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, 2000
-------------------
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)
121 North Columbia Street, Chapel Hill, North Carolina 27514
-------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(919) 968-2200
--------------
(Registrant's Telephone Number Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
---- ----
Shares outstanding of each of the issuer's classes of common stock as of March
31, 2000:
Common Stock, no par value 2,597,764
- ------------------------------ --------------------------------------
Class Shares Outstanding
1
<PAGE>
INVESTORS TITLE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999.....3
Consolidated Statements of Income:
Three Months Ended March 31, 2000 and March 31, 1999....................4
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 2000 and March 31, 1999....................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
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of March 31, 2000 and December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
--------------- -----------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 6,637,676 $ 7,554,297
Investments in securities:
Fixed maturities:
Held-to-maturity, at amortized cost 4,550,666 4,565,871
Available-for-sale, at fair value 26,019,938 25,931,918
Equity securities, at fair value 5,002,307 5,012,259
------------------ -----------------
Total investments 35,572,911 35,510,048
Premiums receivable (less allowance for doubtful
accounts: 2000 and 1999: $775,000) 2,864,924 3,292,001
Accrued interest and dividends 521,585 521,624
Prepaid expenses and other assets 1,024,208 930,981
Property acquired in settlement of claims 191,617 191,617
Property, net 5,764,675 5,836,466
Prepaid federal income taxes 1,071,899 705,437
Deferred income tax asset, net - 614,093
------------------ -----------------
Total Assets $ 53,649,495 $ 55,156,564
================== =================
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Note 2) $ 15,964,665 $ 15,864,665
Accounts payable and accrued liabilities 907,284 1,560,936
Commissions and reinsurance payables 191,502 208,605
Premium taxes payable 5,012 20,618
Deferred income taxes, net 31,819 -
------------------ -----------------
Total liabilities 17,100,282 17,654,824
------------------ -----------------
Stockholders' Equity:
Common stock-no par value (shares authorized 6,000,000;
2,855,744 and 2,855,744 shares issued; and 2,597,764 and
2,736,961 shares outstanding 2000 and 1999, respectively) 1 1
Retained earnings 35,012,149 36,311,613
Accumulated other comprehensive income
(net unrealized gain on investments)
(net of deferred taxes:
2000: $792,379; 1999: $613,667) (Note 3) 1,537,063 1,190,126
------------------ -----------------
Total stockholders' equity 36,549,213 37,501,740
------------------ --------------------
Total Liabilities and Stockholders' Equity $ 53,649,495 $ 55,156,564
================== =================
See notes to consolidated financial statements.
3
<PAGE>
Investors Title Company and Subsidiaries
Consolidated Statements of Income
March 31, 2000 and 1999
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
For The Three
Months Ended
March 31
----------------------------------------------
2000 1999
---- ----
<S> <C> <C>
Revenues:
Underwriting income:
Premiums written $ 8,443,307 $ 10,771,628
Less-premiums for reinsurance ceded 73,169 77,391
----------------- ----------------
Net premiums written 8,370,138 10,694,237
Investment income-interest and dividends 591,791 470,127
Net realized gain on sales of investments 62,867 191,405
Other 301,437 160,547
----------------- ----------------
Total 9,326,233 11,516,316
----------------- ----------------
Operating Expenses:
Commissions to agents 3,377,871 3,991,288
Provision for claims (Note 2) 1,244,804 1,580,868
Salaries and employee benefits 2,488,329 2,542,752
Office occupancy and operations 908,464 888,333
Business development 262,556 274,910
Taxes, other than payroll and income 53,461 42,408
Premium and retaliatory taxes 211,624 261,910
Professional fees 171,691 166,158
Other 28,226 47,869
----------------- ----------------
Total 8,747,026 9,796,496
----------------- ----------------
Income Before Income Taxes 579,207 1,719,820
----------------- ----------------
Provision For Income Taxes 57,600 543,502
----------------- ----------------
Net Income $ 521,607 $ 1,176,318
================= ================
Basic Earnings per Common Share $ 0.20 $ 0.42
================= ================
Weighted Average Shares Outstanding-Basic 2,643,241 2,805,423
