-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SNNEskhwfPMfDRg42oo6KyA3n8Mv3MtUpJPZWdamk4agzjXY3OJf6JrAHT/U51eQ DmzOFN+YAPCOfnTkms5t2w== 0000898430-01-001160.txt : 20010409 0000898430-01-001160.hdr.sgml : 20010409 ACCESSION NUMBER: 0000898430-01-001160 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVESTORS TITLE CO CENTRAL INDEX KEY: 0000720858 STANDARD INDUSTRIAL CLASSIFICATION: TITLE INSURANCE [6361] IRS NUMBER: 561110199 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-11774 FILM NUMBER: 1589386 BUSINESS ADDRESS: STREET 1: 121 N COLUMBIA ST STREET 2: P O DRAWER 2687 CITY: CHAPEL HILL STATE: NC ZIP: 27514 BUSINESS PHONE: 9199682200 MAIL ADDRESS: STREET 1: 121 NORTH COLUMBIA STREET CITY: CHAPEL HILL STATE: NC ZIP: 27514 10-K405 1 0001.txt FORM 10-K 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, 2000 [ ] 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. Yes X No ---- On March 7, 2001 the aggregate market value of the voting and nonvoting common equity held by nonaffiliates of the registrant was $29,659,355. On March 7, 2001 the number of common shares outstanding was 2,570,583. 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, 2000 Part II, Items 5 - 8 Part IV, Item 14 Portions of Proxy Statement (in connection with Part III, Items 10 - 13 Annual Meeting to be held on May 16, 2001) 1 PART I ITEM 1. BUSINESS GENERAL - ------- Investors Title Company ("the Company") is a holding company which was incorporated in the State of North Carolina on February 13, 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 two 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 2000 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 for seventeen years. In addition, the Company writes title insurance through issuing agents or branch offices in the States of Alabama, Arkansas, Florida, Georgia, Indiana, 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, Colorado, Connecticut, Delaware, Idaho, Illinois, Kansas, Louisiana, Maine, Massachusetts, Missouri, Montana, Nevada, New Jersey, North Dakota, Oklahoma, Rhode Island, Texas, Utah, Vermont and Wyoming. 2 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, title insurance commitments and policies are issued by the home office and branch offices. ITIC has 28 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 assumes primary risks up to $1,500,000, reinsures the next $250,000 of risk with NE-ITIC, and all risks above $1,750,000 are then reinsured with a non-related reinsurer. NE-ITIC currently assumes primary risks up to $250,000, reinsures the next $1,500,000 of risk with ITIC, and reinsures all amounts above $1,750,000 with a non-related reinsurer. Both ITIC and NE-ITIC have self-imposed risk retention limits that are more conservative than state insurance regulations require. ITIC's self-imposed retention of $1,500,000 is only 14.7% of its statutorily permitted retention of $10,191,492. NE-ITIC's self-imposed retention of $250,000 is only 17.2% of its statutorily permitted retention of $1,455,844. 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- 3 kind property. ITEC acts as an intermediary in tax-free exchanges of property held for 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 2000 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 2000 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 2000 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. 4 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. 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 28 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 in Alabama, Arkansas, Florida, Georgia, Indiana, 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. The Company's marketing efforts are also enhanced through advertising. 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. A Commercial Services Division was established in the first quarter of 2001 in order to better service commercial clients. ITEC and ITAC are also promoted through the marketing efforts of this division. CUSTOMERS - --------- The segments are 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 2000 Annual 5 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 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 is currently being examined for the period January 1, 1995 through December 31, 1999. Typically, a report is issued six months following the completion of an examination. 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 last examined by the South Carolina Department of Insurance commencing on June 22, 1998 for the period January 1, 1994 through December 31, 1997 with no material deficiencies noted. 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 June 22, 1998 for the period January 1, 1994 through December 31, 1997. 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 6 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 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, 2000, ITIC reported $25,478,730 of capital and surplus, and net income of $3,195,801; and NE-ITIC reported $2,911,687 of capital and surplus, and net income of $9,589. ITIC and NE-ITIC both 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, 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 7 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 certain 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 2000 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 two full-time paid employees as of December 31, 2000. Officers of the Company are full-time paid employees of ITIC, which had 165 full-time employees and 14 part-time employees as of December 31, 2000. TRADEMARK - --------- The Company's subsidiary, ITIC, registered its logo with the U.S. Patent- Trademark Office in February, 1987. The loss of said 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 31 locations throughout North Carolina, South Carolina, Michigan and Virginia. NE-ITIC leases office space in 2 locations in New York. These properties are used by the title insurance and exchange services segments. 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 2000 Annual Report to Shareholders incorporated by reference in this Form 10-K Annual Report for the amounts of 8 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, 2000. 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, 2000. 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. Position with Officer Name Age Registrant Since - ---- --- ---------- ----- J. Allen Fine 66 Chairman, 1973 Director and CEO James A. Fine, Jr. 38 President, Director 1987 and Treasurer W. Morris Fine 34 Executive Vice 1992 President, Director and Secretary Elizabeth P. Bryan 40 Vice President 1987 and Assistant Secretary L. Dawn Martin 35 Vice President 1993 and Assistant Secretary 9 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. Elizabeth P. Bryan joined the Company in 1985 as Controller and in 1987, she was - ------------------ named Vice President of the Company. L. Dawn Martin joined the Company in 1991 and in 1993, she was named Vice - -------------- President of the Company. 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 2000 Annual Report to Shareholders incorporated by reference in this Form 10-K Annual Report. 10 ITEM 6. SELECTED FINANCIAL DATA The selected financial data for the five years ended December 31, 2000 under the caption "Financial Highlights" is in the 2000 Annual Report to Shareholders 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 2000 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 2000 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 2000 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 2000 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 2000 Annual Report to Shareholders is incorporated by reference in this Form 10-K Annual Report. 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. 11 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 16, 2001 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 16, 2001 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 16, 2001 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 16, 2001 is incorporated by reference in this Form 10-K Annual Report. 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: - ------------------------------------------------------------- 12 1. Financial Statements - ----------------------- The following financial statements in the 2000 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, 2000 and 1999 Consolidated Statements of Income for the Years Ended December 31, 2000, 1999 and 1998 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 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. 3. Exhibits - ----------- Exhibit Incorporation by Number Description Reference to - ------ ----------- ------------ (3)(i) Articles of Incorporation Exhibit 1 to Form 10, dated June 12, 1984 13 Exhibit Incorporation by Number Description Reference to - ------ ----------- ------------ (3)(ii) Bylaws - Restated and Included herewith Amended through February 12, 2001 Management contract of compensatory plan or arrangement (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 Exhibit 10(v) to Form 10-K Option Agreement under 1993 for the year ended Incentive Stock Option Plans December 31, 1994 (10)(vi) Form of Amendment dated Exhibit 10(vi) to Form November 8, 1994 to Stock Option 10-Q for the quarter ended Agreement dated as of November 13, March 31, 1995 1989 (10)(vii) Form of Stock Option Agreement Exhibit 10(vii) to Form dated November 13, 1989 10-Q for the quarter ended March 31, 1995 (10)(viii) 1997 Stock Option and Restricted Exhibit 10(viii) to Form Stock Plan 10-K for the year ended December 31, 1996 14 Exhibit Incorporation by Number Description Reference to - ------ ----------- ------------ (10)(ix) Form of Nonqualified Stock Exhibit 10(ix) to Form Option Agreement to Non-employee 10-Q for the quarter ended Directors dated May 13, 1997 under June 30, 1997 the 1997 Stock Option and Restricted Stock Plan (10)(x) Form of Nonqualified Stock Option Exhibit 10(x) to Form Agreement under 1997 Stock Option 10-K for the year ended and Restricted Stock Plan December 31, 1997 (10)(xi) Form of Incentive Stock Exhibit 10(xi) to Form Option Agreement under 1997 Stock 10-K for the year ended Option and Restricted Stock Plan December 31, 1997 (10)(xii) Form of Amendment to Incentive Exhibit 10(xii) to Form Stock Option Agreement between 10-Q for the quarter Investors Title Company and James ended 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 Included herewith Stock Plan (13) Portions of 2000 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 for the fourth quarter of 2000. 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: April 2, 2001 ------------- 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 2nd day of April, 2001. --- ----- ---- /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) /s/ Elizabeth P. Bryan - --------------------------------------- Elizabeth P. Bryan, Vice President and Asst. Secretary (Principal Accounting Officer) /s/ W. Morris Fine - --------------------------------------- W. Morris Fine, Executive Vice President Secretary and Director /s/ David L. Francis - --------------------------------------- David L. Francis, Director _______________________________________ 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 /s/ Lillard H. Mount - --------------------------------------- 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, 2000
- -------------------------------------------------------------------------------------------------------------------------------- Amount at which shown in the Type of Investment Cost(1) Market Value Balance Sheet (2) - -------------------------------------------------------------------------------------------------------------------------------- Fixed Maturities: Bonds: States, municipalities and political subdivisions $23,508,874 $24,261,976 $24,151,134 Public utilities 199,246 199,246 199,246 All other corporate bonds 11,528,439 11,636,470 11,636,470 Certificates of deposit 98,982 98,982 98,982 -------------------- ------------------- -------------------- Total fixed maturities 35,335,541 36,196,674 36,085,832 -------------------- ------------------- -------------------- Equity Securities: Common Stocks: Public utilities 385,373 752,694 752,694 Banks, trust and insurance companies 317,190 1,195,998 1,195,998 Industrial, miscellaneous and all other 1,078,687 2,295,389 2,295,389 Nonredeemable preferred stocks 653,117 725,988 725,988 -------------------- ------------------- -------------------- Total equity securities 2,434,367 4,970,069 4,970,069 -------------------- ------------------- -------------------- Total investments per the consolidated balance sheet 37,769,908 41,055,901 -------------------- -------------------- Cash equivalents 7,645,313 7,645,313 -------------------- -------------------- Total investments $45,415,221 $48,701,214 ==================== ====================
(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, 2000 AND 1999 2000 1999 Assets Cash and cash equivalents $ 886,928 $ 579,058 Investments in equity securities 75,000 75,000 Investments in affiliated companies 37,977,363 35,013,379 Income taxes receivable 404,548 847,084 Other receivables 111,476 103,011 Deferred income taxes, net 38,608 37,527 Prepaid expenses and other assets 11,927 20,197 Property, net 2,213,753 2,251,883 ----------- ----------- Total Assets $41,719,603 $38,927,139 =========== =========== Liabilities and Stockholders' Equity Liabilities: Accounts payable and accrued liabilities $ 143,266 $ 148,576 ----------- ----------- Stockholders' Equity: Common stock-no par (shares authorized, 6,000,000; 2,855,744 and 2,855,744 shares issued and 2,566,859 and 2,736,961 shares outstanding 2000 and 1999, respectively) 1,650,350 1,650,350 Retained earnings 39,925,987 37,128,213 ----------- ----------- Total stockholders' equity 41,576,337 38,778,563 ----------- ----------- Total Liabilities and Stockholders' Equity $41,719,603 $38,927,139 =========== ===========
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, 2000, 1999 AND 1998
2000 1999 1998 Revenues: Investment income-interest and dividends $ 74,105 $ 103,349 $ 76,390 Rental income 482,267 445,440 435,821 Miscellaneous income 45 70 23,014 ------------- ------------- ------------- Total 556,417 548,859 535,225 ------------- ------------- ------------- Operating Expenses: Office occupancy and operations 148,750 161,061 138,475 Business development 14,116 13,886 13,234 Taxes-other than payroll and income 66,948 46,117 48,569 Professional fees 40,311 30,398 22,269 Other expenses 48,939 44,599 105,857 ------------- ------------- ------------- Total 319,064 296,061 328,404 ------------- ------------- ------------- Equity in Net Income of Affiliated Cos.* 2,988,984 4,241,630 5,311,677 ------------- ------------- ------------- Income Before Income Taxes 3,226,337 4,494,428 5,518,498 ------------- ------------- ------------- Provision for Income Taxes 85,874 74,034 58,989 ------------- ------------- ------------- Net Income $ 3,140,463 $ 4,420,394 $ 5,459,509 ============= ============= ============= Basic Earnings per Common Share $ 1.21 $ 1.59 $ 1.95 ============= ============= ============= Weighted Average Shares Outstanding-Basic 2,594,891 2,776,878 2,806,267 ============= ============= ============= Diluted Earnings Per Common Share $ 1.21 $ 1.59 $ 1.92 ============= ============= ============= Weighted Average Shares Outstanding-Diluted 2,601,283 2,786,282 2,841,035 ============= ============= =============
* 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, 2000, 1999 AND 1998 2000 1999 1998 Operating Activities: Net income $ 3,140,463 $ 4,420,394 $ 5,459,509 Adjustments to reconcile net income to net cash provided by operating activities: Equity in net earnings of subsidiaries less dividends received of $625,000, $700,000 and $575,000 in 2000, 1999 and 1998, respectively, plus $600,000 and $50,000 investment in subsidiary in 2000 and 1999, respectively (2,963,984) (3,591,630) (4,736,677) Gain on disposal of property - - (20,475) Depreciation 72,517 60,608 57,573 Provision (benefit) for deferred income taxes (1,081) 72,498 (15,454) (Increase) decrease in receivables (8,465) (8,878) 21,906 (Increase) decrease in income taxes receivable-current 442,536 324,464 (779,017) (Increase) decrease in prepaid expenses 8,270 (17,774) 66,222 Increase (decrease) in accounts payable and accrued liabilities (5,310) 28,750 (29,068) ----------- ----------- ----------- Net cash provided by operating activities 684,946 1,288,432 24,519 ----------- ----------- ----------- Investing Activities: Purchase of land - (325,000) - Purchases of furniture and equipment and building (34,387) (250,000) (31,555) Proceeds from the disposal of property - - 22,475 ----------- ----------- ----------- Net cash used in investing activities (34,387) (575,000) (9,080) ----------- ----------- ----------- 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 307,870 370,743 (327,250) Cash and Cash Equivalents, Beginning of Year 579,058 208,315 535,565 ----------- ----------- ----------- Cash and Cash Equivalents, End of Year $ 886,928 $ 579,058 $ 208,315 =========== =========== =========== Supplemental Disclosures: Cash Paid (Refunded) During the Year For: Income Taxes $ 490,592 $ (308,503) $ 853,460 =========== =========== ===========
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 2000, 1999 and 1998, respectively. Cash dividends paid to Investors Title Company by its wholly owned subsidiary, Investors Title Exchange Corporation, were $275,000 $350,000 and $225,000 in 2000, 1999 and 1998, respectively. 21 SCHEDULE III ------------
