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 June 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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 Identification No.)
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
--- ---
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
As of August 1, 2003, there were 2,855,744 outstanding shares of common
stock of Investors Title Company, including 352,517 shares held by Investors
Title Insurance Company, a wholly owned subsidiary of Investors Title Company.
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
INDEX
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002...............1
Consolidated Statements of Income for the Three and Six Months Ended
June 30, 2003 and 2002......................................................2
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2003 and 2002......................................................3
Notes to Consolidated Financial Statements .........................................4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk ........................12
Item 4. Controls and Procedures............................................................12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders................................13
Item 5. Other Information..................................................................13
Item 6. Exhibits and Reports on Form 8-K...................................................13
SIGNATURES....................................................................................14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of June 30, 2003 and December 31, 2002
June 30, 2003 December 31, 2002
-------------- ------------------
(Unaudited) (Audited)
Assets
Cash and cash equivalents $ 9,826,555 $ 3,781,961
Investments in securities:
Fixed maturities:
Held-to-maturity, at amortized cost 3,818,218 4,395,081
Available-for-sale, at fair value 50,588,858 52,491,648
Equity securities, at fair value 8,075,922 7,884,928
Other investments 1,106,990 564,782
-------------- -----------------
Total investments 63,589,988 65,336,439
Premiums receivable (less allowance for doubtful accounts of
$2,475,000 and $1,800,000 for 2003 and 2002, respectively) 9,758,431 7,949,904
Accrued interest and dividends 674,478 720,902
Prepaid expenses and other assets 988,606 1,095,230
Property acquired in settlement of claims 771,687 749,562
Property, net 4,189,690 4,109,885
Deferred income taxes, net 633,577 893,263
-------------- -----------------
Total Assets $ 90,433,012 $ 84,637,146
============== =================
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Note 2) $ 27,522,000 $ 25,630,000
Accounts payable and accrued liabilities 3,223,177 4,780,865
Commissions and reinsurance payables 390,747 401,040
Premium taxes payable 234,423 268,972
Current income taxes payable 809,463 888,085
-------------- -----------------
Total liabilities 32,179,810 31,968,962
-------------- -----------------
Commitments and Contingencies (Note 6)
Stockholders' Equity:
Class A Junior Participating preferred stock (shares authorized 100,000; no shares
issued) - -
Common stock-no par value (shares authorized 10,000,000;
2,498,939 and 2,515,804 shares issued and outstanding 2003 and 2002,
respectively, excluding 356,805 and 339,940 shares 2003 and 2002,
respectively, of common stock held by the Company's subsidiary) 1 1
Retained earnings 54,627,963 49,613,044
Accumulated other comprehensive income, net of deferred taxes of
$1,868,117 and $1,574,431 for 2003 and 2002, respectively (Note 3) 3,625,238 3,055,139
-------------- -----------------
Total stockholders' equity 58,253,202 52,668,184
-------------- -----------------
Total Liabilities and Stockholders' Equity $ 90,433,012 $ 84,637,146
============== =================
See notes to consolidated financial statements.
