<PAGE> 1
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
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2000
Commission File Number 0-24961
AMERICAN NATIONAL FINANCIAL, INC.
-------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0731548
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1111 E. Katella Avenue, Suite 220, Orange, California 92867
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(Address of principal executive offices) (Zip Code)
(714) 289-4300
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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 or 15(d) 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 ( )
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common stock, no par value, 7,439,937 shares as of November 13, 2000
Exhibit Index appears on page 12 of 12 sequentially numbered pages.
<PAGE> 2
FORM 10-Q
QUARTERLY REPORT
Quarter Ended September 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I: FINANCIAL INFORMATION Page Number
-----------
<S> <C>
Item 1. Condensed Consolidated Financial Statements
A. Condensed Consolidated Balance Sheets as of 3
September 30, 2000 and December 31, 1999
B. Condensed Consolidated Statements of Earnings 4
for the three-month and nine-month periods ended
September 30, 2000 and 1999
C. Condensed Consolidated Statements of Comprehensive 5
Earnings for the three-month and nine-month periods
ended September 30, 2000 and 1999
D. Condensed Consolidated Statements of Cash Flows 6
for the nine-month periods ended September 30, 2000 and 1999
E. Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Item 3. Quantitative and Qualitative Market Risk Disclosures 11
Part II: OTHER INFORMATION
Item 2. Changes in Security 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN NATIONAL FINANCIAL, INC.
---------------------------------
(Registrant)
By: /s/ Carl A. Strunk
------------------------------------------------
Carl A. Strunk
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer) and Director Date: November 13, 2000
2
<PAGE> 3
Part I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................................... $ 7,794 $ 3,361
Short-term investments, at cost, which approximates fair market value ......... 735 1,514
Accrued investment interest ................................................... 174 245
Trade receivables, net of allowance for doubtful accounts of $2,404 in 2000 and
$2,097 in 1999 ........................................................... 6,106 4,526
Notes receivables, net ........................................................ 2,187 1,329
Deferred tax asset ............................................................ 2,183 2,082
Income tax receivable ......................................................... -- 1,128
Prepaid expenses and other current assets ..................................... 1,047 995
-------- --------
Total current assets ................................................... 20,226 15,180
Investment securities available for sale, at fair market value ................ 8,556 14,022
Property and equipment, net ................................................... 7,665 7,633
Title plants .................................................................. 2,999 2,377
Deposits with the Insurance Commissioner ...................................... 113 113
Intangibles, net of accumulated amortization of $1,338 in 2000 and
$959 in 1999 ............................................................. 11,650 7,999
-------- --------
Total assets ........................................................... $ 51,209 $ 47,324
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued expenses ................................... $ 5,559 $ 5,506
Customer advances ............................................................. 2,822 1,779
Current portion of long-term debt ............................................. 552 53
Current portion of obligations under capital leases with affiliates ........... 92 67
Current portion of obligations under capital leases with non-affiliates ....... 132 125
Reserve for claim losses ...................................................... 2,392 2,341
Income tax payable ............................................................ 987 --
Due to affiliate .............................................................. 1,738 1,642
-------- --------
Total current liabilities .............................................. 14,274 11,513
Long-term debt ................................................................ 3,579 1,991
Obligations under capital leases with affiliates .............................. 847 602
Obligations under capital leases with non-affiliates .......................... 1,087 1,187
-------- --------
Total liabilities ...................................................... 19,787 15,293
Shareholders' equity:
Preferred stock, no par value; authorized 5,000,000 shares; issued and
outstanding, none ........................................................ -- --
Common stock, no par value; authorized, 50,000,000 shares; issued and
outstanding, 7,375,224 in 2000 and 7,180,495 in 1999 ..................... -- --
