879 64,306 3,809,085
---------------------------------------------------------------------------------------
$15,303,605 $ 2,065,346 $64,278,117
---------------------------------------------------------------------------------------
Income
Six Months Operating Before
Ended Revenues Income Taxes Assets
---------------------------------------------------------------------------------------
June 30, 2002
---------------------------------------------------------------------------------------
Title Insurance $29,845,072 $ 4,510,778 $69,338,805
Exchange Services 286,797 50,396 295,038
All Other 377,122 133,603 3,872,031
---------------------------------------------------------------------------------------
$30,508,991 $ 4,694,777 $73,505,874
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June 30, 2001
---------------------------------------------------------------------------------------
Title Insurance $26,387,316 $ 2,857,817 $59,967,759
Exchange Services 490,199 294,803 501,273
All Other 327,260 90,850 3,809,085
---------------------------------------------------------------------------------------
$27,204,775 $ 3,243,470 $64,278,117
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For the six months ended June 30, 2002, net premiums written increased 12% to $29,551,922, investment income was virtually flat at $1,361,819, revenues increased 13% to $32,161,660 and net income increased 42% to $3,248,177, all compared with the same period in 2001. Net income per basic and diluted common share increased 45% and 42%, respectively, to $1.29 and $1.25, respectively, as compared with the prior year period. For the six months ended June 30, 2002, the title insurance segment's operating revenues increased 13% versus the same period in 2001, while the exchange services segment's operating revenues decreased 41% for the six months ended June 30, 2002 compared with the same period in 2001. The exchange services segment's operating revenues decreased primarily due to a decline in fee income tied to interest rates paid by depositories. These interest rates have declined in the past year.
Notwithstanding uncertainty in the financial markets, the pace of mortgage lending has remained strong. Home sales have tracked the previous year's record levels and low interest rates continue to stimulate a healthy demand for mortgage refinancing. According to the Freddie Mac Weekly Mortgage Rate Survey, the monthly average 30-year fixed mortgage interest rates decreased to 6.89% for the six months ended June 30, 2002 compared with 7.07% for the six months ended June 30, 2001. The volume of business remained strong in the second quarter of 2002 as the number of policies and commitments issued totaled 70,501 compared with 74,859 in the same period in 2001. Policies and commitments issued for the six months ended June 30, 2002 were 143,583 compared with 133,655 in 2001, an increase of 7.4%.
Branch net premiums written as a percentage of total net premiums written were 38% and 39% for the three months ended June 30, 2002 and 2001, respectively, and 37% and 38% for the six months ended June 30, 2002 and 2001, respectively. Net premiums written from branch operations decreased 3% and increased 33% for the three months ended June 30, 2002 and 2001, respectively, as compared with the same periods in the prior year. For the six months ended June 30, 2002 and 2001, net premiums written from branch operations increased 8% and 27%, respectively, as compared with the same prior year periods. Though refinancing activity remained strong in the first half of 2002, the accelerated pace experienced in 2001 began to slow down in 2002.
Agency net premiums written as a percentage of total net premiums written were 62% and 61% for the three months ended June 30, 2002 and 2001, respectively, and 63% and 62% for the six months ended June 30, 2002 and 2001, respectively. Agency net premiums increased 2% and 59% for the three months ended June 30, 2002 and 2001, respectively, as compared with the same periods in the prior year. For the six months ended June 30, 2002 and 2001, net premiums written from agency operations increased 15% and 55%, respectively, as compared with the same prior year periods.
Shown below is a schedule of premiums written for the six months ended June 30, 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:
2002 2001
---- ----
Alabama $ 275,440 $ -
Arkansas 7,638 -
Georgia 1,836 94,171
Indiana 5,114 1,446
Kentucky 503,741 -
Maryland 636,148 400,203
Michigan 4,419,751 5,166,760
Minnesota 652,130 726,983
Mississippi 413,665 12,607
Nebraska 387,291 458,816
New Jersey 11,943 -
New York 1,527,021 1,514,598
North Carolina 10,817,167 10,020,400
Ohio 11,673 16,631
Pennsylvania 1,551,870 1,549,390
South Carolina 2,616,019 1,747,074
Tennessee 1,521,794 1,101,852
Virginia 3,625,674 3,033,952
West Virginia 772,049 583,387
Wisconsin 7,234 14,997
------------------ ------------------
Direct Premiums 29,765,198 26,443,267
Reinsurance Assumed 15,665 3,710
Reinsurance Ceded (228,941) (141,975)
------------------ ------------------
Net Premiums $29,551,922 $26,305,002
================== ==================
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Total operating expenses decreased 2% and increased 8% for the three and six-month periods ended June 30, 2002, compared with the same periods in 2001. Part of the decrease in operating expenses for the second quarter was due to the decrease in depreciation expense. The depreciable life of a large majority of the Company's electronic data processing equipment ended in the first quarter of 2002, which resulted in less depreciation for the second quarter of 2002 as compared to the second quarter 2001.
