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: March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-11774
INVESTORS TITLE COMPANY
(Exact name of registrant as specified in its charter)
North Carolina 56-1110199
(State of Incorporation) (I.R.S. Employer)
121 North Columbia Street, Chapel Hill, North Carolina 27514
(Address of Principal Executive Offices) (Zip Code)
(919) 968-2200
( Registrant's Telephone Number Including Area Code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Shares outstanding of each of the issuer's classes of common stock
as of March 31, 1997:
Common Stock, no par value 2,766,739
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 March 31, 1997
and December 31, 1996 . . . . . . . . . . . . . . . .3
Consolidated Statements of Income:
Three Months Ended March 31, 1997 and 1996 . . . .4
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 1997 and 1996 . . . .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 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 March 31, 1997 and December 31, 1996
(Unaudited)
<TABLE>
<S> <C> <C>
3/31/97 12/31/96
Assets
Cash and Cash Equivalents $ 5,100,623 $ 4,244,570
Investments:
Held-to-maturity:
Certificates of deposit 169,004 169,004
Bonds - at amortized cost 4,812,753 5,098,368
Available-for-sale - at market:
Bonds 13,276,954 12,832,724
Common and nonredeemable preferred stocks 4,579,347 5,473,567
Total investments 22,838,058 23,573,663
Receivables:
Premiums, net 1,917,370 2,016,122
Accrued interest and dividends 332,828 321,634
Recoveries of claims previously paid 68,777 69,334
Other 91,552 35,663
Total receivables 2,410,527 2,442,753
Prepaid Expenses and Other Assets 488,754 451,972
Property Acquired in Settlement of Claims 240,500 165,500
Property-At Cost:
Land 782,582 782,582
Office buildings and improvements 1,293,726 1,293,726
Furniture, fixtures and equipment 1,888,138 1,843,636
Automobiles 203,377 169,423
Total 4,167,823 4,089,367
Less accumulated depreciation 1,404,245 1,325,297
Property, net 2,763,578 2,764,070
Total Assets $ 33,842,040 $ 33,642,528
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued liabilities $ 568,113 $ 997,759
Commissions and reinsurance payables 89,154 60,902
Premium taxes payable - 101,766
Income taxes payable:
Current 383,553 175,143
Deferred 998,927 1,232,716
Total liabilities 2,039,747 2,568,286
Reserves for Claims 5,436,065 5,086,065
Stockholders' Equity:
Common stock-No par value (shares authorized
6,000,000; 2,855,744 and 2,855,744 shares
issued; and 2,766,739 and 2,767,830 shares
outstanding 1997 and 1996, respectively) 705,966 722,321
Retained earnings 24,521,377 23,745,995
Net unrealized gain on investments
(net of deferred taxes: 1997: $586,696;
1996: $782,959) 1,138,885 1,519,861
Total stockholders' equity 26,366,228 25,988,177
Total Liabilities and Stockholders' Equity $ 33,842,040 $ 33,642,528
</TABLE>
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Investors Title Company and Subsidiaries
Consolidated Statements of Income
March 31, 1997 and 1996
(Unaudited)
<TABLE>
<S> <C> <C>
For The Three
Months Ended
March 31
1997 1996
Revenues:
Underwriting income:
Premiums written $ 5,487,630 $ 4,452,889
Less-premiums for reinsurance ceded 68,842 18,090
Net premiums written 5,418,788 4,434,799
Investment income-interest and dividends 398,113 294,791
Gain (loss) on sales of investments, net 107,081 (40,052)
Other 121,529 69,710
Total 6,045,511 4,759,248
Operating Expenses:
Salaries 991,476 861,886
Commissions to agents 1,672,088 1,086,952
Provision for claims 814,821 681,333
Employee benefits and payroll taxes 463,472 282,250
Office occupancy and operations 546,940 428,973
Business development 145,947 129,165
Taxes, other than payroll and income 172,844 111,552
Professional fees 35,136 32,251
Other 21,863 98,183
Total 4,864,587 3,712,545
Income Before Income Taxes 1,180,924 1,046,703
Provision For Income Taxes:
Current 357,397 247,245
Deferred (37,527) 51,739
Total 319,870 298,984
Net Income $ 861,054 $ 747,719
Net Income Per Share* $ 0.31 $ 0.27
Dividends Paid $ 85,672 $ 57,114
Dividends Per Share $ 0.03 $ 0.02
</TABLE>
* Net income per share is computed based on the weighted average
number of common shares outstanding (1997, 2,768,947 and 1996,
2,782,457 shares, respectively). The effect of stock options is
not material to the computation of earnings per share.
