[
X ]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
North Carolina
|
56-1110199
|
|
(State
of incorporation)
|
(I.R.S.
Employer Identification No.)
|
PART
I.
|
FINANCIAL
INFORMATION
|
||
|
|||
Consolidated
Balance Sheets
|
||||||||
As
of March 31, 2008 and December 31, 2007
|
||||||||
(Unaudited)
|
||||||||
March
31, 2008
|
December
31, 2007
|
|||||||
Assets
|
||||||||
Investments
in securities:
|
||||||||
Fixed
maturities:
|
||||||||
Held-to-maturity,
at amortized cost (fair value: 2008: $570,093; 2007:
$1,078,229)
|
$ | 556,575 | $ | 1,052,535 | ||||
Available-for-sale,
at fair value (amortized cost: 2008: $79,682,513; 2007:
$89,228,010)
|
81,252,712 | 90,530,946 | ||||||
Equity
securities, available-for-sale, at fair value
|
13,220,924 | 14,586,066 | ||||||
Short-term
investments
|
29,576,039 | 21,222,533 | ||||||
Other
investments
|
2,377,785 | 1,634,301 | ||||||
Total
investments
|
126,984,035 | 129,026,381 | ||||||
Cash
and cash equivalents
|
3,209,422 | 3,000,762 | ||||||
Premiums
and fees receivable, less allowance for doubtful accounts of
|
||||||||
$1,854,000
and $2,170,000 for 2008 and 2007, respectively
|
7,436,409 | 6,900,968 | ||||||
Accrued
interest and dividends
|
1,088,312 | 1,254,641 | ||||||
Prepaid
expenses and other assets
|
1,267,623 | 1,276,806 | ||||||
Property
acquired in settlement of claims
|
278,476 | 278,476 | ||||||
Property,
net
|
5,066,836 | 5,278,891 | ||||||
Deferred
income taxes, net
|
2,551,113 | 2,625,495 | ||||||
Total
Assets
|
$ | 147,882,226 | $ | 149,642,420 | ||||
Liabilities
and Stockholders' Equity
|
||||||||
Liabilities:
|
||||||||
Reserves
for claims (Note 2)
|
$ | 37,079,000 | $ | 36,975,000 | ||||
Accounts
payable and accrued liabilities
|
9,423,111 | 11,236,781 | ||||||
Commissions
and reinsurance payables
|
197,640 | 406,922 | ||||||
Current
income taxes payable
|
579,877 | 1,747,877 | ||||||
Total
liabilities
|
47,279,628 | 50,366,580 | ||||||
Commitments
and Contingencies (Note 8)
|
||||||||
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;
|
||||||||
2,415,020
and 2,411,318 shares issued and outstanding 2008 and 2007,
|
||||||||
respectively,
excluding 291,676 shares for 2008 and 2007
|
||||||||
of
common stock held by the Company's subsidiary)
|
1 | 1 | ||||||
Retained
earnings
|
97,680,946 | 95,739,827 | ||||||
Accumulated
other comprehensive income (Note 3)
|
2,921,651 | 3,536,012 | ||||||
Total
stockholders' equity
|
100,602,598 | 99,275,840 | ||||||
Total
Liabilities and Stockholders' Equity
|
$ | 147,882,226 | $ | 149,642,420 |
Consolidated
Statements of Income
|
||||||||
For
the Three Months Ended March 31, 2008 and 2007
|
||||||||
(Unaudited)
|
||||||||
2008
|
2007
|
|||||||
Revenues:
|
||||||||
Underwriting
income:
|
||||||||
Premiums
written
|
$ | 17,903,762 | $ | 16,874,977 | ||||
Less-premiums
for reinsurance ceded
|
90,402 | 82,435 | ||||||
Net
premiums written
|
17,813,360 | 16,792,542 | ||||||
Investment
income - interest and dividends
|
1,279,359 | 1,209,607 | ||||||
Net
realized gain on sales of investments
|
118,569 | 166,180 | ||||||
Exchange
services revenue (Note 5)
|
404,698 | 1,245,479 | ||||||
Other
|
1,244,933 | 919,961 | ||||||
Total
Revenues
|
20,860,919 | 20,333,769 | ||||||
Operating
Expenses:
|
||||||||
Commissions
to agents
|
7,319,270 | 6,845,288 | ||||||
Provision
for claims (Note 2)
|
2,048,596 | 1,809,433 | ||||||
Salaries,
employee benefits and payroll taxes (Note 6)
|
5,497,936 | 5,274,375 | ||||||
Office
occupancy and operations
|
1,364,252 | 1,436,123 | ||||||
Business
development
|
485,451 | 523,182 | ||||||
Filing
fees and taxes, other than payroll and income
|
192,629 | 165,213 | ||||||
Premium
and retaliatory taxes
|
367,337 | 441,920 | ||||||
Professional
and contract labor fees
|
521,409 | 645,010 | ||||||
Other
|
238,659 | 222,011 | ||||||
Total
Operating Expenses
|
18,035,539 | 17,362,555 | ||||||
Income
Before Income Taxes
|
2,825,380 | 2,971,214 | ||||||
Provision
For Income Taxes
|
701,000 | 649,000 | ||||||
Net
Income
|
$ | 2,124,380 | $ | 2,322,214 | ||||
Basic
Earnings Per Common Share (Note 4)
|
$ | 0.88 | $ | 0.93 | ||||
Weighted
Average Shares Outstanding - Basic (Note 4)
|
2,412,499 | 2,499,035 | ||||||
Diluted
Earnings Per Common Share (Note 4)
|
$ | 0.87 | $ | 0.92 | ||||
Weighted
Average Shares Outstanding - Diluted (Note 4)
|
2,437,195 | 2,535,858 | ||||||
Cash
Dividends Paid Per Common Share
|
$ | 0.07 | $ | 0.06 | ||||
See
notes to Consolidated Financial Statements.
