UNITED STATES
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
For the fiscal year ended December 31, 1997
[ ] 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 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 17, 1998, the aggregate market value of the voting and nonvoting
common equity held by nonaffiliates of the registrant was $63,184,292.
On February 17, 1998, the number of common shares outstanding was 2,803,915.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-K Reference
- ---------- -------------------
Portions of Annual Report to Shareholders Part I, Items 1 and 2
for fiscal year ended December 31, 1997 Part II, Items 5 - 8
Part IV, Item 14
Portions of Proxy Statement (in connection with Part III, Items 10 - 13
Annual Meeting to be held on May 12, 1998)
Location of Exhibit Index: The Index to Exhibits is contained in Part IV herein
on page 14.
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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 Arkansas, Florida,
Georgia, Indiana, Kentucky, Maryland, Michigan, Minnesota, Mississippi,
Nebraska, Pennsylvania, Tennessee, Virginia and West 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 District of Columbia
and the States of Alabama, Arizona, Colorado, Connecticut, Delaware, Idaho,
Illinois, Kansas, Louisiana, Massachusetts, Missouri, Montana, Nevada, New
Jersey, North Dakota, Ohio, Oklahoma, Texas, Utah and Wisconsin.
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 also 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
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
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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 27 branch offices in
North Carolina.
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 $1,500,000, reinsures the next
$250,000 of risk with NE-ITIC, and all risks above $1,750,000 are then reinsured
with a non-related reinsurer.
NE-ITIC currently assumes primary risks up to $250,000, reinsures the next
$1,500,000 of risk with ITIC, and reinsures all amounts above $1,750,000 with a
non-related reinsurer.
Each insurance subsidiaries' risk retention limits are self-imposed and
more conservative than state insurance regulations.
ITIC is the leading title insurer of North Carolina property and has held
this position fourteen years. ITIC's financial stability was recognized by a
Fannie Mae and Freddie Mac approved actuarial firm with a rating of "A Double
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 Prime - unsurpassed 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 services and
assistance to licensed members of the South Carolina Bar in the closing of real
estate transactions. SCDP was unprofitable and ceased these operations in 1995.
SCDP currently provides services in connection with tax-free exchanges of
like-kind property.
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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 1995 through 1997 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 1995 through 1997 by this subsidiary.
ITEC offers services in connection with tax-free exchanges. Schedule A
summarizes total revenues during the years 1995 through 1997.
SCDP had revenues of $4,186, $3,712 and $40,926 in 1997, 1996 and 1995,
respectively.
For a description of Premiums Written geographically, refer to the
Management's Discussion and Analysis of Results of Operations and Financial
Condition in the 1997 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, supply and demand, mortgage interest
rates and family income levels. Historically, the first quarter has the
least real estate activity, while the remaining quarters are more active.
Fluctuations in mortgage interest rates can cause shifts in real estate activity
outside of the normal seasonal pattern.
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 27 branch offices. In South Carolina, ITIC operates through a
branch office and issuing agents located conveniently to customers throughout
the State. ITIC also operates through issuing agents in Arkansas, Florida,
Georgia, Indiana, Kentucky, Maryland, Michigan, Minnesota, Mississippi,
Nebraska, Pennsylvania, Tennessee, Virginia and West Virginia. ITIC intends
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================================================================================
SCHEDULE A
INVESTORS TITLE INSURANCE COMPANY
NET PREMIUMS WRITTEN
For The Years Ended December 31
1997 1996 1995
$29,434,155 $20,577,779 $15,469,394
=========== =========== ===========
NORTHEAST INVESTORS TITLE INSURANCE COMPANY
NET PREMIUMS WRITTEN
For The Years Ended December 31
1997 1996 1995
$441,195 $533,376 $384,746
======== ======== ========
INVESTORS TITLE EXCHANGE CORPORATION
FEES EARNED
For The Years Ended December 31
1997 1996 1995
$542,688 $272,998 $241,281
======== ======== ========
================================================================================
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to establish branch and/or agency offices in the other states in which it is
licensed. 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.