Additional paid in capital .................................................... 22,548 21,884
Retained earnings ............................................................. 9,265 10,336
Accumulated other comprehensive loss .......................................... (391) (189)
-------- --------
Total shareholders' equity ............................................. 31,422 32,031
-------- --------
Total liabilities and shareholders' equity ............................. $ 51,209 $ 47,324
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE> 4
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30
----------------- -----------------
2000 1999 2000 1999
------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Net title service revenue -- related party ............... $11,201 $12,136 $32,137 $40,855
Escrow fees .............................................. 5,600 6,128 16,142 19,978
Other service charges .................................... 4,513 2,891 11,124 9,772
Investment income ........................................ 248 313 765 642
------- ------- ------- -------
Total revenues .................................... 21,562 21,468 60,168 71,247
------- ------- ------- -------
Expenses:
Personnel costs .......................................... 13,043 13,436 37,566 41,828
Other operating expenses includes $921 and $954
with affiliate for the three-month periods ended
September 30, 2000 and 1999, respectively, and $2,824
and $3,013 with affiliate for the nine-month periods
ended September 30, 2000 and 1999, respectively ..... 5,728 5,249 16,703 14,069
Title plant rent and maintenance ......................... 1,407 1,523 3,987 4,705
------- ------- ------- -------
Total expenses .................................... 20,178 20,208 58,256 60,602
------- ------- ------- -------
Earnings before income taxes ............................. 1,384 1,260 1,912 10,645
Income taxes ............................................. 567 517 784 4,459
------- ------- ------- -------
Net earnings ............................................. $ 817 $ 743 $ 1,128 $ 6,186
======= ======= ======= =======
Basic earnings per share ................................. $ 0.11 $ 0.10 $ 0.15 $ 0.91
======= ======= ======= =======
Weighted average shares outstanding, basic basis ......... 7,368 7,150 7,303 6,773
======= ======= ======= =======
Diluted earnings per share ............................... $ 0.11 $ 0.10 $ 0.15 $ 0.91
======= ======= ======= =======
Weighted average shares outstanding, diluted basis ....... 7,368 7,150 7,303 6,817
======= ======= ======= =======
Cash dividends per share ................................. $ 0.10 $ 0.10 $ 0.30 $ 0.30
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE> 5
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
2000 1999 2000 1999
---- ----- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net earnings .......................... $817 $ 743 $ 1,128 $ 6,186
Other comprehensive gain (loss) -
unrealized gain (loss) on investment,
securities available for sale(1) .... (20) (133) (391) (120)
---- ----- ------- -------
Comprehensive earnings ................ $797 $ 610 $ 737 $ 6,066
==== ===== ======= =======
</TABLE>
----------
(1) Net of income tax (benefit) of ($12) and ($60), and ($230) and ($55) for
the three-month and nine-month periods ended September 30, 2000 and 1999,
respectively.
See accompanying notes to condensed consolidated financial statements
5
<PAGE> 6
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings ................................................... $ 1,128 $ 6,186
Adjustments to reconcile net earnings to cash provided by
(used in) operating activities:
Depreciation and amortization ................................ 1,874 1,738
Loss on sale of investments .................................. 139 --
(Gain) on disposal of property and equipment ................. (194) (5)
Changes in:
Accounts receivables, net ................................. (833) 1,941
Interest receivable ....................................... 71 (234)
Prepaid expenses and other assets ......................... (52) 59
Income taxes receivable (payable) and deferred income taxes 2,147 (3,115)
Accounts payable and other accrued expenses ............... 53 (2,581)
Reserve for claim loss .................................... 51 195
Due to (from) affiliates .................................. 96 (221)
Customer advances ......................................... 1,043 (594)
------- --------
Total cash provided by operating activities .......... 5,523 3,369
------- --------
Cash flow from investing activities:
Purchase of property and equipment ............................. (1,176) (5,679)
Additions to notes receivable .................................. (975) (280)
Collections on notes receivable ................................ 117 156
Proceeds from sales of investment securities ................... 4,992 --
Purchase of investment securities............................... -- (11,344)
Proceeds from sale of property and equipment ................... 194 330
Proceeds from short term investments ........................... 779 --
