UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 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
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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
September 30, 2000:
Common Stock, no par value 2,576,496
-------------------------- ---------
Class Shares Outstanding
1
<PAGE>
INVESTORS TITLE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999...3
Consolidated Statements of Income:
Three and Nine Months Ended September 30, 2000 and September 30, 1999......4
Consolidated Statements of Cash Flows:
Three and Nine Months Ended September 30, 2000 and September 30, 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 September 30, 2000 and December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
-------------------- --------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 10,460,356 $ 7,554,297
Investments in securities:
Fixed maturities:
Held-to-maturity, at amortized cost 4,374,691 4,565,871
Available-for-sale, at fair value 26,702,345 25,931,918
Equity securities, at fair value 5,302,396 5,012,259
----------------- -------------------
Total investments 36,379,432 35,510,048
Premiums receivable (less allowance for doubtful accounts:
2000 and 1999: $725,000 and $775,000) 3,188,544 3,292,001
Accrued interest and dividends 539,904 521,624
Prepaid expenses and other assets 862,013 930,981
Property acquired in settlement of claims 204,117 191,617
Property, net 5,608,586 5,836,466
Prepaid federal income taxes - 705,437
Deferred income tax asset, net 182,856 614,093
----------------- -------------------
Total Assets $ 57,425,808 $ 55,156,564
================= ===================
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Note 2) $ 17,269,665 $ 15,864,665
Accounts payable and accrued liabilities 1,216,284 1,560,936
Commissions and reinsurance payables 193,000 208,605
Premium taxes payable - 20,618
Current income taxes payable 426,352 -
----------------- -------------------
Total liabilities 19,105,301 17,654,824
----------------- -------------------
Stockholders' Equity:
Common stock-no par value (shares authorized 6,000,000;
2,576,496 and 2,736,961 shares outstanding 2000 and 1999, respectively) 1 1
Retained earnings 36,477,271 36,311,613
Accumulated other comprehensive income (net unrealized gain on investments)
(net of deferred taxes: 2000: $950,117; 1999: $613,667) (Note 3) 1,843,235 1,190,126
----------------- -------------------
Total stockholders' equity 38,320,507 37,501,740
----------------- -------------------
Total Liabilities and Stockholders' Equity $ 57,425,808 $ 55,156,564
================= ===================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
Investors Title Company and Subsidiaries
Consolidated Statements of Income
September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
For The Three For The Nine
Months Ended Months Ended
September 30 September 30
-------------------------------- --------------------------------
------------- ------------- -------------- -------------
2000 1999 2000 1999
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Underwriting income:
Premiums written $ 10,168,696 $ 11,363,766 $ 28,785,819 $ 34,599,158
Less-premiums for reinsurance ceded 65,878 105,686 247,831 261,954
------------- ------------- -------------- -------------
Net premiums written 10,102,818 11,258,080 28,537,988 34,337,204
Investment income-interest and dividends 624,205 544,322 1,792,313 1,513,099
Net realized gain (loss) on sales of investments (7,456) 138,037 77,310 418,395
Other 587,274 244,525 1,262,944 629,593
------------- ------------- -------------- -------------
Total 11,306,841 12,184,964 31,670,555 36,898,291
------------- ------------- -------------- -------------
Operating Expenses:
Commissions to agents 4,169,207 4,389,572 11,579,542 13,199,680
Provision for claims (Note 2) 1,488,111 1,586,490 4,555,237 4,880,219
Salaries and employee benefits 2,332,667 2,422,830 7,205,747 7,503,922
Office occupancy and operations 864,881 1,072,773 2,645,794 2,980,141
Business development 354,653 346,907 1,016,869 985,391
Taxes, other than payroll and income 89,206 86,845 271,142 234,786
Premium and retaliatory taxes 176,244 209,290 579,981 687,490
Professional fees 163,845 122,587 594,938 514,093
Other 62,316 49,604 98,722 152,858
------------- ------------- -------------- -------------
Total 9,701,130 10,286,898 28,547,972 31,138,580
------------- ------------- -------------- -------------
Income Before Income Taxes 1,605,711 1,898,066 3,122,583 5,759,711
------------- ------------- -------------- -------------
Provision For Income Taxes 460,227 594,550 720,733 1,807,850
------------- ------------- -------------- -------------
Net Income $ 1,145,484 $ 1,303,516 $ 2,401,850 $ 3,951,861
============= ============= ============== =============