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 reserves for claims for financial reporting purposes are established
based on criteria discussed in Notes 1 and 6 to the Financial Statements
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
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
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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
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, 1997, ITIC reported $18,779,979 of capital and surplus, and
net income of $4,148,233; and NE-ITIC reported $2,121,078 of capital and
surplus, and net income of $166,303.
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 Michigan, North Carolina, South
Carolina and Virginia. ITIC's major competitors are Chicago Title Insurance
Company, Commonwealth Land Title Insurance Company, Fidelity National Title
Insurance Company, 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 where they
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operate. The title insurance industry is highly competitive. Key elements which
affect competition are price, expertise, timeliness and quality of service,
financial strength and size of the insurer.
Investments
The Company and its subsidiaries derive a substantial portion of their
income from investments in bonds (municipal and corporate) 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 1993 through 1997:
FOR THE YEARS ENDED DECEMBER 31
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Company $ 15,295 $ 67,162 $ 16,238 $ 12,225 $ 10,529
ITIC 1,476,807 1,161,795 1,007,255 926,976 842,367
NE-ITIC 126,426 121,007 111,939 103,600 100,576
ITEC 9,616 2,708 3,457 3,911 968
SCDP 44 260 1,747 0 0
---------- ---------- ---------- ---------- ----------
TOTAL $1,628,188 $1,352,932 $1,140,636 $1,046,712 $ 954,440
========== ========== ========== ========== ==========
See Note 3 to the Financial Statements incorporated herein by reference for
the major categories of investments, earnings by investment categories,
scheduled maturities, amortized cost, and market values of investment
securities.
Employees
The Company, ITEC, NE-ITIC and SCDP have no paid employees. Officers of the
Company are full-time paid employees of ITIC, which had 153 full-time employees
and 29 part-time employees as of December 31, 1997.
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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.
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 corporate headquarters. The building contains
approximately 23,000 square feet. The Company's principal subsidiary, ITIC,
leases office space in 30 locations throughout North Carolina, South Carolina,
Michigan and Virginia.
See Note 9 to the Financial Statements 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, 1997.
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, 1997. 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.
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Position with Officer Term to
Name Age Registrant Since Expire
- ---- --- ---------- ----- ------
J. Allen Fine 63 Chairman, 1973 1998
Director and
CEO
James A. Fine, Jr. 35 President, Director and 1987 1998
Treasurer
W. Morris Fine 31 Executive Vice 1992 1998
President and
Secretary
Elizabeth P. Bryan 37 Vice President 1987 1998
and Assistant Secretary
L. Dawn Martin 32 Vice President 1993 1998
and Assistant Secretary
J. Allen Fine, Chief Executive Officer and Chairman of the Board of
Directors, is the father of James A. Fine, Jr., President, Director and
Treasurer of the Company, and W. Morris Fine, Executive Vice President and
Secretary of the Company.
The business experience of the Executive Officers of the Company is set
forth below:
J. Allen Fine was the principal organizer of ITIC and has been Chairman of
the Board and Chief Executive Officer of that Company, the Registrant, and
NE-ITIC since their incorporation. Mr. Fine also served as President of ITIC
until February, 1997. Mr. Fine also serves as Chairman of the Board of ITEC and
as a Director of SCDP. Mr. Fine is the father of James A. Fine, Jr., President,
Director and Treasurer of the Company, and W. Morris Fine, Executive Vice
President and Secretary of the Company.
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, and 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 and
in 1991 was appointed Director of NE-ITIC. In 1994, Mr. Fine was named Vice
President and Director of SCDP. In 1996, he was named Executive Vice President
and Chief Financial Officer of NE-ITIC and President of SCDP. In 1997, Mr. Fine
was named President and Treasurer and appointed a Director of the Company, named
Executive Vice President, Treasurer and Chief Financial Officer of ITIC and
named Chairman of SCDP. James A. Fine, Jr.
