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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
[_] 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
121 North Columbia Street, Chapel Hill, North Carolina 27514
(Address of principal executive offices)
Registrant's telephone number, including area code: (919) 968-2200
Securities registered pursuant to section 12(g) of the Act:
Common Stock, no par value None
(Title of each class) (Name of the exchange on which registered)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. ___
On February 28, 2002 the aggregate market value of the voting and nonvoting
common equity held by nonaffiliates of the registrant was $36,140,398.
On February 28, 2002 the number of common shares outstanding was 2,516,298.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
---------- --------------------
Portions of Annual Report to Shareholders Part I, Items 1 and 2
for fiscal year ended December 31, 2001 Part II, Items 5 - 8
Part IV, Item 14
Portions of Proxy Statement (in connection with Annual Meeting Part III, Items 10 - 13
to be held on May 15, 2002)
INVESTORS TITLE COMPANY AND SUBSIDIARIES
INDEX
PART I.
Item 1. Business .................................................................. 3
Item 2. Properties ................................................................ 9
Item 3. Legal Proceedings ......................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders ....................... 9
Item 4A. Executive Officers of the Company ......................................... 9
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ..... 11
Item 6. Selected Financial Data ................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations ............................................................. 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................ 11
Item 8. Financial Statements and Supplementary Data ............................... 11
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial
Disclosures ............................................................... 12
PART III.
Item 10. Directors and Executive Officers of the Registrant ........................ 12
Item 11. Executive Compensation .................................................... 12
Item 12. Security Ownership of Certain Beneficial Owners and Management ............ 12
Item 13. Certain Relationships and Related Transactions ............................ 12
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......... 13
Signatures .......................................................................... 16
2
PART I
ITEM 1. BUSINESS
GENERAL
- -------
Investors Title Company ("the Company") is a holding company which was
incorporated in the State of North Carolina in February 1973. The Company became
operational June 24, 1976 when it acquired as a wholly owned subsidiary
Investors Title Insurance Company, a North Carolina corporation ("ITIC"), under
a plan of exchange of shares of common stock. On September 30, 1983, the Company
acquired as a wholly owned subsidiary Northeast Investors Title Insurance
Company ("NE-ITIC"), formerly Investors Title Insurance Company of South
Carolina, a South Carolina corporation, under a plan of exchange of shares of
common stock. In 1988, the Company established Investors Title Exchange
Corporation, a wholly owned subsidiary ("ITEC"). In 1994, the Company
established South Carolina Document Preparation Company, a wholly owned
subsidiary ("SCDP"). In the first quarter of 2001, SCDP was renamed Investors
Title Accommodation Corporation ("ITAC"). The Company's executive offices are at
121 North Columbia Street, Chapel Hill, North Carolina 27514. The Company's
telephone number is (919) 968-2200.
The Company engages primarily in two segments of business. The main
business activity is the issuance of title insurance through two title insurance
subsidiaries, ITIC and NE-ITIC. The second segment provides tax-free exchange
services through the Company's subsidiaries, ITEC and ITAC. See Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Note 13 of Notes to Consolidated Financial Statements in the 2001 Annual Report
to Shareholders incorporated by reference in this Form 10-K Annual Report for
additional information related to the Company's operating segments.
Title Insurance
---------------
Through its two wholly owned title insurance subsidiaries, ITIC and
NE-ITIC, the Company underwrites land title insurance for owners and mortgagees
as a primary insurer and as a reinsurer for other title insurance companies.
ITIC was incorporated in the State of North Carolina on January 28, 1972,
and became licensed to write title insurance in the State of North Carolina on
February 1, 1972. Since that date it has primarily written land title insurance
as a primary insurer and as a reinsurer in the States of North Carolina and
South Carolina. ITIC is the leading title insurer of North Carolina property and
has held this position of most premiums written for eighteen years based on
amounts reported to the North Carolina Department of Insurance. In addition, the
Company writes title insurance through issuing agents or branch offices in the
States of Alabama, Florida, Georgia, Indiana, Iowa, Kentucky, Maryland,
Michigan, Minnesota, Mississippi, Nebraska, Ohio, Pennsylvania, Tennessee,
Virginia, West Virginia and Wisconsin. Agents issue policies for ITIC and may
also perform other services such as acting as escrow agents.
ITIC is also licensed to write title insurance in the District of Columbia
and the States of Arizona, Arkansas, Colorado, Connecticut, Delaware, Idaho,
Illinois, Kansas, Louisiana, Maine,
3
Massachusetts, Missouri, Montana, Nevada, New Jersey, North Dakota, Oklahoma,
Rhode Island, Texas, Utah, Vermont and Wyoming.
NE-ITIC was incorporated in the State of South Carolina on February 23,
1973, and became licensed to write title insurance in that State on November 1,
1973. It currently writes title insurance as a primary insurer and as a
reinsurer in the State of New York.