Basic Earnings per Common Share (Note 4) $ 0.44 $ 0.47 $ 0.92 $ 1.42
============= ============= ============== =============
Weighted Average Shares Outstanding-Basic (Note 4) 2,580,062 2,771,607 2,603,458 2,786,488
============= ============= ============== =============
Diluted Earnings per Common Share (Note 4) $ 0.44 $ 0.47 $ 0.92 $ 1.41
============= ============= ============== =============
Weighted Average Shares Outstanding-Diluted (Note 4) 2,583,113 2,777,351 2,608,166 2,796,847
============= ============= ============== =============
Dividends Paid $ 85,672 $ 85,672 $ 257,017 $ 257,017
============= ============= ============== =============
Dividends per Share $ 0.03 $ 0.03 $ 0.09 $ 0.09
============= ============= ============== =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------------- -------------------
<S> <C> <C>
Operating Activities:
Net income $ 2,401,850 $ 3,951,861
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 580,783 318,900
Amortization (accretion), net (1,421) 45,161
Net gain on disposals of property (4,355) (524)
Net realized gain on sales of investments (77,310) (418,395)
Provision (benefit) for deferred income taxes 94,800 (255,650)
Provision for claims 4,555,237 4,880,219
Payments of claims, net of recoveries (3,150,237) (2,680,219)
Changes in assets and liabilities:
Decrease in receivables and other assets 306,637 1,104,197
Increase (decrease) in accounts payable and accrued liabilities (344,651) 615,435
Increase (decrease) in commissions and reinsurance payables (15,605) 151,063
Decrease in premium taxes payable (185,624) (205,227)
Increase (decrease) in current income taxes payable 1,131,789 (428,897)
------------------- -------------------
Net cash provided by operating activities 5,291,893 7,077,924
------------------- -------------------
Investing Activities:
Purchases of available-for-sale securities (2,827,132) (5,578,381)
Purchases of held-to-maturity securities - (100,986)
Proceeds from sales of available-for-sale securities 2,834,038 1,850,917
Proceeds from sales of held-to-maturity securities 192,000 677,086
Purchases of property (372,977) (2,270,227)
Proceeds from sales of property 24,429 9,875
------------------- -------------------
Net cash used in investing activities (149,642) (5,411,716)
------------------- -------------------
Financing Activities:
Repurchases of common stock (1,995,005) (1,131,170)
Exercise of options 15,830 141,619
Dividends paid (257,017) (257,017)
------------------- -------------------
Net cash used in investing activities (2,236,192) (1,246,568)
------------------- -------------------
Net Increase in Cash and Cash Equivalents 2,906,059 419,640
Cash and Cash Equivalents, Beginning of Year 7,554,297 8,141,354
------------------- -------------------
Cash and Cash Equivalents, End of Period $ 10,460,356 $ 8,560,994
=================== ===================
Supplemental Disclosures:
Cash Paid During the Year for:
Income Taxes $ 571,756 $ 2,482,297
=================== ===================
</TABLE>
Noncash Financing Activities:
Accrued bonuses totaling $121,851 and $160,523 were paid for the nine months
ended September 30, 2000 and 1999, respectively, by issuance of the Company's
common stock.
See notes to consolidated financial statements.
5
<PAGE>
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 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 nine months ended
September 30, 2000 were as follows:
Balance, beginning of year $ 15,864,665
Provision, charged to operations 4,555,237
Recoveries 355,502
Payments of claims (3,505,739)
---------------
Balance, September 30, 2000 $ 17,269,665
==============
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 September 30, 2000
and 1999 was $1,505,391 and $757,070, respectively. Total comprehensive
income for the nine months ended September 30, 2000 and 1999 was
$3,054,959 and $2,729,472, 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 3,051 and 5,744 for the three
months ended September 30, 2000 and 1999, respectively and 4,708 and
10,359 for the nine months ended September 30, 2000 and 1999,
respectively. Options to purchase 207,110 and 59,806 shares of common
stock were outstanding for the three months ended September 30, 2000 and
1999, respectively and 188,360 and 58,806 for the nine months ended
September 30, 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>
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 September 30, 2000, net premiums written
decreased 10% to $10,102,818, investment income increased 15% to
$624,205, revenues decreased 7% to $11,306,841 and net income
decreased 12% to $1,145,484, all compared with the same quarter in
1999. Net income per basic and diluted common share both decreased 6%
to $.44 as compared with the year ago period.
