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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 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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. X
On February 15, 1996, the aggregate market value of the voting stock held by
those other than executive officers and directors of the registrant was
$22,904,960.
On February 15, 1996, the number of common shares outstanding was 2,784,683.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
<S> <C>
Documents Form 10-K Reference
Portions of Annual Report to Shareholders Part I, Items 1 and 2
for fiscal year ended December 31, 1995 Part II, Items 5 - 8
Part IV, Item 14
Portions of Proxy Statement (in connection with Annual Meeting Part III, Items 10 - 13
to be held on May 14, 1996)
Location of Exhibit Index: The Index to Exhibits is contained in Part IV herein on page 14.
</TABLE>
1
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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 Investors Title Insurance Company of South
Carolina, a South Carolina corporation, under a plan of exchange of shares of
common stock. On June 12, 1985, its name was changed from Investors Title
Insurance Company of South Carolina to Northeast Investors Title Insurance
Company ("NE-ITIC"). 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.
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. In addition, the Company currently writes title
insurance through issuing agents or branch offices in the States of Florida,
Georgia, Illinois, Indiana, Kentucky, Maryland, Nebraska, Pennsylvania,
Tennessee and Virginia. 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 States of
Alabama, Arkansas, Colorado, Connecticut, Delaware, District of Columbia,
Kansas, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, Missouri,
Montana, Nevada, New Jersey, North Dakota, Oklahoma, and Texas.
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
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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 offices.
In 1995, an office was opened in Virginia, and in 1996, an office was opened in
Michigan.
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. Reinsurance activities account for less than 1% of
total premium volume.
ITIC currently assumes primary risks up to $500,000, reinsures the next
$250,000 of risk with NE-ITIC, and all risks above $750,000 are then reinsured
with a non-related reinsurer in the industry.
NE-ITIC currently assumes primary risks up to $250,000, reinsures the
next $500,000 of risk with ITIC, and reinsures all amounts above $750,000 with a
non-related reinsurer in the industry.
Each insurance subsidiaries' risk retention limits are self-imposed and
more conservative than state insurance regulations require.
In 1984, ITIC became the leading title insurer of North Carolina
property and has held this position in the marketplace since that time. ITIC's
financial stability was recognized by a Fannie Mae and Freddie Mac approved
actuarial firm with a rating of "A Prime - unsurpassed financial stability".
NE-ITIC's financial stability was recognized by a Fannie Mae and
Freddie Mac approved actuarial firm with a rating of "A - exceptional financial
stability".
In 1988, the Company established Investors Title Exchange Corporation,
a wholly-owned subsidiary ("ITEC"), to provide services in connection with
tax-free exchanges of like-kind property. ITEC acts as an intermediary in
tax-free exchanges of property held for productive use in a trade or business or
for investments, and its income is derived from fees for handling exchange
transactions.
South Carolina Document Preparation Company, a wholly-owned subsidiary
("SCDP"), purchased the net assets of a former agency to provide
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services and assistance to licensed members of the South Carolina Bar in the
closing of real estate transactions. The Company was unprofitable and ceased
operations in 1995.
Operations of Subsidiaries
ITIC offers 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. Schedule A summarizes the insurance premiums written
during the years 1993 through 1995 by this subsidiary.
NE-ITIC offers 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. Schedule A summarizes the insurance
premiums written during the years 1993 through 1995 by this subsidiary.
ITEC offers services in connection with tax-free exchanges. Schedule A
summarizes the fees earned during the years 1993 through 1995.
SCDP had revenues of $40,926 and $97,924 in 1995 and 1994,
respectively.
Premiums Written geographically are incorporated by reference to the
Management's Discussion and Analysis of Results of Operations and Financial
Condition in the 1995 Annual Report to Shareholders incorporated by reference in
this Form 10-K Annual Report.
Operating profits are incorporated by reference to the Financial
Highlights in the 1995 Annual Report to Shareholders incorporated by reference
in this Form 10-K Annual Report.
Seasonality
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, 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.
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SCHEDULE A
INVESTORS TITLE INSURANCE COMPANY
PREMIUMS WRITTEN
For The Years Ended December 31
1995 1994 1993
$15,547,967 $15,151,448 $13,870,465
NORTHEAST INVESTORS TITLE INSURANCE COMPANY
PREMIUMS WRITTEN
For The Years Ended December 31
1995 1994 1993
$384,856 $496,301 $476,858
INVESTORS TITLE EXCHANGE CORPORATION
FEES EARNED
For The Years Ended December 31
1995 1994 1993
$241,281 $153,144 $46,116
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Marketing
ITIC's current and future marketing plan is to provide 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 23 branch offices. In the States of Georgia and South
Carolina, ITIC operates through a branch office in each state and issuing agents
located conveniently to customers throughout the State. ITIC also operates
through issuing agents located in Florida, Illinois, Indiana, Kentucky,
Maryland, Nebraska, Pennsylvania, Tennessee and Virginia. ITIC intends to
establish branch and/or agency offices in the other states in which it is
licensed. The Company intends to open four more offices in 1996 at a cost that
is not considered significant. A time frame has not been determined for any
additional expansion.
NE-ITIC currently operates through two agency offices in the State of
New York.
The title insurance industry is highly competitive. Key elements which
affect competition are price, expertise, service, financial strength and size of
the insurer.
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.
Customers
The Company is not dependent upon any single customer, the loss of
which could have a material effect on the Company.
Reserves
The reserve for possible claims for financial reporting purposes is
established based on criteria discussed in Notes 1 and 5 of the 1995 Annual
Report to Shareholders incorporated by reference in this Form 10-K Annual
Report.
Regulations
The Company's two insurance subsidiaries are subject to examination at
any time by the licensing states. Title insurance companies are extensively
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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.
ITIC is domiciled in North Carolina and subject to North Carolina state
insurance regulations. Examinations are scheduled every three years by the North
Carolina Department of Insurance. ITIC was last examined by the North Carolina
Department of Insurance commencing on May 15, 1995 for the period January 1,
1992 through December 31, 1994 with no material deficiencies noted.
NE-ITIC is domiciled in South Carolina and subject to South Carolina
state insurance regulations. NE-ITIC was last examined by the South Carolina
Department of Insurance on November 14, 1994 for the period December 31, 1991
through December 31, 1993 with no material deficiencies noted. Examinations are
scheduled periodically by the South Carolina Department of Insurance.
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.
ITIC reserves an amount equal to 10% of current year premiums written. This
amount is then reduced annually by 5% and the net amount is accumulated in a
statutory premium reserve.
NE-ITIC has established and maintains a statutory premium reserve as
required by the insurance laws and regulations of the State of New York. A
$1.50 for each risk assumed under a policy or commitment plus one-eightieth of
one percent of the face amount of each commitment or policy, reduced by that
portion of the reserve established 15 years earlier are accumulated in a
statutory premium reserve for years up to 1985. In subsequent years the
addition to the reserve is calculated in the same manner but is reduced
annually by 5%.
These statutory premium reserve additions are not charged to operations
for financial reporting purposes and changes in the statutory premium reserve
have no effect on net income of the companies 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 subsidiary. All states set requirements for admission to do
business, including minimum levels of capital and surplus. State insurance
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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, 1995, ITIC reported $10,982,003 of capital and surplus, and
net income of $2,993,380; and NE-ITIC reported $1,796,519 of capital and
surplus, and net income of $155,396.
ITIC and NE-ITIC both meet the minimum capital and surplus requirements
of the states in which they are licensed.
Competition
ITIC currently operates primarily in the State of North Carolina. There
are 18 title insurance companies operating in the State of North Carolina. In
1995 Investors Title had approximately 26% of the title insurance market in the
State, and ranked first in the amount of premiums written among companies doing
business in the State.
ITIC's major competitors in North Carolina are Chicago Title Insurance
Company, Commonwealth Land Title Insurance Company, Fidelity National Title
Insurance Company of Pennsylvania, First American Title Insurance Company,
Lawyers Title Insurance Corporation, Old Republic National Title Insurance
Company and Stewart Title Guaranty Company. ITIC and NE-ITIC have a number of
competitors in each State in which they operate. Competition occurs primarily
through quality and convenience of service and expertise.
Investments
The Company and its subsidiaries derive a substantial portion of their
income from investment in bonds (municipal and corporate), certificates of
deposit, 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.
