UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-11774
INVESTORS TITLE COMPANY
(Exact name of registrant as specified in its charter)
North Carolina 56-1110199
(State of Incorporation) (I.R.S. Employer)
121 North Columbia Street, Chapel Hill, North Carolina 27514
(Address of Principal Executive Offices) (Zip Code)
(919) 968-2200
( Registrant's Telephone Number Including Area Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Shares outstanding of each of the issuer's classes of common stock
as of June 30, 1997:
Common Stock, no par value 2,774,850
Class Shares Outstanding
1
INVESTORS TITLE COMPANY AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1997 and
December 31, 1996 . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income:
Three and Six Months Ended June 30, 1997 and 1996. 4
Consolidated Statements of Cash Flows:
Six Months Ended June 30, 1997 and 1996 . . . . . 5
Notes to Consolidated Financial Statements . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . 8
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . .11
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . .11
Item 6. Exhibits and Reports on Form 8-K. . . . . . . .11
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . .12
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of June 30, 1997 and December 31, 1996
(Unaudited)
6/30/97 12/31/96
Assets
Cash and Cash Equivalents $ 5,626,284 $ 4,244,570
Investments:
Held-to-maturity:
Certificates of deposit 169,004 169,004
Bonds - at amortized cost 4,637,317 5,098,368
Available-for-sale - at market:
Bonds 14,567,157 12,832,724
Common and nonredeemable
preferred stocks 5,137,853 5,473,567
Total investments 24,511,331 23,573,663
Receivables:
Premiums, net 2,435,733 2,016,122
Accrued interest and dividends 319,283 321,634
Recoveries of claims previously paid 37,700 69,334
Other 57,418 35,663
Total receivables 2,850,134 2,442,753
Prepaid Expenses and Other Assets 376,285 451,972
Property Acquired in Settlement of Claims 198,500 165,500
Property-At Cost:
Land 782,582 782,582
Office buildings and improvements 1,293,726 1,293,726
Furniture, fixtures and equipment 1,927,765 1,843,636
Automobiles 173,627 169,423
Total 4,177,700 4,089,367
Less accumulated depreciation 1,480,717 1,325,297
Property, net 2,696,983 2,764,070
Total Assets $ 36,259,517 $ 33,642,528
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued
liabilities $ 815,793 $ 997,759
Commissions and reinsurance payables 67,744 60,902
Premium taxes payable 13,643 101,766
Income taxes payable:
Current 208,154 175,143
Deferred 1,121,573 1,232,716
Total liabilities 2,226,907 2,568,286
Reserves for Claims 6,078,330 5,086,065
Stockholders' Equity:
Common stock-No par value (shares
authorized 6,000,000; 2,855,744
and 2,855,744 shares issued; and
2,774,850 and 2,767,830 shares
outstanding 1997 and 1996,
respectively) 805,069 722,321
Retained earnings 25,581,178 23,745,995
Net unrealized gain on investments
(net of deferred taxes: 1997:
$807,773 ; 1996: $782,959) 1,568,033 1,519,861
Total stockholders' equity 27,954,280 25,988,177
Total Liabilities and Stockholders'
Equity $ 36,259,517 $ 33,642,528
3
Investors Title Company and Subsidiaries
Consolidated Statements of Income
June 30, 1997 and 1996
(Unaudited)
For The Three For The Six
Months Ended Months Ended
June 30 June 30
1997 1996 1997 1996
Revenues:
Underwriting income:
Premiums written $ 7,703,332 $ 5,505,691 $ 13,190,962 $ 9,958,580
Less-premiums for reinsurance ceded 41,643 24,199 110,485 42,289
Net premiums written 7,661,689 5,481,492 13,080,477 9,916,291
Investment income-interest and dividends 385,606 314,286 783,719 609,077
Net Gain (loss) on sales of investments (32) 48,656 107,049 8,604
Other 144,536 72,196 266,065 141,906
Total 8,191,799 5,916,630 14,237,310 10,675,878
Operating Expenses:
Salaries 1,087,793 919,272 2,079,269 1,781,158
Commissions to agents 2,588,253 1,362,102 4,260,341 2,449,054
Provision for claims 1,003,167 830,812 1,817,988 1,512,145
Employee benefits and payroll taxes 486,780 448,131 950,252 730,381