================= ================
Diluted Earnings per Common Share $ 0.20 $ 0.42
================= ================
Weighted Average Shares Outstanding-Diluted 2,646,215 2,821,888
================= ================
Dividends Paid $ 85,672 $ 85,672
================= ================
Dividends per Share $ 0.03 $ 0.03
================= ================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
-------------- -----------------
<S> <C> <C>
Operating Activities:
Net income $ 521,607 $ 1,176,318
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 185,185 100,966
Amortization, net 3,177 12,642
Net (gain) loss on disposals of property (1,073) 1,791
Net realized gain on sales of investments (62,867) (191,405)
Provision (benefit) for deferred income taxes 467,200 (134,825)
Provision for claims 1,244,804 1,580,868
Payments of claims, net of recoveries (1,144,804) (755,868)
Changes in assets and liabilities:
(Increase) decrease in receivables and other assets (32,573) 494,225
Decrease in accounts payable and accrued liabilities (552,408) (96,856)
Increase (decrease) in commissions and reinsurance payables (17,103) 69,169
Decrease in premium taxes payable (15,606) (186,583)
Increase in current income taxes payable - 246,640
-------------- -----------------
Net cash provided by operating activities 595,539 2,317,082
-------------- -----------------
Investing Activities:
Purchases of available-for-sale securities (1,005,900) (100,000)
Proceeds from sales of available-for-sale securities 1,513,376 793,519
Proceeds from sales of held-to-maturity securities 15,000 307,500
Purchases of property (127,637) (620,742)
Proceeds from sales of property 15,316 4,850
-------------- -----------------
Net cash provided by investing activities 410,155 385,127
-------------- -----------------
Financing Activities:
Repurchases of common stock (1,844,223) (640,763)
Exercise of options 7,580 133,455
Dividends paid (85,672) (85,672)
-------------- -----------------
Net cash used in investing activities (1,922,315) (592,980)
-------------- -----------------
Net Increase (Decrease) in Cash and Cash Equivalents (916,621) 2,109,229
Cash and Cash Equivalents, Beginning of Year 7,554,297 8,141,354
-------------- -----------------
Cash and Cash Equivalents, End of Period $ 6,637,676 $ 10,250,583
============== =================
Supplemental Disclosures:
Cash Paid During the Year for:
Income Taxes $ 4,298 $ 430,487
============== =================
Noncash Financing Activities:
Accrued bonuses totaling $101,244 and $131,136
were paid for the three months ended March 31, 2000
and 1999, respectively, by issuance of
the Company's common stock.
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2000
(Unaudited)
Note 1 - Basis of Presentation
- ------------------------------
The consolidated financial statements include Investors Title Company and
its subsidiaries, and have been prepared in conformity with accounting
principles generally accepted in the United States of America.
In the opinion of management all necessary adjustments have been reflected
for a fair presentation of the financial position, results of operations and
cash flows in the accompanying unaudited consolidated financial statements. All
such adjustments are of a normal recurring nature.
Reference should be made to the "Notes to Consolidated Financial
Statements" of the Registrant's Annual Report to Shareholders for the year ended
December 31, 1999 for a description of accounting policies.
Note 2 - Reserves for Claims
- ----------------------------
Transactions in the reserves for claims for the three months ended March
31, 2000 were as follows:
Balance, beginning of year $ 15,864,665
Provision, charged to operations 1,244,804
Recoveries 166,775
Payments of claims (1,311,579)
-----------
Balance, March 31, 2000 $ 15,964,665
============
In management's opinion, the reserves are adequate to cover claim losses
which might result from pending and possible claims.
Note 3 - Comprehensive Income
- ------------------------------
Total comprehensive income for the three months ended March 31, 2000 and
1999 was $868,544 and $1,008,571, 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 2,974 and 16,465 for the three months ended March 31, 2000
and 1999, respectively. Options to purchase 72,210 and 50,416 shares of common
stock were outstanding for the three months ended March 31, 2000 and 1999,
respectively, but were not included in the computation of diluted EPS because
the options' exercise prices were greater than the average market price of the
common shares.