|
Consolidated
Statements of Stockholders' Equity
|
||||||||||||||||||||
For
the Three Months Ended March 31, 2008 and 2007
|
||||||||||||||||||||
(Unaudited)
|
||||||||||||||||||||
Accumulated
|
Total
|
|||||||||||||||||||
Common
Stock
|
Retained
|
Other
Comprehensive
|
Stockholders'
|
|||||||||||||||||
Shares
|
Amount
|
Earnings
|
Income
|
Equity
|
||||||||||||||||
Balance,
December 31, 2006
|
2,507,325 | $ | 1 | $ | 92,134,608 | $ | 3,141,054 | $ | 95,275,663 | |||||||||||
Net
income
|
2,322,214 | 2,322,214 | ||||||||||||||||||
Dividends
($.06 per share)
|
(149,181 | ) | (149,181 | ) | ||||||||||||||||
Shares
of common stock repurchased and retired
|
(23,443 | ) | (1,199,858 | ) | (1,199,858 | ) | ||||||||||||||
Issuance
of common stock in payment of
|
||||||||||||||||||||
bonuses
and fees
|
40 | 1,999 | 1,999 | |||||||||||||||||
Stock
options exercised
|
2,430 | 85,488 | 85,488 | |||||||||||||||||
Share-based
compensation expense
|
18,148 | 18,148 | ||||||||||||||||||
Net
unrealized loss on investments
|
(104,668 | ) | (104,668 | ) | ||||||||||||||||
Balance,
March 31, 2007
|
2,486,352 | $ | 1 | $ | 93,213,418 | $ | 3,036,386 | $ | 96,249,805 | |||||||||||
Balance,
December 31, 2007
|
2,411,318 | $ | 1 | $ | 95,739,827 | $ | 3,536,012 | $ | 99,275,840 | |||||||||||
Net
income
|
2,124,380 | 2,124,380 | ||||||||||||||||||
Dividends
($.07 per share)
|
(169,134 | ) | (169,134 | ) | ||||||||||||||||
Shares
of common stock repurchased and retired
|
(4,148 | ) | (183,444 | ) | (183,444 | ) | ||||||||||||||
Issuance
of common stock in payment of
|
||||||||||||||||||||
bonuses
and fees
|
40 | 1,946 | 1,946 | |||||||||||||||||
Stock
options exercised
|
7,810 | 142,865 | 142,865 | |||||||||||||||||
Share-based
compensation expense
|
24,506 | 24,506 | ||||||||||||||||||
Amortization
related to FASB Statement No. 158
|
3,364 | 3,364 | ||||||||||||||||||
Net
unrealized loss on investments
|
(617,725 | ) | (617,725 | ) | ||||||||||||||||
Balance,
March 31, 2008
|
2,415,020 | $ | 1 | $ | 97,680,946 | $ | 2,921,651 | $ | 100,602,598 | |||||||||||
See
notes to Consolidated Financial Statements.
