UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-11774
INVESTORS TITLE COMPANY
(Exact name of registrant as specified in its charter)
North Carolina 56-1110199
(State of Incorporation) (I.R.S. Employer)
121 North Columbia Street, Chapel Hill, North Carolina 27514
(Address of Principal Executive Offices) (Zip Code)
(919) 968-2200
( Registrant's Telephone Number Including Area Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Shares outstanding of each of the issuer's classes of common
stock as of June 30, 1996:
Common Stock, no par value 2,768,070
Class Shares Outstanding
1
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INVESTORS TITLE COMPANY AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995. . . . . . . . . . . . . . . . . . .3
Consolidated Statements of Income:
Six Months and Three Months Ended June 30, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . .4
Consolidated Statements of Cash Flows:
Six Months Ended June 30, 1996 and 1995. . . . . . . .5
Notes to Condensed Consolidated Financial Statements. . .6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . .7
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . .9
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . .9
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . .9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of June 30, 1996 and December 31, 1995
(Unaudited)
<TABLE>
<S> <C> <C>
6/30/96 12/31/95
Assets
Cash and Cash Equivalents $ 3,029,399 $ 2,527,008
Investments:
Held-to-maturity:
Certificates of deposit 214,334 399,203
Bonds - at amortized cost 5,305,461 4,748,276
Available-for-sale - at market:
Bonds and redeemable preferred stocks 10,247,774 10,310,737
Common and nonredeemable preferred
stocks 4,908,399 4,284,423
Total investments 20,675,968 19,742,639
Receivables:
Premiums, net 2,325,337 1,703,395
Accrued interest and dividends 298,747 299,159
Recoveries of claims previously paid 410,164 426,056
Other 35,369 34,159
Total receivables 3,069,617 2,462,769
Prepaid Expenses and Other Assets 394,608 378,191
Property Acquired in Settlement of Claims 165,500 250,500
Property-At Cost:
Land 782,582 782,582
Office buildings and improvements 1,293,726 1,293,726
Furniture, fixtures and equipment 1,754,214 1,694,657
Automobiles 169,423 151,374
Total 3,999,945 3,922,339
Less accumulated depreciation 1,193,973 1,059,170
Property, net 2,805,972 2,863,169
Total Assets $ 30,141,064 $ 28,224,276
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued
liabilities $ 800,181 $ 997,823
Commissions and reinsurance payables 36,063 38,601
Premium taxes payable 13,001 35,840
Income taxes payable:
Current 187,514 119,500
Deferred 981,778 986,633
Total liabilities 2,018,537 2,178,397
Reserve for Claims 4,486,065 3,836,065
Stockholders' Equity:
Common stock-No par value (shares
authorized 6,000,000; 2,855,744
and 2,855,744 shares issued and
2,768,070 and 2,790,633 shares
outstanding 1996 and 1995, respectively) 783,200 1,038,414
Retained earnings 21,771,748 20,173,755
Net unrealized gain on investments
(net of deferred taxes: 1996:
$539,305; 1995: $514,130) 1,081,514 997,645
Total stockholders' equity 23,636,462 22,209,814
Total Liabilities and Stockholders'
Equity $ 30,141,064 $ 28,224,276
</TABLE>
3
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Investors Title Company and Subsidiaries
Consolidated Statements of Income
June 30, 1996 and 1995
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
For The Three For The Six
Months Ended Months Ended
June 30 June 30
1996 1995 1996 1995
Revenues:
Underwriting income:
Premiums written $ 5,505,691 $ 3,773,439 $ 9,958,580 $ 6,894,750
Less-premiums for reinsurance ceded 24,199 12,167 42,289 29,453
Net premiums written 5,481,492 3,761,272 9,916,291 6,865,297
Investment income-interest and dividends 314,286 268,484 609,077 535,431
Rental income 10,228 5,441 19,125 9,764