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is the son of J. Allen Fine, Chief Executive Officer and Chairman of the Board
of the Company, and brother of W. Morris Fine, Executive Vice President and
Secretary 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. In 1996, he was named Executive Vice President and Chief
Operating Officer of NE-ITIC. In 1997, Mr. Fine was named Executive Vice
President and Secretary of the Company, and President and Chief Operating
Officer of ITIC. In 1998, Mr. Fine was named President and Chief Operating
Officer of NE-ITIC. Morris Fine is the son of J. Allen Fine, Chairman and Chief
Executive Officer of the Company, and brother of James A. Fine, Jr., President,
Director 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 1996, she was named
Treasurer of NE-ITIC, and Vice President and Treasurer of SCDP. In 1997, Ms.
Bryan was named Assistant Secretary of the Company and Assistant Treasurer of
ITIC.
L. Dawn Martin joined the Company in February, 1991, and was subsequently named
Vice President, Assistant Secretary and Director of ITEC. In 1993, Ms. Martin
was named Vice President of 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 for both ITEC and SCDP. In 1995, she was appointed Director
of ITIC and SCDP, and named Assistant Secretary of NE-ITIC. In 1997, Ms. Martin
was named Secretary of NE-ITIC. In 1998, Ms. Martin was named Vice President of
NE-ITIC.
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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 "Shareholder Information" in the 1997 Annual Report to
Shareholders and are incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31, 1997 is
in the 1997 Annual Report to Shareholders under the caption "Financial
Highlights" and is incorporated herein by 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 1997 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 1997 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data in the 1997 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 (Selected Quarterly Operating Results) in the 1997
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.
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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 12, 1998 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".
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 12, 1998 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 12, 1998 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 12, 1998 is incorporated herein by reference.
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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 1997 Annual Report to
Shareholders are hereby incorporated by reference:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Income for the Years Ended December 31, 1997,
1996 and 1995
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
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.
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3. Exhibits
Page Number or
Exhibit Incorporation by
Number Description Reference to
- ------ ----------- ------------
(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
(3)(iii) Amendment to Bylaws adopted Exhibit 3(iii) to Form
March 10, 1997 10-K, page 27, dated
December 31, 1996
Management contract of compensatory plan or arrangement
(Exhibits (10)(i) - (10)(xi))
(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
(10)(iii) 1993 Incentive Stock Option Plan-- Exhibit 10 to Form
W. Morris Fine 10-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, Chairman 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
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(10)(vii) Form of Stock Option Agreement Exhibit 10(vii) to Form
dated November 13, 1989 10-Q, page 13, dated
March 31, 1995
(10)(viii) 1997 Stock Option and Restricted Exhibit 10(viii) to Form
Stock Plan 10-K, page 29, dated
December 31, 1996
(10)(ix) Form of Nonqualified Stock Option Exhibit 10(ix) to Form
Agreement to Nonemployee Directors 10-Q, page 13, dated
dated May 13, 1997 under the 1997 June 30, 1997
Stock Option and Restricted Stock
Plan
(10)(x) Form of Nonqualified Stock Option Page 27 of this report
Agreement under 1997 Stock Option
and Restricted Stock Plan
(10)(xi) Form of Incentive Stock Option Page 34 of this report
Agreement under 1997 Stock Option
and Restricted Stock Plan
(13) Portions of 1997 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)(i) Financial Data Schedule - 1996 Included herewith
Restated
(27)(ii) Financial Data Schedule - First Included herewith
Three Quarters 1997 Restated
(27)(iii) Financial Data Schedule - Fourth Included herewith
Quarter 1997
(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
Chairman and Chief Executive Officer
Date March 26, 1998
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 26th day of March, 1998.
/s/J. Allen Fine /s/Loren B. Harrell, Jr.
- -------------------------------------------- --------------------------------
J. Allen Fine, Chairman and Chief Loren B. Harrell, Jr., Director
Executive Officer
/s/James A. Fine, Jr. /s/William J. Kennedy III
- -------------------------------------------- --------------------------------
James A. Fine, Jr., President, Treasurer and William J. Kennedy III, Director
Director (Principal Financial Officer)
/s/Elizabeth P. Bryan /s/H. Joe King, Jr.