1
Investors Title Company and Subsidiaries
Consolidated Statements of Income
For the Three and Six Months Ended June 30, 2003 and 2002
(Unaudited)
For The Three For The Six
Months Ended Months Ended
June 30 June 30
----------------------- -----------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Revenues:
Underwriting income:
Premiums written $23,415,757 $14,997,015 $43,180,931 $29,780,863
Less - premiums for reinsurance ceded 93,128 125,818 190,317 228,941
----------- ----------- ----------- -----------
Net premiums written 23,322,629 14,871,197 42,990,614 29,551,922
Investment income - interest and dividends 679,857 692,781 1,354,435 1,361,819
Net realized gain on sales of investments 41,867 5,043 64,914 290,850
Other 1,135,290 523,066 1,798,123 957,069
----------- ----------- ----------- -----------
Total 25,179,643 16,092,087 46,208,086 32,161,660
----------- ----------- ----------- -----------
Operating Expenses:
Commissions to agents 11,462,988 6,767,083 20,855,778 13,776,762
Provision for claims (Note 2) 2,687,693 1,703,640 4,770,731 3,383,051
Salaries, employee benefits and payroll taxes 3,708,942 2,729,169 7,255,999 5,667,760
Office occupancy and operations 1,365,677 1,270,795 2,462,793 2,471,192
Business development 402,204 448,759 783,156 836,880
Taxes, other than payroll and income 121,159 115,357 175,282 191,594
Premium and retaliatory taxes 462,819 304,092 884,105 633,858
Professional fees 250,795 190,251 458,139 400,506
Other 147,914 67,343 199,845 105,280
----------- ----------- ----------- -----------
Total 20,610,191 13,596,489 37,845,828 27,466,883
----------- ----------- ----------- -----------
Income Before Income Taxes 4,569,452 2,495,598 8,362,258 4,694,777
----------- ----------- ----------- -----------
Provision For Income Taxes 1,482,000 794,600 2,666,245 1,446,600
----------- ----------- ----------- -----------
Net Income $ 3,087,452 $ 1,700,998 $ 5,696,013 $ 3,248,177
=========== =========== =========== ===========
Basic Earnings Per Common Share (Note 4) $ 1.24 $ 0.68 $ 2.27 $ 1.29
=========== =========== =========== ===========
Weighted Average Shares Outstanding - Basic (Note 4) 2,494,036 2,517,739 2,503,773 2,517,148
=========== =========== =========== ===========
Diluted Earnings Per Common Share (Note 4) $ 1.18 $ 0.65 $ 2.18 $ 1.25
=========== =========== =========== ===========
Weighted Average Shares Outstanding - Diluted (Note 4) 2,619,743 2,600,191 2,616,098 2,593,565
=========== =========== =========== ===========
Dividends Paid $ 74,708 $ 77,170 $ 150,179 $ 151,074
=========== =========== =========== ===========
Dividends Per Share $ 0.03 $ 0.03 $ 0.06 $ 0.06
=========== =========== =========== ===========
See notes to consolidated financial statements.
2
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2003 and 2002
(Unaudited)
2003 2002
-------------- ---------------
Operating Activities:
Net income $5,696,013 $3,248,177
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 399,390 497,858
Amortization, net 12,888 14,867
Issuance of common stock in payment of
bonuses and fees 31,009 41,728
Provision for losses on premiums
receivable 675,000 -
Net gain on disposals
of property (4,922) (7,108)
Net realized gain on sales of
investments (64,914) (290,850)
Benefit for deferred
income taxes (34,000) (254,400)
Changes in assets and liabilities:
(Increase) decrease in receivables and
other assets (2,352,604) 2,245,828
Decrease in accounts payable and
accrued liabilities (1,557,688) (1,754,985)
Increase (decrease) in commissions and
reinsurance payables (10,293) 25,996
Decrease in premium
taxes payable (34,549) (373,022)
Increase (decrease) in current income
taxes payable (78,622) 98,714
Provision for claims 4,770,731 3,383,051
Payments of claims, net of recoveries (2,878,731) (1,659,551)
-------------- ---------------
Net cash provided by operating activities 4,568,708 5,216,303
-------------- ---------------
Investing Activities:
Purchases of available-for-sale securities (3,452,544) (5,237,709)
Purchases of held-to-maturity securities (4,246) (362,470)
Purchases of other securities (563,280) (411,946)
Proceeds from sales of available-for-sale
securities 6,064,365 3,293,836
Proceeds from sales of held-to-maturity
securities 592,000 768,750
Proceeds from other securities 25,967
Purchases of property (483,508) (456,858)
Proceeds from sales of property 9,235 17,353
-------------- ---------------
Net cash provided by (used in) investing
activities 2,187,989 (2,389,044)
-------------- ---------------
Financing Activities:
Repurchases of common stock (834,170) (15,447)
Exercise of options 272,246 14,171
Dividends paid (150,179) (151,074)
-------------- ---------------
Net cash used in financing activities (712,103) (152,350)
-------------- ---------------
Net Increase in Cash and Cash Equivalents 6,044,594 2,674,909
Cash and Cash Equivalents, Beginning of Year 3,781,961 3,069,929
-------------- ---------------
Cash and Cash Equivalents, End of Period $9,826,555 $5,744,838
============== ===============
Supplemental Disclosures:
Cash Paid During the Year for:
Income Taxes, net of refunds $2,796,000 $1,603,601
============== ===============
See notes to consolidated financial statements.