Acquisitions of subsidiaries, net of cash received ............. (3,140) 1,235
------- --------
Total cash provided by (used in) investing activities ..... 791 (15,582)
------- --------
Cash flow from financing activities:
Borrowings ..................................................... -- 2,080
Repayment of long-term debt .................................... (525) (465)
Proceeds from stock options exercised .......................... -- 220
Proceeds from issuance of common stock ......................... 664 9,202
Payments of capital lease obligations .......................... 179 (770)
Dividends paid ................................................. (2,199) (1,430)
------- --------
Total cash provided by (used in) financing activities ..... (1,881) 8,837
------- --------
Increase (decrease) in cash and cash equivalents ............... 4,433 (3,376)
Cash and cash equivalents at beginning of period ............... 3,361 10,345
------- --------
Cash and cash equivalents at end of period ..................... $ 7,794 $ 6,969
======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
6
<PAGE> 7
AMERICAN NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
---- ------
(UNAUDITED)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year:
Interest ................................... $ 125 $ 132
Income taxes ............................... 42 6,583
Non-cash financing activities:
Dividend declared and unpaid .................. 733 715
Purchase of subsidiaries:
Assets acquired ............................... 5,750 --
Liabilities assumed and debt issued ........... (2,610) --
------- ------
Net cash used to acquire business ............. $ 3,140 $ --
======= ======
</TABLE>
See accompanying notes to condensed consolidated financial statements
7
<PAGE> 8
Notes to Condensed Consolidated Financial Statements
Note A - Basis of Financial Statements
The financial information included in this report includes the accounts of
American National Financial, Inc. and its subsidiaries (collectively, the
"Company") and has been prepared in accordance with generally accepted
accounting principles and the instructions to Form 10-Q and Article 10 of
Regulation S-X. All adjustments, consisting of normal recurring accruals
considered necessary for a fair presentation have been included. The Condensed
Consolidated Financial Statements for the three-month and nine-month periods
ended September 30, 2000 reflect the impact of the current year acquisitions of
Chicago Title Insurance Company, Pima County, Arizona operation, Bancserv, Inc.,
Pioneer Land Title Corporation and Emerald Mortgagee Assistance Company, all of
which were accounted for under the purchase accounting method. This report
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
Note B - State Banking Department
The State Banking Department, State of Arizona ("State Banking Department")
delivered their report of Examination of American Title Insurance of Arizona,
Inc. (formerly known as Nations Title Insurance of Arizona, Inc.) as of and for
the three-year period ending October 31, 1998, on March 4, 1999. The report as
forwarded to the Company by State Banking Department indicated that the Company
may not have been in compliance with certain State Banking Department
Regulations. The State Banking Department provided the Company with an
opportunity to present additional information prior to making their final
determination as to compliance. The Company subsequently provided additional
information to the State Banking Department for review.
On September 15, 2000, the Company received notice from the State Banking
Department stating the matters detailed in the Report of Examination were
complete and required no further response.
Note C - Dividends
On September 25, 2000, the Company's Board of Directors declared a quarterly
cash dividend of $.10 per share, payable on October 23, 2000, to stockholders of
record on October 9, 2000.
Note D - Employee and Non-Employee Director Stock Purchase Loan Programs
In September 1999, the Company's Board of Directors approved the adoption of the
American National Financial, Inc. Employee Stock Purchase Loan Plan ("Employee
Plan") and the Non-employee director Stock Purchase Loan Program ("Director
Program"). The purpose of the Loan Plan and Loan Program is to provide key
employees and directors with further incentive to maximize shareholder value.
The Company authorized an aggregate of $2.0 million in loans. All loans are full
recourse, unsecured and have a five-year term. Interest accrues on the loans at
a rate of six and one quarter percent (6 1/4%) per annum due at maturity. Loans
may be repaid any time without penalty. The total amount of loans outstanding at
September 30, 2000 was $1.9 million to purchase 469,407 shares of the Company's
common stock at an average purchase price of $3.98 per share. For the
nine-months ended September 30, 2000 all interest on the loans was paid current
in cash.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Factors That May Affect Operating Results
The statements contained in this report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions or strategies regarding the future.