INVESTORS TITLE COMPANY AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION For the Years Ended December 31, 2000, 1999 and 1998 - ----------------------------------------------------------------------------------------------------------------- Future Policy Other Benefits, Policy Benefits Deferred Losses, Claims Claims, Policy Claims and Net Net Losses and Acquisition and Loss Unearned Benefits Premium Investment Settlement Segment Cost Expenses Premiums Payable Revenue Income Expenses - ----------------------------------------------------------------------------------------------------------------- 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 ========================================================================================== Year Ended December 31, 1998 - ----------------- Title Insurance --- $13,362,665 --- $ 84,598 $45,379,696 $1,746,041 $8,094,950 Exchange Services --- --- --- --- --- 12,518 --- All Other --- --- --- --- --- 76,390 --- ------------------------------------------------------------------------------------------ --- $13,362,665 --- $ 84,598 $45,379,696 $1,834,949 $8,094,950 ========================================================================================== Amortization of Deferred Policy Other Acqusition Operating Premiums Segment Costs Expenses Written - --------------------------------------------------------------- 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 ============================= Year Ended December 31, 1998 - ----------------- Title Insurance --- $32,219,955 N/A Exchange Services --- 137,444 N/A All Other --- 328,405 N/A ---------------------------- --- $32,685,804 =============================
22 SCHEDULE IV ----------- INVESTORS TITLE COMPANY AND SUBSIDIARIES REINSURANCE For the Years Ended December 31, 2000, 1999, and 1998
- --------------------------------------------------------------------------------------------------------------------- Ceded to Assumed from Percentage of Gross Other Other Net Amount Amount Companies Companies Amount Assumed to Net - --------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2000 - ----------------- Title Insurance $38,020,917 $362,528 $32,363 $37,690,752 0.1% YEAR ENDED DECEMBER 31, 1999 - ----------------- Title Insurance $44,098,045 $325,212 $46,732 $43,819,565 0.1% YEAR ENDED DECEMBER 31, 1998 - ----------------- Title Insurance $45,618,518 $312,627 $73,805 $45,379,696 0.2%
23
SCHEDULE V ---------- INVESTORS TITLE COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 2000, 1999 and 1998 - --------------------------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------------------------- 2000 - ---- Premiums Receivable Valuation Provision $ 775,000 $2,269,190 $- $(2,319,190) $ 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) $ - 1998 - ---- Premiums Receivable Valuation Provision $ 350,000 $2,106,316 $- $(1,681,316) $ 775,000 Impairment of Building Plans $ 150,000 $ 68,122 $- $ - $ 218,122 Reserves for Claims $ 7,622,140 $8,094,950 $- $(2,354,425) $13,362,665 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 EX-3.II 2 0002.txt BYLAWS OF INVESTORS TITLE COMPANY EXHIBIT 3(ii) BY-LAWS OF INVESTORS TITLE COMPANY RESTATED AND AMENDED THROUGH FEBRUARY 12, 2001 ARTICLE I. OFFICES: Section 1. Principal Office: The principal office of the Corporation ---------------- shall be located at 121 North Columbia Street, Chapel Hill, North Carolina. Section 2. Registered Office: The registered office of the ----------------- Corporation required by law to be maintained in the State of North Carolina may be, but need not be, identical with the principal office. Section 3. Other Offices: The Corporation may have offices at such ------------- other places, either within or without the State of North Carolina, as the Board of Directors may from time to time determine, or as the affairs of the Corporation may require. ARTICLE II. MEETING OF SHAREHOLDERS: Section 1. Place of Meetings: All meetings of shareholders shall be ----------------- held at the principal office of the Corporation, or at such other place, either within or without the State of North Carolina, as shall be designated in the notice of the meeting or agreed upon by a majority of the shareholders entitled to vote thereat. Section 2. Annual Meetings: The annual meeting of shareholders --------------- shall be held on the third Wednesday in May of each year, if not a legal holiday, but if a legal holiday, then on the next day following not a legal holiday, for the purpose of electing directors of the Corporation and for the transaction of such other business as may be properly brought before the meeting. Section 3. Substitute Annual Meeting: If the annual meeting shall ------------------------- not be held on the day designated by these by-laws, a substitute annual meeting may be called in accordance with the provisions of Section 4 of this Article. A meeting so called shall be designated and treated for all purposes as the annual meeting. Section 4. Special Meetings: Special meetings of the shareholders ---------------- may be called by any of the following: (a) by the Chairman of the Board of Directors; (b) by the President of the Corporation; (c) by the Board of Directors upon the affirmative vote of at least seventy-five percent (75%) of the entire Board of Directors; or (d) by the shareholders upon written request of those persons holding of record not less than eighty percent (80%) of the total voting power of the shares entitled to vote thereon. Section 5. Notice of Meetings: Written or printed notice stating the ------------------ time and place of the meeting shall be delivered no fewer than 10 nor more than 60 days before the date thereof, either personally or by mail, by or at the direction of the President or the other person calling the meeting, to each shareholder of record entitled to vote at such meeting and to each nonvoting shareholder entitled to notice of the meeting. If the corporation is required by law to give notice of proposed action to nonvoting shareholders and the action is to be taken without a meeting pursuant to Section 9 of this Article, written notice of such proposed action shall be delivered to such shareholders not less than 10 days before such action is taken. If notice is mailed, such notice shall be effective when deposited in the United States mail with postage thereon prepaid and correctly addressed to the shareholder's address shown in the corporation's current record of shareholders. In the case of an annual or substitute annual meeting, the notice of meeting need not specifically state the business to be transacted thereat unless it is a matter with respect to which specific notice to the shareholders is expressly required by the provisions of the North Carolina Business Corporation Act. In the case of a special meeting, the notice of meeting shall specifically state the purpose or purposes for which the meeting is called. When a meeting is adjourned for more than 120 days after the date fixed for the original meeting or if a new record date for the adjourned meeting is fixed, notice of the adjourned meeting shall be given as in the case of an original meeting. When a meeting is adjourned for 120 days or less and no new record date for the adjourned meeting is fixed, it is not necessary to give notice of the adjourned meeting other than by announcement at the meeting at which the adjournment is taken. Section 6. Voting Lists: At least ten days before each meeting of ------------ shareholders the Secretary of the Corporation shall prepare an alphabetical list of the shareholders entitled to vote at such meetings, with the address of and number of shares held by each, which list shall be kept on file at the registered office of the Corporation for a period of ten days prior to such meeting, and shall be subject to inspection by any shareholder at any time during the usual business hours. This list shall also be provided and kept open at the time and place of the meeting and shall be subject to inspection by any shareholder during the whole time of the meeting. Section 7. Quorum: The holders of a majority of the shares entitled ------ to vote, represented in person or by proxy, shall constitute a quorum at meetings of shareholders. If there is no quorum at the opening of a meeting of shareholders, such meeting may be adjourned from time to time by the vote of a majority of the shares voting on the motion to adjourn; and, at any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting. The shareholders at a meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 8. Voting of Shares: Each outstanding share having voting ---------------- rights shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders. Except in the election of directors, the vote of a majority of the shares voted on any matter at a meeting of shareholders at which a quorum is present shall be the act of the shareholders on that matter, unless the vote of a greater number is required by law or by the charter or by-laws of this Corporation. Voting on all matters shall be by voice or by a show of hands unless the holders of one-tenth of the shares represented at the meeting shall, prior to the voting on any matter, demand a ballot vote on that particular matter. Section 9. Informal Action by Shareholders: Any action which may be ------------------------------- taken at a meeting of the shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the persons who would be entitled to vote upon such action at a meeting, and filed with the Secretary of the Corporation to be kept in the Corporate Minute Book. ARTICLE III. DIRECTORS Section 1. General Powers: The business and affairs of the -------------- Corporation shall be managed by the Board of Directors or by such Executive Committees as the Board may establish pursuant to these by-laws. Section 2. Number, Term and Qualifications: The number of Directors ------------------------------- of the Corporation shall not be less than nine nor more than twelve as determined, from time to time, by the shareholders. The Board shall be divided into three classes, having staggered terms of three years each. Each director shall hold office until his death, resignation, retirement, removal, disqualification, or his successor is elected and qualified. Directors need not be residents of the State of North Carolina or shareholders of the Corporation. Section 3. Election of Directors: Except as provided in Section 6 of --------------------- this Article, the directors shall be elected at the annual meeting of shareholders; and those persons who receive the highest number of votes shall be deemed to have been elected. Section 4. Cumulative Voting: Every shareholder entitled to vote at ----------------- an election of Directors shall have the right to vote the number of shares standing of record in his name for as many persons as there are Directors to be elected and for whose election he has a right to vote, or to cumulate his vote by giving one candidate as many votes as the number of such directors multiplied by the number of his shares shall equal, or by distributing such votes on the same principal among any number of such candidates. This right of cumulative voting shall not be exercised unless some shareholder or proxy holder announces in open meeting, before the voting for the Directors starts, his intention so to vote cumulatively; and if such announcement is made, the chair shall declare that all shares entitled to vote have the right to vote cumulatively and shall thereupon grant a recess of not less than one nor more than four hours, as he shall determine, or of such other period of time as is unanimously then agreed upon. Section 5. Removal: Neither the entire Board of Directors nor any ------- individual director of the corporation shall be removed from office, with or without cause, unless a meeting of the shareholders of the corporation is held to act thereon and there is obtained the approval of a percentage of all votes entitled to be cast thereon of at least eighty percent (80%); provided, however, that if any such removal shall have been recommended to the shareholders of the corporation by a resolution of the Board of Directors adopted by the affirmative vote of seventy-five percent (75%) of the entire Board of Directors, then such removal may be effected if a meeting of the shareholders of the corporation is held to act thereon and there is obtained the approval of a percentage of all votes entitled to be cast thereon equal to a majority of all votes entitled to be cast thereon; provided, further, that any such removal may be effected without a meeting or vote of the shareholders of the corporation if a resolution determining that cause exists for such removal shall be adopted by the affirmative vote of seventy-five percent (75%) of the entire Board of Directors. Section 6. Vacancies: A vacancy occurring in the Board of Directors --------- may be filled by a majority of the remaining directors, though less than a quorum, or by the sole remaining Directors; but a vacancy created by an increase in the authorized number of Directors shall be filled only by election at an annual meeting or at a special meeting of shareholders called for that purpose. The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Section 7. Chairman: There may be a Chairman of the Board of -------- Directors elected by the directors from their number at any meeting of the Board. The Chairman shall preside at all meetings of the Board of Directors and perform such other duties as may be directed by the Board. Section 8. Compensation: The Board of Directors may compensate ------------ directors for their services. Section 9: Executive Committee: The Board of Directors may, by ------------------- resolution adopted by a majority of the number of directors fixed by these by- laws, designate two or more directors to constitute an Executive Committee, which committee to the extent provided in such resolution, shall have and may exercise all of the authority of the Board of Directors in the management of the Corporation. ARTICLE IV. MEETING OF DIRECTORS Section 1. Regular Meetings: A regular meeting of the Board of ---------------- Directors shall be held immediately after, and at the same place as, the annual meeting of shareholders. In addition the Board of Directors may provide, by resolution, the time and place, either within or without the State of North Carolina, for the holding of additional regular meetings. Section 2. Special Meetings: Special Meetings of the Board of ---------------- Directors may be called by or at the request of the President or any two directors. Such meetings may be held either within or without the State of North Carolina. Section 3. Notice of Meetings: Regular meetings of the Board of ------------------ Directors may be held without notice. The person or persons calling a special meeting of the Board of Directors shall, at least two days before the meeting, give notice thereof by the usual means of communication. Such notice need not specify the purpose for which the meeting is called. Attendance by a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called. Section 4. Quorum: A majority of the directors fixed by these ------ by-laws shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. Section 5. Manner of Acting: Except as otherwise provided in this ---------------- section, the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. The vote of a majority of the number of directors fixed by these by- laws shall be required to adopt a resolution constituting an executive committee. The vote of a majority of the directors then holding office shall be required to adopt, amend or repeal a by-law, or to adopt a resolution dissolving the corporation without action by the shareholders. Vacancies in the Board of Directors may be filled as provided in Article III, Section 6 of these by-laws. Section 6. Informal Action by Directors: Action taken by a majority ---------------------------- of the directors without a meeting is nevertheless Board action if written consent to the action in question is signed by all the directors and filed with the minutes of the proceedings. Section 7. Secretary: The Secretary shall keep accurate records of --------- the acts and proceedings of all meetings of shareholders and directors. He shall give all notices required by law and by these by-laws. He shall have general charge of the corporate books and records and of the corporate seal, and he shall affix the corporate seal to any lawfully executed instrument requiring it. He shall have general charge of the stock transfer books of the Corporation and shall keep, at the registered or principal office of the Corporation, a record of shareholders showing the name and address of each shareholder and the number and class of the shares held by each. He shall sign such instruments as may require his signature, and, in general, shall perform all duties incident to the office of Secretary and such other duties as may be assigned to him from time to time by the President or by the Board of Directors. Section 8. Treasurer: The Treasurer shall have custody of all funds --------- and securities belonging to the Corporation and shall receive, deposit or disburse the same under the direction of the Board of Directors. He shall keep full and accurate accounts of the finances of the Corporation in books especially provided for that purpose; and he shall cause a true statement of its assets and liabilities as of the close of each fiscal year and of the results of its operations and of changes in surplus for such fiscal year, all in reasonable detail, including particulars as to convertible securities then outstanding, to be made and filed at the registered or principal office of the Corporation within four months after the end of such fiscal year. The statement so filed shall be kept available for inspection by any shareholder for a period of ten years; and the Treasurer shall mail or otherwise deliver a copy of the latest such statement to any shareholder upon his written request thereof. The Treasurer shall, in general perform all duties incident to his office and such other duties as may be assigned to him from time to time by the President or by the Board of Directors. Section 9. Assistant Secretaries and Treasurers: The Assistant ------------------------------------ Secretaries and Assistant Treasurers shall, in the absence or disability of the Secretary or the Treasurer, respectively, perform