The Company, ITIC, NE-ITIC, ITEC and SCDP had investment income as set
out in the following table for the years 1991 through 1995:
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FOR THE YEARS ENDED DECEMBER 31
1995 1994 1993 1992 1991
Company $ 16,238 $ 12,225 $ 2,433 $ 11,755 $ 12,485
ITIC 1,007,255 926,976 842,367 733,676 748,504
NE-ITIC 111,939 103,600 100,576 99,691 101,220
ITEC 104,676 65,246 21,563 7,861 11,478
SCDP 1,747 0 0 0 0
TOTAL $1,241,855 $1,108,047 $ 966,939 $ 852,983 $ 873,687
See Note 3 in the 1995 Annual Report to Shareholders incorporated
herein by reference for the major categories of investments, earnings by
investment categories, contractual maturities, amortized cost, and market values
of investment securities.
Employees
The Company, ITEC and NE-ITIC have no paid employees. Officers of the
Company are full-time paid employees of ITIC, which had 113 full-time employees
and 15 part-time employees as of December 31, 1995.
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 property located at 135-137 East Rosemary Street,
Chapel Hill, North Carolina. This property currently serves as a parking
facility for employees and guests of the Company.
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 interim corporate headquarters. The building contains
approximately 23,000 square feet. The Company's principal subsidiary, ITIC,
leases office space in 26 locations throughout North Carolina, South
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Carolina, Georgia and Virginia.
See Note 9 in the 1995 Annual Report to Shareholders incorporated
herein by reference for the amounts of future minimum lease payments. Each of
the office facilities occupied by the Company and its subsidiaries are in good
condition and adequate for present operations.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in litigation on a number
of claims which arise in the normal course of business, none of which, in the
opinion of management are expected to have a material adverse effect on the
Company's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1995.
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, 1995. 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 respective successor has been elected.
<TABLE>
<CAPTION>
Position with Officer Term to
Name Age Registrant Since Expire
<S> <C> <C> <C> <C>
J. Allen Fine 61 President 1973 1996
and
Director
Elizabeth P. Bryan 35 Vice President 1987 1996
James A. Fine, Jr. 33 Vice President 1987 1996
W. Morris Fine 29 Vice President and 1992 1996
Treasurer
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Position With Officer Term to
Name Age Registrant Since Expire
L. Dawn Martin 29 Vice President 1993 1996
and Assistant Secretary
Carl E. Wallace, Jr. 51 Vice President 1977 1996
and Secretary
</TABLE>
Family Relationships
J. Allen Fine, President and Chairman of the Board of Directors, is the
father of James A. Fine, Jr., Vice President of the Company, and W. Morris
Fine, also a Vice President and Treasurer of the Company.
Business Experience
The business experience of the Directors of the Company is contained in
the Company's definitive Proxy Statement and is hereby incorporated by
reference. Said Statement relates to the Annual Meeting of Shareholders to be
held on May 14, 1996.
The business experience of the Officers of the Company is set forth
below:
J. Allen Fine was the principal organizer of ITIC and has served as Chairman and
President of the Company, ITIC and NE-ITIC since their incorporation. Mr.
Fine also serves as Chairman of the Board of ITEC and SCDP. He is the father
of James A. Fine, Jr., Vice President of the Company, and W. Morris Fine, also
a Vice President and Treasurer of the Company.
Elizabeth P. Bryan joined the Company in 1985 as Controller of the Company, ITIC
and NE-ITIC. In 1987 she was named Vice President of the Company, Vice President
- - Accounting of ITIC and Vice President of NE-ITIC. In 1988, Ms. Bryan was named
Vice President, Treasurer and Director of ITEC. In 1995, she was named Assistant
Secretary of NE-ITIC.
James A. Fine, Jr. joined the Company in 1986 as Investment Manager of ITIC
and NE-ITIC. In 1987 he was named Vice President of the Company, Vice
President - Finance of ITIC and Vice President of NE-ITIC. In 1988, he was
named President and Director of ITEC. In 1990, he was appointed Director of
ITIC. In 1994, Mr. Fine was named Vice President and Director of SCDP. In
1995, Mr. Fine was named Assistant Secretary of NE-ITIC. James A. Fine, Jr.
is the son of J. Allen Fine, President and Chairman of the Board of the
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Company, and brother of W. Morris Fine, Vice President and Treasurer of the
Company.
W. Morris Fine joined the Company in July, 1992, and was subsequently named Vice
President of the Company, Vice President - Marketing of ITIC, and Vice President
of ITEC. In 1993, Mr. Fine was named Treasurer of the Company and ITIC; Vice
President and Director of NE-ITIC; and Director of ITIC and ITEC. In 1994, Mr.
Fine was named Treasurer and Director of SCDP. In 1995, he was named Treasurer
of NE-ITIC. Mr. Fine graduated from the University of North Carolina at Chapel
Hill in 1988 and, upon graduation, was employed by Ernst & Young as a Senior
Auditor prior to joining Investors Title. W. Morris Fine is the son of J. Allen
Fine, President and Chairman of the Board of the Company, and brother of James
A. Fine, Jr., Vice President of the Company.
L. Dawn Martin joined the Company in February, 1991, and was subsequently named
Vice President, Assistant Secretary and Director of ITEC. In 1993, she was named
Vice President for the Company and Vice President - Human Resources of ITIC. In
1994, Ms. Martin was named Assistant Secretary for both the Company and ITIC and
Secretary of ITEC and SCDP. In 1995, she was appointed as Director of ITIC and
SCDP, and named Assistant Secretary of NE-ITIC. Ms. Martin was previously
employed by Elite Personnel, Inc., as a Personnel Coordinator and by Judith Fox
Temporaries, Inc., as a Senior Personnel Coordinator.
Carl E. Wallace, Jr. is Vice President and Secretary of the Company. Since 1974,
he has also held the positions of Vice President and Secretary of NE-ITIC, as
well as Vice President - Business Development, Secretary and Title Attorney for
ITIC. In 1990, he was appointed Director of ITIC. In 1994, Mr. Wallace was
named Vice President and Director of SCDP.
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 "Operations Summaries" in the 1995 Annual Report to
Shareholders incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31, 1995,
is in the 1995 Annual Report to Shareholders and is incorporated herein by
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reference. The information should be read in conjunction with the Financial
Statements and Notes and the Management's Discussion and Analysis of Results of
Operations and Financial Condition which are in the 1995 Annual Report to
Shareholders and are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Management's Discussion and Analysis of Results of Operations and
Financial Condition in the 1995 Annual Report to Shareholders is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data in the 1995 Annual
Report to Shareholders are incorporated herein by reference.
The financial statement schedules meeting the requirements of
Regulation S-X are shown as Schedules I, II, III, IV and V included on pages 19
through 26.
The supplementary data (Summary of Selected Quarterly Operating
Results) in the 1995 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in, nor disagreements with accountants on
accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
Identification of Directors
Information pertaining to Directors of the Company under the heading
"Election of Directors" in the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders to be held on May 14, 1996 is incorporated herein
by reference. Other information with respect to executive officers is contained
in Part I - Item 4(a) under the caption "Executive Officers of the Company".
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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 14, 1996 is incorporated
herein by reference.
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 14,
1996 is incorporated herein by reference.
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 14, 1996 is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(A) The following documents are filed as part of this report:
1. Financial Statements
The following financial statements in the 1995 Annual Report to
Shareholders are hereby incorporated by reference in Item 8:
Independent Auditor's Report
Consolidated Balance Sheets as of December 31, 1995 & 1994
Consolidated Statements of Income for the Years Ended December 31,
1995, 1994 & 1993
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1994, & 1993
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 & 1993
Notes to Consolidated Financial Statements
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2. Financial Statement Schedules
The following is a list of financial statement schedules and the auditors'
report on such schedules filed as part of this report on Form 10-K:
Investors Title Company and Subsidiaries:
Independent Auditors' Report on Financial Statement Schedules
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
<TABLE>
<CAPTION>
Page Number or
Exhibit Incorporation by
Number Description Reference to
<C> <C> <C>
(3)(i) Articles of Incorporation Exhibit 1 to Form 10,
dated June 12, 1984
(3)(ii) By-Laws Exhibit 2 to Form 10,
dated June 12, 1984
Management contract of compensatory plan or arrangement
(Exhibits (10)(i) - (10)(vii))
(10)(i) 1988 Incentive Stock Option Plan Exhibit 10 to Form
10-K, page 31, dated
December 31, 1989
(10)(ii) 1993 Incentive Stock Option Plan Exhibit 10 to Form 10-
K, page 32, dated
December 31, 1993
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(10)(iii) 1993 Incentive Stock Option Plan- Exhibit 10 to Form 10-
W. Morris Fine K, page 33, dated
December 31, 1993
(10)(iv) Employment Agreement dated Exhibit 10 to Form
February 9, 1984 with 10-K, page 14, dated
J. Allen Fine, President December 31, 1985
(10)(v) Form of Incentive Stock Option Exhibit 10(v) to Form
Agreement under 1993 Incentive 10-K, page 29, dated
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, page 11, dated
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, page 13, dated
March 31, 1995
(13) Portions of 1995 Annual Included herewith.