- -------------------------------------------- --------------------------------
Elizabeth P. Bryan, Vice President and Asst. H. Joe King, Jr., Director
Secretary (Principal Accounting Officer)
/s/James R. Morton
- -------------------------------------------- --------------------------------
Lillard H. Mount, General Counsel and James R. Morton, Director
Director
/s/David L. Francis /s/A. Scott Parker, Jr.
- -------------------------------------------- --------------------------------
David L. Francis, Director A. Scott Parker, Jr., 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, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997, and have issued
our report thereon dated January 30, 1998; such consolidated financial
statements and report are included in your 1997 Annual Report to Shareholders
and are incorporated herein by reference. Our audits also included the
consolidated 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 L.L.P.
Raleigh, North Carolina
January 30, 1998
18
<PAGE>
SCHEDULE I
INVESTORS TITLE COMPANY AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
As of December 31, 1997
<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 $22,176,247 $23,172,050 $22,960,031
Public utilities 599,003 619,000 619,000
All other corporate bonds 864,179 884,000 884,000
Certificates of deposit 130,985 130,985 130,985
----------- ----------- -----------
Total fixed maturities 23,770,414 24,806,035 24,594,016
----------- ----------- -----------
Equity Securities:
Common Stocks:
Public utilities 425,433 692,803 692,803
Banks, trust and insurance companies 495,684 1,613,832 1,613,832
Industrial, miscellaneous and all other 2,315,693 3,587,421 3,587,421
Nonredeemable preferred stocks 608,117 636,338 636,338
----------- ----------- -----------
Total equity securities 3,844,927 6,530,394 6,530,394
----------- ----------- -----------
Total investments per the consolidated balance sheet 27,615,341 31,124,410
----------- -----------
Short-term investments 2,523,114 2,523,114
----------- -----------
Total investments $30,138,455 $33,647,524
=========== ===========
</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, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Assets
Cash and Cash Equivalents $ 535,565 $ 139,668
Investments in equity securities 75,000 90,000
Investments in affiliated companies at equity* 26,685,072 22,743,358
Income taxes receivable 392,531 463,445
Other receivables 116,039 45,232
Deferred income tax 94,571 25,688
Prepaid expenses and other assets 68,645 218,122
Property, net 1,765,509 1,791,759
----------- -----------
Total Assets $29,732,932 $25,517,272
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued liabilities $ 148,894 $ 120,927
----------- -----------
Stockholders' Equity:
Common stock-No par (shares authorized,
6,000,000; 2,855,744 and 2,855,744 shares issued and
2,800,240 and 2,767,830 shares outstanding 1997 and
1996, respectively) 1,650,350 1,650,350
Retained earnings 27,933,688 23,745,995
----------- -----------
Total stockholders' equity 29,584,038 25,396,345
----------- -----------
Total Liabilities and Stockholders' Equity $29,732,932 $25,517,272
=========== ===========
</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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Investment income-interest and dividends $ 15,295 $ 67,163 $ 19,430
Rental income 362,889 350,331 304,931
Miscellaneous income 1,000
----------- ----------- -----------
Total 378,184 418,494 324,361
----------- ----------- -----------
Operating Expenses:
Office occupancy and operations 133,283 142,872 121,415
Business development 10,927 8,593 9,079
Taxes-other than payroll and income 30,499 49,579 47,032
Professional fees 43,516 33,684 18,251
Interest expense 7,692 43,191
Other expenses 184,492 36,231 92,769
----------- ----------- -----------
Total 402,717 278,651 331,737
----------- ----------- -----------
Equity in Net Income of Affiliated Cos.* 4,536,715 3,745,375 3,138,446
----------- ----------- -----------
Income Before Income Taxes 4,512,182 3,885,218 3,131,070
----------- ----------- -----------
Provision for Income Taxes (18,200) 41,681 (119,588)
----------- ----------- -----------