Title insurance guarantees owners, mortgagees, and others with a lawful
interest in real property against loss by reason of encumbrances and defective
title to such property. The commitments and policies issued are the standard
American Land Title Association approved forms. Title insurance policies do not
insure against future risks. Most other types of insurance protect against
losses and events in the future.
In the State of North Carolina, ITIC issues title insurance commitments and
policies through its home office and branch offices. ITIC has 27 branch offices
in North Carolina.
In the ordinary course of business, ITIC and NE-ITIC reinsure certain risks
with other title insurers for the purpose of limiting their exposure and also
assume reinsurance for certain risks of other title insurers for which they
receive additional income. For the last three years, reinsurance activities
accounted for less than 1% of total premium volume.
ITIC currently has a risk retention limit of $2,000,000, meaning it assumes
primary risks up to $2,000,000. It then reinsures the next $250,000 of risk with
NE-ITIC, and all risks above $2,250,000 are then reinsured with a non-related
reinsurer.
NE-ITIC currently has a risk retention limit of $250,000, meaning it
assumes primary risks up to $250,000. It then reinsures the next $2,000,000 of
risk with ITIC, and reinsures all amounts above $2,250,000 with a non-related
reinsurer.
Both ITIC and NE-ITIC's risk retention limits are self-imposed and are more
conservative than state insurance regulations require. ITIC's self-imposed
retention of $2,000,000 is only 17.2% of its statutorily permitted retention of
$11,599,621. NE-ITIC's self-imposed retention of $250,000 is only 16.4% of its
statutorily permitted retention of $1,520,039.
ITIC's financial stability has been recognized by two Fannie Mae approved
actuarial firms with rating categories of "A Double Prime - unsurpassed
financial stability" and "A - strong overall financial condition."
NE-ITIC's financial stability has been recognized by two Fannie Mae
approved actuarial firms with rating categories of "A Prime - unsurpassed
financial stability" and "A - strong overall financial condition."
Exchange Services
-----------------
In 1988, the Company established Investors Title Exchange Corporation, a
wholly owned subsidiary ("ITEC"), to provide services in connection with
tax-free exchanges of like-kind property. ITEC acts as an intermediary in
tax-free exchanges of property held for
4
productive use in a trade or business or for investments, and its income is
derived from fees for handling exchange transactions.
In the first quarter of 2001, South Carolina Document Preparation Company,
a wholly owned subsidiary, changed its name to Investors Title Accommodation
Corporation ("ITAC"). ITAC serves as exchange accommodation titleholder,
offering a vehicle for accomplishing a reverse exchange when a taxpayer must
acquire replacement property before selling the relinquished property.
OPERATIONS OF SUBSIDIARIES
- --------------------------
For a description of Net Premiums Written geographically, refer to the
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the 2001 Annual Report to Shareholders incorporated by reference
in this Form 10-K Annual Report.
Title Insurance
---------------
ITIC and NE-ITIC offer primary title insurance coverage to owners and
mortgagees of real estate and reinsurance of title insurance risks to other
title insurance companies. Title insurance premiums written are for a one-time
initial payment, with no recurring premiums. See Note 13 of Notes to
Consolidated Financial Statements in the 2001 Annual Report to Shareholders
incorporated by reference in this Form 10-K Annual Report for additional
information related to the Company's operating segments.
Exchange Services
-----------------
ITEC and ITAC offer services in connection with tax-free exchanges. See
Note 13 of Notes to Consolidated Financial Statements in the 2001 Annual Report
to Shareholders incorporated by reference in this Form 10-K Annual Report for
additional information related to the Company's operating segments.
SEASONALITY
- -----------
Title Insurance
---------------
Title insurance premiums are closely related to the level of real estate
activity and the average price of real estate sales. The availability of funds
to finance purchases directly affects real estate sales. Other factors include
consumer confidence, economic conditions, supply and demand, mortgage interest
rates and family income levels. Historically, the first quarter has the least
real estate activity, while the remaining quarters are more active. Fluctuations
in mortgage interest rates can cause shifts in real estate activity outside of
the normal seasonal pattern.
Exchange Services
-----------------
Seasonal factors affecting the level of real estate activity and the volume
of title premiums written will also affect the demand for exchange services.
5
MARKETING
- ---------
Title Insurance
---------------
ITIC's marketing plan is based upon providing fast and efficient service in
the delivery of title insurance coverage through a home office, branch offices,
and issuing agents. In North Carolina, ITIC operates through a home office and
27 branch offices. In South Carolina, ITIC operates through a branch office and
issuing agents located conveniently to customers throughout the State. ITIC also
writes title insurance policies through issuing agents and branch offices in
Alabama, Florida, Georgia, Indiana, Iowa, Kentucky, Maryland,
Michigan, Minnesota, Mississippi, Nebraska, Ohio, Pennsylvania, Tennessee,
Virginia, West Virginia and Wisconsin.
NE-ITIC currently operates through agency offices in the State of New York.