the duties and exercise the powers of those offices, and they shall, in general, perform such other duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the President or the Board of Directors. Section 10. Bonds: The Board of Directors may by resolution require ----- any or all officers, agents and employees of the Corporation to give bond to the Corporation, with sufficient sureties, conditioned on the faithful performance of the duties of their respective offices or positions, and to comply with such other conditions as may from time to time be required by the Board of Directors. ARTICLE V. OFFICERS Section 1. Number: The officers of the Corporation shall consist of ------ a President, a Secretary, a Treasurer, and such Vice-Presidents, Assistant Secretaries, Assistant Treasurers and other officers as the Board of Directors may from time to time elect. Any two or more offices may be held by the same person, except the offices of President and Secretary. Section 2. Election and Term: The officers of the Corporation shall ----------------- be elected by the Board of Directors. Such elections may be held at any regular or special meeting of the Board. Each officer shall hold office until his death, resignation, retirement, removal, disqualification, or his successor is elected and qualified. Section 3. Removal: Any officer or agent elected or appointed by the ------- Board of Directors may be removed by the Board with or without cause; but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4. Compensation: The compensation of all officers of the ------------ Corporation shall be fixed by the Board of Directors. Section 5. President: The President shall be the principal executive --------- officer of the Corporation and, subject to the control of the Board of Directors, shall supervise and control the management of the Corporation in accordance with these by-laws. He shall, when present, preside at all meetings of shareholders. He shall sign, with any other proper officer, certificates for shares of the Corporation and any deeds, mortgages, bonds, contracts, or other instruments which may be lawfully executed on behalf of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be delegated by the Board of Directors to some other officer or agent; and, in general, he shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. Section 6. Vice-Presidents: The Vice-Presidents in the order of --------------- their election, unless otherwise determined by the Board of Directors, shall, in the absence or disability of the President, perform the duties and exercise the powers of that office. In addition, they shall perform such other duties and have such other powers as the Board of Directors shall prescribe. ARTICLE VI. CONTRACTS, LOANS AND DEPOSITS Section 1. Contracts: The Board of Directors may authorize any --------- officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument on behalf of the Corporation, and such authority may be general or confined to specific instances. Section 2. Loans: No loans to or from the Corporation shall be ----- contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. Section 3. Checks and Drafts: All checks, drafts or other orders for ----------------- the payment of money issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 4. Deposits: All funds of the Corporation not otherwise -------- employed shall be deposited from time to time to the credit of the Corporation in such depositories as the Board of Directors shall direct. ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER Section 1. Certificates for Shares: Certificates representing ----------------------- shares of the Corporation shall be issued, in such form as the Board of Directors shall determine, to every shareholder for the fully paid shares owned by him. These certificates shall be signed by the President or any Vice- President and the Secretary, Assistant Secretary, Treasurer or Assistant Treasurer. They shall be consecutively numbered or otherwise identified; and the name and address of the persons, corporations, firms or organizations to whom they are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. Section 2. Transfer of Shares: Transfer of shares shall be made on ------------------ the stock transfer books of the Corporation only upon surrender of the certificates for the shares sought to be transferred by the record holder thereof or by his duly authorized agent, transferee or legal representative. All certificates surrendered for transfer shall be cancelled before new certificates for the transferred shares shall be issued. Section 3. Fixing Record Date. For the purpose of determining the ------------------ shareholders entitled to notice of a meeting of shareholders, to demand a special meeting, to vote, to take any other action, or to receive a dividend with respect to their shares, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders. Such record date fixed by the Board of Directors under this Section shall not be more than 70 days before the meeting or action requiring a determination of shareholders. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to a dividend, the close of the business day before the first notice is delivered to shareholders or the date on which the Board of Directors authorizes the dividend, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof unless the Board of Directors fixes a new record date, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. Section 4. Lost Certificates: The Board of Directors may authorize ----------------- the issuance of a new share certificate in place of a certificate claimed to have been lost or destroyed, upon receipt of an affidavit of such fact from the person claiming the loss or destruction. When authorizing such issuance of a new certificate, the Board may require the claimant to give the Corporation a bond in such sum as it may direct to indemnify the Corporation against loss from any claim with respect to the certificate claimed to have been lost or destroyed; or the Board may, by resolution reciting that the circumstances justify such action, authorize the issuance of the new certificate without requiring such a bond. ARTICLE VIII. GENERAL PROVISIONS Section 1. Dividends: The Board of Directors may from time to time --------- declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and by its charter. Section 2. Seal: The corporate seal of the Corporation shall consist ---- of two concentric circles between which is the name of the Corporation and in the center of which is inscribed SEAL; and such seal, as impressed on the margin hereof, is hereby adopted as the corporate seal of the Corporation. Section 3. Waiver of Notice: Whenever any notice is required to be ---------------- given to any shareholder or director under the provisions of the North Carolina Business Corporation Act or under the provisions of the charter or by-laws of this Corporation, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such notice. Section 4. Fiscal Year: Unless otherwise ordered by the Board of ----------- Directors, the fiscal year of the Corporation shall be from January 1 to December 31. Section 5. Amendments: Except as otherwise provided herein, these ---------- by-laws may be amended or repealed and new by-laws may be adopted by the affirmative vote of a majority of the directors then holding office at any regular or special meeting of the Board of Directors. The Board of Directors shall have no power to adopt a by-law: (1) requiring more than a majority of the voting shares for a quorum at a meeting of shareholders or more than a majority of the votes cast to constitute action by the shareholders, except where higher percentages are required by law; (2) providing for the management of the Corporation otherwise than by the Board of Directors or its Executive Committees; (3) increasing or decreasing the number of directors; (4) classifying and staggering the election of directors. No by- law adopted or amended by the shareholders shall be altered or repealed by the Board of Directors. No provision of the by-laws may be amended, altered or repealed by the shareholders of the corporation unless a meeting of the shareholders is held to act thereon and there is obtained the approval of a percentage of all the votes entitled to be cast on at least eighty percent (80%); provided, however, that the approval of the majority of all the votes entitled to be cast shall be sufficient to approve any such amendment, alteration or repeal that has been favorably recommended to the shareholders by resolution adopted by the affirmative vote of at least seventy-five percent (75%) of the entire Board of Directors. EX-10.XIII 3 0003.txt 2001 STOCK OPTION PLAN EXHIBIT 10(xiii) INVESTORS TITLE COMPANY 2001 STOCK OPTION AND RESTRICTED STOCK PLAN ARTICLE I --------- GENERAL PROVISIONS ------------------ Section 1.1 Purpose. This 2001 Stock Option and Restricted Stock ------- Plan (the "Plan") of Investor's Title Company and its subsidiaries (the "Company") is intended to induce those persons who are in a position to contribute materially to the success of the Company to remain with the Company, to offer them rewards in recognition of their contributions to the Company and to offer them incentives to continue to promote the Company's best interests. Section 1.2 Elements of the Plan. The Plan provides for the grant of -------------------- stock options pursuant to ARTICLE II of the Plan ("Options") and restricted stock awards pursuant to ARTICLE III of the Plan ("Restricted Stock Awards"). Each Option granted pursuant to the Plan shall be designated as provided in ARTICLE II as either an Incentive Stock Option or a Nonqualified Stock Option. Incentive Stock Options granted under the Plan are intended to qualify as such under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and shall be construed and interpreted to comply with the requirements of that section and any regulations promulgated thereunder. Section 1.3 Administration. The Plan shall be administered by an -------------- option committee (the "Committee") appointed by the Board of Directors of the Company (the "Board"). The Committee shall be comprised of not less than two members, all of whom must be persons who are both "Non-Employee Directors" within the meaning of Rule 16b-3 as promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934 and "outside directors" within the meaning of Section 162(m) of the Code and the regulations promulgated thereunder. The Board from time to time may appoint members of the Committee in substitution for or in addition to members previously appointed, and may fill vacancies in the Committee, however caused. Any action by the Committee shall be taken by majority vote at a meeting thereof called in accordance with procedures adopted thereby, or by unanimous written consent of the Committee. Section 1.4 Authority of Committee. ---------------------- (a) Subject to the other provisions of this Plan, the Committee shall have sole authority in its absolute discretion: to grant Options and Restricted Stock Awards under the Plan; to determine the officers, employees and directors to whom Options and/or Restricted Stock Awards shall be granted under the Plan; to determine the number of 1 shares subject to any Option or Restricted Stock Award under the Plan; to fix the option price and the duration of each Option; to establish corporate or individual performance or other vesting standards for Options or Restricted Stock Awards; to establish any other terms and conditions of Options and Restricted Stock Awards; and to accelerate the time at which any outstanding Option may be exercised or the time when restrictions and conditions on Restricted Stock Awards will lapse. The Board may also grant Options and/or Restricted Stock Awards from time to time to consultants who are not employees of the Company. No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option or Restricted Stock Award granted thereunder. In addition, directors or former directors of the Company, including members or former members of the Committee, shall be entitled to indemnification by the Company to the extent permitted by applicable law and by the Company's Articles of Incorporation or Bylaws with respect to any liability or expense arising out of such person's participation in the administration of this Plan. (b) Subject to the other provisions of this Plan, and with a view to effecting its purpose, the Committee shall have sole authority in its absolute discretion: to construe and interpret the Plan; to prescribe, amend, and rescind rules and regulations relating to the Plan; to make any other determinations relating to the Plan; and to do everything necessary or advisable to administer the Plan. (c) All decisions, determinations, and interpretations made by the Committee shall be binding and conclusive on all optionees and holders of restricted stock and on their legal representatives, heirs and beneficiaries. Section 1.5 Shares Subject to the Plan: Reservation of Shares. The ------------------------------------------------- maximum aggregate number of shares of common stock of the Company available pursuant to the Plan for the grant of Options and for Restricted Stock Awards, subject to adjustments as provided in Section 1.7, shall be 250,000 shares of the Company's common stock, no par value (the "Common Stock"). The aggregate number of shares of Common Stock with respect to which Options and Restricted Stock Awards under the Plan may be granted to any individual (including Options and Restricted Stock Awards that are subsequently cancelled) shall not exceed an aggregate of 50,000 shares of Common Stock. If any Option granted pursuant to the Plan expires or terminates for any reason before it has been exercised in full, the unpurchased shares subject to that Option shall again be available for the purposes of the Plan. If any shares issued pursuant to a Restricted Stock Award are forfeited, they shall again be available for the purposes of the Plan. The Company shall at all times reserve and keep available such number of shares of its Common Stock as shall be sufficient to satisfy the requirements of the Plan. Section 1.6 Eligibility. Options and Restricted Stock Awards may be ----------- granted under the Plan to such key employees (including statutory employees within the meaning of Section 3121(d) of the Code), officers, directors or consultants of the Company or a subsidiary of the Company, whether or not employees, as the Committee shall select from time to time in its discretion. Incentive Stock Options, however, may be granted under the Plan only to key employees of the Company or a subsidiary of the Company who qualify for the grant of an Incentive Stock Option under Section 422 of the Code. 2 Section 1.7 Adjustments. If the shares of Common Stock of the ----------- Company are increased, decreased, changed into or exchanged for a different number or kind of shares or securities through merger, consolidation, combination, exchange of shares, other reorganization, recapitalization, reclassification, stock dividend, stock split or reverse stock split in which the Company is the surviving entity, an appropriate and proportionate adjustment shall be made in the maximum number and kind of shares as to which Options and Restricted Stock Awards may be granted under this Plan. A corresponding adjustment changing the number or kind of shares allocated to unexercised Options or unvested Restricted Stock Awards that shall have been granted prior to any such change shall likewise be made. Any such adjustment in outstanding Options shall be made without change in the aggregate purchase price applicable to the unexercised portion of any such Option, but with a corresponding adjustment in the price for each share covered by the Option, and shall be made in a manner as not to constitute a modification, within the meaning of Section 424(h) of the Code, of outstanding Incentive Stock Options. In making any adjustment pursuant to this Section 1.7, any fractional shares shall be disregarded. In the event of a change in the Common Stock of the Company as presently constituted, which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be Common Stock within the meaning of the Plan. The grant of an Option or a Restricted Stock Award under the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes in its capital or business structure. ARTICLE II - ---------- STOCK OPTIONS - ------------- Section 2.1 Grant. The Committee may cause the Company to grant ----- Stock Options for the purchase of shares of Common Stock to eligible participants under the Plan in such amounts as the Committee, in its sole discretion shall determine. Options granted pursuant to the Plan that are intended to qualify as "incentive stock options" under Section 422 of the Code shall be designated as such at the time of their grant and are referred to herein as Incentive Stock Options. Options not intended to qualify as Incentive Stock Options are referred to herein as Nonqualified Stock Options and shall be designated as such in the applicable option agreement. Section 2.2 Terms and Conditions of Options. Options granted under ------------------------------- the Plan shall be evidenced by written agreements ("option agreements") in such form as the Committee may from time to time approve. The terms and conditions of Options granted under the Plan, including the satisfaction of corporate or individual performance or other vesting standards, may differ one from another as the Committee shall in its discretion determine, as long as all Options granted under the Plan satisfy the terms and conditions applicable to Options set forth in this Plan. 3 (a) Number of Shares; Designation. Each Option shall state the ----------------------------- number of shares of Common Stock to which it pertains and that it is either an Incentive Stock Option or a Nonqualified Stock Option. (b) Option Price. Each Option shall state the option price, which ------------ shall not be less than the fair market