6
<PAGE>
Subsequent to March 31, 2000 the Company repurchased 11,975 common shares
at a price of $11.38 per share under a stock repurchase program.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
-----------------------------------------------------------------
The 1999 Form 10-K and the 1999 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, 2000, net premiums written decreased 22% to
$8,370,138, investment income increased 26% to $591,791, revenues decreased 19%
to $9,326,233 and net income decreased 56% to $521,607 all compared with the
same quarter in 1999. Net income per basic and diluted common share both
decreased 52% to $.20 as compared with the year ago period.
Despite efforts by the Federal Reserve to brake the economy, the pace of
sales in the residential real estate market remained relatively strong in the
first quarter. The decrease in our premiums written resulted primarily from the
lack of significant mortgage refinancing, which was prevalent in the prior year
quarter. According to the Mortgage Bankers Association of America, the monthly
average 30-year fixed mortgage interest rates increased to 8.26% for the three
months ended March 31, 2000 compared with 6.88% for the three months ended March
31, 1999. The volume of business decreased in the first quarter of 2000 as the
number of policies and commitments issued declined to 47,228, a decrease of 31%
compared with 68,191 in the same period in 1999.
Branch net premiums written as a percentage of total net premiums written
were 43% and 48% for the three months ended March 31, 2000 and 1999,
respectively. Net premiums written from branch operations decreased 30% and
increased 12% for the three months ended March 31, 2000 and 1999, respectively,
as compared with the same periods in the prior year.
Agency net premiums written as a percentage of total net premiums written
were 57% and 52% for the three months ended March 31, 2000 and 1999,
respectively. Agency net premiums decreased 14% and increased 14% for the three
months ended March 31, 2000 and 1999, respectively, as compared with the same
periods in the prior year.
Shown below is a schedule of title premiums written for the three months
ended March 31, 2000 and 1999 in all states where the Company's two insurance
subsidiaries, Investors Title Insurance Company and Northeast Investors Title
Insurance Company, currently underwrite insurance:
2000 1999
---- ----
Georgia 68,917 159,712
Indiana 112,184 35,803
Kentucky - 93
7
<PAGE>
Maryland 139,672 103,760
Michigan 1,452,644 1,779,066
Minnesota 141,783 412,657
Mississippi 5,541 5,430
Nebraska 316,913 138,680
New York 72,621 144,443
North Carolina 3,576,796 5,128,234
Pennsylvania 131,750 -
South Carolina 770,103 930,487
Tennessee 244,553 102,322
Virginia 1,132,474 1,593,505
West Virginia 262,846 224,975
Wisconsin 3,942 -
--------- ----------
Direct Premiums 8,432,739 10,759,167
Reinsurance, net (62,601) (64,930)
--------- ----------
Net Premiums $ 8,370,138 $ 10,694,237
============ ============
Total operating expenses decreased 11% for the three-month period ended
March 31, 2000 compared with the same period in 1999. This decrease was due in
part to the decrease in premiums written. Certain operating expenses increased
due to continued ongoing investments in technology and costs associated with
entering and supporting new markets.
The provision for claims as a percentage of net premiums written was 15%
for the three months ended March 31, 2000 and 1999.
The provision for income taxes was 10% of income before income taxes for
the three months ended March 31, 2000 versus 31.6% for the same period in 1999.
The decrease in the tax provision was primarily due to a higher mix of
tax-exempt investment income to total income before taxes in 2000 compared
with 1999.
Liquidity and Capital Resources:
- --------------------------------
Net cash provided by operating activities for the three months ended March
31, 2000, amounted to $595,539 compared with $2,317,082 for the same three-month
period during 1999. This decrease is primarily the result of a decrease in net
income, a decrease in the provision for claims (net of payments), an increase in
receivables and a decrease in accounts payable.