ITIC and NE-ITIC strive to provide superior service to their customers and
consider this an important factor in attracting and retaining customers. Branch
and corporate personnel strive to develop new business relationships to increase
market share. A Commercial Services Division established in the first quarter of
2001 provides services to commercial clients. The Company's marketing efforts
are also enhanced through advertising in various periodicals.
Exchange Services
-----------------
Marketing of exchange services offered by ITEC and ITAC has been
increasingly incorporated into the marketing of the core title products offered
by ITIC and NE-ITIC. ITEC and ITAC are also promoted through the marketing
efforts of this division. The Commercial Services Division, established through
ITIC, also markets the services offered by ITEC and ITAC to their commercial
clients.
CUSTOMERS
- ---------
The Company is not dependent upon any single customer, the loss of which
could have a material effect on the Company.
RESERVES
- --------
The reserves for claims for financial reporting purposes are established
based on criteria discussed in Notes 1 and 6 of Notes to Consolidated Financial
Statements in the 2001 Annual Report to Shareholders incorporated by reference
in this Form 10-K Annual Report.
REGULATIONS
- -----------
Title insurance companies are extensively regulated under applicable state
laws. The regulatory authorities possess broad powers with respect to the
licensing of title insurers and agents, rates, investments, policy forms,
financial reporting, reserve requirements, dividend restrictions as well as
examinations and audits of title insurers. The Company's two insurance
subsidiaries are subject to examination at any time by the insurance regulators
in the states where
6
they are licensed.
ITIC is domiciled in North Carolina and subject to North Carolina state
insurance regulations. Financial examinations are scheduled every five years by
the North Carolina Department of Insurance. ITIC was last examined by the North
Carolina Department of Insurance for the period January 1, 1995 through December
31, 1999. The final report is still pending.
NE-ITIC is domiciled in South Carolina and subject to South Carolina state
insurance regulations. Financial examinations are scheduled periodically by the
South Carolina Department of Insurance. NE-ITIC was examined by the South
Carolina Department of Insurance for the period January 1, 1998 through December
31, 2000. No material deficiencies were noted in the report dated December 19,
2001.
In addition to financial examinations, both ITIC and NE-ITIC are subject to
market conduct examinations. These audits examine domiciled state activity.
ITIC's last market conduct examination commenced on April 19, 1999 for the
period January 1, 1996 through December 31, 1998 with no material deficiencies
noted. NE-ITIC's last market conduct examination coincided with the financial
examination, which commenced on November 19, 2001 for the period January 1, 1998
through December 31, 2000. No material deficiencies were noted for NE-ITIC by
the market conduct examiners.
In accordance with the insurance laws and regulations applicable to title
insurance in the State of North Carolina, ITIC has established and maintains a
statutory premium reserve for the protection of policyholders. For years prior
to 1999, ITIC reserved an amount equal to 10% of current year premiums written
and reduced such amounts annually by 5%. For years after 1998, 10% of direct
premiums written plus premiums for reinsurance assumed less premiums for
reinsurance ceded is reserved and reduced annually, over a period of 20 years,
as follows: 20% the first year, 10% the second and third year, 5% for years four
through ten, 3% for years eleven through fifteen, and 2% for years sixteen
through twenty.
NE-ITIC has established and maintains a statutory premium reserve as
required by the insurance laws and regulations of the State of New York. A $1.50
for each risk assumed under a policy or commitment plus one-eightieth of one
percent of the face amount of each commitment or policy, reduced by that portion
of the reserve established 15 years earlier are accumulated in a statutory
premium reserve for years up to 1985. In subsequent years, the addition to the
reserve is calculated in the same manner but is reduced annually by 5%.
These statutory premium reserve additions are not charged to operations for
financial reporting purposes and changes in the statutory premium reserve have
no effect on net income of the Company or its subsidiaries for financial
reporting purposes.
The Company is an insurance holding company, and is also subject to
regulation in the states in which its insurance subsidiaries do business. These
regulations, among other things, require insurance holding companies to register
and file certain reports and require prior regulatory approval of intercorporate
transfers including, in some instances, the payment of shareholders' dividends
by the insurance subsidiaries. All states set requirements for admission
7
to do business, including minimum levels of capital and surplus. State insurance
departments have broad administrative powers and monitor the stability and
service of insurance companies.
In addition to the financial statements which are required to be filed as
part of this report and are prepared on the basis of generally accepted
accounting principles, the Company's insurance subsidiaries also prepare
financial statements in accordance with statutory accounting principles
prescribed or permitted by state regulations. Based upon the latter principles,
as of December 31, 2001, ITIC reported $28,999,052 of capital and surplus, and
net income of $4,601,747; and NE-ITIC reported $3,040,078 of capital and
surplus, and net income of $166,820.
Both ITIC and NE-ITIC meet the minimum capital and surplus requirements of
the states in which they are licensed.