The provision for claims as a percentage of net premiums written was 11% for the three and six months ended June 30, 2002 versus 13% for the same periods in 2001.
The provision for income taxes was 32% of income before income taxes for the three months ended June 30, 2002 versus 30% for the same period in 2001. For the six months ended June 30, 2002 and 2001, the provision for income taxes was 31% and 30% of income before income taxes, respectively. The slight change in the tax provision percentage was primarily due to a change in the mix of tax-exempt investment income to taxable income.
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 12,804 shares purchased at an average price of $14.61 during the six months ended June 30, 2001.
On May 9, 2000, the Board of Directors approved the repurchase of an additional 500,000 shares of the Company's common stock. Pursuant to this approval, the Company repurchased a total of 33,013 shares at an average price of $14.85, of which 829 shares were purchased at an average purchase price of $18.63 in the six months ended June 30, 2002.
On May 16, 2001, the Board of Directors approved the 2001 Stock Option and Restricted Stock Plan. Pursuant to the Plan, 250,000 shares of common stock are available. As of July 31, 2002, 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 its investment portfolio in the form of short-term investments and other readily marketable securities.
PART II. OTHER INFORMATION
1. Election of four Directors for a three-year term.
Broker
For Against Abstentions Withheld Non-votes
W. Morris Fine 2,270,453 N/A N/A 23,566 N/A
Loren B. Harrell 2,116,975 N/A N/A 177,044 N/A
H. Joe King, Jr. 2,282,961 N/A N/A 11,058 N/A
William J. Kennedy III 2,287,469 N/A N/A 6,550 N/A
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2. Approval to amend the Articles of Incorporation to Limit Director Liability
Broker
For Against Abstentions Withheld Non-votes
2,246,857 42,123 5,839 N/A N/A
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3. Approval to amend the Articles of Incorporation to Increase Authorized Capital Stock
Broker
For Against Abstentions Withheld Non-votes
1,497,990 316,776 6,153 N/A N/A
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(a) Insurance services for Investors Title Insurance Company and Northeast Investors Title Insurance Company, two wholly owned subsidiaries of the Company;
(b) Audit services for the Company and its wholly owned subsidiaries.
(99)(i) Certification 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)
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
(Chief Financial Officer and
Chief Accounting Officer)
Dated: August 14, 2002
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Exhibit 3(iii)
ARTICLES OF AMENDMENT
OF
INVESTORS TITLE COMPANY
Pursuant to Section 55-10-06 of the General Statutes of North Carolina, the undersigned corporation hereby submits these Articles of Amendment for the purpose of amending its articles of incorporation:
1. The name of the corporation is Investors Title Company.
2. The following amendments to the Articles of Incorporation of the corporation were adopted by its shareholders on May 15, 2002, in the manner prescribed by Chapter 55 of the General Statutes of North Carolina:
A. Article IV of the Articles of Incorporation is amended to read in its entirety as follows:
"Article IV
"The number of shares the corporation is authorized to issue is 11,000,000, consisting of (i) 10,000,000 shares of Common Stock and (ii) 1,000,000 shares of Preferred Stock.
"Each outstanding share of Common Stock shall be entitled to one vote with respect to all matters upon which such Stock is entitled to vote. The Board of Directors shall determine the preferences, limitations and relative rights of the Preferred Stock and any series thereof. Each share of Preferred Stock shall be entitled to vote to the extent provided by the Board of Directors in the resolution establishing the preferences, limitations and relative rights of the Preferred Stock."
B. There shall be inserted in the Articles of Incorporation a new Article XV, which shall read in its entirety as follows:
"Article XV
"To the fullest extent permitted by the North Carolina Business Corporation Act as it exists or may hereafter be amended, no person who is serving or who has served as a director of the corporation shall be personally liable to the corporation or any of its shareholders for monetary damages for breach of duty as a director. No amendment or repeal of this Article, nor the adoption of any provision to these Articles of Incorporation inconsistent with this Article, shall eliminate or reduce the protection granted herein with respect to any matter that occurred prior to such Amendment, repeal or adoption."
3. These Articles will become effective upon filing.
This 15th day of May, 2002.
INVESTORS TITLE COMPANY
By: /s/ J. Allen Fine
-------------------------
J. Allen Fine, Chairman
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Exhibit 99(i)
Certification
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)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections
(a) and (b) of section 1350, a chapter 63 of title 18, United States Code), each
of the undersigned officers of Investors Title Company, a North Carolina
corporation (the "Company"), does hereby certify that:
The Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (the "Form 10-Q") of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: August 14, 2002 /s/ J. Allen Fine
----------------------------------------
J. Allen Fine
Chief Executive Officer
Dated: August 14, 2002 /s/ James A. Fine, Jr.
----------------------------------------
James A. Fine, Jr.
Chief Financial Officer
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The foregoing certification is being furnished solely 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) and is not being filed as part of the Form 10-Q or as a separate disclosure document.