Report to Shareholders
incorporated by reference
in this report as set forth
in Part II hereof.
(21) Subsidiaries of Registrant Exhibit 21 to Form 10-
K, page 55, dated
December 31, 1994
(27) Financial Data Schedule Included herewith.
</TABLE>
(B) Reports on Form 8-K
No reports were filed on Form 8-K for the fourth quarter.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the 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
President, Chairman
Date March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities on the 29th day of March, 1996 .
/s/J. Allen Fine /s/H. Joe King, Jr.
J. Allen Fine, President, Chairman H. Joe King, Jr., Director
/s/Elizabeth P. Bryan /s/Richard W. McEnally
Elizabeth P. Bryan, Vice President Richard W. McEnally, Director
(Principal Accounting Officer)
/s/William Morris Fine /s/James R. Morton
William Morris Fine, Vice President James R. Morton, Director
and Treasurer (Principal Financial Officer)
/s/Lillard H. Mount /s/A. Scott Parker, Jr.
Lillard H. Mount, Director and A. Scott Parker, Jr., Director
General Counsel
/s/David L. Francis /s/W. W. Whittington
David L. Francis, Director W. W. Whittington, Director
/s/William J. Kennedy III
William J. Kennedy III, Director
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INDEPENDENT AUDITORS' REPORT
Investors Title Company:
We have audited the consolidated financial statements of Investors Title Company
(the "Company") and its subsidiaries as of December 31, 1995 and 1994, and for
each of the three years in the period ended December 31, 1995, and have issued
our report thereon dated January 31, 1996. Such consolidated financial
statements and report are included in your 1995 Annual Report to Shareholders
and are incorporated herein by reference. Our audits also included the financial
statement schedules of the 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
January 31, 1996
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SCHEDULE I
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
As of December 31, 1995
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Amount at
which shown
in the
Type of Investment Cost(1) Market Value Balance Sheet
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Maturities:
Bonds:
States, municipalities and political
subdivisions $12,873,492 $13,452,861 $13,227,875
Foreign governments 145,109 131,637 131,638
Public utilities 397,765 419,100 419,100
Convertibles and bonds with warrants
attached 10,000 10,400 10,400
All other corporate bonds 1,223,682 1,270,000 1,270,000
Certificates of deposit 399,203 399,203 399,203
----------------- --------------- --------------
Total fixed maturities 15,049,251 15,683,201 15,458,216
----------------- --------------- --------------
Equity Securities:
Common Stocks:
Public utilities 209,875 348,536 348,536
Banks, trust and insurance companies 167,681 420,538 420,538
Industrial, miscellaneous and all other 1,889,664 2,475,399 2,475,399
Nonredeemable preferred stocks 914,393 1,039,950 1,039,950
----------------- --------------- --------------
Total equity securities 3,181,613 4,284,423 4,284,423
----------------- --------------- --------------
Real estate acquired in settlement of claims 250,500 250,500
Short-term investments 2,527,008 2,527,008
----------------- --------------
Total investments $21,008,372 $22,520,147
================= ==============
</TABLE>
(1) Fixed maturities are shown at amortized cost and equity securities are shown
at original cost.
19
<PAGE>
SCHEDULE II
INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Assets
Cash and Cash Equivalents $41,370 $78,918
------------ -------------
Investments in Affiliated Companies at 19,507,982 17,226,364
Equity*
------------ -------------
Receivables:
Income taxes receivable 564,387 253,165
Other 118,839 120,055
------------ -------------
Total receivables 683,226 373,220
------------ -------------
Deferred Income Tax 18,572 12,401
------------ -------------
Prepaid Expenses and Other Assets 218,122 218,122
------------ -------------
Property-At Cost:
Land 782,582 782,582
Office buildings and improvements 1,293,726 1,228,375
Furniture, fixtures and equipment 79,158 74,904
------------ -------------
Total 2,155,466 2,085,861
Less accumulated depreciation 298,126 230,333
------------ -------------
Property, net 1,857,340 1,855,528
------------ -------------
Total Assets $22,326,612 $19,764,553
============ =============
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued liabilities $140,507 $100,646
Notes payable 362,000 862,000
------------ -------------
Total liabilities 502,507 962,646
------------ -------------
Stockholders' Equity:
Common stock-No par (shares authorized,
6,000,000; 2,855,744 and 2,855,744
shares issued and
2,790,633 and 2,812,062 shares
outstanding 1995 and
1994, respectively) 1,650,350 1,650,350
Retained earnings 20,173,755 17,151,557
-------------- -------------
Total stockholders' equity 21,824,105 18,801,907
-------------- -------------
Total Liabilities and Stockholders' Equity $22,326,612 $19,764,553
============== ============
</TABLE>
*Eliminated in consolidation.
See notes to condensed financial statements.
20
<PAGE>
SCHEDULE II
INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues:
Investment income-interest and dividends $19,430 $16,311 $10,529
Rental income 304,931 321,057 315,438
Miscellaneous income 32,825
------------- ------------ -----------
Total 324,361 337,368 358,792
------------- ------------ -----------
Operating
Expenses:
Office occupancy and operations 121,415 125,088 137,689
Business development 9,079 9,192 9,912
Taxes-other than payroll and income 47,032 39,632 36,162
Professional fees 18,251 8,864 10,200
Interest expense 43,191 76,633 135,182
Other expenses 92,769 33,324 42,848
------------- ------------ -----------
Total 331,737 292,733 371,993
------------- ------------ -----------
Equity in Net Income of Affiliated Cos.* 3,138,446 3,103,224 2,227,215
------------- ------------ -----------
Income Before Income Taxes 3,131,070 3,147,859 2,214,014
------------- ------------ -----------
Income Tax Expense (Benefit):
Current (113,417) (108,656) (214,055)
Deferred (6,171) 129,656 115,055
------------- ------------ -----------
Total (119,588) 21,000 (99,000)
------------- ------------ -----------
Net Income $3,250,658 $3,126,859 $2,313,014
============= ============ ===========
Earnings per Common Share $1.16 $1.10 $ .81
============== ============ ===========
</TABLE>
* Eliminated in consolidation.
See notes to condensed financial statements.
21
<PAGE>
SCHEDULE II
INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating Activities:
Net income $3,250,658 $3,126,859 $2,313,014
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in net earnings of subsidiaries less dividends received of
$856,828, $772,774 and $795,623 in 1995, 1994 and 1993,
respectively (2,281,618) (2,350,450) (1,431,592)
Depreciation 67,793 58,821 52,816
Provision (benefit) for deferred income taxes (6,171) 129,656 114,534
(Increase) decrease in receivables 1,216 68,987 (140,524)
(Increase) decrease in income taxes receivable-current (311,222) 42,388 894,937
(Increase) decrease in prepaid expenses 860 (991)
Increase (decrease) in accounts payable and accrued liabilities 39,861 (6,972) (12,410)
------------- -------------- ------------
Net cash provided by operating activities 760,517 1,070,149 1,789,784
------------- -------------- ------------
Investing Activities:
Purchases of furniture and equipment (69,605) (53,424) (25,807)
------------- -------------- ------------
Net cash used in investing activities (69,605) (53,424) (25,807)
------------- -------------- ------------
Financing Activities:
Payments on demand notes (500,000) (1,000,000) (1,500,000)
Dividends paid (228,460) (228,460) (157,093)
------------- -------------- ------------
Net cash used in financing activities (728,460) (1,228,460) (1,657,093)
------------- -------------- ------------
Net Increase (Decrease) in Cash and Cash Equivalents (37,548) (211,735) 106,884
Cash and Cash Equivalents, Beginning of Year 78,918 290,653 183,769
------------- -------------- ------------
Cash and Cash Equivalents, End of Year $41,370 $78,918 $290,653
============= ============== ============
Supplemental Disclosures:
Cash Paid During the Year For:
Interest $35,046 $70,054 $122,252
============= ============== ============
Income Taxes $390,000 $117,700 $70,700
============= ============== ============
</TABLE>
See notes to condensed financial statements.
22
<PAGE>
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 $836,828, $732,774,
and $627,343 in 1995, 1994 and 1993, respectively. Cash dividends paid
to Investors Title Company by its wholly owned subsidiary, Northeast
Investors Title Insurance Company were $0, $0, and $153,280 in 1995,
1994 and 1993 respectively. Cash dividends paid to Investors Title
Company by its wholly owned subsidiary, Investors Title Exchange
Corporation were $20,000, $40,000, and $15,000 in 1995, 1994 and 1993,
respectively.