value (as hereinafter defined) per share of the Common Stock at the time the option is granted (except that for Incentive Stock Options granted to any employee who owns more than 10% of the combined voting power of all classes of stock of the Company, the option price shall not be less than 110% of fair market value). For the purpose of the Plan, the "fair market value" per share of Common Stock on any date of reference shall be the Closing Price of the Common Stock referred to in clauses (i), (ii) or (iii) below, whichever appropriate, on the business day immediately preceding such date. For this purpose, the Closing Price of the Common Stock on any business day shall be: (i) if the Common Stock is listed or admitted for trading on any United States national securities exchange, or if actual transactions are otherwise reported on the National Market System of the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or other consolidated transaction reporting system, the last reported sale price of Common Stock on such exchange or reporting system on which the Common Stock is principally traded, as reported in any newspaper of general circulation; (ii) if clause (i) is not applicable and the Common Stock is otherwise quoted on NASDAQ, or any similar system of automated dissemination of quotations of securities prices in common use, the mean between the closing high bid and low asked quotations for the Common Stock on such system for such day; or (iii) if neither clause (i) nor (ii) is applicable, the mean between the high bid and low asked quotations for the Common Stock as reported by the National Quotation Bureau, Incorporated if at least two securities dealers have inserted both bid and asked quotations for Common Stock on at least five of the preceding ten days. If neither clause (i) nor clauses (ii) or (iii) are applicable, "fair market value" per share of Common Stock shall be such value as shall be determined by the Committee in its sole discretion, unless the Committee shall identify a different method for determining fair market value in a fair and uniform manner. (c) Exercise of Options. Each Option shall be exercisable in one or ------------------- more installments during its term, as provided in the applicable Option agreement, and the right to exercise may be cumulative. No Option may be exercised for a fraction of a share of Common Stock. Unless otherwise provided by the applicable Option agreement, the purchase price of any shares purchased shall be paid in full in cash or by cashier's check payable to the order of the Company, by surrender of shares of Common Stock held by the grantee for more than six months and having a value at the exercise date equal to the exercise price, or through a cashless exercise through a broker-dealer registered with the Securities and Exchange Commission, or by a combination of any of the foregoing. If any portion of the purchase price is paid in shares of Common Stock, those shares shall be valued at their fair market value as of the day of delivery, as determined in accordance with Section 2.2(b). No optionee, or optionee's executor, administrator, legatee, or distributee, shall be deemed to be a holder of any shares subject to an Option unless and until a stock certificate or certificates for such are issued to such person(s) under the terms of the Plan. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the 4 record date is prior to the date such stock certificate is issued, except as provided in Section 1.7. The exercise of Options under the Plan shall be subject to the withholding requirements as set forth in Section 4.2. (d) Written Notice Required. An Option granted pursuant to the terms ------------------------ of this Plan shall be exercised when written notice of that exercise, stating the number of shares with respect to which the Option is being exercised, has been given to the Company at its principal office, from the person entitled to exercise the Option and full payment for the shares with respect to which the Option is exercised has been received by the Company. (e) Options Not Transferable. Options granted pursuant to this Plan ------------------------ may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent or distribution and may be exercised during the lifetime of an optionee only by that optionee. (f) Duration of Options. Each Option and all rights thereunder ------------------- granted pursuant to the terms of this Plan shall expire on the date specified in the applicable option agreement, but in no event shall any Option expire later than ten (10) years from the date on which the Option is granted; provided, however, that any Incentive Stock Option granted to an employee who owns more than 10% of the combined voting power of all classes of stock of the Company may not be exercisable after the date five (5) years from the date the Option is granted. In addition, each Option shall be subject to early termination as provided in this Plan or the applicable option agreement. (g) Termination of Employment, Disability or Death. ---------------------------------------------- (i) If an optionee ceases to be employed by the Company, or any subsidiary corporation, for any reason other than death or disability, any Option granted to such optionee that is unexercised or still subject to any restrictions or conditions shall be terminated and forfeited, unless otherwise provided in the applicable option agreement. (ii) If an optionee becomes disabled within the meaning of Section 22(e)(3) of the Code while employed by the Company, or any subsidiary corporation, any Option may be exercised at any time within three months after the date of termination of employment due to disability, unless a longer or shorter period is provided in the applicable option agreement. (iii) If an optionee dies while employed by the Company, or any subsidiary corporation, any Option shall expire one year after the date of death, unless a longer or shorter period of exercise is provided in the applicable option agreement. During this period, the Option may be exercised, except as otherwise provided in the applicable option agreement, by the person or persons to whom the optionee's rights under the Option shall pass by will or by the laws of descent and distribution, but in no event may the Option be exercisable more than ten years from the date of grant. 5 (iv) Unless otherwise provided in the applicable option agreement, any Option that may be exercised for a period following termination of the optionee's employment may be exercised only to the extent it was exercisable immediately before such termination and in no event after the Option would expire by its terms without regard to such termination. (v) If a nonemployee director ceases to serve the Company in that capacity, the optionee's rights upon such termination shall be governed in the manner of a optionee's rights upon termination of employment as set forth above. (h) Reorganizations. If the Company shall be a party to any merger --------------- or consolidation in which it is not the surviving entity or pursuant to which the shareholders of the Company exchange their Common Stock for other securities or for cash in any acquisition transaction, or if the Company shall dissolve or liquidate or sell all or substantially all of its assets, or upon consummation of a tender offer approved by the Board, all Options outstanding under this Plan, unless otherwise provided in the applicable option agreement, shall terminate on the effective date of such merger, consolidation, dissolution, liquidation, sale or tender offer; provided, however, that prior to such effective date, the Committee may, in its discretion, either (i) make any or all outstanding Options immediately exercisable, (ii) authorize a payment to any optionee that approximates the economic benefit that he would realize if his option were exercised immediately before such effective date, (iii) authorize a payment in such other amount as it deems appropriate to compensate any optionee for the termination of his Option, or (iv) arrange for the granting of a substitute Option to any optionee. Section 2.3 Maximum Amount of Incentive Stock Options. The maximum ----------------------------------------- aggregate fair market value of Common Stock, determined as of the time the Incentive Stock Option is granted, with respect to which Incentive Stock Options are exercisable by an optionee for the first time during any calendar year, under this Plan and all other incentive stock option plans of the Company and any parent, subsidiary, and predecessor corporations, shall not exceed $100,000. Any Option in excess of the foregoing limitation shall be deemed a Nonqualified Stock Option to the extent of such excess. ARTICLE III - ----------- RESTRICTED STOCK AWARDS - ----------------------- Section 3.1 Grant of Restricted Shares. The Committee may cause -------------------------- the Company to grant Restricted Stock Awards to eligible participants under the Plan in such amounts as the Committee, in its sole discretion, shall determine. Restricted Stock Awards may be issued either alone or in addition to Options granted under the Plan. Section 3.2 Agreement. Each Restricted Stock Award shall be --------- evidenced by a written agreement in such form and containing such provisions not inconsistent with the Plan as the Committee may from time to time approve. Each Restricted Stock Award shall be effective as of the date so stated in the resolution of the Committee making the award. 6 Section 3.3 Restrictions and Conditions. Shares of Common Stock --------------------------- awarded under this ARTICLE III shall be subject to such restrictions and conditions, if any, as may be imposed by the Committee at the time of making the award. Such restrictions and conditions may include, without limitation, the satisfaction of specified performance criteria by the Company or by the grantee of the Restricted Stock Award, or other vesting standards; provided, however, that no award shall require any payment of cash consideration by the grantee. Restrictions and conditions imposed on shares of Common Stock awarded under this ARTICLE III may differ from one award to another as the Committee shall, in its discretion, determine. Any restrictions and conditions shall lapse, in whole or in part, as provided in the agreement evidencing the Restricted Stock Award, but must lapse, if at all, not later than ten (10) years from the date of the award. Shares with respect to which no restrictions or conditions are imposed and shares with respect to which the restrictions and conditions imposed thereon have lapsed are hereinafter referred to as "Unrestricted Shares." Shares with respect to which the restrictions and conditions imposed thereon have not lapsed are hereinafter referred to as "Restricted Shares." Section 3.4 Rights as a Shareholder. A holder of Unrestricted Shares ----------------------- shall have all of the rights of a shareholder of the Company with respect thereto and shall be entitled to receive a stock certificate evidencing such Unrestricted Shares. Such certificate shall be issued without legend, except to the extent that a legend may be necessary for compliance with applicable securities laws. A holder of Restricted Shares shall be the record owner thereof and shall, subject to the restrictions and conditions, have all of the rights of a shareholder with respect thereto, including, but not limited to, the right to receive all dividends paid on the Common Stock (ordinary or extraordinary, whether in cash, securities or other property) and the right to vote the Restricted Shares; provided, however, that each stock certificate evidencing Restricted Shares shall bear a conspicuous legend stating that the shares evidenced thereby are subject to restrictions as to transferability as provided in Section 3.6 and to such other restrictions and conditions as have been imposed by the Committee, and each such certificate shall be deposited by the Holder with the Company or its designee together with a stock power endorsed in blank. Section 3.5 Forfeiture. Unless otherwise provided in the applicable ---------- Restricted Stock Award agreement, upon termination of the grantee's employment with the Company or any of its subsidiaries for any reason whatsoever (voluntarily or involuntarily, with or without cause), all Restricted Shares then owned by him shall automatically and without any action on his part be forfeited and transferred to the Company. Section 3.6 Transferability. Restricted Shares held by a grantee --------------- shall not be subject to alienation, sale, transfer, assignment, pledge, attachment or encumbrances of any kind, and any attempt to alienate, sell, transfer, assign, pledge or otherwise encumber any Restricted Shares shall be void. In addition, the Company may impose such restrictions on the transfer of Unrestricted Shares as it deems necessary or desirable to assure compliance with all applicable federal and state securities laws. 7 Section 3.7 Adjustments. If there is a change in the Common Stock of ----------- the Company as described in Section 1.7 of this Plan, any stock or other securities or other property issued with respect to Restricted Shares shall be subject to the same restrictions and conditions as are applicable to such Restricted Shares, and the certificates or other evidence of such stock, securities or other property, together with an appropriate stock power or power of attorney, shall be delivered to the Company or its designee and held until such time as the restrictions and conditions applicable thereto lapse or until the stock, securities or other property is forfeited in accordance with the provisions of this ARTICLE III. If the Company shall be a party to any merger or consolidation in which it is not the surviving company or pursuant to which the shareholders of the Company exchange their Common Stock for other securities or for cash in any acquisition transaction, if the Company shall dissolve or liquidate or sell all or substantially all of its assets, or upon consummation of a tender offer approved by the Board, the Committee may, in its discretion, cause all Restricted Stock Awards that are still subject to any restrictions and conditions to become immediately vested in full on the effective date of any such transaction, unless otherwise provided in the applicable agreement evidencing such Restricted Stock Award. ARTICLE IV - ---------- MISCELLANEOUS PROVISIONS - ------------------------ Section 4.1 Tax Reimbursement Payments or Loans. In view of the ----------------------------------- federal and state income tax savings expected to be realized by the Company upon exercise of a Nonqualified Stock Option or the lapse of restrictions and conditions imposed upon Restricted Shares, the Committee may, in its discretion, provide that the Company will make a cash payment or a loan or a combination thereof to the grantee of a Nonqualified Stock Option or the recipient of a Restricted Stock Award (or his personal representatives or heirs) for the purpose of assisting such optionee or grantee in the payment of personal income taxes arising from such exercise or lapse of restrictions and conditions. The basis for determining the amount and conditions of such cash payment or loan or combination thereof and the terms and conditions of any such loan shall be specified in the agreement pursuant to which the grant or award is made or may be subsequently determined by the Committee. The Committee, in its discretion, may from time to time forgive any such loan in whole or in part. Section 4.2 Tax Withholding. No optionee shall be entitled to --------------- issuance of a stock certificate representing shares purchased upon exercise of a Nonqualified Stock Option, and no grantee of a Restricted Stock Award shall be entitled to issuance of a stock certificate evidencing Unrestricted Shares, until such optionee or grantee has paid, or made arrangements for payment, to the Company of an amount equal to the income and other taxes that the Company is required to withhold from such person as a result of his exercise of a Nonqualified Stock Option or his receipt of Unrestricted Shares. In addition, such amounts as the Company is required to withhold by reason of any tax reimbursement payments made pursuant to Section 4.1 may be deducted from such payments. Section 4.3 Employment. Nothing in the Plan or in any Option or ---------- Restricted Stock Award shall confer upon any eligible employee any right to continued employment by the 8 Company or any subsidiary of the Company, or limit in any way the right of the Company or any subsidiary of the Company at any time to terminate or alter the terms of that employment. Section 4.4 Effective Date of Plan. This Plan shall be effective ---------------------- February 12, 2001, the date of adoption of the Plan by the Board of Directors of the Company, subject to approval of the Plan by the shareholders of the Company by the majority of the votes cast at a meeting at which a majority of the Company's Common Stock is present either in person or by proxy held within 12 months of the date of adoption of the Plan by the Board. Section 4.5 Termination and Amendment of Plan. The Plan may be --------------------------------- amended, revised or terminated at any time by the Board; provided, however, that no amendment or revision shall, without the approval of the Company's Shareholders, (a) increase the maximum aggregate number of shares subject to this Plan, except as permitted under Section 1.7; (b) change the minimum purchase price for shares subject to Options granted under the Plan; (c) extend the maximum duration established under the Plan for any Option or for a Restricted Stock Award; or (d) permit the granting of an Option or Restricted Stock Award to anyone other than those individuals described in Section 1.6 hereof. Unless sooner terminated, the Plan shall terminate on February 11, 2011. No Option or Restricted Stock Award shall be granted under the Plan after the Plan is terminated. Section 4.6 Prior Rights and Obligations. No amendment, suspension, ---------------------------- or termination of the Plan shall, without the consent of the person who has received an Option or Restricted Stock Award, alter or impair any of that person's rights or obligations under any Option or Restricted Stock Award granted under the Plan prior to such amendment, suspension, or termination. Section 4.7 Securities Laws. Shares of Common Stock issuable --------------- pursuant to this Plan may, at the option of the Company, be registered under applicable federal and state securities laws, but the Company shall have no obligation to undertake such registrations and may, in lieu thereof, issue shares hereunder only pursuant to applicable exemptions from such registrations. In the event that no such registrations are undertaken, the shares shall be issued only to persons who qualify to receive such shares in accordance with the exemption from registration on which the Company relies. In connection with any award of shares or the reissuance of certificates under the Plan, the Committee may require appropriate representations from the recipient of such shares and take such other action as the Committee may deem necessary, including but not limited to placing restrictive legends on certificates evidencing such shares and placing stop transfer instructions in the Company's stock transfer records, or delivering such instructions to the Company's transfer agent, in order to assure compliance with any such exemptions. Notwithstanding any other provision of the Plan, no shares will be issued pursuant to the Plan unless such shares have been registered under all applicable federal and state securities laws or unless, in the opinion of counsel satisfactory to the Company, exemptions from such registrations are available. 9 EX-13 4 0004.txt PORTIONS OF 2000 ANNUAL REPORT EXHIBIT 13 Investors Title Company and Subsidiaries Financial Highlights - --------------------------------------------------------------------------------