Net Income $ 4,530,382 $ 3,843,537 $ 3,250,658
=========== =========== ===========
Basic Earnings per Common Share $ 1.63 $ 1.39 $ 1.16
=========== =========== ===========
Weighted Average Shares Outstanding-Basic 2,782,449 2,772,286 2,804,632
=========== =========== ===========
Diluted Earnings Per Common Share $ 1.60 $ 1.37 $ 1.15
=========== =========== ===========
Weighted Average Shares Outstanding-Diluted 2,826,730 2,813,001 2,816,544
=========== =========== ===========
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Operating Activities:
Net income $4,530,382 $3,843,537 $3,250,658
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in net earnings of subsidiaries less dividends received
of $595,000, $510,000 and $856,828 in 1997, 1996 and 1995,
respectively (3,941,715) (3,235,375) (2,281,618)
Provision for building impairment 150,000
Depreciation 62,362 68,560 67,793
Benefit for deferred income taxes (68,883) (7,116) (6,171)
(Increase) decrease in receivables (70,806) 13,607 1,216
(Increase) decrease in income taxes receivable-current 70,914 100,942 (311,222)
Increase in prepaid expenses (523)
Increase (decrease) in accounts payable and accrued liabilities 27,967 (19,580) 39,861
----------- ----------- -----------
Net cash provided by operating activities 759,698 764,575 760,517
----------- ----------- -----------
Investing Activities:
Purchases of securities (30,000)
Proceeds from sales of securities 15,000
Purchases of furniture and equipment and building (36,112) (2,980) (69,605)
----------- ----------- -----------
Net cash used in investing activities (21,112) (32,980) (69,605)
----------- ----------- -----------
Financing Activities:
Payments on demand notes (362,000) (500,000)
Dividends paid (342,689) (271,297) (228,460)
----------- ----------- -----------
Net cash used in financing activities (342,689) (633,297) (728,460)
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 395,897 98,298 (37,548)
Cash and Cash Equivalents, Beginning of Year 139,668 41,370 78,918
----------- ----------- -----------
Cash and Cash Equivalents, End of Year $535,565 $139,668 $41,370
=========== =========== ===========
Supplemental Disclosures:
Cash Paid During the Year For:
Interest 0 $15,837 $35,046
=========== =========== ===========
Income Taxes ($20,231) ($48,801) $203,253
=========== =========== ===========
</TABLE>
Supplemental Schedule of Noncash Investing Activities:
Net unrealized gains (losses) on investments in common stocks were $0 in 1997,
1996 and 1995.
See notes to condensed financial statements.
During 1996, the Company exchanged assets with a value of $60,000 for an equity
investment.
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 $350,000, $350,000, and
$836,828 in 1997, 1996 and 1995, respectively. Cash dividends paid to
Investors Title Company by its wholly owned subsidiary, Investors Title
Exchange Corporation were $245,000, $160,000, and $20,000 in 1997, 1996 and
1995, respectively.
3. Certain 1995 amounts have been reclassified to conform with 1997
classifications.
23
<PAGE>
SCHEDULE III
INVESTORS TITLE COMPANY AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
For the Years Ended December 31, 1997, 1996 and 1995
<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> <C> <C> <C>
Year Ended
December 31, 1997
Title -- 7,622,140 -- 96,241 29,875,350 1,628,188 4,679,353 -- 21,260,381 N/A
Year Ended
December 31, 1996
Title -- 5,086,065 -- 60,902 21,111,155 1,352,932 2,939,741 -- 14,629,904 N/A
Year Ended
December 31, 1995
Title -- 3,836,065 -- 38,601 15,854,140 1,140,636 1,429,660 -- 11,532,632 N/A
</TABLE>
24
<PAGE>
SCHEDULE IV
INVESTORS TITLE COMPANY AND SUBSIDIARIES
REINSURANCE
For the Years Ended December 31, 1997, 1996, and 1995
<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, 1997
Title Insurance Premiums $30,058,724 $241,821 $58,447 $29,875,350 0.2%
YEAR ENDED
DECEMBER 31, 1996
Title Insurance Premiums 21,187,689 121,093 44,559 21,111,155 0.2%
YEAR ENDED
DECEMBER 31, 1995
Title Insurance Premiums 15,903,006 78,683 29,817 15,854,140 0.2%
</TABLE>
25
<PAGE>
SCHEDULE V
INVESTORS TITLE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Balance at Additions 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>