3. Notes payable consists partly of one note payable ($500,000) which was
paid off in March of 1995. The Company has another note payable to
Investors Title Insurance Company in the amount of $362,000, payable on
demand and bearing interest at prime (8.5% at December 31, 1995).
23
<PAGE>
SCHEDULE III
INVESTORS TITLE COMPANY AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Future
Policy Other
Benefits, Policy Benefits Amortization
Deferred Losses, Claims Claims, of Deferred
Policy Claims and Net Losses and Policy Other
Acquisition and Loss Unearned Benefits Premium Investment Settlement Acquisition Operating Premiums
Segment Cost Expenses Premiums Payable Revenue Income Expenses Costs Expenses Written
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1995
Title --- $3,836,065 --- $38,601 $15,854,140 $1,241,855 $1,429,660 --- $11,532,632 N/A
Year Ended
December 31, 1994
Title --- 3,635,850 --- 52,848 15,596,643 1,108,047 1,446,068 --- 11,062,998 N/A
Year Ended
December 31, 1993
Title --- 3,343,000 --- 124,676 14,300,622 966,939 2,264,411 --- 10,147,835 N/A
</TABLE>
24
<PAGE>
SCHEDULE IV
INVESTORS TITLE COMPANY AND SUBSIDIARIES
REINSURANCE
For the Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Ceded to Assumed from Percentage of
Gross Other Other Net Amount
Amount Companies Companies Amount Assumed to Net
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1995
Title Insurance Premiums $15,903,006 $78,683 $29,817 $15,854,140 0.2%
YEAR ENDED
DECEMBER 31, 1994
Title Insurance Premiums 15,579,517 51,106 68,232 15,596,643 0.4%
YEAR ENDED
DECEMBER 31, 1993
Title Insurance Premiums 14,282,987 46,701 64,336 14,300,622 0.4%
</TABLE>
25
<PAGE>
SCHEDULE V
INVESTORS TITLE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Balance at Additions Charged Additions Charged
Beginning Charged to to Other Deductions- Balance at
Description of Period Costs and Expenses Accounts - Describe describe End of Period
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995
Premiums Receivable
Valuation Provision $120,000 $0 $0 $0 $120,000
1994
Premiums Receivable
Valuation Provision 120,000 0 0 0 120,000
1993
Premiums Receivable
Valuation Provision 100,000 20,000 0 0 120,000
</TABLE>
26
<PAGE>
OPERATIONS SUMMARIES
STOCK PRICES AND DIVIDENDS
On November 12, 1986, the common
stock of Investors Title Company began
trading on the NASDAQ National Market
under the symbol ITIC. The Company has
approximately 1,200 shareholders of
record, including shareholders whose
shares are held in street names. The
following table shows the high and low
sales prices reported on the NASDAQ
National Market System and cash
dividends declared per share for the
indicated periods.
<TABLE>
<CAPTION>
PRICES CASH DIVIDENDS
(HIGH-LOW) DECLARED
<S> <C> <C>
1995
2(cents) -
First Quarter 8 1/2 - 6 1/16 3/1/95
2(cents) -
Second Quarter 9 1/4 - 7 6/1/95
2(cents) -
Third Quarter 9 1/2 - 8 1/4 9/1/95
2(cents) -
Fourth Quarter 11 - 8 3/4 12/1/95
1994
2(cents) -
First Quarter 9 1/2 - 8 1/4 3/1/94
2(cents) -
Second Quarter 9 1/2 - 8 1/4 6/1/94
2(cents) -
Third Quarter 8 3/4 - 7 1/2 9/1/94
2(cents) -
Fourth Quarter 8 1/4 - 6 3/4 12/5/94
</TABLE>
The following firms currently make a
market in Investors Title Company's
common stock: Interstate/Johnson Lane;
Davenport & Co. of Virginia; Herzog,
Heine, Geduld, Inc.; Scott &
Stringfellow, Inc.; and Ferris, Baker
Watts, Inc.
(LOGO)
2
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE YEAR 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Premiums written $15,932,823 $15,647,749 $14,347,323 $13,321,104 $9,455,940
Revenues 17,365,950 16,933,925 15,463,260 14,239,039 10,263,722
Investment income 1,241,855 1,108,047 966,939 852,983 873,687
Provision for possible claims 1,429,660 1,446,068 2,264,411 2,534,582 1,504,652
Income before extraordinary
charge and cumulative effect of
a change in accounting principle 3,250,658 3,126,859 2,313,014 1,511,859 796,935
Extraordinary charge related to
settlement of lawsuit (2,706,565)
Cumulative effect of a change
in method of accounting for
income taxes 141,125
Net income (loss) 3,250,658 3,126,859 2,313,014 (1,053,581) 796,935
PER SHARE DATA
Income before extraordinary
charge and cumulative
effect of a change
in accounting principle 1.16 1.10 .81 .53 .28
Extraordinary charge related
to settlement of lawsuit (.95)
Cumulative effect of a change
in method of accounting for
income taxes .05
Net income (loss) 1.16 1.10 .81 (.37) .28
Cash dividends 0.08 .08 .055 .04 .04
Average number of common
shares outstanding 2,804,632 2,833,778 2,855,744 2,855,744 2,855,744
AT YEAR END
Assets 28,224,276 24,242,060 22,589,386 20,929,895 17,714,600
Liabilities 2,178,397 2,052,198 3,042,759 4,074,763 1,464,682
Investments in securities 19,742,639 16,362,082 14,914,140 14,468,853 11,190,797
Stockholders' equity 22,209,814 18,554,012 16,203,627 13,914,411 14,991,218
Book value/share 7.96 6.60 5.67 4.87 5.25
PERFORMANCE RATIOS
Net income (loss) to:
Average stockholders' equity 15.95% 18.00% 15.36% (7.29%) 5.46%
Total revenues (profit margin) 18.72% 18.47% 14.96% (7.40%) 7.76%
Provision for possible claims to
premiums written 8.97% 9.24% 15.78% 19.03% 15.91%
</TABLE>
(LOGO)
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read along with the consolidated
financial statements and the related footnotes.
OVERVIEW
During the past three years, the Company's operating results improved
significantly. These improvements are attribut-
able to the Company's efforts to increase market share and to improve the
efficiency of operations along with a generally improving real estate market.
Beginning in 1992 and continuing through 1993, the
Company experienced a tremendous surge in demand for title
insurance, as swiftly declining interest rates fueled a boom in
mortgage refinancings. As rates declined, demand for housing
also increased, partially because real estate became more
affordable for consumers.
In early 1994, the trend of declining interest rates reversed. The Federal
Reserve Board began increasing short-term interest rates and thereafter
tightened several additional times. This tightening significantly impacted
mortgage rates. Although real estate activity was fairly brisk at the beginning
of the year, the pace of transactions declined steadily as mortgage rates rose.
During 1995, fixed mortgage interest rates again reversed and began to drop,
declining to the 7% level by year-end. These lower rates contributed to an
improved real estate market. The Company's operating results began to be
positively impacted by a general increase in real estate activity in the second
quarter of 1995. The improved real estate environment along with increases in
market share combined to provide record quarterly earnings in the third and
fourth quarters
of 1995.
The current low level of interest bodes well for activity in the real estate
market. Future trends in interest rates are extremely difficult to predict
though, given the variety of potential influences including the current
political environment, the election year cycle and inflationary pressures. The
Company strives to offset the cyclical nature of the real estate market by
increasing market share. These efforts include developing new agent
relationships and increasing the number of underwriting offices where profitable
as well as improving market penetration with existing offices and agents.
CREDIT RATING
Investors Title Insurance Company's financial strength was again recognized
with a rating of "A Prime" (unsurpassed financial stability) by a Fannie Mae and
Freddie Mac approved actuarial firm. Northeast Investors Title Insurance Company
received a rating of "A" (excellent financial stability) from the same company.
OPERATING REVENUES
Total premiums written increased 2% in 1995 compared to 1994. Premiums
written in 1994 increased 9% compared to 1993. In addition to a higher number of
branch offices and issuing agents, these increases were partially the result of
(1) additions to the Company's legal department to provide technical advice to
branch offices, agents and customers, (2) establishment of a commercial
department to provide services in connection with commercial transactions so
that closings are expedited timely and reliably, and (3) establishment of
employee incentives given as a motivating tool to achieve revenue targets. In
North Carolina, market share increased four percentage points to 26% in 1995
compared to 1994.