COMPETITION
- -----------
Title Insurance
---------------
ITIC currently operates primarily in Michigan, North Carolina,
Pennsylvania, South Carolina and Virginia. ITIC's major competitors are Chicago
Title Insurance Company, Commonwealth Land Title Insurance Company, Fidelity
National Title Insurance Company, First American Title Insurance Company,
Lawyers Title Insurance Corporation, Old Republic National Title Insurance
Company and Stewart Title Guaranty Company. Key elements that affect competition
are price, expertise, timeliness and quality of service and the financial
strength and size of the insurer.
Exchange Services
-----------------
Competition for ITEC and ITAC comes from other title insurance companies as
well as some major banks that offer exchange services.
INVESTMENTS
- -----------
The Company and its subsidiaries derive a substantial portion of their
income from investments in bonds (municipal and corporate) and equity
securities. The investment policy is designed to maintain a high quality
portfolio and maximize income. Some state laws impose restrictions upon the
types and amounts of investments that can be made by the Company's insurance
subsidiaries.
See Note 3 of Notes to Consolidated Financial Statements in the 2001 Annual
Report to Shareholders incorporated by reference in this Form 10-K Annual Report
for the major categories of investments, earnings by investment categories,
scheduled maturities, amortized cost, and market values of investment
securities.
EMPLOYEES
- ---------
The Company has no paid employees. NE-ITIC had one full-time paid employee
as of
8
December 31, 2001. Officers of the Company are full-time paid employees of ITIC,
which had 179 full-time employees and 16 part-time employees as of December 31,
2001.
TRADEMARK
- ---------
The Company's subsidiary, ITIC, registered its logo with the U.S.
Patent-Trademark Office in February 1987. The loss of that registration, in the
Company's opinion, would not materially affect its business.
ITEM 2. PROPERTIES
The Company owns the office building and property located on the corner of
North Columbia and West Rosemary Streets in Chapel Hill, North Carolina, which
serves as the Company's corporate headquarters. The building contains
approximately 23,000 square feet. The Company's principal subsidiary, ITIC,
leases office space in 29 locations throughout North Carolina, South Carolina
and Michigan. NE-ITIC leases office space in one location in New York.
The Company also owns several parcels and one building adjacent to the
Company's facility.
See Note 9 of Notes to Consolidated Financial Statements in the 2001 Annual
Report to Shareholders incorporated by reference in this Form 10-K Annual Report
for the amounts of future minimum lease payments. Each of the office facilities
occupied by the Company and its subsidiaries are in good condition and adequate
for present operations.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in litigation on a number of
claims which arise in the normal course of business, none of which, in the
opinion of management are expected to have a material adverse effect on the
Company's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 2001.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
IDENTIFICATION OF EXECUTIVE OFFICERS
- ------------------------------------
The following table sets forth the executive officers of the Company as of
December 31, 2001. Each officer is appointed at the annual meeting of the Board
of Directors to serve until the next annual meeting of the board or until his or
her respective successor has been elected.
9
Position with Officer
Name Age Registrant Since
- ---- --- ---------- -----
J. Allen Fine 67 Chairman, 1973
Director and
CEO
James A. Fine, Jr. 39 President, Director 1987
and Treasurer
W. Morris Fine 35 Executive Vice 1992
President, Director
and Secretary
J. Allen Fine, Chief Executive Officer and Chairman of the Board of
Directors, is the father of James A. Fine, Jr., President, Treasurer and
Director of the Company, and W. Morris Fine, Executive Vice President, Secretary
and Director of the Company.
The business experience of the Executive Officers of the Company is set
forth below:
J. Allen Fine has been Chief Executive Officer and Chairman of the Board of the
- -------------
Company since its incorporation. Mr. Fine also served as President of the
Company until May 1997. Mr. Fine is the father of James A. Fine, Jr., President,
Treasurer and Director of the Company, and W. Morris Fine, Executive Vice
President, Secretary and Director of the Company.
James A. Fine, Jr. was named Vice President of the Company in 1987. In 1997, Mr.
- ------------------
Fine was named President and Treasurer and appointed a Director of the Company.
James A. Fine, Jr. is the son of J. Allen Fine, Chief Executive Officer and
Chairman of the Board of the Company, and brother of W. Morris Fine, Executive
Vice President, Secretary and Director of the Company.
W. Morris Fine was named Vice President of the Company in 1992. In 1993, Mr.
- --------------
Fine was named Treasurer of the Company and served in that capacity until 1997.
In 1997, Mr. Fine was named Executive Vice President and Secretary of the
Company. In 1999, he was appointed Director of the Company. Morris Fine is the
son of J. Allen Fine, Chief Executive Officer and Chairman of the Board of the
Company, and brother of James A. Fine, Jr., President, Treasurer and Director of
the Company.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The high and low sales prices for the common stock on NASDAQ and the
dividends paid per common share for each quarter in the last two fiscal years
are indicated under "Shareholder Information" in the 2001 Annual Report to
Shareholders incorporated by reference in this Form 10-K Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31, 2001 is
set forth under the caption "Financial Highlights" in the 2001 Annual Report to
Shareholders and is incorporated by reference in this Form 10-K Annual Report.