Office occupancy and operations 623,376 558,384 1,170,316 987,357
Business development 324,805 167,026 470,752 296,191
Taxes, other than payroll and income 173,702 147,528 346,546 259,080
Professional fees 64,121 38,920 99,257 71,171
Other 241,537 93,066 263,400 191,249
Total 6,593,534 4,565,241 11,458,121 8,277,786
Income Before Income Taxes 1,598,265 1,351,389 2,779,189 2,398,092
Provision For Income Taxes:
Current 551,221 454,377 908,618 701,622
Deferred (98,430) (81,770) (135,957) (30,031)
Total 452,791 372,607 772,661 671,591
Net Income $ 1,145,474 $ 978,782 $ 2,006,528 $ 1,726,501
Average number of shares outstanding $ 2,773,582 $ 2,773,362 $ 2,771,264 $ 2,778,105
Net Income Per Share $ 0.41 $ 0.35 $ 0.72 $ 0.62
Dividends Paid $ 85,673 $ 71,394 $ 171,345 $ 128,508
Dividends Per Share $ 0.03 $ 0.025 $ 0.06 $ 0.045
4
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1997 and 1996 (Unaudited)
1997 1996
Operating Activities:
Net income $2,006,528 $1,726,501
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 166,434 158,208
Amortization, net of accretion 2,132 6,942
Net (gain) loss on disposals of
property 422 (11,910)
Net gain on sales of investments (107,049) (8,604)
Benefit for deferred income taxes (135,957) (30,031)
Provision for possible claims 1,817,988 1,512,145
Payments of claims, net of recoveries (825,723) (862,145)
Increase in receivables (407,381) (606,848)
(Increase) decrease in prepaid expenses
and other assets 75,687 (16,417)
(Increase) decrease in assets acquired
in settlement of claims (33,000) 85,000
Decrease in accounts payable and
accrued liabilities (181,966) (197,642)
Increase (decrease) in commissions
and reinsurance payables 6,842 (2,538)
Decrease in premium taxes payable (88,123) (22,839)
Increase in income taxes payable -
current 33,011 68,014
Net cash provided by operating activities 2,329,845 1,797,836
Investing Activities:
Purchases of investments held-to-maturity 0 (897,846)
Purchases of investments available-for-sale (2,525,212) (1,010,755)
Proceeds from investments held-to-maturity 460,000 491,019
Proceeds from investments available-for-sale 1,305,447 594,960
Purchases of property (120,849) (171,080)
Proceeds from sales of property 21,080 81,979
Net cash used in investing activities (859,534) (911,723)
Financing Activities:
Dividends paid (171,345) (128,508)
Repurchases of common stock, net 82,748 (255,214)
Net cash used in financing activities (88,597) (383,722)
Net Increase in Cash and Cash Equivalents 1,381,714 502,391
Cash and Cash Equivalents, Beginning of Year 4,244,570 2,527,008
Cash and Cash Equivalents, End of Period $5,626,284 $3,029,399
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Year for:
Interest $0 $0
Income Taxes $875,765 $784,006
5
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
Note 1 - Basis of Presentation
The consolidated financial statements include Investors Title
Company and its subsidiaries, and have been prepared in
conformity with generally accepted accounting principles. In
the opinion of management all necessary adjustments have been
reflected for a fair presentation of the financial position,
results of operations and cash flows in the accompanying
unaudited consolidated financial statements. All such
adjustments are of a normal recurring nature. Certain 1996
amounts have been reclassified to conform to the 1997
presentation.
Reference should be made to the "Notes to Consolidated Financial
Statements" of the Registrant's Annual Report to Shareholders
for the year ended December 31, 1996 for a
description of accounting policies.
Note 2 - Reserves for Claims
Transactions in the reserve for claims for the six months ended
June 30, 1997 were as follows:
Balance, beginning of year $5,086,065
Provision, charged to operations 1,817,988
Recoveries 65,703
Payments of claims (891,426)
Balance, June 30, 1997 $6,078,330
In management's opinion, the reserve is adequate to cover claim
losses which might result from pending and possible claims.