Shown below is a schedule of title insurance premiums written for 1995, 1994
and 1993 in all states where our two insurance subsidiaries, Investors Title
Insurance Company and Northeast Investors Title Insurance Company, currently
underwrite insurance.
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Florida $ 128,124 $ 82,146 $ 132,845
Georgia 31,812
Illinois 5,964 68,016
Indiana 47,342 77,795 89,160
Kentucky 1,720
Maryland 6,499
Nebraska 323,290 86,913
New York 385,258 494,697 476,502
North Carolina 10,254,900 10,375,988 9,907,813
Pennsylvania 25,276 1,433
South Carolina 1,974,607 2,467,470 2,271,036
Tennessee 37,992 267,225 133,568
Virginia 2,687,906 1,718,166 1,204,047
Subtotal 15,903,006 15,579,517 14,282,987
Reinsurance
Assumed 29,817 68,232 64,336
Total Premiums $15,932,823 $15,647,749 $14,347,323
</TABLE>
Shown below is a breakdown of direct and agent premiums:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Direct $10,453,167 $10,551,332 $10,074,105
Agent 5,449,839 5,028,185 4,208,882
Total $15,903,006 $15,579,517 $14,282,987
</TABLE>
Premiums written from direct operations decreased 1% in 1995 compared to
1994 and increased 5% in 1994 compared
to 1993.
Agent premiums increased 8% in 1995 compared to 1994 and increased 19% in
1994 compared to 1993. In certain geographic areas, the primary distribution of
our product is through an agency network. Our ability to increase this network
with
(LOGO)
6
<PAGE>
reputable and qualified agents directly affects our ability to grow our market
share.
INVESTMENT INCOME
Investments are an integral part of the Company's business. In formulating
its investment strategy, the Company has emphasized after-tax income on its
investments. 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 maturity schedule of investments has
primarily remained within 15 years.
In 1996, the Company anticipates growth in investment income due to an
increase in the average size of the investment portfolio. As new funds become
available, they will be invested in accordance with the Company's strategy of
emphasizing after-tax return, which 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 12% in 1995 compared to 1994 and increased 15%
in 1994 compared to 1993. These increases were primarily attributable to an
increase in the average investment portfolio balance.
EXPENSES
Profit margins improved from 14.96% in 1993 to 18.47% in 1994 and 18.72% in
1995. The improvement in profitability resulted largely from steps taken to
refine operating procedures to better support our branch offices and agents, an
improved claims experience, and higher operating leverage resulting from an
increase in premiums written.
In the fourth quarter of 1993, the Company began implementation of an
automation system that computerized the underwriting process. Resulting benefits
include a more streamlined and consistent underwriting process and greater
efficiency per underwriter. Computer automation has favorably impacted our labor
costs.
Another step taken to streamline operations was the development of a
training center for underwriters which standardizes our underwriting practices.
As part of this effort, the Company developed a new underwriting manual to be
used by both branch and agency underwriting personnel.
Salaries as a percentage of our direct premiums written have remained fairly
constant at 34%, 33% and 30% in 1995, 1994 and 1993, respectively. The number of
branch offices increased from 17 in 1993 to 26 in 1995. Office occupancy and
operations as a percentage of direct premiums improved over the three year
period (17.52% in 1995, 18.02% in 1994, and 20.21% in 1993).
Commissions increased 12% in 1995 to $3,669,995 compared to 1994 due to
increased business from agent sources.
In 1995, the provision for possible claims as a percentage of premiums
written declined to 8.97%, representing a six year low due to an improving
claims record. The percentage was 9.24% in 1994 and 15.78% in 1993. Payments of
claims, net of recoveries, were $1,229,445, $1,153,218 and $1,862,132 in 1995,
1994 and 1993, respectively.
The Company has continued to strengthen its reserves for claims. At December
31, 1995, the total reserve for claims was $3,836,065. Of that total, $894,765
was reserved for specific claims and $2,941,300 was reserved for claims for
which the Company had no notice. Management relies on actuarial techniques to
estimate future claims by analyzing past claim payment patterns. There are no
known claims which are expected to have a material effect on the Company's
financial position.
Taxes consist primarily of personal and real property taxes and premium
taxes. Premium taxes as a percentage of premiums written remained constant at 2%
from 1993 to 1995.
INCOME TAXES
Income tax expense as a percentage of income before income taxes was 26%,
29% and 24% in 1995, 1994 and
1993, respectively. The decrease in the percentage in 1995 compared to 1994 was
due to a refund of taxes paid in prior years totaling $119,994.
The deferred income tax liability and net unrealized gain on investments
increased primarily due to a reclassification of certain bonds from
held-to-maturity to available-for-sale and an appreciation in investment
securities.
NET INCOME
The Company reported a 4% increase in net income in 1995 compared to 1994
and a 35% increase in 1994 compared to 1993. These increases were primarily
attributable to increased revenues and improved operating efficiencies resulting
from management's restructuring efforts.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities were $3,257,858, $4,533,402 and
$2,909,105 in 1995, 1994 and 1993, respectively. The decline in 1995 compared to
1994 was primarily due to an increase in premiums receivable from an escalation
in orders in the fourth quarter of 1995. Cash flows generated from operations
have enabled the Company to repay a $3,000,000 note obtained in 1992.
Net cash used in investing activities was $2,367,557 in 1995. Net cash used
in financing activities was $953,364 in 1995.
The insurance subsidiaries are restricted by state regulations in their
ability to pay dividends and to make distributions. A significant source of the
Company's funds are dividends received from the insurance company subsidiaries.
In 1996, the amount of dividends that can be paid without prior approval from
the insurance commissioner is approximately $1,278,000. These funds should be
adequate to cover the Company's
operating needs.
Management believes that funds generated from operations (primarily
underwriting and investment income) will enable the Company to adequately meet
its operating needs and is unaware of any trend likely to result in adverse
liquidity changes. In addition to operational liquidity, the Company maintains a
high degree of liquidity within the investment portfolio in the form of
short-term investments and other readily marketable securities.
(LOGO)
7
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
<TABLE>
<CAPTION>
1995 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
Premiums written $3,121,311 $3,773,439 $4,443,282 $4,594,791
Investment income 283,980 297,189 298,430 362,256
Net income 607,174 756,406 913,731 973,347
Net income per share .22 .27 .32 .35
1994
Premiums written $3,888,377 $4,136,439 $3,825,492 $3,797,441
Investment income 233,632 263,074 292,730 318,611
Net income 594,296 970,957 738,903 822,703
Net income per share .21 .34 .27 .28
</TABLE>
(LOGO)
8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Investors Title Company and Subsidiaries:
We have audited the accompanying
consolidated balance sheets of Investors Title
Company and its subsidiaries as of December 31,
1995 and 1994, and the related statements of
consolidated income, stockholders' equity and
cash flows for each of the three years in the
period ended December 31, 1995. 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
generally accepted auditing standards. 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 the Company
and its subsidiaries at December 31, 1995 and
1994, and the results of their operations and
their cash flows for each of the three years in
the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
(Signature of Deloitte & Touche LLP)
Raleigh, North Carolina
January 31, 1996
(LOGO)
9
<PAGE>
INVESTORS TITLE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS................................................................... $ 2,527,008 $ 2,590,071
INVESTMENTS IN SECURITIES (NOTES 2, 3 AND 8):
Fixed maturities:
Held-to-maturity, at amortized cost (fair value: 1995: $5,372,464; 1994:
$10,731,917).......................................................................... 5,147,479 10,822,847
Available-for-sale, at fair value (amortized cost: 1995: $9,901,772; 1994:
$3,003,587)........................................................................... 10,310,737 2,839,813
Equity securities, at fair value (cost: 1995: $3,181,613; 1994: $2,323,635)............... 4,284,423 2,699,422
Total investments...................................................................... 19,742,639 16,362,082
RECEIVABLES:
Premiums (less allowance for doubtful accounts: 1995 and 1994: $120,000)
(Note 8)............................................................................... 1,703,395 1,057,228
Accrued interest and dividends............................................................ 299,159 309,689
Recoveries of claims previously paid...................................................... 426,056 375,061
Refundable income taxes................................................................... 62,246
Other..................................................................................... 34,159 43,982
Total receivables...................................................................... 2,462,769 1,848,206
PREPAID EXPENSES AND OTHER ASSETS........................................................... 378,191 370,890
PROPERTY ACQUIRED IN SETTLEMENT OF CLAIMS................................................... 250,500 170,600
PROPERTY-AT COST (NOTES 8 AND 9):
Land...................................................................................... 782,582 782,582
Office buildings and improvements......................................................... 1,293,726 1,228,375
Furniture, fixtures and equipment......................................................... 1,694,657 1,536,745
Automobiles............................................................................... 151,374 118,162
Total.................................................................................. 3,922,339 3,665,864
Less accumulated depreciation............................................................. 1,059,170 765,653
Property, net.......................................................................... 2,863,169 2,900,211
TOTAL ASSETS................................................................................ $28,224,276 $24,242,060
</TABLE>
See notes to consolidated financial statements.