4
<PAGE>
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1997 and 1996 (Unaudited)
<TABLE>
<S> <C> <C>
1997 1996
Operating Activities:
Net income $861,054 $747,719
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 80,106 74,715
Amortization, net of accretion 1,176 3,426
(Gain) loss on disposals of property 956 (13,763)
(Gain) loss on sales of investments (107,081) 40,052
Provision (benefit) for deferred income taxes (37,527) 51,739
Provision for possible claims 814,821 681,333
Payments of claims, net of recoveries (464,821) (331,333)
(Increase) decrease in receivables 42,013 (132,276)
Increase in prepaid expenses and other assets (36,782) (27,190)
(Increase) decrease in assets acquired in
settlement of claims (75,000) 85,000
Decrease in accounts payable and accrued
liabilities (429,646) (373,605)
Increase (decrease) in commissions and
reinsurance payables 28,252 (7,918)
Increase (decrease) in premium taxes payable (111,552) 24,308
Increase in income taxes payable - current 208,410 165,826
Net cash provided by operating activities 774,379 988,033
Investing Activities:
Purchases of investments held-to-maturity - (153,886)
Purchases of investments available-for-sale (1,326,176) (807,108)
Proceeds from investments held-to-maturity 285,000 371,019
Proceeds from investments available-for-sale 1,305,447 376,726
Purchases of property (80,615) (85,616)
Proceeds from sales of property 45 80,350
Net cash provided by (used in) investing activities 183,701 (218,515)
Financing Activities:
Dividends paid (85,672) (57,114)
Repurchases of common stock, net (16,355) (127,444)
Net cash used in financing activities (102,027) (184,558)
Net Increase in Cash and Cash Equivalents 856,053 584,960
Cash and Cash Equivalents, Beginning of Year 4,244,570 2,527,008
Cash and Cash Equivalents, End of Period $5,100,623 $3,111,968
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for:
Interest $0 $0
Income Taxes $148,987 $235,275
</TABLE>
5
<PAGE>
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
Note 1 - Basis of Presentation
The consolidated financial statements include Investors Title
Company and its subsidiaries, and have been prepared in
conformity with generally accepted accounting principles.
In the opinion of management all necessary adjustments have been
reflected for a fair presentation of the financial position,
results of operations and cash flows in the accompanying
unaudited consolidated financial statements. All such
adjustments are of a normal recurring nature.
Reference should be made to the "Notes to Consolidated Financial
Statements" of the Registrant's Annual Report to Shareholders
for the year ended December 31, 1996 for a description of
accounting policies.
Note 2 - Reinsurance
The Company assumes and cedes reinsurance with other insurance
companies in the normal course of business. Premiums assumed
and ceded were $22,247 and $68,842, respectively for the three
months ended March 31, 1997, and $12,769 and $18,090,
respectively for the three months ended March 31, 1996.
Note 3 - Reserves for Possible Claims
Transactions in the reserves for possible claims for the three
months ended March 31, 1997 were as follows:
Balance, beginning of year $5,086,065
Provision, charged to operations 814,821
Recoveries 20,343
Payments of claims (485,164)
Balance, March 31, 1997 $5,436,065
In management's opinion, the reserves are adequate to cover
claim losses which might result from pending and possible
claims.
Note 4 - Leases
Rent expense totaled $108,021 and $92,292, respectively for the
three months ended March 31, 1997 and 1996.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The 1996 Form 10-K and the 1996 Annual Report should be read
in conjunction with the following discussion since they
contain important information for evaluating the Company's
operating results and financial condition.
Results of Operations:
For the quarter ended March 31, 1997, premiums written
increased 23% to $5,487,630, investment income increased 35%
to $398,113, revenues increased 27% to $6,045,511, net income
increased 15% to $861,054 and net income per share increased
15% to $.31 all compared to the same quarter in 1996.
Growth in sales has resulted from a combination of continued
marketing efforts and a generally healthy real estate market,
despite a rise in 30-year fixed mortgage rates to 7.9% in
March 1997 compared to 7.62% in March 1996. The volume of
business continued to increase in the first quarter of 1997
as the number of policies and commitments issued rose to
34,857, an increase of 8% compared to 32,215 in the same
period in 1996. For the quarter ended March 31, 1997,
premiums from branch operations increased 9% to $3,107,413
compared to $2,837,889 in the same quarter in 1996. Premiums
from agency operations increased 47% to $2,380,217 for the
three months ended March 31, 1997 compared to $1,615,000 for
the same period in 1996.