8
<PAGE> 9
All forward-looking statements included in this document are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statements. It is important to
note that the Company's actual results could differ materially from those in
such forward-looking statements. The reader should consult the risk factors
listed from time to time and other information disclosed in the Company's
reports on Forms 10-K and filings under the Securities Act of 1933, as amended.
Results of Operations
Total revenues for the third quarter ended September 30, 2000 increased 1.0% to
$21.6 million from $21.5 million in the comparable 1999 period. Total revenues
for the nine-month period ended September 30, 2000 decreased 15.4% to $60.2
million from $71.2 million for the same prior year period. The slight increase
in total revenues for the three-month period is a result of the increase of
revenue from the current year acquisitions of ancillary service companies. The
decrease in revenues for the nine-month period ended September 30, 2000 is
coincident with interest rate increases caused by actions taken by the Federal
Reserve Board beginning in mid-1999. These rate increases have resulted in a
significant decline in refinancing transactions, which have impacted the
Company's order count and premium volume.
Net Title Service Revenue. Net title service revenue decreased $935,000, or
7.7%, and $8.7 million or 21.3%, for the three-month and nine-month periods
ended September 30, 2000, respectively, as the result of a decrease in open
title orders and the decline in the refinance business. The average fee per file
increased to $1,094 in 2000 compared with $919 in the comparable 1999 period.
The fee per file increase is indicative of a change in the mix of title orders
closing in a refinance market to the higher fee per file resale business.
Escrow Fees. Escrow fees for the third quarter of 2000 decreased $528,000, or
8.6% to $5.6 million from $6.1 million in the third quarter of 1999. For the
nine months ended September 30, 2000, escrow fees were $16.1 million, a decrease
of $3.9 million, or 19.2%, from escrow fees of $20.0 million in the first nine
months of 1999. Escrow fees are primarily related to title insurance activity
generated by the Company's direct operations. The decrease in escrow fees is
primarily the result of market conditions relating to the refinance activity,
the recent interest rate increases causing the decrease in closed title orders.
Other Service Charges. Other service charges trend closely with the level and
mix of business, as well as the performance of certain ancilliary service
businesses. Other service charges for the third quarter of 2000 increased $1.6
million, or 55.2% to $4.5 million from $2.9 million in the comparable 1999
period. The increase in the three-month period ended September 30, 2000 can be
attributed to the contribution of the recent acquisitions during 2000 and the
Company's strategy to strengthen its ancillary service business. Other services
charges totaled $11.1 million for the nine-month period ended September 30,
2000, an increase of $1.3 million, or 13.3% from other service charges of $9.8
million for the 1999 period. The Company continues to leverage its core title
and escrow businesses and national presence to successfully expand ancillary
service businesses.
Investment Income. Investment and interest income are primarily a function of
securities markets and interest rates. Prior to 1999 the Company primarily
invested in interest bearing accounts and certificates of deposits. During 1999
the Company strengthened its balance sheet with the acquisition of National
Title Insurance of New York, Inc. ("National"), proceeds from the Initial Public
Offering ("IPO") and the shift to a fixed income portfolio. Investment income in
the third quarter of 2000 decreased $65,000 or 21.0% to $248,000 from $313,000
in the corresponding 1999 period. The decrease in investment and interest income
earned in the third quarter ended September 30, 2000 is primarily the result of
liquidation of certain securities available for sale for the purpose of
acquisitions. Investment and interest income for the nine-month period ended
September 30, 2000 totaled $765,000 compared with $642,000 in the comparable
1999 period, an increase of $123,000 or 19.2%.
The Company's operating expenses consist primarily of personnel and other
operating expenses, which are incurred as orders are received and processed. Net
title service revenue and certain other fees are not recognized as income until
the transaction closes. As a result, revenue lags approximately 60-90 days
behind expenses and therefore gross margins may fluctuate.