3
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
------------------------------------------
June 30, 2003
(Unaudited)
Note 1 - Basis of Presentation
- ------------------------------
Reference should be made to the "Notes to Consolidated Financial
Statements" of Investors Title Company's (the "Company") Annual Report to
Shareholders for the year ended December 31, 2002 for a complete description of
the Company's significant accounting policies. There were no changes in the
significant accounting policies during the six months ended June 30, 2003.
Principles of Consolidation - The unaudited consolidated financial
statements include the accounts and operations of Investors Title Company and
its subsidiaries (Investors Title Insurance Company, Northeast Investors Title
Insurance Company, Investors Title Exchange Corporation, Investors Title
Accommodation Corporation and Investors Title Management Services, Inc.), and
have been prepared in conformity with accounting principles generally accepted
in the United States of America. All intercompany balances and transactions have
been eliminated in consolidation.
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.
Reclassification - Certain 2002 amounts have been reclassified to
conform to 2003 classifications.
Earnings Per Share - Basic net income per share information is computed
using the weighted average number of shares of common stock outstanding during
the period. Diluted net income per common share is computed using the weighted
average number of shares of common and dilutive potential common shares
outstanding during the period.
Recent Accounting Pronouncements - In June 2002, the Financial
Accounting Standards Board (the "FASB") issued Statement of Financial Accounting
Standards No. 146, Accounting for Costs Associated with Exit or Disposal
Activities ("SFAS No. 146"). SFAS No. 146 addresses accounting and reporting for
costs associated with exit or disposal activities and supercedes Emerging Issues
Task Force Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized and measured
initially at fair value when the liability is incurred. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of this statement had no material impact on the financial
statements.
4
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB
Statement No. 123. SFAS No. 148 amends SFAS No. 123 to provide alternative
methods of transition for a voluntary change to the fair market value based
method of accounting for stock-based employee compensation. The disclosure
provisions of SFAS No. 148 were effective for years ending after December 15,
2002. Presently, the Company does not plan to voluntarily change its method of
accounting for stock-based compensation.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 is generally
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The effect of the adoption
of this statement was not material to the Company's operating results or
financial position.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. This
SFAS is generally effective for financial instruments entered into or modified
after May 31, 2003 and otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. The Company has not yet determined the
effect, if any, of the adoption of this statement.
FASB Interpretation No. 45, Guarantor's Accounting and Disclosures
Requirements for Guarantees, including Indirect Guarantees of Indebtedness of
Others, became effective on December 31, 2002. This Interpretation addresses the
disclosure requirements for guarantees and indemnification agreements entered
into by the entity. The implementation of this pronouncement did not have any
effect on the Company's financial statements.
In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities. FIN 46 requires that unconsolidated variable
interest entities must be consolidated by their primary beneficiaries. A primary
beneficiary is the party that absorbs a majority of the entity's expected losses
or residual benefits. FIN 46 applies immediately to variable interest entities
in the periods beginning after June 15, 2003. The adoption of FIN 46 had no
significant impact on our financial condition or results of operations.
