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: September 30, 1997
----------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to ___________________
Commission File Number: 0-11774
_________________________________________
INVESTORS TITLE COMPANY
-----------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1110199
- -------------- ----------
(State of Incorporation) (I.R.S. Employer)
121 North Columbia Street, Chapel Hill, North Carolina 27514
- ------------------------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
(919) 968-2200
--------------
( Registrant's Telephone Number Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Shares outstanding of each of the issuer's classes of common stock as of
September 30, 1997:
Common Stock, no par value 2,793,682
- -------------------------- ---------
Class Shares Outstanding
1
<PAGE>
INVESTORS TITLE COMPANY AND SUBSIDIARIES
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996.................................................3
Consolidated Statements of Income:
Three and Nine Months Ended September 30, 1997 and 1996 .........4
Consolidated Statements of Cash Flows:
Nine Months Ended September 30, 1997 and 1996 ...................5
Notes to Consolidated Financial Statements ............................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................8
PART II OTHER INFORMATION ...............................................11
Item 6. Exhibits and Reports on Form 8-K ................................11
SIGNATURES.................................................................12
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of September 30, 1997 and December 31, 1996
(Unaudited)
9/30/97 12/31/96
<S> <C> <C>
Assets
Cash and Cash Equivalents $ 4,309,264 $ 4,244,570
-------------- ---------------
Investments:
Held-to-maturity:
Certificates of deposit 130,985 169,004
Bonds - at amortized cost 4,624,864 5,098,368
Available-for-sale - at market:
Bonds 17,523,066 12,832,724
Common and nonredeemable preferred stocks 6,255,731 5,473,567
-------------- ---------------
Total investments 28,534,646 23,573,663
-------------- ---------------
Receivables:
Premiums, net 2,897,167 2,016,122
Accrued interest and dividends 386,895 321,634
Recoveries of claims previously paid 37,457 69,334
Other 80,920 35,663
-------------- ---------------
Total receivables 3,402,439 2,442,753
-------------- ---------------
Prepaid Expenses and Other Assets 304,687 451,972
-------------- ---------------
Property Acquired in Settlement of Claims 123,500 165,500
-------------- ---------------
Property-At Cost:
Land 782,582 782,582
Office buildings and improvements 1,293,726 1,293,726
Furniture, fixtures and equipment 2,039,254 1,843,636
Automobiles 181,093 169,423
-------------- ---------------
Total 4,296,655 4,089,367
Less accumulated depreciation 1,549,065 1,325,297
-------------- ---------------
Property, net 2,747,590 2,764,070
-------------- ---------------
Total Assets $ 39,422,126 $ 33,642,528
============== ===============
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued liabilities $ 996,743 $ 997,759
Commissions and reinsurance payables 47,188 60,902
Premium taxes payable 115,861 101,766
Income taxes payable:
Current 394,206 175,143
Deferred 1,049,280 1,232,716
-------------- ---------------
Total liabilities 2,603,278 2,568,286
-------------- ---------------
Reserves for Claims 7,171,295 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 2,793,682 and
2,767,830 shares outstanding 1997 and 1996, respectively) 818,235 722,321
Retained earnings 26,824,078 23,745,995
Net unrealized gain on investments
(net of deferred taxes: 1997: $1,033,003; 1996: $782,959) 2,005,240 1,519,861
-------------- ---------------
Total stockholders' equity 29,647,553 25,988,177
-------------- ---------------
Total Liabilities and Stockholders' Equity $ 39,422,126 $ 33,642,528
============== ===============
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Investors Title Company and Subsidiaries
Consolidated Statements of Income
September 30, 1997 and 1996
(Unaudited)
For The Three For The Nine
Months Ended Months Ended
September 30 September 30
---------------------------------- --------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Underwriting income:
Premiums written $ 8,164,156 $ 5,604,538 $ 21,355,118 $ 15,563,118
Less-premiums for reinsurance ceded 57,996 30,295 168,481 72,584
--------------- ---------------- --------------- --------------
Net premiums written 8,106,160 5,574,243 21,186,637 15,490,534
Investment income-interest and dividends 412,742 329,113 1,196,461 938,190
Net gain on sales of investments 126,338 38,206 233,387 46,810
Other 137,101 82,990 403,166 224,896