On December 9, 1996, the Board of Directors approved the repurchase by the
Company of 150,000 shares of the Company's common stock from time to time at
prevailing market prices. The purpose of the repurchases is to avoid dilution to
existing shareholders as a result of issuances of stock in connection with stock
options and stock bonuses. Pursuant to this approval, the Company has
repurchased all 150,000 shares at an average price of $19.37 per share as of
March 31, 2000 including 6,211 shares purchased at an average purchase price of
$17.58 during the quarter ended March 31, 2000.
8
<PAGE>
On May 11, 1999, the Board of Directors also approved the repurchase of an
additional 200,000 shares of the Company's common stock. Pursuant to this
approval, the Company has repurchased 140,059 shares in the quarter ended March
31, 2000 at an average price of $12.42 per share.
On May 9, 2000, the Board of Directors approved the repurchase of an
additional 500,000 shares of the Company's common stock. As of May 10, 2000, no
shares have been repurchased.
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.
Other Matters
- -------------
Year 2000 Issues
- ----------------
The Company's Year 2000 Project Committee (the Committee") is comprised of
department heads and high-level managers representing each of the Company's
departments. Under the leadership of the Vice President of Information Systems,
the Committee worked through the Year 2000 transition to ensure that all aspects
of the Company's business and operations continued normally.
As of May 10, 2000, the Company has not experienced business interruptions
from Year 2000 issues, either internally or with its third party business
partners and vendors. Business operations continued uninterrupted through the
December 31, 1999 to January 1, 2000 transition, as well as the Leap Year
transition (from February 29, 2000 through March 1, 2000).
The Company's efforts to complete its regular technology refresh project
helped to mitigate the possibility of Year 2000 interruptions. The planned
technology refresh kept costs directly associated to Year 2000 to approximately
$20,000. At this time, the Company does not expect to incur additional costs
directly related to its Year 2000 initiative.
Although the Company believes it has completed all phases of its Year 2000
initiative in sufficient time to identify and remedy any non-compliant programs
and systems, future failures experienced by third party vendors could negatively
impact the Company's operations.
9
<PAGE>
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: (i) 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; (ii) that losses from claims may be greater than
anticipated such that reserves for possible claims are inadequate; (iii) that
unanticipated adverse changes in securities markets could result in material
losses on investments made by the Company; and (iv) the dependence of the
Company on key management personnel the loss of whom could have a material
adverse effect on the Company's business. The Company's discussion of Year 2000
issues under the heading "Other Matters" contains forward-looking statements
that are subject to risks and uncertainties that could cause the actual results
to differ from those projected. These include the risks associated with
unforeseen technological issues associated with the Company's own Year 2000
compliance efforts and the compliance efforts of third parties on whose systems
the Company relies. 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 1999 Annual Report on Form 10-K.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
(27) Financial Data Schedule included herewith.
(b) Reports on Form 8-K
-------------------
There were no reports filed on Form 8-K for this quarter.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed in its behalf by the
undersigned hereunto duly authorized.
INVESTORS TITLE COMPANY
(Registrant)
By: /s/ James A. Fine, Jr.
----------------------
James A. Fine, Jr.
President
By: /s/ Elizabeth P. Bryan
----------------------
Elizabeth P. Bryan
Vice President
(Principal Accounting
Officer)
Dated: May 12, 2000
11
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
*Not disclosed on a quarterly basis.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 26,019,938
<DEBT-CARRYING-VALUE> 4,471,811
<DEBT-MARKET-VALUE> 0*
<EQUITIES> 5,002,307
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 35,572,911
<CASH> 6,637,676
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 53,649,495
<POLICY-LOSSES> 15,964,665
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 191,502
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 1
<OTHER-SE> 36,549,212
<TOTAL-LIABILITY-AND-EQUITY> 53,649,495
8,370,138
<INVESTMENT-INCOME> 591,791
<INVESTMENT-GAINS> 62,867
<OTHER-INCOME> 301,437
<BENEFITS> 1,244,804
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 7,502,222
<INCOME-PRETAX> 579,207
<INCOME-TAX> 57,600
<INCOME-CONTINUING> 521,607
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 521,607
<EPS-BASIC> .20
<EPS-DILUTED> .20
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