Gain on disposals of investments and
property, net 46,803 27,841 20,514 46,538
Other 63,821 100,910 110,871 169,728
Total 5,916,630 4,163,948 10,675,878 7,626,758
Operating Expenses:
Salaries 919,272 860,889 1,781,158 1,715,254
Commissions to agents 1,362,102 865,818 2,449,054 1,532,462
Provision for claims 830,812 336,482 1,512,145 586,573
Employee benefits and payroll taxes 448,131 272,413 730,381 550,319
Office occupancy and operations 558,384 446,411 987,357 868,396
Business development 167,026 132,302 296,191 245,659
Taxes, other than payroll and income 147,528 97,595 259,080 191,311
Professional fees 38,920 80,737 71,171 136,988
Interest expense 0 0 0 10,638
Other 93,066 32,989 191,249 62,682
Total 4,565,241 3,125,636 8,277,786 5,900,282
Income Before Income Taxes 1,351,389 1,038,312 2,398,092 1,726,476
Provision For Income Taxes:
Current 454,377 275,350 701,622 242,870
Deferred (81,770) 6,556 (30,031) 120,026
Total 372,607 281,906 671,591 362,896
Net Income $ 978,782 $ 756,406 $ 1,726,501 $ 1,363,580
Net Income Per Share* $ 0.35 $ 0.27 $ 0.62 $ 0.49
Dividends Paid $ 71,394 $ 57,116 $ 128,508 $ 114,230
Dividends Per Share $ 0.025 $ 0.02 $ 0.045 $ 0.04
* Net income per share is computed based on the weighted average number of common shares outstanding (1996,
2,778,105 and 1995, 2,810,222 shares, respectively.) The effect of stock options is not material to the
computation of earnings per share.
</TABLE>
4
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Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1996 and 1995 (Unaudited)
<TABLE>
<S> <C> <C>
1996 1995
Operating Activities:
Net income $1,726,501 $1,363,580
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 158,208 151,081
Amortization, net of accretion 6,942 34,001
(Gain) loss on disposals of property (11,910) 1,019
Gain on sales of investments (8,604) (47,556)
Provision (benefit) for deferred
income taxes (30,031) 120,026
Provision for possible claims 1,512,145 586,573
Payments of claims, net of recoveries (862,145) (527,573)
Increase in receivables (606,848) (149,044)
Increase in prepaid expenses and other
assets (16,417) (287,947)
(Increase) decrease in assets acquired
in settlement of claims 85,000 (109,900)
Decrease in accounts payable and accrued
liabilities (197,642) (341,726)
Decrease in commissions and reinsurance
payables (2,538) (11,246)
Decrease in premium taxes payable (22,839) (67,121)
Increase in income taxes payable
- current 68,014 143,479
Net cash provided by operating activities 1,797,836 857,646
Investing Activities:
Purchases of investments held-to-maturity (897,846) (995,620)
Purchases of investments available-for-sale (1,010,755) (462,212)
Proceeds from sales of investments
held-to-maturity 491,019 1,142,979
Proceeds from sales of investments
available-for-sale 594,960 368,887
Purchases of property (171,080) (135,985)
Proceeds from sales of property 81,979 1,932
Net cash used in investing activities (911,723) (80,019)
Financing Activities:
Dividends paid (128,508) (114,230)
Repurchases of common stock, net (255,214) (10,766)
Repayment of notes payable 0 (500,000)
Net cash used in financing activities (383,722) (624,996)
Net Increase in Cash and Cash Equivalents 502,391 152,631
Cash and Cash Equivalents, Beginning of Year 2,527,008 2,590,071
Cash and Cash Equivalents, End of Period $3,029,399 $2,742,702
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for:
Interest $0 $14,476
Income Taxes $784,006 $104,612
</TABLE>
5
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INVESTORS TITLE COMPANY
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1996
(Unaudited)
Note 1 - Basis of Presentation
The consolidated financial statements include Investors Title
Company and its subsidiaries, and have been prepared in
conformity with generally accepted accounting principles.