--------------- ---------------- --------------- --------------
Total 8,782,341 6,024,552 23,019,651 16,700,430
--------------- ---------------- --------------- --------------
Operating Expenses:
Salaries 1,211,227 1,055,299 3,290,496 2,836,457
Commissions to agents 2,709,484 1,535,595 6,969,825 3,984,649
Provision for claims 1,282,844 714,513 3,100,832 2,226,658
Employee benefits and payroll taxes 394,475 296,899 1,344,727 1,027,280
Office occupancy and operations 635,446 555,629 1,805,762 1,542,986
Business development 248,382 136,261 719,134 432,452
Taxes, other than payroll and income 195,001 183,454 541,547 442,534
Professional fees 115,723 42,595 214,980 113,766
Other 108,347 26,443 371,747 217,692
--------------- ---------------- --------------- --------------
Total 6,900,929 4,546,688 18,359,050 12,824,474
--------------- ---------------- --------------- --------------
Income Before Income Taxes 1,881,412 1,477,864 4,660,601 3,875,956
--------------- ---------------- --------------- --------------
Provision For Income Taxes 552,840 405,514 1,325,501 1,077,105
--------------- ---------------- --------------- --------------
Net Income $ 1,328,572 $ 1,072,350 $ 3,335,100 $ 2,798,851
=============== ================ =============== ==============
Average number of shares outstanding 2,789,123 2,767,211 2,777,217 2,774,409
=============== ================ =============== ==============
Net Income Per Share $ 0.48 $ 0.39 $ 1.20 $ 1.01
=============== ================ =============== ==============
Dividends Paid $ 85,672 $ 71,394 $ 257,017 $ 199,902
=============== ================ =============== ==============
Dividends Per Share $ 0.03 $ 0.025 $ 0.09 $ 0.07
=============== ================ =============== ==============
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended
September 30, 1997 and 1996 (Unaudited)
1997 1996
---- ----
<S> <C> <C>
Operating Activities:
Net income $3,335,100 $2,798,851
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 253,330 239,261
Provision for losses on premiums receivable 150,000 30,000
Amortization, net of accretion 3,092 9,287
Net (gain) loss on disposals of property 6,991 (10,991)
Net gain on sales of investments (233,387) (46,810)
Provision (benefit) for deferred income taxes (433,480) 40,010
Provision for possible claims 3,100,832 2,226,658
Payments of claims, net of recoveries (1,015,602) (1,276,658)
Increase in receivables (1,109,686) (234,321)
(Increase) decrease in prepaid expenses and other assets 147,285 (16,082)
Decrease in assets acquired in settlement of claims 42,000 85,000
Decrease in accounts payable and accrued liabilities (1,016) (72,113)
Increase (decrease) in commissions and reinsurance payables (13,714) 5,514
Increase in premium taxes payable 14,095 55,354
Increase (decrease) in income taxes payable - current 219,063 (119,500)
----------------- ----------------
Net cash provided by operating activities 4,464,903 3,713,460
----------------- ----------------
Investing Activities:
Purchases of investments held-to-maturity 0 (997,220)
Purchases of investments available-for-sale (6,757,604) (2,833,523)
Proceeds from investments held-to-maturity 512,023 862,019
Proceeds from investments available-for-sale 2,250,316 964,146
Purchases of property (273,921) (251,062)
Proceeds from sales of property 30,080 84,354
----------------- ----------------
Net cash used in investing activities (4,239,106) (2,171,286)
----------------- ----------------
Financing Activities:
Dividends paid (257,017) (199,902)
Repurchases of common stock, net 95,914 (291,990)
----------------- ----------------
Net cash used in financing activities (161,103) (491,892)
----------------- ----------------
Net Increase in Cash and Cash Equivalents 64,694 1,050,282
Cash and Cash Equivalents, Beginning of Year 4,244,570 2,527,008
----------------- ----------------
Cash and Cash Equivalents, End of Period $4,309,264 $3,577,290
================= ================
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year for:
Income Taxes $1,540,075 $1,329,196
================= ================
</TABLE>
5
<PAGE>
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
Note 1 - Basis of Presentation
The consolidated financial statements include Investors Title Company and
its subsidiaries, and have been prepared in conformity with generally
accepted accounting principles. In the opinion of management all necessary
adjustments have been reflected for a fair presentation of the financial
position, results of operations and cash flows in the accompanying
unaudited consolidated financial statements. All such adjustments are of a
normal recurring nature. Certain 1996 amounts have been reclassified to
conform to the 1997 presentation.