9
<PAGE> 10
Personnel Costs. Personnel costs include base salaries, commissions and bonuses
paid to employees and are the most significant operating expense incurred by the
Company. Personnel costs, as a percentage of total revenue, decreased to 60.5%
for the three-month period ended September 30, 2000 compared with 62.6% for the
corresponding period in 1999. The decrease in personnel costs as a percentage of
revenue for the three-month period ended September 30, 2000 is the result of the
Company's attempts to respond as necessary to prevailing market conditions. For
the nine-month periods ended September 30, 2000 and 1999, personnel expenses as
a percentage of total revenue were 62.4% and 58.7%, respectively. Personnel
expenses, as a percentage of revenues, for the nine-month period ended
September 30, 2000 increased due to additional staffing costs from the
businesses acquired in fiscal year 2000. Personnel costs totaled $13.0 million
and $13.4 million for the three-month periods ended September 30, 2000 and 1999,
respectively and $37.6 million and $41.8 million for the nine-month periods
ended September 30, 2000 and 1999, respectively. These expenses fluctuate with
the level of orders opened and closed and the mix of revenue.
Other Operating Expenses. Other operating expenses consist of facilities
expenses, escrow losses, postage and courier services, data processing expense,
general insurance, trade and notes receivable allowance and depreciation. Other
operating expense increased as a percentage of total revenue to 26.6% in the
three-month period ended September 30, 2000, compared with 24.5% for the
corresponding 1999 period. Other operating expenses as a percentage of total
revenue increased to 27.8% for the nine-month period ended September 30, 2000
compared with 19.8% for the corresponding 1999 period. The increase in the three
and nine-month periods can be attributed to expenses related to the Company's
non-title operations, primarily Bancserv, Inc., Emerald Mortgagee Assistance
Company and Pioneer Land Title Corporation, which were all acquired in 2000.
Other operating expenses totaled $5.7 million and $5.2 million, for the
three-month periods ended September 30, 2000 and 1999, respectively. For the
nine-month periods ended September 30, 2000 and 1999, other operating expenses
totaled $16.7 million and $14.1 million, respectively. In response to market
conditions, the Company maintains aggressive cost control programs in order to
keep operating expenses consistent with levels of revenue; however, certain
fixed costs are incurred regardless of revenue levels, resulting in quarter over
quarter and year over year percentage fluctuations.
Title Plant Rent and Maintenance Expense. Title plant rent and maintenance
expense totaled $1.4 million and $1.5 million for the three-month periods ended
September 30, 2000 and 1999, respectively, and $4.0 million and $4.7 million for
the nine-month periods ended September 30, 2000 and 1999, respectively. Title
plant rent and maintenance expense decreased as a percentage of total revenue to
6.5% from 7.1% in the three-month periods ended September 30, 2000 and 1999,
respectively, and remained consistent at 6.6% of total revenues for the
nine-month periods ended September 30, 2000 and 1999. The flat year over year
comparison in title plant expense is primarily a result of various contract
renegotiations within several counties in California and Arizona resulting in
maintaining consistent cost reductions for the Company.
Income tax expense for the three-month and nine-month periods ended September
30, 2000 and 1999, as a percentage of earnings before income taxes was 41.0% and
41.0%, respectively. Income tax expense for the nine-month periods ended
September 30, 2000 and 1999 was 41.0% and 42.0%, respectively. Fluctuations in
income tax expense as a percentage of earnings before income taxes is
attributable to the effect of state income taxes on the Company's primary
subsidiary the wholly-owned underwritten title company and the ancillary service
companies; a change in the amount and the characteristics of net income,
operating income versus investment income; and the tax treatment of certain
items.
Liquidity and Capital Resources
The Company's current cash requirements include debt service, debt relating to
capital leases, personnel and other operating expenses, taxes and dividends on
its common stock. The Company believes that all anticipated cash requirements
for current operations will be met from internally generated funds. The
Company's cash requirements include expenses relating to the development of
National Title Insurance of New York, Inc. ("National") business. While the
Company presently has in place much of the infrastructure (principally
consisting of personnel) that will be used for this development, management
believes that additional cash resources will be required. The development of
direct sales operations for the expansion of National would require more cash
resources than developing these operations using agency relationships. Cash
requirements for the development of National are expected to be met from current
cash balances and internally generated funds.