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10
<PAGE>
INVESTORS TITLE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities.................................................. $ 997,823 $ 999,859
Commissions and reinsurance payables (Note 4)............................................. 38,601 52,848
Premium taxes payable..................................................................... 35,840 28,766
Note payable (Note 7)..................................................................... 500,000
Income taxes payable:
Current................................................................................ 119,500
Deferred (Note 8):..................................................................... 986,633 470,725
Total liabilities...................................................................... 2,178,397 2,052,198
RESERVES FOR POSSIBLE CLAIMS (NOTES 5 AND 8)................................................ 3,836,065 3,635,850
COMMITMENTS AND CONTINGENCIES
(NOTES 4, 9 AND 11)
STOCKHOLDERS' EQUITY (NOTES 2, 3, 6, 8 AND 12):
Common stock-no par value (shares authorized 6,000,000; 2,855,744 and 2,855,744 shares
issued and 2,790,633 and 2,812,062 shares outstanding 1995 and 1994, respectively)..... 1,038,414 1,263,318
Retained earnings......................................................................... 20,173,755 17,151,557
Net unrealized gain on investments
(net of deferred taxes: 1995: $514,130; 1994: $72,876)................................. 997,645 139,137
Total stockholders' equity............................................................. 22,209,814 18,554,012
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................................. $28,224,276 $24,242,060
</TABLE>
See notes to consolidated financial statements.
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11
<PAGE>
INVESTORS TITLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
for the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
REVENUES:
Underwriting income:
Premiums written (Note 4)............................................ $15,932,823 $15,647,749 $14,347,323
Less-premiums for reinsurance ceded (Note 4)......................... 78,683 51,106 46,701
Underwriting income................................................ 15,854,140 15,596,643 14,300,622
Investment income-interest and dividends (Note 3)....................... 1,241,855 1,108,047 966,939
Rental income........................................................... 28,315 19,450 59,098
Gain (loss) on disposals of investments and property, net (Note 3)...... 34,215 33,031 (4,860)
Other................................................................... 207,425 176,754 141,461
Total.............................................................. 17,365,950 16,933,925 15,463,260
OPERATING EXPENSES:
Salaries................................................................ 3,515,480 3,498,794 2,976,306
Commissions to agents................................................... 3,669,995 3,283,210 2,724,038
Provision for possible claims (Note 5).................................. 1,429,660 1,446,068 2,264,411
Employee benefits and payroll taxes (Notes 6 and 10).................... 1,107,465 1,099,148 996,955
Office occupancy and operations (Note 9)................................ 1,831,074 1,901,827 2,035,966
Business development.................................................... 573,874 541,953 495,185
Taxes, other than payroll and income.................................... 142,811 112,574 91,972
Premium taxes (Note 8).................................................. 328,791 318,153 293,336
Professional fees....................................................... 212,279 152,605 246,130
Interest expense (Note 7)............................................... 11,098 52,322 113,592
Other................................................................... 139,765 102,412 174,355
Total.............................................................. 12,962,292 12,509,066 12,412,246
INCOME BEFORE INCOME TAXES................................................ 4,403,658 4,424,859 3,051,014
PROVISION FOR INCOME TAXES (NOTE 8):
Current:
Federal.............................................................. 1,062,346 1,008,463 575,910
State................................................................ 16,000 8,000 6,000
Total.............................................................. 1,078,346 1,016,463 581,910
Deferred Federal........................................................ 74,654 281,537 156,090
Total.............................................................. 1,153,000 1,298,000 738,000
NET INCOME................................................................ $ 3,250,658 $ 3,126,859 $ 2,313,014
EARNINGS PER COMMON SHARE................................................. $ 1.16 $ 1.10 $ .81
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING............................... 2,804,632 2,833,778 2,855,744
</TABLE>
See notes to consolidated financial statements.
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12
<PAGE>
INVESTORS TITLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN TOTAL
COMMON STOCK RETAINED (LOSS) ON STOCKHOLDERS'
SHARES AMOUNT EARNINGS INVESTMENTS EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1992........................ 2,855,744 $1,650,350 $12,097,237 $ 166,824 $13,914,411
Net income............................... 2,313,014 2,313,014
Dividends ($.055 per share).............. (157,093) (157,093)
Net unrealized gain on investments (net
of deferred taxes).................... 133,295 133,295
BALANCE,
DECEMBER 31, 1993........................ 2,855,744 1,650,350 14,253,158 300,119 16,203,627
Net income............................... 3,126,859 3,126,859
Dividends ($.08 per share)............... (228,460) (228,460)
Purchase of 43,682 shares of
common stock.......................... (43,682) (387,032) (387,032)
Net unrealized loss on investments (net
of deferred taxes).................... (160,982) (160,982)
BALANCE,
DECEMBER 31, 1994........................ 2,812,062 1,263,318 17,151,557 139,137 18,554,012
Net income............................... 3,250,658 3,250,658
Dividends ($.08 per share)............... (228,460) (228,460)
Purchase of 21,429 shares of
common stock.......................... (21,429) (224,904) (224,904)
Net unrealized gain on investments (net
of deferred taxes).................... 858,508 858,508
BALANCE,
DECEMBER 31, 1995........................ 2,790,633 $1,038,414 $20,173,755 $ 997,645 $22,209,814
</TABLE>
See notes to consolidated financial statements.
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13
<PAGE>
INVESTORS TITLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................... $ 3,250,658 $ 3,126,859 $ 2,313,014
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation........................................................ 307,649 315,436 160,126
Amortization, net of accretion...................................... 50,369 45,990 70,025
Provision for losses on premiums receivable......................... 20,000
(Gain) loss on disposals of property................................ 11,028 7,998 (8,057)
(Gain) loss on sales of investments................................. (45,242) (41,029) 12,917
Provision for deferred income taxes................................. 74,654 281,537 156,090
Provision for possible claims....................................... 1,429,660 1,446,068 2,264,411
Payments of claims, net of recoveries............................... (1,229,445) (1,153,218) (1,862,132)
Changes in assets and liabilities:
(Increase) decrease in receivables.................................. (495,063) 664,167 (506,625)
(Increase) decrease in prepaid expenses and other assets............ (7,301) 110,462 (62,267)
(Increase) decrease in property acquired in settlement of claims.... (79,900) (80,500) 108,367
Increase (decrease) in accounts payable and accrued liabilities..... (2,036) (90,534) 236,395
Increase (decrease) in commissions and reinsurance payables......... (14,247) (71,828) 41,409
Increase (decrease) in premium taxes payable........................ 7,074 (28,006) (34,568)
Net cash provided by operating activities........................... 3,257,858 4,533,402 2,909,105
INVESTING ACTIVITIES:
Purchases of securities................................................ (4,834,434) (3,436,649) (2,833,068)
Proceeds from sales of securities...................................... 2,748,512 1,741,034 2,506,804
Purchases of property.................................................. (315,763) (340,412) (780,653)
Proceeds from sales of property........................................ 34,128 6,402 25,170
Net cash used in investing activities............................... (2,367,557) (2,029,625) (1,081,747)
FINANCING ACTIVITIES:
Repayment of notes payable............................................. (500,000) (1,000,000) (1,500,000)
Repurchase of common stock............................................. (224,904) (387,032)
Dividends paid......................................................... (228,460) (228,460) (157,093)
Net cash used in financing activities............................... (953,364) (1,615,492) (1,657,093)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... (63,063) 888,285 170,265
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR............................. 2,590,071 1,701,786 1,531,521
CASH AND CASH EQUIVALENTS, END OF YEAR................................... $ 2,527,008 $ 2,590,071 $ 1,701,786
SUPPLEMENTAL DISCLOSURES:
CASH PAID DURING THE YEAR FOR:
Interest............................................................ $ 14,962 $ 54,854 $ 121,250
Income taxes........................................................ $ 897,000 $ 1,051,900 $ 796,661
Net unrealized gain (loss) on investments in securities (which is included in stockholders' equity, net of deferred income
taxes) was $1,299,762, ($242,712), and $201,965 in 1995, 1994 and 1993, respectively. Deferred income taxes (benefit) on
the net unrealized gain and loss was $441,254, ($81,730), and $68,670 in 1995, 1994 and 1993, respectively.