In the opinion of management all necessary adjustments have
been reflected for a fair presentation of the financial
position, results of operations and cash flows in the
accompanying unaudited consolidated financial statements.
All such adjustments are of a normal recurring nature.
Reference should be made to the "Notes to Consolidated
Financial Statements" of the Registrant's Annual Report to
Shareholders for the year ended December 31, 1995 for a
description of accounting policies.
Note 2 - Reinsurance
The Company assumes and cedes reinsurance with other
insurance companies in the normal course of business.
Premiums assumed and ceded were $22,306 and $42,289,
respectively for the six months ended June 30, 1996, and
$19,295 and $29,453, respectively for the six months ended
June 30, 1995.
Note 3 - Reserve for Claims
Transactions in the reserve for claims for the six months
ended June 30, 1996 were as follows:
Balance, beginning of year $3,836,065
Provision, charged to operations 1,512,145
Recoveries 68,805
Payments of claims (930,950)
Balance, June 30, 1996 $4,486,065
In management's opinion, the reserve is adequate to cover
claim losses which might result from pending and possible
claims.
Note 4 - Leases
Rent expense totaled $189,057 and $206,407, respectively for
the six months ended June 30, 1996 and 1995.
6
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The 1995 Form 10-K and the 1995 Annual Report should be
read in conjunction with the following discussion since
they contain important information for evaluating the
Company's operating results and financial condition.
Results of Operations:
For the quarter ended June 30, 1996, premiums written
increased 46% to $5,505,691, investment income increased
17% to $314,286, revenues increased 42% to $5,916,630, net
income increased 29% to $978,782 and net income per share
increased 30% to $.35 all compared to the same quarter in
1995.
For the six months ended June 30, 1996, premiums written
increased 44% to $9,958,580, investment income increased
14% to $609,077, revenues increased 40% to $10,675,878,
net income increased 27% to $1,726,501 and net income per
share increased 27% to $.62 all compared to the same
period in 1995.
Sales growth in 1996 resulted from a combination of
continued marketing efforts and a generally healthy real
estate market, despite an approximately one point rise in
mortgage rates since January. The volume of business
continued to increase in the second quarter of 1996 as the
number of policies and commitments issued rose to 36,875,
an increase of 41% compared to 26,194 in the same period
in 1995. Policies and commitments issued for the six
months ended June 30, 1996 were 69,090 compared to 48,322
in 1995. Premiums from direct operations increased 37%,
while premiums from agency operations increased 58% for
the six months ended June 30, 1996 compared to the same
period in 1995.
Operating expenses increased 46% and 40% for the three and
six months ended June 30, 1996, respectively, when
compared to the same periods in 1995. Salaries and
employee benefits increased due to additional staffing
needs and an increase in accrued bonuses. Office
occupancy and operations, business development, and
premium taxes increased primarily due to the increase in
premium volume. The increase in commissions is the result
of the Company's expansion into new markets primarily
through establishing new agency relationships.
The provision for possible claims increased as a result of
the increase in premiums written coupled with a 63%
increase in claims payments compared to the same period in
1995. The increase in claims payments was largely the
result of the occurrence of a few larger than average
claims. The reserve for claims has increased $650,000 in
1996 compared to year-end based on management's assessment
of the reserve.
Although operating expenses increased, there was a slight
gain in operating efficiencies in the first half of 1996
compared to the same period in 1995 as premiums rose 44%
while operating expenses only increased 40%. This
improvement is primarily due to the Company's cost control
efforts.
7
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The provision for current income taxes increased in 1996
compared to 1995 primarily due to a 1995 current income
tax benefit resulting from loss carrybacks, increases in
the reserves for claims and statutory premiums in 1996
which are not currently tax deductible, and an increase in
income in 1996. The increase in the provision for current
income taxes was partially offset by a decline in the
provision for deferred income taxes. Deferred income
taxes decreased primarily as a result of increases in the
reserves for claims and statutory premiums which are not
deductible from taxable income.