The information should be read in conjunction with the Consolidated Financial
Statements and Notes to Consolidated Financial Statements and the Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
2001 Annual Report to Shareholders incorporated by reference in this Form 10-K
Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the 2001 Annual Report to Shareholders is incorporated by
reference in this Form 10-K Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management's Discussion and Analysis of Quantitative and Qualitative
Disclosures about Market Risk in the 2001 Annual Report to Shareholders is
incorporated by reference in this Form 10-K Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data in the 2001 Annual Report
to Shareholders are incorporated by reference in this Form 10-K Annual Report.
The financial statement schedules meeting the requirements of Regulation
S-X are shown as Schedules I, II, III, IV and V.
The supplementary financial information (Selected Quarterly Financial Data)
in the 2001 Annual Report to Shareholders is incorporated by reference in this
Form 10-K Annual Report.
11
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in, nor disagreements with, accountants on accounting
and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS
- ----------------------------
Information pertaining to Directors of the Company under the heading
"Election of Directors" in the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on May 15, 2002 is incorporated by
reference in this Form 10-K Annual Report. Other information with respect to
executive officers is contained in Part I - Item 4(a) under the caption
"Executive Officers of the Company".
ITEM 11. EXECUTIVE COMPENSATION
Information pertaining to executive compensation under the heading
"Executive Compensation" in the Company's definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on May 15, 2002 is incorporated by
reference in this Form 10-K Annual Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information pertaining to securities ownership of certain beneficial owners
and management under the heading "Ownership of Stock by Executive Officers and
Certain Beneficial Owners" in the Company's definitive Proxy Statement relating
to the Annual Meeting of Shareholders to be held on May 15, 2002 is incorporated
by reference in this Form 10-K Annual Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information pertaining to certain relationships and related transactions
under the heading "Compensation Committee Interlocks and Insider Participation"
in the Company's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 15, 2002 is incorporated by reference in this
Form 10-K Annual Report.
12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) The following documents are filed as part of this report:
- -------------------------------------------------------------
1. Financial Statements
- -----------------------
The following financial statements in the 2001 Annual Report to
Shareholders are hereby incorporated by reference in this Form 10-K Annual
Report:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 2001 and 2000
Consolidated Statements of Income for the Years Ended December 31, 2001,
2000 and 1999
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the Years Ended December 31,
2001, 2000 and 1999
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
- --------------------------------
The following is a list of financial statement schedules filed as part of this
report on Form 10-K Annual Report:
Investors Title Company and Subsidiaries:
Schedule Number Description
- --------------- -----------
I Summary of Investments - Other Than Investments
in Related Parties
II Condensed Financial Information of Registrant
III Supplementary Insurance Information
IV Reinsurance
V Valuation and Qualifying Accounts
All other schedules are omitted, as the required information is not applicable
or required, or the information is presented in the consolidated financial
statements or the notes thereto.
13
3. Exhibits
- -----------
Exhibit Incorporated by
Number Description Reference to
- ------ ----------- ------------
(3)(i) Articles of Incorporation Exhibit 1 to Form 10,
dated June 12, 1984
(3)(ii) Bylaws - Restated and Amended Exhibit 3(ii) to Form 10-K
through February 12, 2001 for the year ended
December 31, 2000
Management contracts or compensatory plans or arrangements
(Exhibits (10)(i) - (10)(xiii))
(10)(i) 1988 Incentive Stock Option Plan Exhibit 10 to Form 10-K
for the year ended
December 31, 1989
(10)(ii) 1993 Incentive Stock Option Plan Exhibit 10 to Form 10-K
for the year ended
December 31, 1993
(10)(iii) 1993 Incentive Stock Option Plan- Exhibit 10 to Form 10-K
W. Morris Fine for the year ended
December 31, 1993
(10)(iv) Employment Agreement dated Exhibit 10 to Form 10-K
February 9, 1984 with for the year ended
J. Allen Fine, Chairman December 31, 1985
(10)(v) Form of Incentive Stock Option Exhibit 10(v) to Form 10-K
Agreement under 1993 Incentive for the year ended
Stock Option Plans December 31, 1994
(10)(vi) Form of Amendment dated Exhibit 10(vi) to Form 10-Q
November 8, 1994 to Stock Option for the quarter ended
Agreement dated as of November 13, 1989 March 31, 1995
(10)(vii) Form of Stock Option Agreement Exhibit 10(vii) to Form 10-Q
dated November 13, 1989 for the quarter ended
March 31, 1995
(10)(viii) 1997 Stock Option and Restricted Exhibit 10(viii) to Form 10-K
Stock Plan for the year ended
December 31, 1996
14
Exhibit Incorporated by
Number Description Reference to
- ------ ----------- ------------
(10)(ix) Form of Nonqualified Stock Option Exhibit 10(ix) to Form 10-Q
Agreement to Non-employee Directors dated for the quarter ended
May 13, 1997 under the 1997 June 30, 1997
Stock Option and Restricted Stock Plan
(10)(x) Form of Nonqualified Stock Option Exhibit 10(x) to Form 10-K
Agreement under 1997 Stock Option for the year ended
and Restricted Stock Plan December 31, 1997
(10)(xi) Form of Incentive Stock Option Exhibit 10(xi) to Form 10-K
Agreement under 1997 Stock Option for the year ended
and Restricted Stock Plan December 31, 1997
(10)(xii) Form of Amendment to Incentive Exhibit 10(xii) to Form 10-Q
Stock Option Agreement between for the quarter ended
Investors Title Company and James June 30, 2000
Allen Fine, James Allen Fine, Jr.,
William Morris Fine, George Abbitt
Snead, Ralph Nichols Strayhorn, III
and Raeford Wilder Wall, Jr., respectively
(10)(xiii) 2001 Stock Option and Restricted Exhibit 10(xiii) to Form 10-K
Stock Plan for the year ended
December 31, 2000
(13) Portions of 2001 Annual Included herewith
Report to Shareholders
incorporated by reference
in this report as set forth
in Parts I and II hereof.