For the Year 2000 1999 1998 1997 1996 Net premiums written $37,690,752 $43,819,565 $45,379,696 $29,875,350 $21,111,155 - -------------------------------------------------------------------------------------------------------------------- Revenues 42,229,768 47,366,559 48,476,263 32,390,516 22,991,182 - -------------------------------------------------------------------------------------------------------------------- Investment income 2,528,143 2,175,671 1,834,949 1,628,188 1,352,932 - -------------------------------------------------------------------------------------------------------------------- Net income 3,140,463 4,420,394 5,459,509 4,530,382 3,843,537 - -------------------------------------------------------------------------------------------------------------------- Per Share Data Basic earnings per common share $ 1.21 $ 1.59 $ 1.95 $ 1.63 $ 1.39 - -------------------------------------------------------------------------------------------------------------------- Weighted average shares outstanding - Basic 2,594,891 2,776,878 2,806,267 2,782,449 2,772,286 - -------------------------------------------------------------------------------------------------------------------- Diluted earnings per common share $ 1.21 $ 1.59 $ 1.92 $ 1.60 $ 1.37 - -------------------------------------------------------------------------------------------------------------------- Weighted average shares outstanding - Diluted 2,601,283 2,786,282 2,841,035 2,826,730 2,813,001 - -------------------------------------------------------------------------------------------------------------------- Cash dividends per share $ .12 $ .12 $ .12 $ .12 $ .095 At Year End Assets $59,339,007 $55,156,564 $51,597,812 $41,293,007 $33,642,528 - -------------------------------------------------------------------------------------------------------------------- Investments in securities 41,055,901 35,510,048 33,799,124 31,124,410 23,573,663 - -------------------------------------------------------------------------------------------------------------------- Stockholders' equity 39,189,649 37,501,740 36,328,665 31,128,908 25,988,177 - -------------------------------------------------------------------------------------------------------------------- Book value/share 15.27 13.70 12.93 11.12 9.39 - -------------------------------------------------------------------------------------------------------------------- Performance Ratios Net income to: Average stockholders' equity 8.19% 11.97% 16.19% 15.86% 15.95% - -------------------------------------------------------------------------------------------------------------------- Total revenues (profit margin) 7.44% 9.33% 11.26% 13.99% 16.72% - --------------------------------------------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- The following discussion should be read in conjunction with the consolidated financial statements and the related footnotes on pages 12-22 of this report. OVERVIEW Investors Title Company (the "Company") engages primarily in two segments of business. The main business activity is the issuance of title insurance through two title insurance subsidiaries, Investors Title Insurance Company ("ITIC") and Northeast Investors Title Insurance Company ("NE-ITIC"). Factors which influence the land title business include mortgage interest rates, the availability of mortgage funds, the level of real estate activity, the cost of real estate, consumer confidence, the supply and demand of real estate, inflation and general economic conditions. The Company's second segment provides tax-free exchange services through its two subsidiaries, Investors Title Exchange Corporation ("ITEC") and Investors Title Accommodation Corporation ("ITAC"). ITEC serves as a qualified intermediary in (S)1031 like-kind exchanges of real or personal property. ITAC serves as exchange accommodation titleholder in reverse exchanges. During the past three years, the overall economic environment coupled with relatively low mortgage interest rates has favorably impacted the level of real estate activity. In 1999 and 1998, these factors contributed to two consecutive years of record levels of new and existing home sales. According to the Freddie Mac Weekly Mortgage Rate Survey, the monthly average 30-year fixed mortgage interest rates were reported to be 8.05%, 7.44% and 6.94% in 2000, 1999 and 1998, respectively. Based on data published by the Mortgage Bankers Association, housing starts were 1.6 million, 1.67 million and 1.62 million in 2000, 1999 and 1998, respectively. New and existing home sales were 6.03 million, 6.1 million and 5.85 million in 2000, 1999 and 1998, respectively. During 1998, the monthly average 30-year fixed mortgage interest rates started out at 7.1% and ended the year at 6.74%. The overall decline in interest rates spurred an increase in real estate sales, which was a contributing factor to the increase of $15,504,346 in the Company's 1998 net premiums written compared with 1997 net premiums written. In 1999, the monthly average 30-year fixed mortgage interest rates climbed steadily, starting the year at 6.74% and ending at 7.91%. The increase in mortgage interest rates resulted in a slowdown in mortgage originations and a dramatic decline in refinance activity. The higher level of interest rates and resulting drop in refinance lending contributed substantially to the decrease of $1,560,131 in premiums written in 1999 compared with 1998 premiums written. In January of 2000, the monthly average 30-year fixed mortgage interest rate was 7.91%; it rose to 8.52% by May, and then began a steady decline to end the year at 7.38%. The higher level of interest rates in the first half of the year contributed to the decrease of $6,128,813 in premiums written in 2000 compared with 1999 premiums written. During the fourth quarter of 2000, premium volume began to improve due to declining mortgage interest rates. Management cannot predict the future level of mortgage interest rates nor the impact such rates will have on home sales, housing starts, mortgage lending or other real estate activity. The Company strives to offset the cyclical nature of the real estate market by increasing its market share. This effort includes expanding into new markets primarily by continuing to develop agency relationships, as well as improving market penetration with existing offices and agents. CREDIT RATING ITIC has been recognized by two independent Fannie Mae approved actuarial firms, Demotech, Inc. and Lace Financial Corporation, 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, Demotech, Inc. and Lace Financial Corporation, with rating categories of "A Prime - unsurpassed financial stability" and "A - strong overall financial condition." RESULTS OF OPERATIONS OPERATING REVENUES A summary by segment of the Company's operating revenues is as follows:
2000 1999 1998 - ---------------------------------------------------------------------------------- Title Insurance $37,925,106 95.8% $43,942,374 98.2% $45,553,649 98.5% Exchange Services 1,046,178 2.6% 723,854 1.6% 636,839 1.4% All Other 626,130 1.6% 106,265 .2% 52,216 .1% - ---------------------------------------------------------------------------------- $39,597,414 100% $44,772,493 100% $46,242,704 100% =========== =========== ===========
Title Insurance: Net premiums written decreased 14% and 3% in 2000 and 1999, respectively and increased 52% in 1998. The decline in sales in 2000 resulted primarily from increases in mortgage interest rates in the first half of the year coupled with a dramatic decline in refinance activity. In 2000, the number of policies and commitments issued declined to 196,836, a decrease of 23% compared with 256,272 in 1999. In 1999, policies and commitments issued declined by 24,979 policies, a decrease of 9% compared with 281,251 in 1998. The number of policies and commitments issued increased by 97,014 in 1998, an increase of 53% compared with 184,237 in 1997. 8 Shown below is a schedule of net premiums written for 2000, 1999 and 1998 in all states where our two insurance subsidiaries, Investors Title Insurance Company and Northeast Investors Title Insurance Company, underwrite title insurance:
2000 1999 1998 ---------------------------------------------------------- Alabama $ - $ 1,003 $ - Arkansas - - 17,711 Florida - - 75,957 Georgia 209,300 499,194 715,560 Indiana 400,488 409,630 158,194 Kentucky - 4,527 252 Maryland 525,177 597,470 515,763 Michigan 6,395,071 6,760,538 9,145,165 Minnesota 851,836 1,693,036 1,044,599 Mississippi 35,509 22,537 37,479 Nebraska 1,103,168 1,135,924 791,121 New York 770,082 542,497 507,324 North Carolina 15,825,323 19,713,637 21,188,663 Ohio 43,810 - - Pennsylvania 962,331 45,682 7,783 South Carolina 3,893,692 5,016,808 3,940,872 Tennessee 1,097,654 607,047 219,649 Virginia 4,772,838 6,143,420 7,020,000 West Virginia 1,127,715 895,745 232,426 Wisconsin 6,923 9,350 - ----------- ----------- ----------- Direct Premiums 38,020,917 44,098,045 45,618,518 Reinsurance Income 32,363 46,732 73,805 Reinsurance Ceded (362,528) (325,212) (312,627) ----------- ----------- ----------- Net Premiums Written $37,690,752 $43,819,565 $45,379,696 =========== =========== ===========
Branch net premiums written as a percentage of total net premiums written were 42.2%, 45.2% and 46.9% in 2000, 1999 and 1998, respectively. Net premiums written from branch operations decreased 19.8% in 2000 compared with 1999 and decreased 6.9% in 1999 compared with 1998. Agency net premiums written as a percentage of total net premiums written were 57.8%, 54.8% and 53.1% in 2000, 1999 and 1998, respectively. Net premiums written from agency operations decreased 9.2% in 2000 compared with 1998. Net premiums written from agency operations remained virtually flat in 1999 compared with 1998. Exchange Services: Operating revenues from exchange transactions increased 44.5%, 13.7% and 18.5% in 2000, 1999 and 1998, respectively. The increase in revenue for these exchange services resulted from ongoing marketing efforts and the increased use of (S)1031 exchanges by taxpayers to defer capital gain taxes. On September 15, 2000, the Internal Revenue Service issued Revenue Procedure 2000-37, which provides a safe harbor for reverse exchanges. The original safe harbors, which established procedures to follow for standard exchange transactions, excluded the more complicated reverse transactions. The Company has dedicated a separate subsidiary to assist clients in structuring this type of exchange. 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. Generally, 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, especially as these changes relate to refinance activity. Exchange Services: Seasonal factors affecting the level of real estate activity and the volume of title insurance premiums written will also affect the demand for exchange services. INVESTMENT INCOME Investments are an integral part of the Company's business. In formulating its investment strategy, the Company has emphasized after-tax income. Investments in marketable securities have increased from funds retained in the Company. The investments are primarily in debt securities, and to a lesser extent, equity securities. The effective maturity of the majority of the fixed income investments is within 15 years. As new funds become available, they are invested in accordance with the Company's investment policy and corporate goals. Securities purchased may include a combination of taxable fixed income securities, tax-exempt securities and equities. The Company strives to maintain a high quality investment portfolio. Investment income increased 16.2%, 18.6% and 12.7% in 2000, 1999 and 1998, respectively. These increases were primarily attributable to increases in the average investment portfolio balances. EXPENSES A summary by segment of the Company's operating expenses is as follows: 2000 1999 1998 - ---------------------------------------------------------------------------------- Title Insurance $36,925,644 97.3% $40,368,076 98.7% $40,314,905 98.9% Exchange Services 225,330 .6% 178,627 .4% 137,444 .3% All Other 818,331 2.1% 358,462 .9% 328,405 .8% - ---------------------------------------------------------------------------------- $37,969,305 100% $40,905,165 100% $40,780,754 100% =========== =========== ===========
On a consolidated basis, profit margins were 7.44%, 9.33% and 11.26% in 2000, 1999 and 1998, respectively. The decrease of 14% in net premiums written coupled with a smaller decrease of only 7% in operating expenses contributed to the decline in profit margin for 2000. Expenses increased due to investments in technology and costs associated with entering and supporting new market areas. Title Insurance: Profit margins for the title insurance segment were 6.02%, 8.39% and 10.48% in 2000, 1999 and 1998, respectively. The decrease in premiums written, an increase in the percentage of business received from agents and the fixed nature of certain operating expenses contributed to the decline in profit margins. Profit margins from agent business are typically lower than those from branch business since agent commissions are generally higher than the operating expenses incurred for direct business. In order to maintain and improve margins, the Company strives to identify opportunities to refine operating procedures and to implement programs designed to reduce expenses. Commissions decreased 9.2% and 2% in 2000 and 1999, respectively and increased 72.9% in 1998. Overall, commission expense as a percentage of agent premiums written has remained relatively constant for the last three years. Commission rates vary geographically and may be influenced by state regulations. 9 The provision for claims as a percentage of net premiums written was 15.6%, 13.8% and 17.8% in 2000, 1999 and 1998, respectively. The change in the provision reflects actual payments of claims, net of recovery amounts, plus adjustments to the claims reserves, which are actuarially determined based on historical claims experience. Payments of claims, net of recoveries, were $3,785,355, $3,524,064 and $2,354,425 in 2000, 1999 and 1998, respectively. The Company has continued to strengthen its reserves for claims. At December 31, 2000, the total reserves for claims were $17,944,665. Of that total, $2,410,360 was reserved for specific claims, and $15,534,305 was reserved for claims for which the Company had no notice. Management relies on actuarial techniques to estimate future claims by analyzing historical claim payment patterns. Claims reserves are reviewed and certified as to their adequacy by independent actuaries annually. There are no known claims which are expected to have a materially adverse effect on the Company's financial position. On a consolidated basis, salaries and employee benefits as a percentage of net premiums written were 25.5%, 22.5% and 18.2% in 2000, 1999 and 1998, respectively. These expenses have risen due to staff increases in the information systems and business development areas. The title insurance segment's total salaries and employee benefits accounted for 95%, 98% and 99% of total salaries for 2000, 1999 and 1998, respectively. On a consolidated basis, office occupancy and operations as a percentage of net premiums was 9.5%, 9.7% and 7.1% in 2000, 1999 and 1998, respectively. The title insurance segment's total office occupancy and operations accounted for 93.5%, 94.9% and 94.9% in 2000, 1999 and 1998, respectively. Premium and retaliatory taxes decreased 13% and 2.1% in 2000 and 1999, respectively and increased 48.6% in 1998, in direct proportion to the fluctuations in premium volume. Exchange Services: The exchange services segment's total operating expenses as a percentage of the Company's total expenses were .6%, .4% and .3% for 2000, 1999 and 1998, respectively. The increase in operating expenses was due to the growth in revenues. NET INCOME A summary by segment of the Company's net income is as follows:
2000 1999 1998 - ------------------------------------------------------------------------------- Title Insurance $2,434,088 77.5% $3,894,681 88.1% $4,999,099 91.6% Exchange Services 514,921 16.4% 340,263 7.7% 312,578 5.7% All Other 191,454 6.1% 185,450 4.2% 147,832 2.7% - ------------------------------------------------------------------------------- $3,140,463 100% $4,420,394 100% $5,459,509 100% ========== ========== ==========
On a consolidated basis, the Company reported a decrease in net income of 29% and 19% in 2000 and 1999, respectively and an increase in net income of 20.5% in 1998. The decreases in 2000 and 1999 were primarily due to decreases in net premiums written of 14% and 3.4%, partially offset by increases in net income of the exchange services segment and increases in investment income. The increase in 1998 was primarily attributable to increased revenues and improved operating efficiencies resulting from expense control procedures. Title Insurance: Net income for the title insurance segment decreased 37.5%, 22.1% and increased 16.8% in 2000, 1999 and 1998, respectively. Decreases in net premiums written, coupled with the fixed nature of certain operating expenses contributed to the decreases in net income for 2000 and 1999. Exchange Services: The exchange services segment saw net income increases of 51.3%, 8.9% and 21.8% in 2000, 1999 and 1998, respectively. The increased marketing efforts of ITEC's and ITAC's services contributed to the growth in net income. LIQUIDITY AND CAPITAL RESOURCES Cash flows provided by operating activities were $7,135,956, $7,738,524 and $8,887,438 in 2000, 1999 and 1998, respectively. The decrease in 2000 is primarily the result of the decrease in net income compared with 1999. As of December 31, 2000, 1999 and 1998, approximately $36,792,000, $33,322,000 and $31,219,000 respectively, of the consolidated stockholders' equity represent net assets of the Company's subsidiaries that cannot be transferred in the form of dividends, loans or advances to the parent company under statutory regulations without prior insurance department approval. The parent company's ability to pay dividends and operating expenses is dependent on funds received from the insurance subsidiaries. The Company believes amounts available for transfer from the insurance subsidiaries are adequate to meet the parent company's operating needs. On December 9, 1996, the Board of Directors approved the repurchase by the Company of up to 150,000 shares of the Company's common stock from time to time at prevailing market prices. A portion of the repurchases is to avoid dilution to existing shareholders as a result of issuances of stock in connection with stock options and stock bonuses. Pursuant to this approval, the Company repurchased all 150,000 shares at an average price of $19.37 per share including 6,211 shares purchased at an average purchase price of $17.58 during 2000, 99,645 shares at an average purchase price of $19.05 per share during 1999 and 22,010 shares at an average purchase price of $23.60 per share during 1998. On May 11, 1999 the Board of Directors approved the repurchase of an additional 200,000 shares of the Company's common stock. Pursuant to this approval, the Company repurchased 174,234 shares in the twelve months ended December 31, 2000 at an average per share price of $12.18. On May 9, 2000 the Board of Directors approved the repurchase of an additional 500,000 shares of the Company's common stock. As of March 29, 2001, no shares have been repurchased pursuant to this approval. During the twelve months ended December 31, 2000, the Company repurchased common stock for $2,230,797 and issued common stock totaling $142,680 in satisfaction of stock option exercises, stock bonuses and other stock issuances. In 2000, retained earnings had a net increase of $709,657, after repurchases and issuances reduced retained earnings by $2,088,117. 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 its investment portfolio in the form of short- term investments and other readily marketable securities. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary exposure to market risk relates to the impact of adverse changes in interest rates and market prices of its investment portfolio. Increases in interest rates diminish the value of fixed-income securities and preferred stock and decreases in stock market values diminish the value of common stocks held. 10 CORPORATE OVERSIGHT The Company generates substantial investable funds from its two insurance subsidiaries. In formulating and implementing policies for investing new and existing funds, the Company has emphasized maximizing total after-tax return on capital and earnings while ensuring the safety of funds under management and adequate liquidity. The Company's Board of Directors oversees investment risk management processes. The Company seeks to invest premiums and other income to create future cash flows that will fund future claims, employee benefits and expenses, and earn stable margins across a wide variety of interest rate and economic scenarios. The Board has established specific investment policies that define the overall framework for managing market and other investment risks, including the accountabilities and controls over these activities. The Company may use the following tools to manage its exposure to market risk within defined tolerance ranges: 1) rebalance its existing asset portfolios or 2) change the character of future investments. INTEREST RATE RISK Interest rate risk is the risk that the Company will incur economic losses due to adverse changes in interest rates. This risk arises from the Company's investments in interest sensitive debt securities. These securities are primarily fixed-rate municipal bonds and corporate bonds. The Company does not purchase such securities for trading purposes. At December 31, 2000, the Company had approximately $36 million in fixed-rate bonds. The Company manages the interest rate risk inherent in its assets by monitoring its liquidity needs and by targeting a specific range for the portfolio's duration or weighted average maturity. To determine the potential effect of interest rate risk on interest sensitive assets, the Company calculates the effect of a 10% change in prevailing interest rates ("rate shock") on the fair market value of these securities considering stated interest rates and time to maturity. Based upon the information and assumptions the Company uses in its calculation, management estimates that a 10% immediate, parallel increase in prevailing interest rates would decrease the net fair market value of its debt securities by approximately $1.3 million. The selection of a 10% immediate parallel increase in prevailing interest rates should not be construed as a prediction by the Company's management of future market events, but rather, to illustrate the potential impact of such an event. To the extent that actual results differ from the assumptions utilized, the Company's rate shock measures could be significantly impacted. Additionally, the Company's calculation assumes that the current relationship between short-term and long-term interest rates (the term structure of interest rates) will remain constant over time. As a result, these calculations may not fully capture the impact of nonparallel changes in the term structure of interest rates and/or large changes in interest rates. EQUITY PRICE RISK Equity price risk is the risk that the Company will incur economic losses due to adverse changes in a particular stock or stock index. At December 31, 2000, the Company had approximately $4.2 million in common stocks. By statutory policy, the Company's maximum exposure to the equity market is limited to 20% of the Company's statutorily admitted assets. Equity price risk is addressed in part by varying the specific allocation of equity investments over time pursuant to management's assessment of market and business conditions and ongoing liquidity needs analysis. The Company's largest equity exposure is declines in the S&P 500; its portfolio of equity instruments is similar to those that comprise this index. Based upon the information and assumptions the Company used in its calculation, management estimates that an immediate decrease in the S&P 500 of 10% would decrease the net fair value of the Company's assets identified above by approximately $425,000. The selection of a 10% immediate decrease in the S&P 500 should not be construed as a prediction by the Company's management of future market events, but rather, to illustrate the potential impact of such an event. Since this calculation is based on historical performance, projecting future price volatility using this method involves an inherent assumption that historical volatility and correlation relationships will remain stable. Therefore, the results noted above may not reflect the Company's actual experience if future volatility and correlation relationships differ from such historical relationships. 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 with factors beyond the control of the Company such as changes in mortgage interest rates, availability of mortgage funds, level of real estate activity, cost of real estate, consumer confidence, supply and demand for real estate, inflation and general economic conditions; (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 dependence of the Company on key management personnel the loss of whom could have a material adverse affect 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. 11 SELECTED QUARTERLY FINANCIAL DATA
2000 March 31 June 30 September 30 December 31 Net premiums written $ 8,370,138 $10,065,032 $10,102,818 $9,152,764 - ---------------------------------------------------------------------------------------- Investment income 591,791 576,317 624,205 735,830 - ---------------------------------------------------------------------------------------- Net income 521,607 734,759 1,145,484 738,613 - ---------------------------------------------------------------------------------------- Basic earnings per common share .20 .28 .44 .29 - ---------------------------------------------------------------------------------------- Diluted earnings per common share .20 .28 .44 .29 - ---------------------------------------------------------------------------------------- 1999 Net premiums written $10,694,237 $12,384,887 $11,258,080 $9,482,361 - ---------------------------------------------------------------------------------------- Investment income 470,127 498,650 544,322 662,572 - ---------------------------------------------------------------------------------------- Net income 1,176,318 1,472,027 1,303,516 468,533 - ---------------------------------------------------------------------------------------- Basic earnings per common share .42 .53 .47 .17 - ---------------------------------------------------------------------------------------- Diluted earnings per common share .42 .53 .47 .17 - ----------------------------------------------------------------------------------------
Investors Title Company and Subsidiaries - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- as of December 31, 2000 and 1999
2000 1999 ----------- ----------- Assets Cash and cash equivalents.................................................. $ 7,850,991 $ 7,554,297 Investments in securities (Notes 2 and 3): Fixed maturities: Held-to-maturity, at amortized cost (fair value: 2000: $4,485,969; 1999: $4,446,988........................................... 4,375,127 4,565,871 Available-for-sale, at fair value (amortized cost: 2000: $30,960,414; 1999: $26,629,880).................................. 31,710,705 25,931,918 Equity securities, at fair value (cost: 2000: $2,434,367; 1999: $2,510,505)......................................................... 4,970,069 5,012,259 ----------- ----------- Total investments..................................................... 41,055,901 35,510,048 Premiums receivable (less allowance for doubtful accounts: 2000: $725,000; 1999: $775,000)................................. 3,023,304 3,292,001 Accrued interest and dividends............................................. 616,652 521,624 Prepaid expenses and other assets.......................................... 1,091,416 930,981 Property acquired in settlement of claims.................................. 204,117 191,617 Property, net (Note 4)..................................................... 5,496,626 5,836,466 Prepaid federal income taxes............................................... - 705,437 Deferred income taxes, net (Note 8)........................................ - 614,093 ----------- ----------- Total Assets (Note 13)....................................................... $59,339,007 $55,156,564 =========== =========== Liabilities and Stockholders' Equity Liabilities: Reserves for claims (Note 6)............................................... $17,944,665 $15,864,665 Accounts payable and accrued liabilities................................... 1,918,034 1,560,936 Commissions and reinsurance payables (Note 5).............................. 222,748 208,605 Premium taxes payable...................................................... - 20,618 Current income taxes payable............................................... 24,069 - Deferred income taxes, net (Note 8)........................................ 39,842 - ----------- ----------- Total liabilities....................................................... 20,149,358 17,654,824 ----------- ----------- Commitments and Contingencies (Notes 5, 9 and 11) Stockholders' Equity (Notes 2, 3, 7 and 12): Common stock-no par value (shares authorized 6,000,000; 2,855,744 and 2,855,744 shares issued; and 2,566,859 and 2,736,961 shares outstanding 2000 and 1999, respectively)............................................................. 1 1 Retained earnings.......................................................... 37,021,270 36,311,613 Accumulated other comprehensive income (net unrealized gain on investments) (net of deferred taxes: 2000: $1,117,615; 1999: $613,667) (Note 8)...................................... 2,168,378 1,190,126 ----------- ----------- Total stockholders' equity.............................................. 39,189,649 37,501,740 ----------- ----------- Total Liabilities and Stockholders' Equity................................... $59,339,007 $55,156,564 =========== ===========
See notes to consolidated financial statements. 12 Investors Title Company and Subsidiaries - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME - -------------------------------------------------------------------------------- for the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998 ----------- ----------- ------------ Revenues: Underwriting income: Premiums written (Note 5)............................................ $38,053,280 $44,144,777 $ 45,692,323 Less-premiums for reinsurance ceded (Note 5)........................ 362,528 325,212 312,627 ----------- ----------- ------------ Net premiums written................................................. 37,690,752 43,819,565 45,379,696 Investment income-interest and dividends (Note 3)....................... 2,528,143 2,175,671 1,834,949 Net realized gain on sales of investments (Note 3)...................... 104,211 418,395 398,610 Other................................................................... 1,906,662 952,928 863,008 ----------- ----------- ------------ Total................................................................ 42,229,768 47,366,559 48,476,263 ----------- ----------- ------------ Operating Expenses: Commissions to agents................................................... 15,470,852 17,045,552 17,399,629 Provision for claims (Note 6)........................................... 5,865,355 6,026,064 8,094,950 Salaries, employee benefits and payroll taxes (Notes 7 and 10).......... 9,602,572 9,842,328 8,248,365 Office occupancy and operations (Note 9)................................ 3,568,760 4,238,753 3,241,118 Business development.................................................... 1,515,428 1,662,485 1,381,717 Taxes, other than payroll and income.................................... 309,098 265,467 262,995 Premium and retaliatory taxes........................................... 750,697 862,414 880,885 Professional fees....................................................... 749,047 782,331 391,971 Provision for equipment disposal........................................ - - 280,000 Other................................................................... 137,496 179,771 599,124 ----------- ----------- ------------ Total................................................................ 37,969,305 40,905,165 40,780,754 ----------- ----------- ------------ Income Before Income Taxes (Note 13)...................................... 4,260,463 6,461,394 7,695,509 Provision For Income Taxes (Notes 8 and 13)............................... 1,120,000 2,041,000 2,236,000 ----------- ----------- ------------ Net Income (Notes 7 and 12)............................................... $ 3,140,463 $ 4,420,394 $ 5,459,509 =========== =========== ============ Basic Earnings per Common Share (Note 7).................................. $ 1.21 $ 1.59 $ 1.95 =========== =========== ============ Weighted Average Shares Outstanding - Basic............................... 2,594,891 2,776,878 2,806,267 =========== =========== ============ Diluted Earnings per Common Share (Note 7)................................ $ 1.21 $ 1.59 $ 1.92 =========== =========== ============ Weighted Average Shares Outstanding - Diluted............................. 2,601,283 2,786,282 2,841,035 =========== =========== ============
See notes to consolidated financial statements. 13 Investors Title Company and Subsidiaries - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- for the Years Ended December 31, 2000, 1999 and 1998