Stock-Based Compensation - The Company accounts for stock-based
compensation based on the provisions of Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, which states that, for fixed
plans, no compensation expense is recorded for stock options or other
stock-based awards to employees that are granted with an exercise price equal to
or above the estimated fair value per share of the Company's common stock on the
grant date. In the event that stock options are granted with an exercise price
below the estimated fair value of the Company's common stock at the grant date,
the difference between the fair value of the Company's common stock and the
exercise price of the stock option is recorded as deferred compensation.
Deferred compensation is amortized to compensation expense over the vesting
period of the stock option. The Company has adopted the disclosure requirements
of Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123"), and Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure - an Amendment to FASB Statement No. 123, which together require
compensation expense to be disclosed based on the fair value of the options
granted at the date of the grant.
5
Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant dates for awards under the plan
consistent with the method required by SFAS No. 123, the Company's net income
and diluted net income per common share would have been the pro forma amounts
indicated in the following table:
For the Three Month Periods For the Six Month Periods
Ended June 30 Ended June 30
---------------- ------------------ ----------------- -------------------
2003 2002 2003 2002
---------------- ------------------ ----------------- -------------------
Net income as reported $ 3,087,452 $ 1,700,998 $ 5,696,013 $ 3,248,177
Less: Total stock-based employee compensation
expense determined under fair value-based
method for all awards, net of related tax
effects (32,534) (30,426) (70,447) (59,930)
---------------- ------------------ ------------------ -------------------
Pro forma net income $ 3,054,918 $ 1,670,572 $ 5,625,566 $ 3,188,247
============ ============ ============ ============
Net income per share:
Basic - as reported $ 1.24 $ 0.68 $ 2.27 $ 1.29
Basic - pro forma $ 1.22 $ 0.66 $ 2.25 $ 1.27
Diluted - as reported $ 1.18 $ 0.65 $ 2.18 $ 1.25
Diluted - pro forma $ 1.17 $ 0.64 $ 2.15 $ 1.23
Note 2 - Reserves for Claims
Transactions in the reserves for claims for the six months ended June
30, 2003 and the year ended December 31, 2002 were as follows:
June 30, 2003 December 31, 2002
---------------- --------------------
Balance, beginning of year $ 25,630,000 $ 21,460,000
Provision, charged to operations 4,770,731 6,871,822
Payments of claims, net of recoveries (2,878,731) (2,701,822)
---------------- --------------------
Ending balance $ 27,522,000 $ 25,630,000
================ ====================
In management's opinion, the reserves are adequate to cover claim
losses which might result from pending and possible claims. The Company's
reserves for unpaid losses and loss adjustment expenses are established using
estimated amounts required to settle claims for which notice has been received
(reported) and the amount estimated to be required to satisfy incurred claims of
policyholders which may be reported in the future. Despite the variability of
such estimates, management believes that the reserves are adequate to cover
claim losses which might result from pending and future claims. The Company
continually reviews and adjusts its reserve estimates to reflect its loss
experience and any new information that becomes available.
6
Note 3 - Comprehensive Income
- -----------------------------
Comprehensive income for the three months ended June 30, 2003 and 2002
was $3,679,441 and $2,369,666, respectively. Comprehensive income for the six
months ended June 30, 2003 and 2002 was $6,266,112 and $3,670,627, 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 125,707 and 82,452 for the three months ended June
30, 2003 and 2002, respectively, and 112,325 and 76,417 for the six months ended
June 30, 2003 and 2002, respectively. Options to purchase 282,246 and 301,316
shares of common stock were outstanding as of June 30, 2003 and 2002,
respectively. Of the total options outstanding, 28,100 and 68,686 options were
not included in the computation of diluted earnings per share for the three
months ended June 30, 2003 and 2002, respectively; and 39,840 and 68,686 options
were not included in the computation of diluted earnings per share for the six
months ended June 30, 2003 and 2002, respectively, because the options' exercise
prices were greater than the average market price of the common shares.
