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, 1998
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, 1998:
Common Stock, no par value 2,809,212
Class Shares Outstanding
1
<PAGE>
INVESTORS TITLE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997...3
Consolidated Statements of Income:
Three and Six Months Ended June 30, 1998 and 1997.....4
Consolidated Statements of Cash Flows:
Six Months Ended June 30, 1998 and 1997...............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..................................................10
Item 4. Submission of Matters to a Vote of Security Holders................10
Item 5. Other Information..................................................10
Item 6. Exhibits and Reports on Form 8-K...................................10
SIGNATURES..................................................................11
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of June 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
6/30/98 12/31/97
----------- -----------
<S> <C> <C>
(Unaudited)
Assets
Cash and Cash Equivalents $ 4,764,362 $ 2,823,177
Investments in securities:
Held-to-maturity:
Certificates of deposit 98,982 130,985
Bonds, at amortized cost 5,376,128 4,710,481
Available-for-sale, at fair value:
Bonds 22,059,438 19,752,550
Common and nonredeemable preferred stocks 6,385,988 6,530,394
----------- ------------
Total investments 33,920,536 31,124,410
----------- ------------
Premiums receivable (less allowance for doubtful accounts: 1998: $525,000;
1997: $350,000) $ 4,564,666 3,372,751
Accrued interest and dividends 469,768 429,064
Prepaid expenses and other assets 410,460 462,801
Property acquired in settlement of claims 108,500 280,725
Property, net 2,997,288 2,800,079
----------- ------------
Total Assets $ 47,235,580 $ 41,293,007
=========== ============
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Note 2) $ 10,002,165 $ 7,622,140
Accounts payable and accrued liabilities 2,248,749 1,069,372
Commissions and reinsurance payables 175,088 96,241
Premium taxes payable 67,302 153,857
Current income taxes payable 283,863 25,081
Deferred income taxes, net 888,479 1,197,408
----------- ------------
Total liabilities 13,665,646 10,164,099
----------- ------------
Stockholders' Equity:
Common stock-no par value (shares authorized 6,000,000;
2,855,744 and 2,855,744 shares issued; and 2,809,212 and
2,800,240 shares outstanding 1998 and 1997, respectively) 902,942 879,612
Retained earnings 30,205,263 27,933,688
Net unrealized gain on investments (accumulated other comprehensive income
- Note 3) (net of deferred taxes: 1998: $1,268,735; 1997: $1,193,461) 2,461,729 2,315,608
----------- ------------
Total stockholders' equity 33,569,934 31,128,908
----------- ------------
Total Liabilities and Stockholders' Equity $ 47,235,580 $ 41,293,007
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
Investors Title Company and Subsidiaries
Consolidated Statements of Income
June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
For The Three For The Six
Months Ended Months Ended
June 30 June 30
--------------------------- ----------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Underwriting income:
Premiums written $ 11,443,747 $ 7,703,332 $ 20,960,698 $ 13,190,962
Less-premiums for reinsurance ceded 137,696 41,643 212,799 110,485
------------- ----------- ------------- ------------
Net premiums written 11,306,051 7,661,689 20,747,899 13,080,477
Investment income-interest and dividends 445,491 385,606 865,777 783,719
Net realized gain (loss) on sales of investments 51,875 (32) 122,050 107,049
Other 225,549 144,536 375,560 266,065
------------- ----------- ------------- ------------
Total 12,028,966 8,191,799 22,111,286 14,237,310
------------- ----------- ------------- ------------
Operating Expenses:
Commissions to agents 4,175,171 2,588,253 7,707,011 4,260,341
Provision for claims (Note 2) 2,127,920 1,003,167 3,692,290 1,817,988
Salaries 1,471,519 1,087,793 2,697,578 2,079,269
Employee benefits and payroll taxes 516,881 486,780 1,327,915 950,252
Office occupancy and operations 879,329 623,376 1,539,063 1,170,316
Business development 326,431 324,805 634,206 470,752
Taxes, other than payroll and income 288,265 173,702 530,705 346,546
Professional fees 119,884 64,121 209,020 99,257
Other 120,227 241,537 244,041 263,400
------------- ----------- ------------- ------------
Total 10,025,627 6,593,534 18,581,829 11,458,121