Note 3 - New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128
"Earnings per Share" ("SFAS 128") which specifies a new
methodology for computing earnings per share. SFAS 128 replaces
the presentation of primary and fully diluted earnings per share
pursuant to Accounting Principles Board Opinion No. 15 -
"Earnings per Share" ("APB 15") with the presentation of basic
and diluted earnings per share. Basic earnings per share
excludes the dilutive effect of common stock equivalents and is
computed by dividing net income available to common shareholders
by the weighted average number of common shares outstanding for
the period. Diluted
6
earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock
were exercised or converted into common stock. SFAS 128 must
be adopted for financial statements issued after December 15, 1997.
Restatement of prior-period earnings per share data is required.
Earnings per share will be computed under APB 15 until that time.
The Company does not believe that implementation of SFAS 128 will
materially affect its financial results.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" ("SFAS 130"). This Statement establishes
standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in a full
set of general-purpose financial statements. The Company is
required to adopt SFAS 130 for the year ended December 31, 1998.
Management has not determined the impact of this Statement.
7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The 1996 Form 10-K and the 1996 Annual Report should be read
in conjunction with the following discussion since they
contain important information for evaluating the Company's
operating results and financial condition.
Results of Operations:
For the quarter ended June 30, 1997, premiums written
increased 40% to $7,703,332, investment income increased 23%
to $385,606, revenues increased 38% to $8,191,799, net income
increased 17% to $1,145,474 and net income per share
increased 17% to $.41 all compared to the same quarter in
1996.
For the six months ended June 30, 1997, premiums written
increased 32% to $13,190,962, investment income increased 29%
to $783,719, revenues increased 33% to $14,237,310, net
income increased 16% to $2,006,528 and net income per share
increased 16% to $.72 all compared to the same period in
1996.
Sales growth in 1997 has resulted from a combination of
continued marketing efforts and a healthy real estate market.
The volume of business continued to increase in the second
quarter of 1997 as the number of policies and commitments
issued rose to 46,946, an increase of 27% compared to 37,027
in the same period in 1996. The average premium per policy
has risen primarily due to increased business in operating
areas with higher premium rates. Policies and commitments issued
for the six months ended June 30, 1997 were 81,803 compared to
69,242 in 1996. Shown below is a breakdown of branch and
agency premiums:
Three Months Ended Six Months Ended
June 30 June 30
1997 % 1996 % 1997 % 1996 %
Branch $4,006,363 52 $3,493,143 63 $ 7,113,776 54 $6,331,032 64
Agency $3,696,969 48 $2,012,548 37 $ 6,077,186 46 $3,627,548 36
Total $7,703,332 100 $5,505,691 100 $13,190,962 100 $9,958,580 100
Premiums written from branch operations increased 12% in 1997
compared to 1996. Agency premiums increased 68% in 1997
compared to 1996.
The following table shows title premiums written for the
three and six months ended June 30, 1997 and 1996 in all
states where our two insurance subsidiaries, Investors Title
Insurance Company and Northeast Investors Title Insurance
Company, currently underwrite insurance:
8
Three Months Ended Six Months End
June 30 June 30
1997 1996 1997 1996
Florida 17,062 22,194 $39,835 $41,221
Georgia 118,741 27,203 311,650 43,622
Indiana 30,279 27,411 49,218 49,002
Kentucky 0 0 0 84
Maryland 28,239 16,219 48,604 27,693
Michigan 1,249,142 24,365 1,917,432 24,365
Minnesota 7,719 0 7,719 0
Mississippi 4,982 0 15,770 0
Nebraska 171,739 134,659 330,609 273,229
New York 118,175 133,257 217,530 215,736
North Carolina 3,945,470 3,447,972 6,911,833 6,232,693
South Carolina 692,295 630,318 1,100,349 1,196,115
Tennessee 62,683 18,559 76,567 41,569
Virginia 1,241,178 1,013,997 2,125,971 1,790,945
Direct Premiums 7,687,704 5,496,154 13,153,087 9,936,274
Reinsurance 15,628 9,537 37,875 22,306
Total Premiums $7,703,332 $5,505,691 $13,190,962 $9,958,580
Operating expenses increased 44% and 38% for the three and
six months ended June 30, 1997, respectively, when compared
to the same periods in 1996. Salaries and employee benefits
increased primarily due to additional staffing needed to
process the rise in premium volume. Office occupancy and
operations, business development, and premium taxes increased
primarily due to the increase in premium volume. The
increase in commissions is the result of the Company's
expansion into new markets primarily through establishing new
agency relationships.