Accumulated Other Comprehensive Income (Net Total Common Stock Retained Unrealized Gain Stockholders' Shares Amount Earnings on Investments) Equity ------ ------ -------- -------------- ------ Balance, January 1, 1998.................................. 2,800,240 $ 879,612 $ 27,933,688 $ 2,315,608 $31,128,908 Net income....................................... 5,459,509 5,459,509 Dividends ($.12 per share)....................... (342,689) (342,689) Distributions of 8,883 shares of common stock (net of purchases)............ 8,883 (147,159) (147,159) Net unrealized gain on investments............... 230,096 230,096 --------- ----------- ------------ ----------- ----------- Balance, December 31, 1998................................ 2,809,123 732,453 33,050,508 2,545,704 36,328,665 Net income....................................... 4,420,394 4,420,394 Dividends ($.12 per share)....................... (342,689) (342,689) Purchases of 72,162 shares of common stock (net of distributions)........ (72,162) (732,452) (816,600) (1,549,052) Net unrealized gain on investments............... (1,355,578) (1,355,578) --------- ----------- ------------ ----------- ----------- Balance, December 31, 1999................................ 2,736,961 1 36,311,613 1,190,126 37,501,740 Net income....................................... 3,140,463 3,140,463 Dividends ($.12 per share)....................... (342,689) (342,689) Purchases of 170,102 shares of common stock (net of distributions)........ (170,102) (2,088,117) (2,088,117) Net unrealized gain on investments............... 978,252 978,252 --------- ----------- ------------ ----------- ----------- Balance, December 31, 2000................................ 2,566,859 $ 1 $ 37,021,270 $ 2,168,378 $39,189,649 ========= =========== ============ =========== ===========
Investors Title Company and Subsidiaries - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - -------------------------------------------------------------------------------- for the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998 ----------- ----------- ------------ Net income........................................ $ 3,140,463 $ 4,420,394 $ 5,459,509 ----------- ----------- ------------ Other comprehensive income, before tax: Unrealized gain (loss) on investments arising during the year......................... 1,586,411 (1,635,511) 747,240 Less: reclassification adjustment for gains realized in net income........................ (104,211) (418,395) (398,610) ----------- ----------- ------------ Other comprehensive income (loss), before tax............................................ 1,482,200 (2,053,906) 348,630 Income tax expense (benefit) related to unrealized gain (loss) on investments arising during the year........................ 539,380 (556,074) 254,061 Income tax expense related to reclassification adjustment for net gain realized in net income.................. (35,432) (142,254) (135,527) ----------- ----------- ------------ Net income tax expense (benefit) on other comprehensive income........................... 503,948 (698,328) 118,534 ----------- ----------- ------------ Other comprehensive income (loss)................. 978,252 (1,355,578) 230,096 ----------- ----------- ------------ Comprehensive income.............................. $ 4,118,715 $ 3,064,816 $ 5,689,605 =========== =========== ============
See notes to consolidated financial statements. 14 Investors Title Company and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS for the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998 ---- ---- ---- Operating Activities: Net income............................................................. $ 3,140,463 $ 4,420,394 $ 5,459,509 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation....................................................... 794,689 470,843 393,026 Amortization (accretion), net...................................... (1,312) 34,195 (4,141) Provision (benefit) for losses on premiums receivable.............. (50,000) - 425,000 Provision for equipment disposal................................... - - 280,000 (Gain) loss on disposals of property............................... (4,523) 45,216 (16,182) Net realized gain on sales of investments.......................... (104,211) (418,395) (398,610) Provision (benefit) for deferred income taxes...................... 149,987 6,390 (1,238,097) Provision for claims............................................... 5,865,355 6,026,064 8,094,950 Payments of claims, net of recoveries.............................. (3,785,355) (3,524,064) (2,354,425) Changes in assets and liabilities: (Increase) decrease in receivables and other assets................ 50,734 1,421,796 (2,237,678) Increase in accounts payable and accrued liabilities............... 357,098 302,134 189,430 Increase (decrease) in commissions and reinsurance payables........ 14,143 124,007 (11,643) Increase (decrease) in premium taxes payable....................... (20,618) (257,269) 124,030 Increase (decrease) in current income taxes payable................ 729,506 (912,787) 182,269 ----------- ----------- ------------ Net cash provided by operating activities.......................... 7,135,956 7,738,524 8,887,438 ----------- ----------- ------------ Investing Activities: Purchases of available-for-sale securities........................... (7,497,294) (6,036,921) (4,354,272) Purchases of held-to-maturity securities............................. - (100,986) (1,025,057) Proceeds from sales of available-for-sale securities................. 3,347,164 1,948,391 2,880,022 Proceeds from sales of held-to-maturity securities................... 192,000 808,886 575,974 Purchases of property................................................ (484,151) (3,077,730) (1,187,008) Proceeds from disposals of property.................................. 33,825 24,520 30,928 ----------- ----------- ------------ Net cash used in investing activities.............................. (4,408,456) (6,433,840) (3,079,413) ----------- ----------- ------------ Financing Activities: Repurchases of common stock, net..................................... (2,103,947) (1,706,271) (374,845) Exercise of options.................................................. 15,830 157,219 227,686 Dividends paid....................................................... (342,689) (342,689) (342,689) ----------- ----------- ------------ Net cash used in financing activities.............................. (2,430,806) (1,891,741) (489,848) ----------- ----------- ------------ Net Increase (Decrease) in Cash and Cash Equivalents................... 296,694 (587,057) 5,318,177 Cash and Cash Equivalents, Beginning of Year........................... 7,554,297 8,141,354 2,823,177 ----------- ----------- ------------ Cash and Cash Equivalents, End of Year................................. $ 7,850,991 $ 7,554,297 $ 8,141,354 =========== =========== ============ Supplemental Disclosures: Cash Paid During the Year for: Income taxes (net of refunds)...................................... $ 240,000 $ 2,947,000 $ 3,293,000 =========== =========== ============
Noncash Financing Activities: Bonuses and fees totaling $126,850, $191,623 and $144,594 were paid for the twelve months ended December 31, 2000, 1999 and 1998 respectively, by issuance of the Company's common stock. See notes to consolidated financial statements. 15 Investors Title Company and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business - Investors Title Company's ("the Company") two ----------------------- primary business segments are title insurance and exchange services. The Company's title insurance segment, through its two subsidiaries, Investors Title Insurance Company ("ITIC") and Northeast Investors Title Insurance Company ("NE- ITIC"), is licensed to insure titles to residential, institutional, commercial and industrial properties. The Company issues title insurance policies through approved attorneys from underwriting offices in North Carolina and South Carolina, and through independent issuing agents in Alabama, Arkansas, Florida, Georgia, Indiana, Kentucky, Maryland, Michigan, Minnesota, Mississippi, Nebraska, New York, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, West Virginia and Wisconsin. The majority of the Company's business is concentrated in Michigan, North Carolina, South Carolina and Virginia. The Company's exchange segment, through its two subsidiaries, Investors Title Exchange Corporation ("ITEC") and Investors Title Accommodation Corporation ("ITAC"), acts as an intermediary in tax-free exchanges of property held for productive use in a trade or business or for investments. ITEC's and ITAC's income is derived from fees for handling exchange transactions. Principles of Consolidation and Basis of Presentation - The accompanying ----------------------------------------------------- consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Significant Accounting Policies - The significant accounting policies of ------------------------------- the Company are summarized below: Cash and Cash Equivalents For the purpose of presentation in the Company's statements of cash flows, cash equivalents are highly liquid investments with original maturities of three months or less. Investments in Securities Securities for which the Company has the intent and ability to hold to maturity are classified as held-to-maturity and reported at cost, adjusted for amortization of premiums or accretion of discounts and other-than-temporary declines in fair value. Securities held principally for resale in the near term are classified as trading securities and recorded at fair values. Realized and unrealized gains and losses on trading securities are included in other income. Securities not classified as either trading or held-to-maturity are classified as available-for-sale and reported at fair value, adjusted for other-than- temporary declines in fair value, with unrealized gains and losses reported as accumulated other comprehensive income. Fair values of all investments are based on quoted market prices. Realized gains and losses are determined on the specific identification method. Property Acquired in Settlement of Claims Property acquired in settlement of claims is carried at estimated realizable value. Adjustments to reported estimated realizable values and realized gains or losses on dispositions are recorded as increases or decreases in claim costs. Property and Equipment Property and equipment are recorded at cost and are depreciated principally under the straight-line method over the estimated useful lives (3 to 25 years) of the respective assets. Reserves for Claims The reserves for claims and the annual provision for claims are established based on: (1) estimated amounts required to settle claims for which notice has been received (reported) and (2) the amount estimated to be required to satisfy incurred claims of policyholders which may be reported in the future. Claims and losses paid are charged to the reserves for claims (see Note 6). Deferred Income Taxes The Company provides for deferred income taxes (benefits) on temporary differences between the financial statements' carrying values and the tax bases of assets and liabilities. Premiums Written and Commissions to Agents Premiums are recorded and policies or commitments are issued upon receipt of final certificates or preliminary reports with respect to titles. Title insurance commissions earned by the Company's agents are recognized as expense concurrently with premium recognition. Earnings Per Common Share The employee stock options discussed in Note 7 are considered outstanding for the diluted earnings per common share calculation. Comprehensive Income Effective January 1, 1998, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). Adoption of this standard required the Company to (a) classify items of other comprehensive income by their nature in the financial statements and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of the balance sheet. The Company's other comprehensive income is solely comprised of its unrealized holding gains on available-for-sale securities. 16 Escrows and Trust Deposits As a service to its customers, the Company, through ITIC, administers escrow and trust deposits representing earnest money received under real estate contracts, undisbursed amounts received for settlement of mortgage loans and indemnities against specific title risks. In administering tax-free exchanges, ITEC serves as a qualified intermediary for exchanges, holding the net sales proceeds from relinquished property to be used for purchase of replacement property. ITAC serves as exchange accommodation titleholder and holds property for exchangers in reverse exchange transactions. Cash and other assets held by the Company for these purposes were approximately $35,748,000 and $33,783,000 as of December 31, 2000 and 1999, respectively. These amounts are not considered assets of the Company, and therefore, are excluded from the accompanying consolidated balance sheets. Accounting Change Implementation In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). This statement was amended by SFAS No. 137, Deferral of the Effective Date of FASB Statement No. 133, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS 133 is required to be adopted by the Company on January 1, 2001. The application of SFAS 133, as amended, is not expected to have an effect on the Company's financial statements. Use of Estimates and Assumptions The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. STATUTORY RESTRICTIONS ON CONSOLIDATED STOCKHOLDERS' EQUITY AND INVESTMENTS The Company has designated approximately $18,942,000 and $17,740,000 of retained earnings as of December 31, 2000 and 1999, respectively, as appropriated to reflect the required statutory premium reserve. See Note 8 for the tax treatment of the statutory premium reserve. As of December 31, 2000 and 1999, approximately $36,792,000 and $33,322,000 respectively, of consolidated stockholders' equity represents net assets of the Company's insurance subsidiaries that cannot be transferred in the form of dividends, loans or advances to the parent company under statutory regulations without prior insurance department approval. Bonds and certificates of deposit totaling approximately $3,120,000 at December 31, 2000 and 1999, are deposited with the insurance departments of the states in which business is conducted. These investments are restricted as to withdrawal as required by law. 3. INVESTMENTS IN SECURITIES The aggregate fair value, gross unrealized holding gains, gross unrealized holding losses and amortized cost for securities by major security type at December 31 are as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------- ---------- ---------- ---------- December 31, 2000 - ----------------- Fixed maturities - Held-to-maturity, at amortized cost: Certificates of deposit............... $ 98,982 $ - $ - $ 98,982 Obligations of states and political subdivisions.............. 4,276,145 120,759 9,917 4,386,987 ----------- ---------- ---------- ---------- Total................................. $ 4,375,127 $ 120,759 $ 9,917 $4,485,969 =========== ========== ========== ========== Fixed maturities - Available-for-sale, at fair value: Obligations of states and political subdivisions............... $19,232,729 $ 661,030 $ 18,770 $19,874,989 Corporate debt securities............. 11,727,685 177,434 69,403 11,835,716 ----------- ---------- ---------- ----------- Total................................. $30,960,414 $ 838,464 $ 88,173 $31,710,705 =========== ========== ========== =========== Equity securities, at fair value - Common stocks and nonredeemable preferred stocks...................... $ 2,434,367 $2,583,687 $ 47,985 $ 4,970,069 =========== ========== ========== ===========
17 INVESTMENTS IN SECURITIES (Continued)
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------- ----------- ---------- ----------- December 31, 1999 - ----------------- Fixed maturities - Held-to-maturity, at amortized cost: Certificates of deposit................. $ 98,982 $ - $ - $ 98,982 Obligations of states and political subdivisions................ 4,466,889 48,784 167,667 4,348,006 ----------- ----------- ---------- ----------- Total................................... $ 4,565,871 $ 48,784 $ 167,667 $ 4,446,988 =========== =========== ========== =========== Fixed maturities - Available-for-sale, at fair value: Obligations of states and political subdivisions................ $21,604,961 $ 188,372 $ 798,879 $20,994,454 Corporate debt securities............... 5,024,919 3,029 90,484 4,937,464 ----------- ----------- ---------- ----------- Total................................... $26,629,880 $ 191,401 $ 889,363 $25,931,918 =========== =========== ========== =========== Equity securities, at fair value Common stocks and nonredeemable preferred stocks...................... $ 2,510,505 $ 2,686,419 $ 184,665 $ 5,012,259 =========== =========== ========== ===========
The scheduled maturities of fixed maturities at December 31, 2000 are as follows:
Available-for-Sale Held-to-Maturity -------------------------- ------------------------ Amortized Fair Amortized Fair Cost Value Cost Value ----------- ----------- ---------- ----------- Due in one year or less...................... $ 1,826,953 $ 1,830,765 $ 58,982 $ 58,982 Due after one year through five years........ 8,260,362 8,321,825 221,104 226,434 Due after five years through ten years....... 10,167,849 10,497,762 2,000,802 2,073,598 Due after ten years.......................... 10,705,250 11,060,353 2,094,239 2,126,955 ----------- ----------- ---------- ----------- Total..................................... $30,960,414 $31,710,705 $4,375,127 $ 4,485,969 =========== =========== ========== ===========
Earnings on investments and net realized gains for the years ended December 31 are as follows:
2000 1999 1998 ----------- ---------- ----------- Fixed maturities........................................... $ 1,838,463 $1,571,121 $ 1,433,063 Equity securities.......................................... 174,757 191,741 168,904 Invested cash and other short-term investments............. 497,653 401,060 212,652 Miscellaneous interest..................................... 17,270 11,749 20,330 Net realized gain.......................................... 104,211 418,395 398,610 ----------- ---------- ----------- Investment income....................................... $ 2,632,354 $2,594,066 $ 2,233,559 =========== ========== ===========