Note 5 - Segment Information
- ----------------------------
Income
Three Months Operating Before
Ended Revenues Income Taxes Assets
- --------------------------------------------------------------------------------------------------
June 30, 2003
- --------------------------------------------------------------------------------------------------
Title Insurance $23,846,555 $ 4,225,350 $83,774,269
Exchange Services 389,811 277,381 408,640
All Other 221,553 66,721 6,250,103
- --------------------------------------------------------------------------------------------------
$24,457,919 $ 4,569,452 $90,433,012
- --------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------
7
Income
Six Months Operating Before
Ended Revenues Income Taxes Assets
- --------------------------------------------------------------------------------------------------
June 30, 2003
- --------------------------------------------------------------------------------------------------
Title Insurance $43,838,001 $ 7,959,007 $83,774,269
Exchange Services 490,901 242,500 408,640
All Other 459,835 160,751 6,250,103
- --------------------------------------------------------------------------------------------------
$44,788,737 $ 8,362,258 $90,433,012
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
- --------------------------------------------------------------------------------------------------
Operating revenues represent net premiums written and other revenues,
excluding investment income and net realized gain on sales of investments.
Note 6 - Commitments and Contingencies
- --------------------------------------
The Company and its subsidiaries are involved in various routine legal
proceedings that are incidental to their business. All of these proceedings
arose in the ordinary course of business and, in the Company's opinion, any
potential liability of the Company or its subsidiaries with respect to these
legal proceedings will not, in the aggregate, be material to the Company's
consolidated financial condition or operations.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
----------------------------------------------------------------
The Company's 2002 Form 10-K and 2002 Annual Report to Shareholders should
be read in conjunction with the following discussion since they contain
important information for evaluating the Company's operating results and
financial condition.
Critical Accounting Policies:
- -----------------------------
During the six months ended June 30, 2003, the Company made no changes in
its critical accounting policies as previously disclosed within the Company's
Annual Report on Form 10-K for the year ended December 31, 2002.
8
Results of Operations:
- ----------------------
For the quarter ended June 30, 2003, net premiums written increased 57% to
$23,322,629, investment income decreased 2% to $679,857, revenues increased 56%
to $25,179,643 and net income increased 82% to $3,087,452, all compared with the
same quarter in 2002. Both net income per basic and diluted common share
increased 82%, to $1.24 and $1.18, respectively, as compared with the same
quarter ended June 30, 2002. For the quarter ended June 30, 2003, the title
insurance segment's operating revenues increased 59% compared with the second
quarter of 2002, while the exchange services segment's operating revenues
increased 116% for the quarter ended June 30, 2003, compared with the same
quarter in 2002.
For the six months ended June 30, 2003, net premiums written increased 45%
to $42,990,614, investment income decreased 1% to $1,354,435, revenues increased
44% to $46,208,086 and net income increased 75% to $5,696,013, all compared with
the same period in 2002. Net income per basic and diluted common share increased
76% and 74%, respectively, to $2.27 and $2.18 as compared with the same six
month period ended June 30, 2002. For the six months ended June 30, 2003, the
title insurance segment's operating revenues increased 47% compared with the
same period in 2002, while the exchange services segment's operating revenues
increased 71% for the six months ended June 30, 2003 compared with the same
period in 2002.
Revenue and earnings continued to be driven by mortgage refinancing.
Mortgage interest rates declined through the period as fears persisted over
possible deflation. In response to lower rates, applications for mortgage
refinancing surged to unprecedented levels. Nationally, refinancings represented
over 75% of weekly mortgage applications at the end of the quarter. According to
the Freddie Mac Weekly Mortgage Rate Survey, the monthly average 30-year fixed
mortgage interest rates decreased to an average of 5.67% for the six months
ended June 30, 2003, compared with 6.89% for the six months ended June 30, 2002.
The volume of business remained strong in the second quarter of 2003 as the
number of policies and commitments issued rose to 214,228, an increase of 49.2%
compared with 143,583 in the same period in 2002.