------------- ----------- ------------- ------------
Income Before Income Taxes 2,003,339 1,598,265 3,529,457 2,779,189
------------- ----------- ------------- ------------
Provision For Income Taxes 628,040 452,791 1,086,537 772,661
------------- ----------- ------------- ------------
Net Income $ 1,375,299 $ 1,145,474 $ 2,442,920 $ 2,006,528
============= =========== ============= ============
Basic Earnings per Common Share (Note 4) $ 0.49 $ 0.41 $ 0.87 $ 0.72
============= =========== ============= ============
Weighted Average Shares Outstanding-Basic (Note 4) 2,808,935 2,773,582 2,805,982 2,771,264
============= =========== ============= ============
Diluted Earnings per Common Share (Note 4) $ 0.48 $ 0.41 $ 0.86 $ 0.71
============= =========== ============= ============
Weighted Average Shares Outstanding-Diluted (Note 4) 2,848,202 2,818,554 2,847,698 2,817,812
============= =========== ============= ============
Dividends Paid $ 85,673 $ 85,673 $ 171,345 $ 171,345
============= =========== ============= ============
Dividends per Share $ 0.03 $ 0.03 $ 0.06 $ 0.06
============= =========== ============= ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 2,442,920 $ 2,006,528
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 181,911 166,434
Net (accretion) amortization (3,039) 2,132
Provision for losses on premiums receivable 175,000 -
Net (gain) loss on disposals of property (18,721) 422
Net realized gain on sales of investments (122,050) (107,049)
Provision for deferred income taxes (384,203) (135,957)
Provision for claims 3,692,290 1,817,988
Payments of claims, net of recoveries (1,312,265) (825,723)
Changes in assets and liabilities:
Increase in receivables (1,183,053) (364,694)
Increase (decrease) in accounts payable
and accrued liabilities 1,179,377 (181,966)
Increase in commissions and reinsurance payables 78,847 6,842
Decrease in premium taxes payable (86,555) (88,123)
Increase in current income taxes payable 258,782 33,011
--------------- ----------------
Net cash provided by operating activities 4,899,241 2,329,845
--------------- ----------------
Investing Activities:
Purchases of available-for-sale securities (3,046,749) (2,525,212)
Purchases of held-to-maturity securities (1,025,057) -
Proceeds from sales of available-for-sale securities 1,231,190 1,305,447
Proceeds from sales of held-to-maturity securities 390,974 460,000
Purchases of property (388,020) (120,849)
Proceeds from sales of property 27,621 21,080
------------- --------------
Net cash used in investing activities (2,810,041) (859,534)
------------- --------------
Financing Activities:
Distributions of common stock 23,330 82,748
Dividends paid (171,345) (171,345)
------------- --------------
Net cash used in financing activities (148,015) (88,597)
------------- --------------
Net Increase in Cash and Cash Equivalents 1,941,185 1,381,714
Cash and Cash Equivalents, Beginning of Year 2,823,177 4,244,570
------------- --------------
Cash and Cash Equivalents, End of Period $ 4,764,362 $ 5,626,284
=============== ==============
Supplemental Disclosures:
Cash Paid During the Year for:
Interest $ 6,000 $ -
=============== ==============
Income Taxes $ 1,213,126 $ 875,765
=============== ==============
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1998
(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, 1997 for a description of accounting policies.
Note 2 - Reserves for Claims
Transactions in the reserves for claims for the six months ended June
30, 1998 were as follows:
Balance, beginning of year $ 7,622,140
Provision, charged to operations 3,692,290
Recoveries 88,613
Payments of claims (1,400,878)
---------------
Balance, June 30, 1998 $ 10,002,165
===============
In management's opinion, the reserves are adequate to cover claim
losses which might result from pending and possible claims.
Note 3 - Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). The Company adopted SFAS 130 as of January 1, 1998. Adoption of SFAS 130
has not had a financial impact on the Company. This statement requires that an
enterprise (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. Other
comprehensive income is comprised solely of unrealized gains or losses on the
Company's available-for-sale securities. Total comprehensive income for the
three months ended June 30, 1998 and 1997 was $1,331,949 and $1,574,622,
respectively. Total comprehensive income for the six months ended June 30, 1998
and 1997 was $2,589,041 and $2,054,700, respectively.