Reference should be made to the "Notes to Consolidated Financial
Statements" of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1996 for a description of accounting policies.
Note 2 - Reserves for Claims
Transactions in the reserve for claims for the nine months ended September
30, 1997 were as follows:
Balance, beginning of year $5,086,065
Provision, charged to operations 3,100,832
Recoveries 182,540
Payments of claims (1,198,142)
----------
Balance, September 30, 1997 $7,171,295
==========
In management's opinion, the reserve is adequate to cover claim losses
which might result from pending and possible claims.
Note 3 - New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share"
("SFAS 128") which specifies a new methodology for computing earnings per
share. SFAS 128 replaces the presentation of primary and fully diluted
earnings per share pursuant to Accounting Principles Board Opinion No. 15
- "Earnings per Share" ("APB 15") with the presentation of basic and
diluted earnings per share. Basic earnings per share excludes the dilutive
effect of common stock equivalents and is computed by dividing net income
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted
6
<PAGE>
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock. SFAS 128 must be adopted for financial
statements issued after December 15, 1997. Restatement of prior-period
earnings per share data is required. Earnings per share will be computed
under APB 15 until that time. The Company does not believe that
implementation of SFAS 128 will materially affect its financial results.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income"
("SFAS 130"). This Statement establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements.
The Company is required to adopt SFAS 130 for the year ended December 31,
1998. Management has not determined the impact of this Statement.
7
<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 September 30, 1997, net premiums written
increased 45% to $8,106,160, investment income increased 25% to
$412,742, revenues increased 46% to $8,782,341, net income increased
24% to $1,328,572 and net income per share increased 23% to $.48 all
compared to the same quarter in 1996.
For the nine months ended September 30, 1997, net premiums written
increased 37% to $21,186,637, investment income increased 28% to
$1,196,461, revenues increased 38% to $23,019,651, net income
increased 19% to $3,335,100 and net income per share increased 19% to
$1.20 all compared to the same period in 1996.
Sales growth in 1997 has resulted from a combination of continued
marketing efforts and a healthy real estate market. The volume of
business continued to increase in the third quarter of 1997 as the
number of policies and commitments issued rose to 50,592, an increase
of 40% compared to 36,149 in the same period in 1996. Policies and
commitments issued for the nine months ended September 30, 1997 were
132,373 compared to 105,391 in 1996. Shown below is a breakdown of
branch and agency net premiums written:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 % 1996 % 1997 % 1996 %
---- - ---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Branch $4,214,875 52 $3,303,715 59 $11,239,489 53 $9,606,581 62
Agency $3,891,285 48 $2,270,528 41 $9,947,148 47 $5,883,953 38
---------- -- ---------- -- ---------- -- ---------- --
Total $8,106,160 100 $5,574,243 100 $21,186,637 100 $15,490,534 100
========== === ========== === =========== === =========== ===
</TABLE>
Premiums written from branch operations increased 17% in 1997
compared to 1996. Agency premiums increased 69% in 1997 compared to
1996.
The following table shows title premiums written for the three and
nine months ended September 30, 1997 and 1996 in all states where our
two insurance subsidiaries, Investors Title Insurance Company and
Northeast Investors Title Insurance Company, currently underwrite
insurance:
8
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Florida $ 18,939 $ 19,579 $ 58,774 $ 60,800
Georgia 129,467 61,031 441,117 104,653
Indiana 21,319 26,285 70,537 75,287
Kentucky 173 60 173 144
Maryland 22,113 21,839 70,717 49,532
Michigan 1,389,510 78,660 3,306,942 103,025
Minnesota 51,491 0 59,210 0
Mississippi 3,407 0 19,177 0
Nebraska 108,913 139,374 439,522 412,603
New York 99,573 159,661 317,103 375,397
North Carolina 4,201,611 3,278,178 11,113,444 9,510,871
South Carolina 819,752 797,955 1,920,101 1,994,070
Tennessee 34,060 43,113 110,627 84,682
Virginia 1,257,248 970,653 3,383,219 2,761,598
Reinsurance, net (51,416) (22,145) (124,026) (42,128)
-------- -------- --------- --------
Total Premiums $8,106,160 $5,574,243 $21,186,637 $15,490,534
=========== =========== ============ ===========
</TABLE>
Operating expenses increased 52% and 43% for the three and nine
months ended September 30, 1997, respectively, when compared to the
same periods in 1996. Salaries and employee benefits increased
primarily due to additional staffing needed to process the rise in
premium volume. Office occupancy and operations, business
development, and premium taxes increased primarily due to the
increase in premium volume. The increase in commissions is the result
of the Company's expansion into new markets primarily through
establishing new agency relationships.