1997
Premiums Receivable
Valuation Provision $200,000 $150,000 $0 $0 $350,000
Impairment of
Building Plans 0 150,000 0 0 150,000
Reserves for
Claims 5,086,065 4,679,353 0 (2,143,278) 7,622,140
1996
Premiums Receivable
Valuation Provision 120,000 80,000 0 0 200,000
Reserves for
Claims 3,836,065 2,939,741 0 (1,689,741) 5,086,065
1995
Premiums Receivable
Valuation Provision 120,000 0 0 0 120,000
Reserves for
Claims 3,635,850 1,429,660 0 (1,229,445) 3,836,065
</TABLE>
*Payments of claims
26
EXHIBIT 10(x)
INVESTORS TITLE COMPANY
1997 STOCK OPTION AND RESTRICTED STOCK PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the "Agreement") is made and
entered into as of ________________ by and between Investors Title Company, a
North Carolina corporation (the "Company") and _________________, a key employee
of the Company (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Company recognizes the value to it of the services of the
Optionee and desires to provide the Optionee with an incentive to remain in the
employment of the Company and an opportunity to purchase common stock of the
Company, so that the Optionee may acquire or increase a proprietary interest in
the Company's success, and
WHEREAS, the Company desires to grant the Optionee a nonqualified stock
option under Article II of the Company's 1997 Stock Option and Restricted Stock
Plan (the "Plan"), and the Optionee desires to accept such option in accordance
with the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and intending to be legally bound hereby, the parties agree as
follows:
1. Grant of Option. Subject to the terms and conditions of this Agreement
and the Plan, the Company hereby grants to the Optionee an option (the "Option")
to purchase all or any portion of _________ (_________) shares (the "Shares") of
the Company's common stock, no par value ("Common Stock"), at an exercise price
of _____ Dollars ($_____) per Share (the "Exercise Price"). This Option is
intended to be a "Nonqualified Stock Option" within the meaning specified in the
Plan and is hereby designated as such pursuant to Article II, Section 1(a) of
the Plan. The grant of this Option has been duly authorized by the Committee
that administers the Plan, as established by the Board of Directors of the
Company pursuant to Article I, Section 3 of the Plan (the "Committee").
2. Term of Option. Subject to the further restrictions and provisions of
the Plan and this Agreement, the Option shall become exercisable in
installments, with the Optionee having the right to purchase from the Company
the following number of Shares subject to this Option, on and after the
following dates, in cumulative fashion:
27
<PAGE>
(a) At any time after _______________ and prior to _______________ up
to _______________ of the Shares subject to this Option;
(b) At any time after _______________ and prior to _______________ up
to _______________ of the Shares subject to this Option;
(c) At any time after ________________ and prior to its expiration,
this Option shall be exercisable in full, to the extent it has not
previously been exercised.
No fractional shares of Common Stock shall be issued upon any exercise of this
Option. Notwithstanding the provisions of paragraph 5 hereof, this Option, or
any unexercised portion thereof, shall expire and no longer be exercisable on
the date that is ten (10) years from the date hereof.
3. Transfer of Option. The Option may not be sold, pledged, assigned or
transferred in any manner other than by will or by the laws of descent or
distribution.
4. Adjustments. If the shares of Common Stock are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
through merger, consolidation, combination, exchange of shares, other
reorganization, recapitalization, reclassification, stock dividend, stock split
or reverse stock split in which the Company is the surviving entity, the
aggregate number of Shares subject to the Option and the Exercise Price per
Share subject to the Option shall be appropriately and proportionately adjusted
in the manner provided in the Plan, provided, however, that the aggregate
purchase price applicable to the unexercised portion of the Option shall not be
affected by such adjustment.