</TABLE>
See notes to consolidated financial statements.
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14
<PAGE>
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 (the "Company"), through
its wholly owned 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, South Carolina, and Georgia, and through
independent issuing agents in Florida, Georgia, Illinois, Indiana, Kentucky,
Maryland, Nebraska, New York, Pennsylvania, South Carolina, Tennessee, and
Virginia. The majority of the Company's business is concentrated in North
Carolina, South Carolina, and Virginia. Investors Title Exchange Corporation
("ITEC"), a wholly owned subsidiary, began operations in March 1988 and acts as
an intermediary in tax-free exchanges of property held for productive use in a
trade or business or for investments. ITEC's income is derived from fees for
handling exchange transactions. South Carolina Document Preparation Company
("SCDP"), a wholly owned subsidiary, was engaged in the business of document
preparation. SCDP was closed in June 1995.
Principles of Consolidation and Basis of Presentation - The accompanying
consolidated financial statements include the accounts of the Company and all
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 amortized cost,
adjusted for amortization of premiums or 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
excluded from income and reported as a separate component of stockholders'
equity. 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 is recorded at cost and is depreciated principally
under the straight-line method over the estimated useful lives (3 to 25 years)
of the respective assets.
RESERVE FOR POSSIBLE CLAIMS
The reserve for possible claims and the annual provision for possible 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 reserve for possible
claims (see Note 5.).
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.
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 from approved
attorneys who have examined such titles. Title insurance commissions earned by
the Company's agents are recognized as expense concurrently with premium
recognition.
EARNINGS PER COMMON SHARE
Earnings per common share is computed based on the weighted average number
of common shares outstanding. The effect of stock options is not material to the
computation of earnings per share.
ESCROWS AND TRUST DEPOSITS
As a service to its customers, the Company administers escrow and trust
deposits representing undisbursed amounts received for settlements of mortgage
loans and indemnities against specific title risks. These funds are not
considered assets of the Company and, therefore, are excluded from the
accompanying consolidated balance sheets.
In administering exchanges, ITEC holds properties to be exchanged and cash
received for such exchanges which are not considered assets and liabilities of
the Company and, therefore, are excluded from the accompanying consolidated
balance sheets. Cash held by ITEC for the purchase of exchange properties was
approximately $12,267,000 and $6,554,000 as of December 31, 1995 and 1994,
respectively.
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15
<PAGE>
NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 is effective for transactions entered
into in fiscal years that begin after December 15, 1995. This statement adopts a
"fair value based method" of accounting for employee stock option plans or
similar stock-based compensation plans. Under the fair value based method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service or vesting period. The statement does
allow entities to continue to measure compensation using the "intrinsic value
based method" of Accounting Principles Board Opinion ("APB") No. 25 provided
that pro forma disclosures of net income and earnings per share are made as if
the fair value based method of accounting had been applied. The Company has
determined it will continue to follow APB No. 25 and disclose the pro forma
effect of the fair value based method on net income and earnings per share.
EFFECTS OF INFLATION
The effect of inflation on the Company has not been material in recent
years.
RECLASSIFICATION
Certain 1994 and 1993 amounts have been reclassified to conform with 1995
classifications.
2. STATUTORY RESTRICTIONS ON CONSOLIDATED STOCKHOLDERS' EQUITY AND INVESTMENTS
The Company has designated approximately $9,476,000 and $8,490,000 of
retained earnings as of December 31, 1995 and 1994, respectively, as
appropriated to reflect the required statutory reserve for unearned premiums.
See Note 8 for the tax treatment of the statutory unearned premium reserve.
As of December 31, 1995 and 1994, approximately $18,473,000 and $16,095,000,
respectively, of the consolidated stockholders' equity represents 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.
Bonds and certificates of deposit totaling approximately $2,495,000 and
$2,430,000 at December 31, 1995 and 1994, respectively, 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, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES
<S> <C> <C> <C>
DECEMBER 31, 1995:
Fixed maturities -
Held-to-maturity, at amortized cost:
Certificates of deposit............................. $ 399,203
Obligations of states and political subdivisions.... 4,748,276 $ 225,545 $ 560
Total................................................. $ 5,147,479 $ 225,545 $ 560
Fixed maturities -
Available-for-sale, at fair value:
Obligations of states and political subdivisions.... $ 8,125,216 $ 378,218 $ 23,834
Corporate debt securities........................... 1,631,447 68,053
Debt securities issued by foreign governments....... 145,109 2,299 15,771
Total................................................. $ 9,901,772 $ 448,570 $ 39,605
Equity securities, at fair value -
Common stocks and nonredeemable preferred
stocks.............................................. $ 3,181,613 $1,184,673 $ 81,863
DECEMBER 31, 1994:
Fixed maturities -
Held-to-maturity, at amortized cost:
Certificates of deposit............................. $ 539,203
Obligations of states and political subdivisions.... 10,283,644 $ 228,571 $319,501
Total................................................. $10,822,847 $ 228,571 $319,501
Fixed maturities -
Available-for-sale, at fair value:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies.............. $ 131,747 $ 2,147
Obligations of states and political subdivisions.... 102,000
Corporate debt securities........................... 2,572,799 $ 571 140,471
Debt securities issued by foreign governments....... 197,041 21,727
Total................................................. $ 3,003,587 $ 571 $164,345
Equity securities, at fair value -
Common stocks and nonredeemable preferred
stocks.............................................. $ 2,323,635 $ 471,816 $ 96,029
<CAPTION>
FAIR
VALUE
<S> <C>
DECEMBER 31, 1995:
Fixed maturities -
Held-to-maturity, at amortized cost:
Certificates of deposit............................. $ 399,203
Obligations of states and political subdivisions.... 4,973,261
Total................................................. $ 5,372,464
Fixed maturities -
Available-for-sale, at fair value:
Obligations of states and political subdivisions.... $ 8,479,600
Corporate debt securities........................... 1,699,500
Debt securities issued by foreign governments....... 131,637
Total................................................. $10,310,737
Equity securities, at fair value -
Common stocks and nonredeemable preferred
stocks.............................................. $ 4,284,423
DECEMBER 31, 1994:
Fixed maturities -
Held-to-maturity, at amortized cost:
Certificates of deposit............................. $ 539,203
Obligations of states and political subdivisions.... 10,192,714
Total................................................. $10,731,917
Fixed maturities -
Available-for-sale, at fair value:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies.............. $ 129,600
Obligations of states and political subdivisions.... 102,000
Corporate debt securities........................... 2,432,899
Debt securities issued by foreign governments....... 175,314
Total................................................. $ 2,839,813
Equity securities, at fair value -
Common stocks and nonredeemable preferred
stocks.............................................. $ 2,699,422
</TABLE>
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16
<PAGE>
The scheduled maturities of fixed maturities at December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Due in one year or less................................ $1,144,560 $1,160,679
Due after one year through five years.................. $2,931,488 $ 3,005,637 1,390,077 1,466,523
Due after five years through ten years................. 2,250,472 2,382,900 640,035 685,900
Due after ten years.................................... 4,719,812 4,922,200 1,972,807 2,059,362
Total.............................................. $9,901,772 $10,310,737 $5,147,479 $5,372,464
</TABLE>
Earnings on investments and net realized gains (losses) for the three years
ended December 31 follow:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Fixed maturities........................................................... $ 853,705 $ 823,493 $760,238
Equity securities.......................................................... 142,899 121,956 96,640
Invested cash and other short-term investments............................. 138,768 97,351 96,154
Miscellaneous interest..................................................... 106,483 65,247 13,907
Net realized gains (losses)................................................ 45,242 41,029 (12,917)
Investment income.......................................................... $1,287,097 $1,149,076 $954,022
</TABLE>
Gross realized gains and losses on sales of available-for-sale securities
were:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Gross realized gains:
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies............................. $ 3,937 $ 1,722
Redeemable preferred stocks............................................. $ 475
Obligations of states and political subdivisions........................ 727 2,000 4,760
Common stocks and nonredeemable preferred stocks........................ 67,590 78,210 5,056
Total................................................................. 72,254 80,685 11,538
Gross realized losses:
Obligations of states and political subdivisions........................ (500)
Debt securities issued by foreign governments........................... (800)
Common stocks and nonredeemable preferred stocks........................ (25,712) (39,656) (24,455)
Total................................................................. (27,012) (39,656) (24,455)
Net realized gain (loss)................................................ $45,242 $ 41,029 $(12,917)
</TABLE>
Concurrent with the adoption of the implementation guidance in Financial
Accounting Standards Board Special Report "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities," the Company reassessed the appropriateness of the classifications
of all securities held at that time and transferred held-to-maturity investments
with amortized cost of $8,433,685 and fair value of $8,800,000 to
available-for-sale effective December 31, 1995. The unrealized gain of $241,768,
net of deferred taxes of $124,547, has been included in stockholders' equity.