For the three months ended September 30, 1997, the provision for
claims as a percentage of net premiums written was 15.8% compared to
12.8% for same period in 1996. For the nine months ended September
30, 1997, the provision for claims as percentage of premiums written
was 14.6% compared to 14.4% for the same period in 1996. The higher
provision in 1997 was primarily the result of increases in claims
reserves. The reserves for claims have increased $2,085,230 in 1997
compared to year-end based on management's assessment of the
reserves.
Income tax expense as a percentage of income before income taxes was
28.4% and 27.8% for the nine months ended September 30, 1997 and
1996, respectively, and 29.4% and 27.4% for the three months ended
September 30, 1997 and 1996, respectively.
Liquidity and Capital Resources:
Net cash provided by operating activities for the nine months ended
September 30, 1997, amounted to $4,464,903 compared to $3,713,460 for
the same nine month period during 1996. This increase is attributable
to the increase in net income and a number of other factors,
including a higher provision for possible claims (net of payments),
an increase in the provision for losses on premiums receivable, a
decrease in prepaid expenses and other assets, and an increase in
current income taxes payable in 1997, partially offset by a net
gain on
9
<PAGE>
sales of investments, a benefit for deferred income taxes and an
increase 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 21,494 shares at an
average purchase price of $16.96 per share as of September 30, 1997,
including 13,244 shares purchased at an average purchase price of
$18.20 during the quarter ended September 30, 1997. The Board has
authorized management to repurchase up to an additional 128,506
shares.
Management believes that funds generated from operations (primarily
underwriting and investment income) will enable the Company to
adequately meet its operating needs. In addition to operational
liquidity, the Company maintains a high degree of liquidity within
the investment portfolio in the form of short-term investments and
other readily marketable securities.
Safe Harbor Statement
Except for the historical information presented, the matters
disclosed in the foregoing discussion and analysis and other parts of
this report include forward-looking statements. These statements
represent the Company's current judgment on the future and are
subject to risks and uncertainties that could cause actual results to
differ materially. Such factors include, without limitation: (i) the
demand for title insurance will vary with factors beyond the control
of the Company such as changes in mortgage interest rates,
availability of mortgage funds, level of real estate activity, cost
of real estate, consumer confidence, supply and demand for real
estate, inflation and general economic conditions; (ii) the risk that
losses from claims are greater than anticipated such that reserves
for possible claims are inadequate; (iii) the risk that unanticipated
adverse changes in securities markets could result in material losses
on investments made by the Company; and (iv) the dependence of the
Company on key management personnel the loss of whom could have a
material adverse affect on the Company's business. Other risks and
uncertainties may be described from time to time in the Company's
other reports and filings with the Securities and Exchange
Commission.
10
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule included herewith.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for this quarter.
11
<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/James A. Fine, Jr.
-------------------------
James A. Fine, Jr.
President
By: /s/Elizabeth P. Bryan
-------------------------
Elizabeth P. Bryan
Vice President
(Principal Accounting Officer)
Dated: November 11, 1997
12
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
(*Not disclosed on quarterly basis)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 17,523,066
<DEBT-CARRYING-VALUE> 4,644,864
<DEBT-MARKET-VALUE> 0*
<EQUITIES> 6,255,731
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 28,534,646
<CASH> 4,309,264
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 39,422,126
<POLICY-LOSSES> 7,171,295
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 47,188
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 818,235
<OTHER-SE> 28,829,318
<TOTAL-LIABILITY-AND-EQUITY> 39,422,126
21,186,637
<INVESTMENT-INCOME> 1,196,461
<INVESTMENT-GAINS> 233,387
<OTHER-INCOME> 403,166
<BENEFITS> 3,100,832
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 15,258,218
<INCOME-PRETAX> 4,660,601
<INCOME-TAX> 1,325,501
<INCOME-CONTINUING> 3,335,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,335,100
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