Liquidity and Capital Resources:
Net cash provided by operating activities for the six
months ended June 30, 1996, amounted to $1,797,836
compared to $857,646 for the same six month period during
1995. This increase is attributable to the increase in
net income and a number of other factors, including a
smaller increase in prepaid expenses and other assets in
1996, a decrease in assets acquired in settlement of
claims in 1996, a smaller decrease in accounts payable and
accrued liabilities in 1996, and a higher provision for
possible claims in 1996 (which is added back to net income
to reconcile net income to net cash), partially offset by
an increase in receivables in 1996.
The Board of Directors has approved the repurchase by the
Company of shares of the Company's common stock from time
to time at prevailing market prices for the purpose of
issuances of stock in connection with stock options and
stock bonuses. For the six months ended June 30, 1996,
the Company repurchased 32,000 shares at an average
purchase price of $11.00 per share.
Management believes that funds generated from operations
(primarily underwriting and investment income) will enable
the Company to adequately meet its operating needs. In
addition to operational liquidity, the Company maintains a
high degree of liquidity within the investment portfolio
in the form of short-term investments and other readily
marketable securities.
8
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PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Investors Title Company's Annual Meeting of Shareholders
was held May 14, 1996. The proposals voted upon and the
results of the voting were as follows:
1. Election of three Directors for a three-year term.
<TABLE>
<S> <C> <C> <C> <C> <C>
Broker
For Against Abstentions Withheld Non-votes
Loren B. Harrell, Jr. 2,296,811 N/A N/A 1,562 N/A
H. Joe King, Jr. 2,295,695 N/A N/A 2,678 N/A
William J. Kennedy III 2,296,381 N/A N/A 1,992 N/A
2. Ratification of the selection of Deloitte & Touche
LLP, Certified Public Accountants to audit the books and
accounts of the Company for the calendar year ending
December 31, 1996.
Broker
For Against Abstentions Withheld Non-votes
2,295,403 11 3,159 N/A N/A
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for this quarter.
9
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the Registrant has duly caused this Report to be signed
in its behalf by the undersigned hereunto duly authorized.
INVESTORS TITLE COMPANY
(Registrant)
By: /s/J. Allen Fine
J. Allen Fine
President, Chairman
By: /s/Elizabeth P. Bryan
Elizabeth P. Bryan
Vice President
(Principal Accounting
Officer)
Dated: July 30, 1996
10
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
* Not disclosed on a quarterly basis.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996
<DEBT-HELD-FOR-SALE> 11,122,024 10,247,774
<DEBT-CARRYING-VALUE> 4,773,802 5,385,784
<DEBT-MARKET-VALUE> 0* 0*
<EQUITIES> 3,923,286 4,908,399
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 19,943,423 20,675,968
<CASH> 3,111,968 3,029,399
<RECOVER-REINSURE> 0 0
<DEFERRED-ACQUISITION> 0 0
<TOTAL-ASSETS> 29,028,800 30,141,064
<POLICY-LOSSES> 4,186,065 4,486,065
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 30,682 36,063
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 0 0
0 0
0 0
<COMMON> 910,970 783,200
<OTHER-SE> 21,882,473 22,853,262
<TOTAL-LIABILITY-AND-EQUITY> 29,028,800 30,141,064
4,434,799 9,916,291
<INVESTMENT-INCOME> 294,791 609,077
<INVESTMENT-GAINS> (40,052) 8,604
<OTHER-INCOME> 69,710 141,906
<BENEFITS> 681,333 1,512,145
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 3,031,212 6,765,641
<INCOME-PRETAX> 1,046,703 2,398,092
<INCOME-TAX> 298,984 671,591
<INCOME-CONTINUING> 747,719 1,726,501
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 747,719 1,726,501
<EPS-PRIMARY> .27 .62
<EPS-DILUTED> .27 62
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