6
<PAGE>
Note 4 - Earnings Per Common Share
The Company adopted Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS 128") effective December
31, 1997. Earnings per share for the three and six months ending June 30, 1997
have been restated to comply with SFAS 128. Employee stock options are
considered outstanding for the diluted earnings per common share calculation.
The total increase in the weighted average shares outstanding related to these
equivalent shares was 39,267 and 44,972 for the three months ending June 30,
1998 and 1997, respectively and 41,716 and 46,548 for the six months ending June
30, 1998 and 1997, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The 1997 Form 10-K and the 1997 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, 1998, net premiums written
increased 48% to $11,306,051, investment income increased 16% to $445,491,
revenues increased 47% to $12,028,966 and net income increased 20% to $1,375,299
all compared with the same quarter in 1997. Net income per basic and diluted
common share increased 20% and 17% to $0.49 and $0.48, all respectively, as
compared to the year ago period.
For the six months ended June 30, 1998, net premiums written
increased 59% to $20,747,899, investment income increased 10% to $865,777,
revenues increased 55% to $22,111,286, net income increased 22% to $2,442,920
and both net income per basic and diluted common share increased 21% to $0.87
and $0.86, respectively, all compared with the same period in 1997.
Growth in sales has resulted from the Company's efforts to
profitably expand the distribution of products and an extremely healthy real
estate market. Economic conditions have continued to produce an ideal climate
for real estate activity. According to the Mortgage Bankers Association of
America, the monthly average 30-year fixed mortgage interest rates declined to
7.07% for the six months ended June 30, 1998 compared with 7.86% for the six
months ended June 30, 1997. The volume of business continued to increase in the
second quarter of 1998 as the number of policies and commitments issued rose to
68,932, an increase of 47% compared with 46,946 in the same period in 1997.
Policies and commitments issued for the six months ended June 30, 1998 were
131,295 compared with 81,803 in 1997.
7
<PAGE>
Shown below is a breakdown of branch and agency premiums:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------------------------------------------------
1998 % 1997 % 1998 % 1997 %
---- - ---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Branch $ 5,507,971 49 $ 3,981,608 52 $10,087,657 49 $ 7,024,614 54
Agency 5,798,080 51 3,680,081 48 10,660,242 51 6,055,863 46
----------- -- ----------- -- ----------- -- ----------- --
Total $11,306,051 100 $ 7,661,689 100 $20,747,899 100 $13,080,477 100
=========== === =========== === =========== === =========== ===
</TABLE>
Shown below is a schedule of title premiums written for the
three and six months ended June 30, 1998 and 1997 in all states where our two
insurance subsidiaries, Investors Title Insurance Company and Northeast
Investors Title Insurance Company, currently underwrite insurance:
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
Arkansas $ 17,711 $ 0 $ 17,711 $ 0
Florida 38,392 17,062 46,616 39,835
Georgia 141,146 118,741 283,090 311,650
Indiana 34,475 30,279 66,287 49,218
Kentucky 0 0 102 0
Maryland 141,398 28,239 178,434 48,604
Michigan 2,103,380 1,249,142 4,179,738 1,917,432
Minnesota 191,270 7,719 416,476 7,719
Mississippi 13,090 4,982 24,063 15,770
Nebraska 224,964 171,739 402,135 330,609
New York 136,854 118,175 238,619 217,530
North Carolina 5,542,565 3,945,470 10,117,116 6,911,833
Pennsylvania 0 0 250 0
South Carolina 845,091 692,295 1,438,686 1,100,349
Tennessee 47,583 62,683 83,534 76,567
Virginia 1,947,615 1,241,178 3,422,536 2,125,971
---------------------------------------------------------
Direct Premiums 11,425,534 7,687,704 20,915,393 13,153,087
Reinsurance, net (119,483) (26,015) (167,494) (72,610)
---------------------------------------------------------
Net Premiums $11,306,051 $7,661,689 $ 20,747,899 $13,080,477
=========== ========== ============ ===========
Total operating expenses increased 52% and 62% for the three
and six months ended June 30, 1998, respectively compared with the same periods
in 1997. The increase in commissions is the result of the Company's expansion
into new markets primarily by continuing to develop agency relationships.