Branch net premiums written as a percentage of total net premiums written
were 34% and 38% for the three months ended June 30, 2003 and 2002,
respectively, and 35% and 37% for the six months ended June 30, 2003 and 2002,
respectively. Net premiums written from branch operations increased 43% and
decreased 3% for the three months ended June 30, 2003 and 2002, respectively, as
compared with the same periods in the prior year. For the six months ended June
30, 2003 and 2002, net premiums written from branch operations increased 38% and
8%, respectively, as compared with the same prior year periods.
Agency net premiums written as a percentage of total net premiums written
were 66% and 62% for the three months ended June 30, 2003 and 2002,
respectively, and 65% and 63% for the six months ended June 30, 2003 and 2002,
respectively. Agency net premiums increased 65% and 2% for the three months
ended June 30, 2003 and 2002, respectively, as compared with the same periods in
the prior year. For the six months ended June 30, 2003 and 2002, net premiums
written from agency operations increased 50% and 15%, respectively, as compared
with the same prior year periods.
9
Shown below is a schedule of premiums written for the six months ended
June 30, 2003 and 2002 in all states in which the Company's two insurance
subsidiaries, Investors Title Insurance Company and Northeast Investors Title
Insurance Company, currently underwrite insurance:
State 2003 2002
------ ------------ ------------
Alabama $ 645,527 $ 275,440
Arkansas 18,170 7,638
District of Columbia 6,274 -
Florida 25,150 -
Georgia 27,639 1,836
Illinois 756,449 -
Indiana 175,701 5,114
Kentucky 941,646 503,741
Louisiana 1,676 -
Maryland 975,414 636,148
Michigan 4,394,450 4,419,751
Minnesota 1,093,748 652,130
Mississippi 565,025 413,665
Missouri 19,218 -
Nebraska 1,163,552 387,291
New Jersey 41,266 11,943
New York 3,106,336 1,527,021
North Carolina 14,909,659 10,817,167
Ohio 65,129 11,673
Pennsylvania 3,297,694 1,551,870
South Carolina 3,272,382 2,616,019
Tennessee 2,029,754 1,521,794
Virginia 4,608,819 3,625,674
West Virginia 1,034,122 772,049
Wisconsin (100) 7,234
----------------- ---------------------
Direct Premiums 43,174,700 29,765,198
Reinsurance Assumed 6,231 15,665
Reinsurance Ceded (190,317) (228,941)
----------------- ---------------------
Net Premiums $42,990,614 $29,551,922
================= =====================
The increase in premiums is primarily the result of lower mortgage
interest rates that continue to stimulate a healthy demand for home sales and
mortgage refinancing. The continued effort to increase our market share with
existing and new agents also contributed to the increase in premium volume.
10
Total operating expenses increased 52% and 38% for the three and six
month periods ended June 30, 2003, respectively, compared with the same periods
in 2002. This was due primarily to an increase in commission expense as a result
of increased business from agent sources. The increase in volume of premiums and
costs associated with entering and supporting new markets also contributed to
the increase in operating expenses.
The provision for claims as a percentage of net premiums written was
approximately 11% for the three and six months ended June 30, 2003 and 2002.
The provision for income taxes was 32% of income before income taxes
for the three months ended June 30, 2003 and 2002. For the six months ended June
30, 2003 and 2002, the provision for income taxes was 32% and 31% of income
before income taxes, respectively. The slight increase in the tax provision
percentage was primarily due to a change in the ratio of tax-exempt investment
income to taxable income.
Liquidity and Capital Resources:
- --------------------------------
Net cash provided by operating activities for the six months ended June
30, 2003, amounted to $4,568,708 compared with $5,216,303 for the same six month
period of 2002. The decrease is primarily the result of an increase in
receivables, an increase in payments of claims, net of recoveries, and a
decrease in accounts payable, offset by an increase in net income.