|
Consolidated
Statements of Cash Flows
|
||||||||
For
the Three Months Ended March 31, 2008 and 2007
|
||||||||
(Unaudited)
|
||||||||
2008
|
2007
|
|||||||
Operating
Activities:
|
||||||||
Net
income
|
$ | 2,124,380 | $ | 2,322,214 | ||||
Adjustments
to reconcile net income to net cash
|
||||||||
provided
by (used in) operating activities:
|
||||||||
Depreciation
|
277,325 | 319,642 | ||||||
Amortization
on investments, net
|
79,731 | 64,749 | ||||||
Amortization
of prior service cost
|
5,097 | - | ||||||
Issuance
of common stock in payment of bonuses and fees
|
1,946 | 1,999 | ||||||
Share-based
compensation expense related to stock options
|
24,506 | 18,148 | ||||||
Benefit
for losses on premiums receivable
|
(316,000 | ) | (110,000 | ) | ||||
Net
loss on disposals of property
|
1,999 | 238 | ||||||
Net
realized gain on sales of investments
|
(118,569 | ) | (166,180 | ) | ||||
Provision
for claims
|
2,048,596 | 1,809,433 | ||||||
Provision
for deferred income taxes
|
389,000 | 275,000 | ||||||
Changes
in assets and liabilities:
|
||||||||
(Increase)
decrease in receivables and other assets
|
(126,848 | ) | 29,141 | |||||
Decrease
in accounts payable and accrued liabilities
|
(1,830,787 | ) | (1,329,564 | ) | ||||
Decrease
in commissions and reinsurance payables
|
(209,282 | ) | (227,851 | ) | ||||
Increase
(decrease) in current income taxes payable
|
(1,168,000 | ) | 7,449 | |||||
Payments
of claims, net of recoveries
|
(1,944,596 | ) | (1,582,433 | ) | ||||
Net
cash provided by (used in) operating activities
|
(761,502 | ) | 1,431,985 | |||||
Investing
Activities:
|
||||||||
Purchases
of available-for-sale securities
|
(1,612,212 | ) | (22,031,619 | ) | ||||
Purchases
of short-term securities
|
(9,226,978 | ) | (123,336 | ) | ||||
Purchases
of and net earnings (losses) from other investments
|
(666,742 | ) | (245,213 | ) | ||||
Proceeds
from sales and maturities of available-for-sale securities
|
11,195,611 | 19,510,904 | ||||||
Proceeds
from maturities of held-to-maturity securities
|
505,000 | 2,000 | ||||||
Proceeds
from sales and maturities of short-term securities
|
873,472 | 2,461,368 | ||||||
Proceeds
from sales and distributions of other investments
|
78,958 | 95,480 | ||||||
Purchases
of property
|
(67,269 | ) | (97,965 | ) | ||||
Proceeds
from disposals of property
|
- | 1,600 | ||||||
Net
change in pending trades
|
100,035 | 214,404 | ||||||
Net
cash provided by (used) in investing activities
|
1,179,875 | (212,377 | ) | |||||
Financing
Activities:
|
||||||||
Repurchases
of common stock, net
|
(183,444 | ) | (1,199,858 | ) | ||||
Exercise
of options
|
142,865 | 85,488 | ||||||
Dividends
paid
|
(169,134 | ) | (149,181 | ) | ||||
Net
cash used in financing activities
|
(209,713 | ) | (1,263,551 | ) | ||||
Net
increase (decrease) in Cash and Cash Equivalents
|
208,660 | (43,943 | ) | |||||
Cash
and Cash Equivalents, Beginning of Period
|
3,000,762 | 3,458,432 | ||||||
Cash
and Cash Equivalents, End of Period
|
$ | 3,209,422 | $ | 3,414,489 | ||||
Supplemental
Disclosures:
|
||||||||
Cash
Paid During the Period for:
|
||||||||
Income
taxes, net of refunds
|
$ | 1,480,000 | $ | 367,000 | ||||
Non
cash net unrealized (gain) loss on investments, net of deferred
tax
|
||||||||
provision
of $316,351 and $53,240 for 2008 and 2007,
respectively
|
$ | 617,725 | $ | 104,668 | ||||
See
notes to Consolidated Financial Statements.