For the three months ended June 30, 1997, the provision for
claims as a percentage of premiums written was 13.02%
compared to 15.09% for same period in 1996. For the six
months ended June 30, 1997, the provision for claims as
percentage of premiums written was 13.78% compared to 15.18%
for the same period in 1996. The lower provision in 1997 was
primarily the result of an improvement in claims experience.
The reserve for claims has increased $992,265 in 1997
compared to year-end based on management's assessment of the
reserve.
Income tax expense as percentage of income before income
taxes was 27.8% and 28% for the six months ended June 30,
1997 and 1996, respectively.
Liquidity and Capital Resources:
Net cash provided by operating activities for the six months
ended June 30, 1997, amounted to $2,329,845 compared to
$1,797,836 for the same six month period during 1996. This
increase is attributable to the increase in net income and
a number of other factors, including a smaller increase in
receivables, a decrease in prepaid expenses and other assets,
and a higher provision for possible claims in 1997, partially
offset by a
9
net gain on sales of investments, a larger benefit for
deferred income taxes and an increase in assets acquired in
settlement of claims in 1997.
On December 9, 1996, the Board of Directors approved the
repurchase by the Company of shares of the Company's common
stock from time to time at prevailing market prices. The
purpose 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 has repurchased 8,250 shares at an
average purchase price of $14.97 per share as of July 17,
1997. The Board has authorized management to repurchase up
to an additional 141,750 shares.
Management believes that funds generated from operations
(primarily underwriting and investment income) will enable
the Company to adequately meet its operating needs. In
addition to operational liquidity, the Company maintains a
high degree of liquidity within the investment portfolio in
the form of short-term investments and other readily
marketable securities.
Safe Harbor Statement
Except for the historical information presented, the matters
disclosed in the foregoing discussion and analysis and other
parts of this report include forward-looking statements.
These statements represent the Company's current judgment on
the future and are subject to risks and uncertainties that
could cause actual results to differ materially. Such
factors include, without limitation: (i) the demand for title
insurance will vary with factors beyond the control of the
Company such as changes in mortgage interest rates,
availability of mortgage funds, level of real estate
activity, cost of real estate, consumer confidence, supply
and demand for real estate, inflation and general economic
conditions; (ii) the risk that losses from claims are greater
than anticipated such that reserves for possible claims are
inadequate; (iii) the risk that unanticipated adverse changes
in securities markets could result in material losses on
investments made by the Company; and (iv) the dependence of
the Company on key management personnel the loss of whom
could have a material adverse 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.
10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Investors Title Company's Annual Meeting of Shareholders was
held May 13, 1997. The proposals voted upon and the results
of the voting were as follows:
1. Election of three Directors for a three-year term.
Broker
For Against Abstentions Withheld Non-votes
James A. Fine, Jr. 2,339,426 N/A N/A 20,811 N/A
James R. Morton 2,346,726 N/A N/A 13,511 N/A
Lillard H. Mount 2,342,564 N/A N/A 17,673 N/A
2. Approval of the 1997 Stock Option and Restricted Stock
Plan.
Broker
For Against Abstentions Withheld Non-votes
1,866,852 47,849 28,420 N/A N/A
3. Ratification of the selection of Deloitte & Touche LLP,
Certified Public Accountants to audit the books and
accounts of the Company for the calendar year ending
December 31, 1997.
Broker
For Against Abstentions Withheld Non-votes
2,350,459 8,898 880 N/A N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10)(ix) Form of Nonqualified Stock Agreement
to nonemployee directors dated May
13, 1997 included herewith.
(27) Financial Data Schedule included herewith.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for this quarter.
11
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this Report to be signed in
its behalf by the undersigned hereunto duly authorized.
INVESTORS TITLE COMPANY
(Registrant)
By: /s/James A. Fine, Jr.
James A. Fine, Jr.
President
By: /s/Elizabeth P. Bryan
Elizabeth P. Bryan
Vice President
(Principal Accounting
Officer)
Dated: August 11, 1997