(21) Subsidiaries of Registrant Included herewith
(23) Consent of Independent Auditors Included herewith
(B) Reports on Form 8-K
No reports were filed on Form 8-K during the fourth quarter of 2001.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INVESTORS TITLE COMPANY
By: /s/ J. Allen Fine
-----------------
J. Allen Fine
Chairman and Chief Executive Officer
Date: March 29, 2002
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities on the 29th day of March, 2002.
------ ----- ----
/s/ J. Allen Fine
- --------------------------------------------
J. Allen Fine, Chairman and Chief
Executive Officer
/s/ James A. Fine, Jr.
- --------------------------------------------
James A. Fine, Jr., President, Treasurer and
Director (Principal Financial Officer and
Principal Accounting Officer)
/s/ W. Morris Fine
- ---------------------------------------------
W. Morris Fine, Executive Vice President,
Secretary and Director
/s/ David L. Francis
- ---------------------------------------------
David L. Francis, Director
/s/ Loren B. Harrell, Jr.
- ---------------------------------------------
Loren B. Harrell, Jr., Director
/s/ William J. Kennedy III
- ---------------------------------------------
William J. Kennedy III, Director
/s/ H. Joe King, Jr.
- ---------------------------------------------
H. Joe King, Jr., Director
/s/ James R. Morton
- ---------------------------------------------
James R. Morton, Director
_____________________________________________
Lillard H. Mount, Director
/s/ A. Scott Parker III
- ---------------------------------------------
A. Scott Parker III, Director
16
SCHEDULE I
----------
INVESTORS TITLE COMPANY AND SUBSIDIARIES
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
As of December 31, 2001
- -------------------------------------------------------------------------------------------------------------
Amount at
which shown
in the
Type of Investment Cost(1) Market Value Balance Sheet (2)
- -------------------------------------------------------------------------------------------------------------
Fixed Maturities:
Bonds:
States, municipalities and political
subdivisions $28,539,054 $29,317,715 $29,214,544
Public utilities 199,339 213,823 213,823
All other corporate bonds 14,617,546 15,246,963 15,246,963
Certificates of deposit 2,915,396 2,915,396 2,915,396
-------------- -------------- --------------
Total fixed maturities 46,271,335 47,693,897 47,590,726
-------------- -------------- --------------
Equity Securities:
Common Stocks:
Public utilities 349,967 637,499 637,499
Banks, trust and insurance companies 317,190 1,142,096 1,142,096
Industrial, miscellaneous and all other 1,381,811 2,404,661 2,404,661
Nonredeemable preferred stocks 1,153,117 1,249,301 1,249,301
-------------- -------------- --------------
Total equity securities 3,202,085 5,433,557 5,433,557
-------------- -------------- --------------
Total investments per the consolidated balance sheet 49,473,420 53,024,283
-------------- --------------
Cash equivalents 1,616,777 1,616,777
-------------- --------------
Total investments $51,090,197 $54,641,060
============== ==============
(1) Fixed maturities are shown at amortized cost and equity securities are
shown at original cost.
(2) Bonds of states, municipalities and political subdivisions are shown at
amortized cost for held-to-maturity bonds and fair value for
available-for-sale bonds. Equity securities are shown at fair value.