For the nine months ended September 30, 2000, net premiums written
decreased 17% to $28,537,988, investment income increased 18% to
$1,792,313, revenues decreased 14% to $31,670,555, net income
decreased 39% to $2,401,850, and both net income per basic and
diluted common share decreased 35% to $.92 as compared with the same
period in 1999.
The level of mortgage originations, which is the primary driver of
the Company's premiums written, continues to lag behind prior year
activity. The drop in total mortgage originations, and consequent
decline in premiums written, resulted primarily from the decline in
residential refinance activity, which in turn was caused by the rise
in mortgage interest rates. According to the Federal Home Loan
Mortgage Corporation, the monthly average 30-year fixed mortgage
interest rates increased to 8.20% for the nine months ended September
30, 2000 compared with 7.29% for the nine months ended September 30,
1999. The volume of business decreased in the third quarter of 2000
as the number of policies and commitments issued declined to 51,861,
a decrease of 18% compared with 63,481 in the same period in 1999.
Policies and commitments issued for the nine months ended September
30, 2000 were 151,498 compared with 203,403 in 1999.
Branch net premiums written as a percentage of total net premiums
written were 41% and 45% for the three months ended September 30,
2000 and 1999, respectively and 43% and 46% for the nine months ended
September 30, 2000 and 1999, respectively. Net premiums written from
branch operations decreased 17% and 9% for the three months ended
September 30, 2000 and 1999, respectively, as compared with the same
periods in the prior year. For the nine months ended September 30,
2000 and 1999, net premiums written from branch operations decreased
23% and increased 1%, respectively, as compared with the same prior
year periods.
Agency net premiums written as a percentage of total net premiums
written were 59% and 55% for the three months ended September 30,
2000 and 1999, respectively, and 57% and 54% for the nine months
ended September 30, 2000 and 1999. Agency net premiums decreased 5%
and increased 1% for the three months ended September 30, 2000 and
1999, respectively, as compared with the same periods in the prior
year. For the nine months ended September 30, 2000 and 1999, net
premiums written from agency operations decreased 11% and increased
10%, respectively, as compared with the same prior year periods.
7
<PAGE>
Shown below is a schedule of premiums written for the nine months
ended September 30, 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 $175,662 $ 396,232
Indiana 369,691 298,717
Kentucky - 4,321
Maryland 396,796 480,765
Michigan 4,937,780 5,239,894
Minnesota 605,537 1,431,136
Mississippi 30,609 15,605
Nebraska 856,611 853,037
New York 407,239 429,763
North Carolina 12,077,523 15,742,671
Ohio 1,513 -
Pennsylvania 667,236 2,902
South Carolina 2,916,553 3,682,553
Tennessee 814,941 437,351
Virginia 3,589,110 4,891,812
West Virginia 908,323 648,591
Wisconsin 5,638 5,802
---------------------- ----------------------
Direct Premiums 28,760,762 34,561,152
Reinsurance, net (222,774) (223,948)
---------------------- ----------------------
Net Premiums $28,537,988 $ 34,337,204
====================== ======================
Total operating expenses decreased 6% and 8% for the three and
nine-month periods ended September 30, 2000 compared with the same
periods 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% and 16% for the three and nine months ended September 30, 2000,
versus 14% for the same periods in 1999. The increase in the
percentage of the provision for claims to net premiums written is the
result of an increase in claims coupled with a decrease in premium
volume.
8
<PAGE>
The provision for income taxes was 29% of income before income taxes
for the three months ended September 30, 2000 versus 31% for the same
period in 1999. For the nine months ended September 30, 2000 and
1999, the provision for income taxes was 23% and 31% of income before
income taxes. 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 nine months ended
September 30, 2000, amounted to $5,291,891 compared with $7,077,924
for the same nine-month period during 1999. The decrease is primarily
the result of a decrease in net income, a decrease in accounts
payable and accrued liabilities, an increase in payments of claims
(net of recoveries), partially offset by increases in current income
taxes payable and a decrease in net realized gain on sales of
investments.
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 has repurchased 164,132 shares in the nine
months ended September 30, 2000 at an average price of $12.23 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
October 17, 2000, no shares have been repurchased pursuant to this
approval.
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.
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. 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.
9
<PAGE>
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/ Joseph R. Peiso
----------------------
Joseph R. Peiso
Senior Vice President
(Principal Accounting Officer)
Dated: November 10, 2000
11