Salaries and employee benefits increased
8
<PAGE>
primarily due to additional staffing
needed to process the increase in premium volume. Office occupancy and
operations, business development and premium taxes rose primarily due to the
increase in premium volume.
The provision for claims as a percentage of net premiums
written was 19% and 18% for the three and six months ended June 30, 1998,
respectively versus 13% and 14% for the same periods in 1997. The reserves for
claims have increased $2,380,025 in 1998 compared with year-end based on premium
growth, claims experience and management's assessment of the reserve.
Income tax expense as a percentage of income before income taxes was 31% and 28%
for the six months ended June 30, 1998 and 1997, respectively. The increase in
1998 was primarily the result of an increase in the tax provision and an
increase in income from taxable sources.
Liquidity and Capital Resources:
Net cash provided by operating activities for the six months
ended June 30, 1998, amounted to $4,899,241 compared with $2,329,845 for the
same six month period during 1997. In addition to operational liquidity, the
Company has no long-term debt.
Nonoperating funds were primarily used to purchase investments.
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 29,233 shares at an average price of $19.37 per share as
of July 15, 1998, including 6,127 shares purchased at an average purchase price
of $26.91 during the quarter ended June 30, 1998. The Board has authorized
management to repurchase up to an additional 120,767 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.
Other Matters
The Company is continuing to address the Year 2000 issues.
Management presently believes that with modifications to existing software or
conversions to new software, the Year 2000 issue will not pose material
operational problems for its accounting computer systems. The Company has begun
to communicate with its financial institutions and other third parties with whom
it conducts business to determine that they are addressing Year 2000 issues in a
timely manner.
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.
9
<PAGE>
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.
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 12, 1998.
The proposals voted upon and the results of the voting were as follows:
Election of three Directors for a three-year term.
For Against Abstentions Withheld Broker
Non-votes
--- ------- ----------- -------- ---------
J. Allen Fine 2,745,396 N/A N/A 780 N/A
David L. Francis 2,743,396 N/A N/A 2,780 N/A
A. Scott Parker III 2,745,396 N/A N/A 780 N/A
Item 5. Other Information
Unless notice of a matter to be presented by a shareholder of the Company at the
next Annual Meeting of Shareholders is received at the Company's principal
executive offices on or before February 27, 1999, management's proxies for the
meeting conferring discretionary authority may be voted with respect to the
matter without indicating in the proxy statement how management intends to
exercise its discretion.
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.
10
<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: August 13, 1998
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-31-1998 DEC-31-1998
<PERIOD-END> MAR-31-1998 JUN-30-1998
<DEBT-HELD-FOR-SALE> 20,229,252 22,059,438
<DEBT-CARRYING-VALUE> 5,163,585 5,376,128
<DEBT-MARKET-VALUE> 0* 0*
<EQUITIES> 6,648,115 6,385,988
<MORTGAGE> 0 0
<REAL-ESTATE> 0 0
<TOTAL-INVEST> 32,172,677 33,920,536
<CASH> 3,652,670 4,764,362
<RECOVER-REINSURE> 0 0
<DEFERRED-ACQUISITION> 0 0
<TOTAL-ASSETS> 43,694,307 47,235,580
<POLICY-LOSSES> 8,498,765 10,002,165
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 89,210 175,088
<POLICY-HOLDER-FUNDS> 0 0
<NOTES-PAYABLE> 0 0
0 0
0 0
<COMMON> 979,002 902,942
<OTHER-SE> 31,420,716 32,666,992
<TOTAL-LIABILITY-AND-EQUITY> 43,694,307 47,235,580
9,441,848 20,747,899
<INVESTMENT-INCOME> 420,286 865,777
<INVESTMENT-GAINS> 70,175 122,050
<OTHER-INCOME> 150,011 375,560
<BENEFITS> 1,564,370 3,692,290
<UNDERWRITING-AMORTIZATION> 0 0
<UNDERWRITING-OTHER> 6,991,832 14,889,539
<INCOME-PRETAX> 1,526,118 3,529,457
<INCOME-TAX> 458,497 1,086,537
<INCOME-CONTINUING> 1,067,621 2,442,920
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,067,621 2,442,920
<EPS-PRIMARY> .38 .87
<EPS-DILUTED> .38 .86
<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>