One source of the Company's funds is distributions from its subsidiaries. As a
holding company, the Company may receive cash from its subsidiaries in the form
of dividends and as reimbursement for operating and other administrative
expenses it incurs. The Company's underwritten title company collects premiums
and fees and pays underwriting fees and operating expenses. The underwritten
title company is restricted only to the extent of maintaining minimum levels
10
<PAGE> 11
of working capital and net worth, but are not restricted by state regulations or
banking authorities in their ability to pay dividends and make distributions.
National is subject to regulations that restrict its ability to pay dividends or
make other distributions of cash or property to its parent company without prior
approval from the Department of Insurance of the State of New York. The maximum
amount of dividends which can be paid by National to shareholders without prior
approval of the Insurance Commissioner is subject to restrictions. No dividends,
including any dividends paid in the preceding twelve months, which exceed 10% of
the outstanding capital shares can be paid without prior approval unless after
deducting dividends the Company has surplus to policyholders at least equal to
the greater of 50% of its reinsurance reserves or 50% of the minimum capital
required. Additionally, dividends are further limited to the Company's earned
surplus.
The Company's other subsidiary operations collect revenue and pay operating
expenses; however, they are not regulated by insurance regulatory or banking
authorities. Positive cash flow from the underwritten title companies and other
subsidiary operations is invested primarily in cash and cash equivalents.
In December 1998, the Company entered into an agreement to purchase a home
office building in Orange, CA for $2.6 million. On April 14, 1999 the Company
completed the purchase of the home office building. The Company financed $2.1
million, secured by a first trust deed. At September 30, 2000 the remaining
obligation on the note payable is $2.0 million. The terms of the note require
monthly interest payments at prime and monthly principal payments of $4,000. The
note matures on April 1, 2004.
Year 2000
Our operational and financial systems successfully handled the transition into
Year 2000. All operations were fully functional on January 1, 2000. No
communication interruptions were identified with any customers or vendors.
Although no Y2K related problems are anticipated, we are continuing to monitor
all systems throughout the first quarter 2001.
Item 3. Quantitative and Qualitative Market Risk Disclosures
The Company's Consolidated Balance Sheets includes a substantial amount of
assets and liabilities whose fair values are subject to market risks. The
following sections address the significant market risks associated with the
Company's financial activities for the nine-month period ended September 30,
2000.
Interest Rate Risk
The Company's fixed maturity investments and borrowings are subject to interest
rate risk. Increases and decreases in prevailing interest rates generally
translate into decreases and increases in fair values of those instruments.
Additionally, fair values of interest rate sensitive instruments may be affected
by the creditworthiness of the issuer, prepayment options, relative values of
alternative investments, the liquidity of the instrument and other general
market conditions.
Equity Price Risk
The carrying values of investments subject to equity price risks are based on
quoted market prices or management's estimates of fair value as of the balance
sheet date. Market prices are subject to fluctuation and, consequently, the
amount realized in the subsequent sale of an investment may significantly differ
from the reported market value. Fluctuation in the market price of a security
may result from perceived changes in the underlying economic characteristics of
the investee, the relative price of alternative investments and general market
conditions. Furthermore, amounts realized in the sale of a particular security
may be affected by the relative quantity of the security being sold.
11
<PAGE> 12
Part II: OTHER INFORMATION
Item 2. Changes in Securities
The following table sets forth the range of high and low closing prices for the
common stock on the NASDAQ Stock Exchange
High Low
---- ---
January 1, 2000 through November 9, 2000: $3.94 $2.68
On November 8, 2000, the last reported sale price of the common stock on the
NASDAQ Stock Exchange was $2.88 per share. As of November 11, 2000, the Company
had less than 800 shareholders of record.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 10.19 Asset Purchase Agreement dated July 25, 2000
by and among American National Financial,
Inc. and Chicago Title Insurance Company
Exhibit 11 Computation of Basic and Diluted Earnings
Per Share
Exhibit 27 Financial Data Schedule - September 30, 2000
(included with electronic filing only)
(b) Reports on Form 8-K:
None.
12