Gross realized gains and losses on sales of available-for-sale securities for the years ended December 31 are summarized as follows:
2000 1999 1998 ----------- ---------- ----------- Gross realized gains: Debt securities......................................... $ - $ - $ 3,133 Obligations of states and political subdivisions........ 280 8,509 12,192 Common stocks and nonredeemable preferred stocks........ 501,942 520,429 751,493 ----------- ---------- ----------- Total................................................ 502,222 528,938 766,818 ----------- ---------- ----------- Gross realized losses: Obligations of states and political subdivisions........ (147,659) (563) (3,983) Debt securities......................................... - - (125,000) Common stocks and nonredeemable preferred stocks........ (250,352) (109,980) (239,225) ----------- ---------- ----------- Total................................................ (398,011) (110,543) (368,208) ----------- ---------- ----------- Net realized gain....................................... $ 104,211 $ 418,395 $ 398,610 =========== ========== =========== 4. PROPERTY Property and equipment and estimated useful lives at December 31 are summarized as follows: 2000 1999 ---------- ----------- Land...................................................................... $1,107,582 $ 1,107,582 Office buildings and improvements (25 years).............................. 1,609,305 1,599,321 Furniture, fixtures and equipment (5 to 10 years)......................... 4,652,915 4,335,523 Automobiles (3 years)..................................................... 447,651 338,564 ---------- ----------- Total............................................................... 7,817,453 7,380,990 Less accumulated depreciation....................................... (2,320,827) (1,544,524) ---------- ----------- Property and equipment, net......................................... $5,496,626 $ 5,836,466 ========== ===========
18 5. REINSURANCE The Company assumes and cedes reinsurance with other insurance companies in the normal course of business. Premiums assumed and ceded were approximately $32,000 and $363,000, respectively for 2000, $47,000 and $325,000, respectively for 1999, and $74,000 and $313,000, respectively for 1998. Ceded reinsurance is comprised of excess of loss treaties, which protects against losses over certain amounts. In the event that the assuming insurance companies are unable to meet their obligations under these contracts, the Company is contingently liable. 6. RESERVES FOR CLAIMS Changes in the reserves for claims for the years ended December 31 are summarized as follows based on the year in which the policies were written:
2000 1999 1998 ----------- ----------- ----------- Balance, beginning of year................... $15,864,665 $13,362,665 $ 7,622,140 Provision related to: Current year................................ 5,832,040 6,651,832 4,868,576 Prior years................................. 33,315 (625,768) 3,226,374 ----------- ----------- ----------- Total provision charged to operations...... 5,865,355 6,026,064 8,094,950 ----------- ----------- ----------- Claims paid, net of recoveries, related to: Current year................................ (413,129) (1,142,117) (280,079) Prior years................................. (3,372,226) (2,381,947) (2,074,346) ----------- ----------- ----------- Total claims paid, net of recoveries....... (3,785,355) (3,524,064) (2,354,425) ----------- ----------- ----------- Balance, end of year....................... $17,944,665 $15,864,665 $13,362,665 =========== =========== ===========
In management's opinion, the reserves are adequate to cover claim losses which might result from pending and possible claims. 7. COMMON STOCK AND STOCK OPTIONS The Company has adopted Employee Stock Option Purchase Plans (the "Plans") under which options to purchase shares (not to exceed 443,300 shares) of the Company's stock may be granted to key employees of the Company at a price not less than the market value on the date of grant. All options are exercisable at 10 to 20% per year beginning on the date of grant or one year from the date of grant and generally expire in five to ten years. The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations in accounting for its plans and, accordingly, no compensation cost has been recognized. Had compensation cost for the Plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
2000 1999 1998 ---------- ---------- ---------- Net income: As reported........................................... $3,140,463 $4,420,394 $5,459,509 Pro forma............................................. 3,041,875 4,414,260 4,872,247 Basic earnings per common share: As reported........................................... $ 1.21 $ 1.59 $ 1.95 Pro forma............................................. 1.17 1.59 1.74 Diluted earnings per common share: As reported........................................... $ 1.21 $ 1.59 $ 1.92 Pro forma............................................. 1.17 1.58 1.72
The estimated weighted average grant-date fair value of options granted for the years ended December 31 are as follows:
2000 1999 1998 ---------- ---------- ---------- Exercise price equal to market price on date of grant: Weighted average exercise price............................ $ 12.07 $ 20.30 $ 25.62 Weighted average grant-date fair value..................... 5.85 9.55 11.14 Exercise price greater than market price on date of grant: Weighted average exercise price............................ $ - $ - $ 29.15 Weighted average grant-date fair value..................... - - 10.70
19 COMMON STOCK AND STOCK OPTIONS (Continued) The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2000, 1999 and 1998, respectively: dividend yield of .6%, .6% and .5%; expected volatility of 34%, 26% and 22%; risk-free interest rates of approximately 5.5%, 6% and 5%; and expected lives of 5 to 10 years. A summary of the status of the Company's plans as of December 31 and changes during the years ended on those dates is presented below:
2000 1999 1998 --------------------------- -------------------------- ------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ----------- ------------ ----------- ----------- ----------- ----------- Outstanding at beginning of year........... 82,320 $ 22.74 96,524 $ 19.93 80,319 $ 11.29 Granted.................................... 212,500 12.07 9,700 20.30 52,150 27.51 Exercised.................................. (2,060) 7.60 (17,774) 8.44 (24,985) 8.90 Terminated................................. (13,680) 16.29 (6,130) 16.16 (10,960) 18.69 ----------- ----------- ----------- Outstanding at end of year................. 279,080 $ 15.05 82,320 $ 22.74 96,524 $ 19.93 =========== =========== =========== Options exercisable at year-end............ 108,744 $ 14.89 27,890 $ 18.14 37,389 $ 12.67 =========== =========== ===========
The following table summarizes information about fixed stock options outstanding at December 31, 2000:
Options Outstanding at Year-End Options Exercisable at Year-End ------------------------------------------ ------------------------------- Weighted- Weighted- Weighted- Average Average Average Number Remaining Exercise Number Exercise Range of Exercise Prices Outstanding Contractual Life Price Exercisable Price - ------------------------ ----------- ---------------- -------- ----------- -------- $ 10.00 - $ 12.00 104,200 7 $ 11.09 27,460 $ 11.01 13.06 - 14.25 107,859 5 13.09 52,288 13.08 15.00 - 17.50 13,485 2 15.18 12,531 15.04 20.00 - 22.78 10,996 8 20.98 2,628 21.16 25.50 - 29.15 42,540 7 28.18 13,837 28.05 ----------- ----------- $ 10.00 - $ 29.15 279,080 6 $ 15.05 108,744 $ 14.89 =========== ===========
The employee stock options are considered outstanding for the diluted earnings per common share calculation. The total increase in the weighted average shares outstanding related to these equivalent shares was 6,392, 9,404 and 34,768 for 2000, 1999 and 1998, respectively. Options to purchase 174,880, 58,456 and 47,840 shares of common stock were outstanding during 2000, 1999 and 1998, respectively, but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common shares. 8. INCOME TAXES At December 31, the approximate effect on each component of deferred income taxes and liabilities is summarized as follows:
2000 1999 ---------- ---------- Deferred income tax assets: Recorded reserves for claims net of statutory premium reserves............ $ 983,404 $1,067,546 Accrued vacation.......................................................... 163,462 145,727 Reinsurance payable....................................................... 75,012 28,998 Bad debt reserve.......................................................... 245,465 263,500 Other..................................................................... 65,627 27,376 ---------- ---------- Total.................................................................. 1,532,970 1,533,147 ---------- ---------- Deferred income tax liabilities: Net unrealized gain on investments........................................ 1,117,615 613,667 Excess of tax over book depreciation...................................... 343,227 260,452 Discount accretion on tax-exempt obligations.............................. 49,426 43,196 Other..................................................................... 62,544 1,739 ---------- ---------- Total.................................................................. 1,572,812 919,054 ---------- ---------- Net deferred income tax assets (liabilities)............................... $ (39,842) $ 614,093 ========== ==========
20 INCOME TAXES (Continued) A reconciliation of income tax as computed for the years ended December 31 at the U.S. federal statutory income tax rate (34%) to income tax expense follows:
2000 1999 1998 ----------- ---------- ----------- Anticipated income tax expense......................................................... $ 1,448,557 $2,196,874 $ 2,616,473 Increase (reduction) related to: State income taxes, net of the federal income tax benefit............................. 48,408 35,483 32,778 Tax-exempt interest income (net of amortization)...................................... (466,041) (477,926) (461,731) Other, net............................................................................ 89,076 286,569 48,480 ----------- ---------- ----------- Provision for income taxes............................................................. $ 1,120,000 $2,041,000 $ 2,236,000 =========== ========== ===========
The components of income tax expense for the years ended December 31 are summarized as follows:
2000 1999 1998 ----------- ---------- ----------- Current: Federal............................................................................... $ 889,038 $1,994,169 $ 3,421,954 State................................................................................. 79,037 40,441 52,143 ----------- ---------- ----------- Total............................................................................... 968,075 2,034,610 3,474,097 Deferred expense (benefit)............................................................. 151,925 6,390 (1,238,097) ----------- ---------- ----------- Total............................................................................... $1,120,000 $2,041,000 $ 2,236,000 =========== ========== ===========
For state income tax purposes, ITIC and NE-ITIC must pay only a gross premium tax. 9. LEASES Rent expense totaled approximately $550,000, $509,000 and $460,000 in 2000, 1999 and 1998, respectively. The future minimum lease payments under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2000 are summarized as follows:
Year End: 2001 $276,903 2002 244,705 2003 113,584 2004 67,584 2005 52,968 Thereafter - -------- Total $755,744 ========
10. EMPLOYEE BENEFIT PLAN After three years of service, employees are eligible to participate in a Simplified Employee Pension Plan. Contributions, which are made at the discretion of the Company, are based on the employee's salary, but in no case will such contribution exceed $25,500 per employee. All contributions are deposited in Individual Retirement Accounts for participants. Contributions under the plan were approximately $393,000, $337,000 and $290,000 for 2000, 1999 and 1998, respectively. 11. COMMITMENTS AND CONTINGENCIES 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, is expected to have a material adverse effect on the Company's consolidated financial position. 12. STATUTORY ACCOUNTING The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which differ in some respects from statutory accounting practices prescribed or permitted in the preparation of financial statements for submission to insurance regulatory authorities. Stockholders' equity on a statutory basis was $32,504,251 and $30,463,866 as of December 31, 2000 and 1999, respectively. Net income on a statutory basis was $3,911,764, $5,129,055, and $6,667,605 for the twelve months ended December 31, 2000, 1999 and 1998, respectively. 21 13. SEGMENT INFORMATION The Company's operations include two reportable segments: title insurance services and tax-free exchange services. The title insurance segment issues title insurance policies through approved attorneys from underwritting offices and through independent issuing agents. Title insurance policies insure titles to residential, institutional, commercial and industrial properties. The tax-free exchange segment acts as an intermediary in tax-free exchanges of property held for productive use in a trade or business or for investments. Revenues are derived from fees for handling exchange transactions. Provided below is selected financial information about the Company's operations by segment for the three years ended December 31, 2000, 1999 and 1998:
Income Provision Operating Before For Revenues Income Taxes Income Taxes Assets ----------- -------------- -------------- -------- 2000 - ---- Title Insurance......... $37,925,106 $3,115,950 $ 681,862 $55,299,670 Exchange Services....... 1,046,178 838,326 323,405 724,020 All Other............... 626,130 306,187 114,733 3,315,317 ----------- ---------- ---------- ----------- Consolidated Total... $39,597,414 $4,260,463 $1,120,000 $59,339,007 =========== ========== ========== =========== 1999 - ---- Title Insurance......... $43,942,374 $5,641,471 $1,746,790 $51,102,222 Exchange Services....... 723,854 556,189 215,926 270,436 All Other............... 106,265 263,734 78,284 3,783,906 ----------- ---------- ---------- ----------- Consolidated Total... $44,772,493 $6,461,394 $2,041,000 $55,156,564 =========== ========== ========== =========== 1998 - ---- Title Insurance......... $45,553,649 $6,976,775 $1,977,676 $49,217,421 Exchange Services....... 636,839 511,913 199,335 377,878 All Other............... 52,216 206,821 58,989 2,002,513 ----------- ---------- ---------- ----------- Consolidated Total... $46,242,704 $7,695,509 $2,236,000 $51,597,812 =========== ========== ========== ===========
REPORT OF INDEPENDENT ACCOUNTANTS Investors Title Company and Subsidiaries: We have audited the accompanying consolidated balance sheets of Investors Title Company (the "Company") and its subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Investors Title Company and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP Raleigh, North Carolina February 2, 2001 22 Shareholder Information - -------------------------------------------------------------------------------- Common Stock Data The common stock of the Company is traded under the symbol "ITIC" in the over- the-counter market and is quoted on the National Market System of the National Association of Securities Dealers Automated Quotation System ("NASDAQ"). The Company has approximately 1,500 shareholders of record, including shareholders whose shares are held in street name. The following table shows the 2000 and 1999 high and low sales prices reported on the NASDAQ National Market System.
2000 1999 ------------------ -------------------- High Low High Low -------- ------- -------- ------- First Quarter $18.125 $10.25 $23.00 $20.25 Second Quarter $13.25 $ 9.813 $22.50 $15.375 Third Quarter $13.00 $10.125 $19.625 $14.00 Fourth Quarter $17.00 $10.016 $18.50 $13.75
The Company paid cash dividends of $.03 per share in each of the four quarters during 2000 and 1999. Market Makers Davenport & Co. of Virginia Scott & Stringfellow Sherwood Securities Corp. Knight Securities L.P. Spear, Leeds & Kellog 23 EX-21 5 0005.txt SUBSIDIARIES OF REGISTRANT EXHIBIT 21 SUBSIDIARIES OF REGISTRANT Name of Percent Names Under Which State of Subsidiary Ownership Subsidiaries Do Business Incorporation - --------------------- ---------- ------------------------- -------------- Investors Title 100% Investors Title Insurance North Carolina Insurance Company Company Northeast Investors 100% Northeast Investors Title South Carolina Title Insurance Insurance Company Company Investors Title 100% Investors Title Exchange North Carolina Exchange Corporation Corporation Investors Title 100% Investors Title South Carolina Accommodation Accommodation Corporation Corporation Investors Title 100% Investors Title Management North Carolina Management Services, Inc. Services, Inc. EX-23 6 0006.txt INDEPENDENT AUDITOR'S CONSENT EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES We consent to the incorporation by reference in Registration Statement No. 333-33903 of Investors Title Company on Form S-8 of our report dated February 2, 2001, incorporated by reference in this Annual Report on Form 10-K of Investors Title Company for the year ended December 31, 2000. Our audits of the consolidated financial statements referred to in our aforementioned report also included the financial statement schedules of Investors Title Company, listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP Raleigh, North Carolina February 2, 2001 -----END PRIVACY-ENHANCED MESSAGE-----