17
SCHEDULE II
-----------
INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2000
2001 2000
Assets
Cash and cash equivalents $ 818,540 $ 886,928
Investments in equity securities 30,000 75,000
Investments in fixed maturities,available-for-sale 1,643,222 -
Investments in affiliated companies 42,928,301 37,977,363
Income taxes receivable - 404,548
Other receivables 315,345 111,476
Deferred income taxes, net 44,318 38,608
Prepaid expenses and other assets 52,525 11,927
Property, net 2,148,622 2,213,753
---------------- ----------------
Total Assets $ 47,980,873 $ 41,719,603
================ ================
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued liabilities $ 337,087 $ 143,266
Income taxes payable 390,097 -
---------------- ----------------
Total liabilities 727,184 143,266
---------------- ----------------
Stockholders' Equity:
Common stock-no par (shares authorized,
6,000,000; 2,855,744 and 2,855,744 shares issued and
2,516,298 and 2,566,859 shares outstanding 2001 and
2000, respectively) 1,650,350 1,650,350
Retained earnings 45,592,295 39,925,987
Accumulated other comprehensive income
(net of deferred taxes: 2001: $5,689; 2000: $0) 11,044 -
------------------------------------
Total stockholders' equity 47,253,689 41,576,337
------------------------------------
Total Liabilities and Stockholders' Equity $ 47,980,873 $ 41,719,603
====================================
See notes to condensed financial statements.
18
SCHEDULE II
-----------
INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
Revenues:
Investment income-interest and dividends $ 96,624 $ 74,105 $ 103,349
Rental income 510,132 482,267 445,440
Miscellaneous income 1,000 45 70
------------- ------------- -------------
Total 607,756 556,417 548,859
------------- ------------- -------------
Operating Expenses:
Office occupancy and operations 170,445 148,750 161,061
Business development 15,383 14,116 13,886
Taxes-other than payroll and income 65,917 66,948 46,117
Professional fees 30,191 40,311 30,398
Other expenses 49,760 48,939 44,599
------------- ------------- -------------
Total 331,696 319,064 296,061
------------- ------------- -------------
Equity in Net Income of Affiliated Cos.* 5,850,938 2,988,984 4,241,630
------------- ------------- -------------
Income Before Income Taxes 6,126,998 3,226,337 4,494,428
------------- ------------- -------------
Provision for Income Taxes 118,000 85,874 74,034
------------- ------------- -------------
Net Income $ 6,008,998 $ 3,140,463 $ 4,420,394
============= ============= =============
Basic Earnings per Common Share $ 2.35 $ 1.21 $ 1.59
============= ============= =============
Weighted Average Shares Outstanding-Basic 2,554,204 2,594,891 2,776,878
============= ============= =============
Diluted Earnings Per Common Share $ 2.31 $ 1.21 $ 1.59
============= ============= =============
Weighted Average Shares Outstanding-Diluted 2,599,714 2,601,283 2,786,282
============= ============= =============
* Eliminated in consolidation
See notes to condensed financial statements.
19
SCHEDULE II
-----------
INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
Operating Activities:
Net income $ 6,008,998 $ 3,140,463 $ 4,420,394
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in net earnings of subsidiaries less dividends received of
$900,000, $625,000 and $700,000 in 2001, 2000 and 1999, respectively,
plus $600,000 and $50,000 investment in subsidiary
in 2000 and 1999, respectively (4,950,938) (2,963,984) (3,591,630)
Depreciation 76,206 72,517 60,608
Provision (benefit) for deferred income taxes (11,400) (1,081) 72,498
Increase in receivables (203,869) (8,465) (8,878)
Decrease in income taxes receivable-current 404,548 442,536 324,464
(Increase) decrease in prepaid expenses (40,598) 8,270 (17,774)
Increase (decrease) in accounts payable and accrued liabilities 193,821 (5,310) 28,750
Increase in income taxes payable-current 390,097 - -
----------- ----------- -----------
Net cash provided by operating activities 1,866,865 684,946 1,288,432
----------- ----------- -----------
Investing Activities:
Purchases of available-for-sale bonds (1,626,489) - -
Proceeds from the sale of equity securities 45,000 - -
Purchases of land - - (325,000)
Purchases of furniture and equipment and building (11,075) (34,387) (250,000)
----------- ----------- -----------
Net cash used in investing activities (1,592,564) (34,387) (575,000)
----------- ----------- -----------
Financing Activities:
Dividends paid (342,689) (342,689) (342,689)
----------- ----------- -----------
Net cash used in financing activities (342,689) (342,689) (342,689)
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (68,388) 307,870 370,743
Cash and Cash Equivalents, Beginning of Year 886,928 579,058 208,315
----------- ----------- -----------
Cash and Cash Equivalents, End of Year $ 818,540 $ 886,928 $ 579,058
=========== =========== ===========
Supplemental Disclosures:
Cash Paid (Refunded) During the Year For:
Income Taxes $ (109,359) $ 490,592 $ (308,503)
=========== =========== ===========
See notes to condensed financial statements.
20
SCHEDULE II
-----------
INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The accompanying condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
of Investors Title Company and Subsidiaries.
2. Cash dividends paid to Investors Title Company by its wholly owned
subsidiary, Investors Title Insurance Company, were $350,000, $350,000 and
$350,000 in 2001, 2000 and 1999, respectively. Cash dividends paid to
Investors Title Company by its wholly owned subsidiary, Investors Title
Exchange Corporation, were $550,000, $275,000 and $350,000 in 2001, 2000
and 1999, respectively.