5. Termination of Option. The Option hereby granted shall terminate and be
of no force or effect upon the happening of the first to occur of the following
events:
(a) except as provided in subparagraphs 5(b) and 5(c) hereof,
expiration of the Optionee's employment with the Company for any reason;
(b) expiration of three months after the date of termination of the
Optionee's employment with the Company because Optionee becomes disabled
within the meaning of Section 22(e)(3) of the Code;
(c) expiration of one year after the death of the Optionee while
employed by the Company;
(d) occurrence of any event described in paragraph 10 hereof that
causes a termination of the Option; or
28
<PAGE>
(e) expiration of the term of this Option as provided in paragraph 2
above.
Any Option that may be exercised for a period following termination of the
Optionee's employment may be exercised only to the extent it was exercisable
immediately before such termination and in no event after the Option would
expire by its terms without regard to such termination.
6. Method of Exercise. The Option shall be exercised by tender of payment
of the Exercise Price and delivery to the Company at its principal office of a
written notice, at least three business days prior to the proposed date of
exercise, which notice shall:
(a) state the election to exercise the Option, the number of Shares
with respect to which the Option is being exercised, and the name, address,
and social security number of the person in whose name the stock
certificate or certificates for such Shares is to be registered;
(b) contain any such representations and agreements as to Optionee's
investment intent with respect to such Shares as shall be reasonably
required by the Committee pursuant to paragraph 8 hereof; and
(c) be signed by the person entitled to exercise the Option, and if
the Option is being exercised by any person or persons other than the
Optionee, be accompanied by proof, satisfactory to the Committee, of the
right of such person or persons to exercise the Option.
Payment of the Exercise Price may be made in cash or by certified or
official bank check payable to the order of the Company. Payment may also be
made by surrendering shares of Common Stock (including any Shares received upon
a prior or simultaneous exercise of the Option) at the then fair market value of
such Common Stock, as determined pursuant to Section 1(b) of Article II of the
Plan, as of the date of surrender. Payment may also be made by combining cash,
check or Common Stock.
After receipt of such notice in a form satisfactory to the Committee and
the acceptance of payment, the Company shall deliver to the Optionee a
certificate or certificates representing the Shares purchased hereunder,
provided, that if any law or regulation requires the Company to take action with
respect to the Shares specified in such notice before the issuance thereof, the
date of delivery of such Shares shall be extended for the period necessary to
take such action.
7. Rights of a Shareholder. The Optionee shall not be deemed for any
purpose to be a shareholder of the Company with respect to any Shares covered by
this Option unless this Option shall have been exercised and the Exercise Price
paid in the manner provided herein.
29
<PAGE>
No adjustment will be made for dividends or other rights where the record date
is prior to the date of exercise and payment. Upon the exercise of the Option as
provided herein and the issuance of the certificate or certificates evidencing
the Shares covered thereby, except as otherwise provided herein, the Optionee
shall have all the rights of a shareholder of the Company, including the right
to receive all dividends or other distributions paid or made with respect to
such Shares.
8. Compliance with Securities Laws. The Optionee recognizes that any
registration of the shares of Common Stock issuable pursuant to this Option
under applicable federal and state securities laws, or actions to qualify for
applicable exemptions from such registrations, shall be at the option of the
Company. The Optionee acknowledges that, in the event that no such registrations
are undertaken and the Company relies on exemptions from such registrations, the
shares shall be issued only if the Optionee qualifies to receive such shares in
accordance with the exemptions from registration on which the Company relies and
that, in connection with any issuance of certificates evidencing such shares,
the Board of Directors may require appropriate representations from the Optionee
and take such other action as the Board of Directors may deem necessary,
including but not limited to placing restrictive legends on such certificates
and placing stop transfer instructions in the Company's stock transfer records,
or delivering such instructions to the Company's transfer agent, in order to
assure compliance with any such exemptions. Notwithstanding any other provision
of the Plan or this Agreement (i) no shares will be issued upon any exercise of
the Option unless and until such shares have been registered under all
applicable federal and state securities laws or unless, in the opinion of
counsel satisfactory to the Company, all actions necessary to qualify for
exemptions from such registrations shall have been taken and (ii) the Company
shall have no obligation to undertake such registrations or such actions
necessary to qualify for exemptions from registrations and shall have no
liability whatsoever for not doing so except to refund any Exercise Price
tendered to the Company.