|
March
31, 2008
|
December
31, 2007
|
|||||||
Balance,
beginning of period
|
$ | 36,975,000 | $ | 36,906,000 | ||||
Provision,
charged to operations
|
2,048,596 | 10,134,719 | ||||||
Payments
of claims, net of recoveries
|
(1,944,596 | ) | (10,065,719 | ) | ||||
Ending
balance
|
$ | 37,079,000 | $ | 36,975,000 |
Note 3 - Comprehensive
Income
|
Three
Months Ended
March 31,
2008
|
Title
Insurance
|
Exchange
Services
|
All
Other
|
Intersegment
Eliminations
|
Total
|
|||||||||||||||
Operating
revenues
|
$ | 18,369,966 | $ | 404,698 | $ | 880,338 | $ | (192,011 | ) | $ | 19,462,991 | |||||||||
Investment
income
|
949,459 | 8,009 | 342,308 | (20,417 | ) | 1,279,359 | ||||||||||||||
Net
realized gain on
sales
of investments
|
118,382 | 99 | 88 | - | 118,569 | |||||||||||||||
Total
revenues
|
$ | 19,437,807 | $ | 412,806 | $ | 1,222,734 | $ | (212,428 | ) | $ | 20,860,919 | |||||||||
Operating
expenses
|
16,831,105 | 313,088 | 1,083,357 | (192,011 | ) | 18,035,539 | ||||||||||||||
Income
before
income
taxes
|
$ | 2,606,702 | $ | 99,718 | $ | 139,377 | $ | (20,417 | ) | $ | 2,825,380 | |||||||||
Assets
|
$ | 110,965,278 | $ | 1,362,970 | $ | 35,553,978 | $ | - | $ | 147,882,226 |
Three
Months Ended
March 31,
2007
|
Title
Insurance
|
Exchange
Services
|
All
Other
|
Intersegment
Eliminations
|
Total
|
|||||||||||||||
Operating
revenues
|
$ | 17,167,046 | $ | 1,245,479 | $ | 747,778 | $ | (202,321 | ) | $ | 18,957,982 | |||||||||
Investment
income
|
1,003,330 | 9,213 | 214,565 | (17,501 | ) | 1,209,607 | ||||||||||||||
Net
realized gain on
sales
of investments
|
166,180 | - | - | - | 166,180 | |||||||||||||||
Total
revenues
|
$ | 18,336,556 | $ | 1,254,692 | $ | 962,343 | $ | (219,822 | ) | $ | 20,333,769 | |||||||||
Operating
expenses
|
16,253,033 | 415,503 | 896,340 | (202,321 | ) | 17,362,555 | ||||||||||||||
Income
before
income
taxes
|
$ | 2,083,523 | $ | 839,189 | $ | 66,003 | $ | (17,501 | ) | $ | 2,971,214 | |||||||||
Assets
|
$ | 114,307,805 | $ | 893,005 | $ | 28,280,781 | $ | - | $ | 143,481,591 |
For
the Three
Months
Ended
March
31, 2008
|
For
the Three
Months
Ended
March
31, 2007
|
|||||||
Service
cost – benefits earned during the year
|
$ | 4,334 | $ | 3,494 | ||||
Interest
cost on the projected benefit obligation
|
4,761 | 3,662 | ||||||
Amortization
of unrecognized prior service cost
|
5,097 | 5,097 | ||||||
Amortization
of unrecognized gains
|
- | (651 | ) | |||||
Net
periodic benefits costs
|
$ | 14,192 | $ | 11,602 |
Available-for-sale
securities
|
Carrying
Balance
|
Level
1
|
Level
2
|
|||||||||
Fixed
maturities
|
$ | 81,252,712 | $ | - | $ | 81,252,712 | ||||||
Equity
|
13,220,924 | 13,220,924 | - | |||||||||
Total
|
$ | 94,473,636 | $ | 13,220,924 | $ | 81,252,712 |
Title
Insurance: Investors Title Company (the "Company")
engages primarily in two segments of business. Its primary business
activity is the issuance of title insurance through two subsidiaries,
Investors Title Insurance Company ("ITIC") and Northeast Investors Title
Insurance Company ("NE-ITIC"), which accounted for 94.4% of the Company’s
operating revenues in the first quarter of 2008. Through ITIC and NE-ITIC,
the Company underwrites land title insurance for owners and mortgagees as
a primary insurer. Title insurance protects against loss or damage
resulting from title defects that affect real
property.
|
There
are two basic types of title insurance policies - one for the mortgage
lender and one for the real estate owner. A lender often
requires property owners to purchase title insurance to protect its
position as a holder of a mortgage loan, but the lender's title insurance
policy does not protect the property owner. The property owner
has to purchase a separate owner's title insurance policy to protect their
investment. When real property is conveyed from one party to
another, occasionally there is an undisclosed defect in the title or a
mistake or omission in a prior deed, will or mortgage that may give a
third party a legal claim against such property. If a claim is
made against real property, title insurance provides indemnification
against insured defects. The title insurer has the option to
retain counsel and pay the legal expenses to eliminate or defend against
any title defects, pay any third party claims arising from errors in title
examination and recording or pay the insured’s actual losses, up to policy
limits, arising from defects in title as defined in the
policy.