4. REINSURANCE
The Company assumes and cedes reinsurance with other insurance companies in
the normal course of business. Premiums assumed and ceded were approximately
$30,000 and $79,000, respectively for 1995, $68,000 and $51,000, respectively
for 1994, and $64,000 and $47,000, respectively for 1993. 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.
5. RESERVE FOR POSSIBLE CLAIMS
Changes in the reserve for possible claims for the years ended December 31
are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Balance, beginning of year................... $3,635,850 $ 3,343,000 $ 2,940,721
Provision related to:
Current year............................... 1,050,005 1,036,848 603,637
Prior years................................ 379,655 409,220 1,660,774
Total provision charged to operations........ 1,429,660 1,446,068 2,264,411
Claims paid, net of recoveries, related to:
Current year............................... (81,148) (95,503) (22,449)
Prior years................................ (1,148,297) (1,057,715) (1,839,683)
Total claims paid, net of recoveries......... (1,229,445) (1,153,218) (1,862,132)
Balance, end of year......................... $3,836,065 $ 3,635,850 $ 3,343,000
</TABLE>
In management's opinion, the reserve is adequate to cover claim losses which
might result from pending and possible claims.
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17
<PAGE>
6. 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 193,300 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. In November 1989, 28,125 shares
were granted at $6.50 per share. In 1990, 100 shares were forfeited. In 1994,
9,785 of the shares were exercised, and the options on the remaining 18,240
shares expired November 12, 1994. In 1991, 5,000 shares were granted at $5.50
per share. In 1993, 10,000, 15,000 and 1,000 shares were granted at $4.25, $7.50
and $8.25 per share, respectively. During 1993, 200 of the shares with an $8.25
option price were exercised and in 1995, 800 of the shares with an option price
of $8.25 expired. In 1994, 1,000 and 67,600 shares were granted at $7.50 and
$8.50 per share, respectively. During 1995, 40 of the shares with an option
price of $8.50 were exercised and 5,200 of the shares with an option price of
$8.50 expired.
In 1995, 5,000, 1,000, 6,000, 2,400 and 2,500 shares were granted at $6.75,
$8.25, $9.00, $6.25 and $9.75 per share, respectively. In 1995, 2,400 of the
options with an exercise price of $6.25 expired. All options are exercisable at
20% per year beginning on the date of grant or within one year from the date of
grant. As of December 31, 1995, a total of 107,860 shares were outstanding.
7. NOTE PAYABLE
Note payable was payable on demand and accrued interest at prime (8.5% at
December 31, 1994). The Company has lines of credit totaling $5,000,000 with a
commercial bank all of which was available at December 31, 1995.
8. INCOME TAXES
At December 31, 1995 and 1994, the approximate effect on each component of
deferred income taxes and liabilities is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C> <C>
Deferred income tax assets:
Accrued vacation................................................ $ 99,014 $114,490
Reinsurance payable............................................. 15,584 6,185
Bad debt reserve................................................ 40,800 40,800
Net state operating loss carryforward........................... 317,618 318,586
Total......................................................... 473,016 480,061
Less valuation allowance........................................ 317,618 318,586
Total......................................................... 155,398 161,475
Deferred income tax liabilities:
Statutory unearned premiums reserve net of recorded
reserve for possible claims................................... 512,264 455,675
Unrealized net gain on investments.............................. 514,130 72,876
Excess of tax over book depreciation............................ 103,614 90,891
Discount accretion on tax-exempt obligations.................... 12,023 12,758
Total......................................................... 1,142,031 632,200
Net deferred income tax liabilities............................... $ 986,633 $470,725
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized.
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:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C> <C>
Anticipated income tax expense................................... $1,497,244 $1,504,452 $1,037,345
Increase (reduction) related to:
State income taxes, net of the federal income tax benefit...... 10,560 5,280 3,960
Tax exempt interest income (net of amortization)............... (227,206) (210,788) (190,690)
Dividends received (nontaxable portion)........................ (28,426) (24,288) (21,285)
Refund of taxes paid in prior years............................ (119,994)
Other, net..................................................... 20,822 23,344 (91,330)
Provision for income taxes....................................... $1,153,000 $1,298,000 $ 738,000
</TABLE>
For state income tax purposes, ITIC and NE-ITIC must pay only a gross
premium tax.
At December 31, 1995 and 1994, the Company has available state net operating
loss carryforwards of approximately $4,100,000 that originated in 1992 and will
expire in 1997.
9. LEASES
Rent expense totaled $373,000, $335,000 and $299,000 in 1995, 1994 and 1993,
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,
1995 are summarized as follows:
<TABLE>
<S> <C> <C>
Year Ending:
1996 $236,960
1997 182,177
1998 79,898
1999 18,887
2000
Total $517,922
</TABLE>
(LOGO)
18
<PAGE>
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 $22,500 per employee. All contributions are
deposited in Individual Retirement Accounts for participants. Contributions
under the plan were approximately $193,000, $177,000, and $174,000 for 1995,
1994 and 1993, 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
generally accepted accounting principles 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 $15,237,402 and $11,631,302 as
of December 31, 1995 and 1994, respectively. Net income on a statutory basis was
$3,377,015, $2,406,575 and $1,747,908 for the twelve months ended December 31,
1995, 1994 and 1993, respectively.
(LOGO)
19
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995 DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1995 JAN-01-1995 JAN-01-1995 JAN-01-1995
<PERIOD-END> MAR-31-1995 JUN-30-1995 SEP-30-1995 DEC-31-1995
<DEBT-HELD-FOR-SALE> 2,500,451 2,557,644 2,456,285 10,310,737
<DEBT-CARRYING-VALUE> 10,557,522 10,775,433 11,642,510 4,788,300
<DEBT-MARKET-VALUE> 0<F1> 0<F1> 0<F1> 5,013,285
<EQUITIES> 3,136,953 3,289,676 3,817,101 4,284,423
<MORTGAGE> 0 0 0 0
<REAL-ESTATE> 0 0 0 0
<TOTAL-INVEST> 16,559,105 16,946,932 18,275,075 19,742,639
<CASH> 2,542,249 2,742,702 2,602,658 2,527,008
<RECOVER-REINSURE> 0 0 0 0
<DEFERRED-ACQUISITION> 0 0 0 0
<TOTAL-ASSETS> 24,399,314 25,484,494 26,914,184 28,224,276
<POLICY-LOSSES> 3,584,850 3,694,850 3,794,850 3,836,065
<UNEARNED-PREMIUMS> 0 0 0 0
<POLICY-OTHER> 41,599 41,602 45,070 38,601
<POLICY-HOLDER-FUNDS> 0 0 0 0
<NOTES-PAYABLE> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 1,253,212 1,252,552 1,149,411 1,038,414
<OTHER-SE> 18,023,760 18,955,802 20,003,928 21,171,400
<TOTAL-LIABILITY-AND-EQUITY> 24,399,314 25,484,494 26,914,184 28,224,276
3,104,025 6,865,297 11,286,791 15,854,140
<INVESTMENT-INCOME> 283,980 581,169 879,599 1,241,855
<INVESTMENT-GAINS> 17,991 47,556 42,223 45,242
<OTHER-INCOME> 56,814 132,736 178,236 224,712
<BENEFITS> 250,091 586,573 1,095,110 1,429,660
<UNDERWRITING-AMORTIZATION> 0 0 0 0
<UNDERWRITING-OTHER> 2,524,555 5,313,709 8,277,265 11,532,632
<INCOME-PRETAX> 688,164 1,726,476 3,014,474 4,403,658
<INCOME-TAX> 80,990 362,896 737,163 1,153,000
<INCOME-CONTINUING> 607,174 1,363,580 2,277,311 3,250,658
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 607,174 1,363,580 2,277,311 3,250,658
<EPS-PRIMARY> .22 .49 .81 1.16
<EPS-DILUTED> .22 .49 .81 1.16
<RESERVE-OPEN> 0 0 0 0
<PROVISION-CURRENT> 0 0 0 0
<PROVISION-PRIOR> 0 0 0 0
<PAYMENTS-CURRENT> 0 0 0 0
<PAYMENTS-PRIOR> 0 0 0 0
<RESERVE-CLOSE> 0 0 0 0
<CUMULATIVE-DEFICIENCY> 0 0 0 0
<FN>
<F1>Not disclosed on a quarterly basis.
</FN>
</TABLE>