21
SCHEDULE III
------------
INVESTORS TITLE COMPANY AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
For the Years Ended December 31, 2001, 2000 and 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Future
Policy Other
Benefits, Policy Benefits Amortization
Deferred Losses, Claims Claims, of Deferred
Policy Claims and Net Net Losses and Policy
Acquisition and Loss Unearned Benefits Premium Investment Settlement Acquisition
Segment Cost Expenses Premiums Payable Revenue Income Expenses Costs
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended
December 31, 2001
- -----------------
Title Insurance --- $21,460,000 --- $ 281,961 $59,480,545 $ 2,626,053 $ 6,786,263 ---
Exchange Services --- --- --- --- --- 16,245 --- ---
All Other --- --- --- --- --- 97,982 --- ---
--------------------------------------------------------------------------------------------------------------
--- $21,460,000 --- $ 281,961 $59,480,545 $ 2,740,280 $ 6,786,263 ---
==============================================================================================================
Year Ended
December 31, 2000
- -----------------
Title Insurance --- $17,944,665 --- $ 222,748 $37,690,752 $ 2,436,561 $ 5,865,355 ---
Exchange Services --- --- --- --- --- 17,478 --- ---
All Other --- --- --- --- --- 74,104 --- ---
--------------------------------------------------------------------------------------------------------------
--- $17,944,665 --- $ 222,748 $37,690,752 $ 2,528,143 $ 5,865,355 ---
==============================================================================================================
Year Ended
December 31, 1999
- -----------------
Title Insurance --- $15,864,665 --- $ 208,605 $43,819,565 $ 2,061,360 $ 6,026,064 ---
Exchange Services --- --- --- --- --- 10,962 --- ---
All Other --- --- --- --- --- 103,349 --- ---
--------------------------------------------------------------------------------------------------------------
--- $15,864,665 --- $ 208,605 $43,819,565 $ 2,175,671 $ 6,026,064 ---
==============================================================================================================
-----------------------
Other
Operating Premiums
Expenses Written
-----------------------
Year Ended
December 31, 2001
- -----------------
Title Insurance $47,449,615 N/A
Exchange Services 433,810 N/A
All Other 1,063,759 N/A
-----------
$48,947,184
===========
Year Ended
December 31, 2000
- -----------------
Title Insurance $31,060,289 N/A
Exchange Services 225,330 N/A
All Other 818,331 N/A
-----------
$32,103,950
===========
Year Ended
December 31, 1999
- -----------------
Title Insurance $34,342,012 N/A
Exchange Services 178,627 N/A
All Other 358,462 N/A
-----------
$34,879,101
===========
22
SCHEDULE IV
-----------
INVESTORS TITLE COMPANY AND SUBSIDIARIES
REINSURANCE
For the Years Ended December 31, 2001, 2000 and 1999
- ------------------------------------------------------------------------------------------------------------
Ceded to Assumed from Percentage of
Gross Other Other Net Amount
Amount Companies Companies Amount Assumed to Net
- ------------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31, 2001
- -----------------
Title Insurance $59,799,379 $340,228 $21,394 $59,480,545 0.04%
YEAR ENDED
DECEMBER 31, 2000
- -----------------
Title Insurance $38,020,917 $362,528 $32,363 $37,690,752 0.09%
YEAR ENDED
DECEMBER 31, 1999
- -----------------
Title Insurance $44,098,045 $325,212 $46,732 $43,819,565 0.11%
23
SCHEDULE V
----------
INVESTORS TITLE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2001, 2000 and 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at Additions Additions Charged
Beginning Charged to to Other Deductions- Balance at
Description of Period Costs and Expenses Accounts - Describe describe* End of Period
- ---------------------------------------------------------------------------------------------------------------------------------
2001
- ----
Premiums Receivable
Valuation Provision $ 725,000 $ 3,484,380 $ - $ (2,804,380) $ 1,405,000
Reserves for
Claims $ 17,944,665 $ 6,786,263 $ - $ (3,270,928) $ 21,460,000
2000
- ----
Premiums Receivable
Valuation Provision $ 775,000 $ 2,219,190 $ - $ (2,269,190) $ 725,000
Reserves for
Claims $ 15,864,665 $ 5,865,355 $ - $ (3,785,355) $ 17,944,665
1999
- ----
Premiums Receivable
Valuation Provision $ 775,000 $ 2,793,975 $ - $ (2,793,975) $ 775,000
Impairment of
Building Plans $ 218,122 $ - $ - $ (218,122) $ -
Reserves for
Claims $ 13,362,665 $ 6,026,064 $ - $ (3,524,064) $ 15,864,665
Provision for
Equipment Disposal $ 280,000 $ - $ - $ (280,000) $ -
*Cancelled premiums and reduction to allowance for bad debts
*Wrote off building plans
*Payments of claims
*Disposed of impaired equipment
24