Shown below is a schedule of title premiums written for the
three months ended March 31, 1997 and 1996 in all states
where our two insurance subsidiaries, Investors Title
Insurance Company and Northeast Investors Title Insurance
Company, currently underwrite insurance:
<TABLE>
<S> <C> <C>
1997 1996
Florida $22,773 $19,027
Georgia 192,909 16,419
Indiana 18,939 21,591
Kentucky - 84
Maryland 20,365 11,474
Michigan 668,290 -
Mississippi 10,788 -
Nebraska 158,870 138,570
New York 99,355 82,479
North Carolina 2,966,363 2,784,721
South Carolina 408,054 565,797
Tennessee 13,884 23,010
Virginia 884,793 776,948
Direct Premiums 5,465,383 4,440,120
Reinsurance Assumed 22,247 12,769
Total Premiums Written $5,487,630 $4,452,889
</TABLE>
7
<PAGE>
Operating expenses increased 31% for the three months ended
March 31, 1997 compared to the same period in 1996. Salaries
and employee benefits increased due to additional staffing
needed to process the rise in premium volume. Office
occupancy and operations and premium taxes rose 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 as a
percentage of premiums written was 14.85% for the three
months ended March 31, 1997 and 15.3% for the same period
in 1996.
Income tax expense as a percentage of income before income
taxes was 27.1% and 28.6% for the three months ended March
31, 1997 and 1996, respectively. The decline in 1997 was
primarily due to higher interest income on tax exempt
investments in 1997.
Liquidity and Capital Resources:
Net cash provided by operating activities for the three
months ended March 31, 1997, amounted to $774,379 compared
to $988,033 for the same three month period during 1996.
This decrease is attributable to the gain on sales of
investments, decreases in the provision for deferred income
taxes, accounts payable and accrued liabilities, and premium
taxes payable, an increase in assets acquired in settlement
of claims, partially offset by increases in net income and
income taxes payable, and a decrease in receivables in 1997.
On December 9, 1996, the Board of Directors approved the
repurchase by the Company of shares of the Company's common
stock from time to time at prevailing market prices. The
purpose of the repurchases is to avoid dilution to existing
shareholders as a result of issuances of stock in connection
with stock options and stock bonuses. Pursuant to this
approval, the Company has repurchased 7,900 shares at an
average price of $14.99 per share as of April 16, 1997. The
Board has authorized management to repurchase up to an
additional 142,100 shares.
Management believes that funds generated from operations
(primarily underwriting and investment income) will enable
the Company to adequately meet its operating needs. In
addition to operational liquidity, the Company maintains a
high degree of liquidity within the investment portfolio in
the form of short-term investments and other readily
marketable securities.
Except for the historical information presented, the matters
disclosed in the foregoing discussion and analysis and other
parts of this report include forward-looking statements.
These statements represent the Company's current judgment on
the future and are subject to risks and uncertainties that
could cause actual results to differ materially. Such
factors include, without limitation: (i) the demand for title
insurance will vary with factors beyond the control of the
Company such as changes in mortgage interest rates,
availability of mortgage funds, level of real estate
activity, cost of real estate, consumer confidence, supply
and demand for real estate, inflation and general economic
conditions; (ii) the risk that losses from claims are greater
than anticipated such that reserves for possible claims are
inadequate; (iii) the risk that unanticipated
8
<PAGE>
adverse changes in securities markets could result in
material losses on investments made by the Company; and (iv)
the dependence of the Company on key management personnel the
loss of whom could have a material adverse affect on the
Company's business. Other risks and uncertainties may be
described from time to time in the Company's other reports
and filings with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
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
<PAGE>
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: May 9, 1997
10
<PAGE>
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>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 13,276,954
<DEBT-CARRYING-VALUE> 4,832,752
<DEBT-MARKET-VALUE> 0*
<EQUITIES> 4,579,347
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 22,838,058
<CASH> 5,100,623
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 33,842,040
<POLICY-LOSSES> 5,436,065
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 89,154
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 705,966
<OTHER-SE> 25,660,262
<TOTAL-LIABILITY-AND-EQUITY> 33,842,040
5,418,788
<INVESTMENT-INCOME> 398,113
<INVESTMENT-GAINS> 107,081
<OTHER-INCOME> 121,529
<BENEFITS> 814,821
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 4,049,766
<INCOME-PRETAX> 1,180,924
<INCOME-TAX> 319,870
<INCOME-CONTINUING> 861,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 861,054
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