|
2008
|
%
|
2007
|
%
|
|||||||||||||
Branch
|
$ | 7,351,295 | 41 | $ | 7,133,311 | 42 | ||||||||||
Agency
|
10,462,065 | 59 | 9,659,231 | 58 | ||||||||||||
Total
|
$ | 17,813,360 | 100 | $ | 16,792,542 | 100 |
Total
premiums written were positively impacted primarily by an increase in the
Company’s agency business. Agency net premiums written
increased 8.3% and 8.5% for the three months ended March 31, 2008 and
2007, respectively, compared with the prior years, as a result of
additional business written by the Company’s agencies and additional
agencies.
|
Following
is a schedule of premiums written for the three months ended March 31,
2008 and 2007 in all states in which the Company’s two insurance
subsidiaries currently underwrite
insurance:
|
2008
|
2007
|
|||||||
Illinois
|
$ | 589,969 | $ | 388,957 | ||||
Kentucky
|
816,810 | 549,690 | ||||||
Maryland
|
267,824 | 286,871 | ||||||
Michigan
|
1,045,827 | 779,325 | ||||||
New
York
|
512,198 | 506,759 | ||||||
North
Carolina
|
8,948,667 | 7,913,473 | ||||||
Pennsylvania
|
443,129 | 326,654 | ||||||
South
Carolina
|
1,903,380 | 1,716,400 | ||||||
Tennessee
|
541,674 | 649,390 | ||||||
Virginia
|
1,521,794 | 1,560,504 | ||||||
West
Virginia
|
470,898 | 467,925 | ||||||
Other
States
|
745,248 | 1,722,099 | ||||||
Direct
Premiums
|
17,807,418 | 16,868,047 | ||||||
Reinsurance
Assumed
|
96,344 | 6,930 | ||||||
Reinsurance
Ceded
|
(90,402 | ) | (82,435 | ) | ||||
Net
Premiums
|
$ | 17,813,360 | $ | 16,792,542 |
2008
|
%
|
2007
|
%
|
|||||||||||||
Title
insurance
|
$ | 16,663,993 | 92 | $ | 16,076,028 | 93 | ||||||||||
Exchange
services
|
299,167 | 2 | 399,689 | 2 | ||||||||||||
All
other
|
1,072,379 | 6 | 886,838 | 5 | ||||||||||||
$ | 18,035,539 | 100 | $ | 17,362,555 | 100 |
·
|
the
demand for title insurance will vary over time due to factors such as the
level of real estate transactions, the level of mortgage origination
volumes including refinancing and changes to the insurance requirements of
participants in the secondary mortgage
market;
|
·
|
significant
changes to applicable government
regulations;
|
·
|
losses
from claims may be greater than anticipated such that reserves for
possible claims are inadequate and may adversely affect the Company’s
financial results;
|
·
|
heightened
regulatory scrutiny;
|
·
|
unanticipated
adverse changes in securities markets including interest rates, could
result in material losses on the Company’s
investments;
|
·
|
the
Company’s dependence on key management personnel, the loss of whom could
have a material adverse affect on the Company’s
business;
|
·
|
the
Company’s ability to develop and offer products and services that meet
changing industry standards in a timely and cost-effective
manner;
|
·
|
the
requirement by state statutes of the Company’s insurance subsidiaries to
maintain minimum levels of capital, surplus and reserves and restrict the
amount of dividends that the insurance subsidiaries may pay to the Company
without prior regulatory approval
and
|
·
|
the
concentration of key accounting and information systems in a few
locations.
|
(a)
|
None
|
(b)
|
None
|
(c)
|
The
following table provides information about purchases by the Company during
the quarter ended March 31, 2008 of equity securities that are registered
by the Company pursuant to Section 12 of the Exchange
Act:
|
Period
|
Total
Number of
Shares
Purchased
|
Average
Price
Paid
per Share
|
Total
Number of
Shares
Purchased as
Part
of Publicly
Announced
Plan
|
Maximum
Number
of Shares
that
May Yet Be
Purchased
Under
the
Plan
|
|||
Beginning
of
period
|
235,336 | ||||||
01/01/08
–
01/31/08
|
680
|
$37.25
|
680
|
234,656
|
|||
02/01/08
–
02/29/08
|
-
|
-
|
-
|
234,656
|
|||
03/01/08
–
03/31/08
|
3,468
|
$45.59
|
3,468
|
231,188
|
|||
Total:
|
4,148
|
$44.22
|
4,148
|
231,188
|
|
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
|
INVESTORS TITLE COMPANY | |||
By: |
/s/
James
A. Fine, Jr.
|
||
James
A. Fine, Jr.
|
|||
President,
Principal Financial Officer and
|
|||
Principal
Accounting Officer
|
|||
Dated:
May 9, 2008
|