On June 5, 2000, the Board of Directors of Investors Title Insurance
Company approved Investors Title Insurance Company's purchase of 500,000 shares
of the Company's common stock. Pursuant to this approval, Investors Title
Insurance Company purchased 87,446 shares at an average price of $19.09 per
share. For the six months ended June 30, 2003 and 2002, a total of 36,128 shares
and 829 shares at an average price of $23.09 per share and $18.63 per share,
respectively, were repurchased.
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. For the six months ended June 30, 2003, options for a total of
43,500 shares had been granted. As of August 1, 2003, options for 1,300 shares
had been exercised under this plan.
During the six months ended June 30, 2003, Investors Title Insurance
Company purchased common stock for $834,170 and issued common stock totaling
$303,255 in satisfaction of stock option exercises, stock bonuses and other
stock issuances.
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.
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Safe Harbor Statement
- ---------------------
Except for the historical information presented, the matters disclosed
in the foregoing discussion and analysis and other parts of this report include
forward-looking statements. These statements represent the Company's current
judgment on the future and are subject to risks and uncertainties that could
cause actual results to differ materially. Such factors include, without
limitation: (1) that the demand for title insurance will vary due to factors
beyond the control of the Company such as changes in mortgage interest rates,
availability of mortgage funds, level of real estate activity, cost of real
estate, consumer confidence, supply and demand for real estate, inflation and
general economic conditions; (2) that losses from claims may be greater than
anticipated such that reserves for possible claims are inadequate; (3) that
unanticipated adverse changes in securities markets could result in material
losses on investments made by the Company; and (4) the Company's dependence on
key management personnel, the loss of whom could have a material adverse effect
on the Company's business. Other risks and uncertainties may be described from
time to time in the Company's other reports and filings with the Securities and
Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
The Company's market risk exposure has not changed materially from the
exposure as disclosed in the Company's 2002 Annual Report on Form 10-K.
Item 4. Controls and Procedures
-----------------------
Based on their evaluation of the effectiveness of the Company's
disclosure controls and procedures, the Chief Executive Officer and the Chief
Financial Officer of the Company concluded that, as of June 30, 2003, the
Company's disclosure controls and procedures were effective to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities and Exchange Act of 1934, as amended, was
recorded, processed, summarized and reported within the time periods specified
by the Securities and Exchange Commission's rules and forms. In reaching this
conclusion, the Company's Chief Executive Officer and Chief Financial Officer
determined that the Company's disclosure controls and procedures were effective
in ensuring that such information was accumulated and communicated to the
Company's management to allow timely decisions regarding required disclosure.
There was no change in the Company's internal control over financial
reporting identified in connection with the above-referenced evaluation that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Investors Title Company's Annual Meeting of Shareholders was held on
May 21, 2003. The voting results for the proposal to elect three Directors to
the Company's Board of Directors, each for a three-year term, are as follows:
Broker
For Against Abstentions Withheld Non-votes
--- ------- ----------- -------- ---------
James A. Fine, Jr. 2,260,594 N/A N/A 64,695 N/A
H. Joe King, Jr. 2,322,833 N/A N/A 2,456 N/A
James R. Morton 2,287,685 N/A N/A 37,604 N/A
Item 5. Other Information
-----------------
On April 17, 2003, the Audit Committee of the Company's Board of
Directors voted to engage Deloitte and Touche, LLP to perform audit and tax
services for the Company for the year ending December 31, 2003.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
3(ii) Amended and Restated By-Laws
31(i) Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31(ii) Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(b) Reports on Form 8-K
On April 24, 2003, the Company furnished a report on Form 8-K that
reported under Item 9 that, on April 24, 2003, the Company released
earnings for the quarter ended March 31, 2003.
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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
By: /s/ James A. Fine, Jr.
----------------------
James A. Fine, Jr.
President, Principal Financial Officer and
Principal Accounting Officer
Dated: August 13, 2003
14