9. Rule 144. The Optionee acknowledges that, notwithstanding the
registration of the Option and the Shares issuable upon its exercise under the
Securities Act of 1933 or under the securities laws of any state, if, at the
time of exercise of the Option, he is deemed to be an "affiliate" of the Company
as defined in Rule 144 of the Securities and Exchange Commission, any shares
purchased thereunder will nevertheless be subject to sale only in compliance
with Rule 144 (but without any holding period), and that the Company shall take
such action as it deems necessary or appropriate to assure such compliance,
including placing restrictive legends on certificates evidencing such shares and
delivering stop transfer instructions to the Company's transfer agent.
10. Reorganizations. If the Company shall be a party to any merger or
consolidation in which it is not the surviving entity or pursuant to which the
shareholders of the Company exchange their Common Stock, or if the Company shall
dissolve or liquidate or sell all or substantially all of its assets, the Option
granted hereunder shall terminate on
30
<PAGE>
the effective date of such merger, consolidation, dissolution, liquidation or
sale; provided, however, that prior to such effective date, the Committee may,
in its discretion, cause the Option to become immediately exercisable, and may,
to the extent the Option is terminated as provided in this paragraph 10,
authorize a payment to the Optionee that approximates the economic benefit that
he would realize if the Option were exercised immediately before such effective
date, or authorize a payment in such other amount as it deems appropriate to
compensate the Optionee for the termination of the unexercised portion of the
Option, or arrange for the granting of a substitute option to the Optionee.
This Agreement shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, or to merge or consolidate, or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
11. Tax Matters. The Optionee acknowledges that, upon exercise of the
Option, the Optionee will recognize taxable income generally in an amount equal
to the excess of the fair market value of the purchased Shares over the Exercise
Price paid therefor, and the Company will have certain withholding obligations
for income and other taxes. It shall be a condition to the Optionee's receipt of
a stock certificate covering Shares purchased pursuant to the Option that the
Optionee pay to the Company such amounts as it is required to withhold or, with
the consent of the Company, that the Optionee otherwise provide for the
discharge of the Company's withholding obligation. If any such payment is not
made by the Optionee, the Company may deduct the amounts required to be withheld
from payments of any kind to which the Optionee would otherwise be entitled from
the Company.
12. No Right to Continued Employment. This Agreement does not confer upon
the Optionee any right to continued employment by the Company, nor shall it
interfere in any way with the right of the Company to terminate or alter the
terms of that employment.
13. Construction. This Agreement shall be construed so as to be consistent
with the Plan and the provisions of the Plan shall be deemed to be controlling
in the event that any provision hereof should be inconsistent therewith. The
Optionee hereby acknowledges receipt of a copy of the Plan from the Company and
agrees to be bound by all of the terms and provisions of the Plan.
Whenever the word "Optionee" is used in any provision of this Agreement
under circumstances where the provision should logically be construed to apply
to (i) the estate, personal representative, or beneficiary to whom this Option
may be transferred by will or by the laws of descent and distribution or (ii)
the guardian or legal representative of the Optionee acting pursuant to a valid
power of attorney or the decree of a court of competent jurisdiction, then the
term "Optionee" shall be construed to include such estate, personal
representative, beneficiary, guardian or legal representative.
31
<PAGE>
14. Severability. The provisions of this Agreement shall be severable and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereto.
15. Successor and Assigns. The terms of this Agreement shall be binding
upon and shall enure to the benefit of any successors or assigns of the Company
and of the Optionee.
16. Notices. Notices under this Agreement shall be in writing and shall be
deemed to have been duly given (i) when personally delivered, (ii) when
forwarded by Federal Express, Airborne, or another private carrier which
maintains records showing delivery information, (iii) when sent via facsimile
but only if a written facsimile acknowledgment of receipt is received by the
sending party, or (iv) when placed in the United States Mail and forwarded by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party to whom such notice is being given or such other address
as furnished to the Company from time to time for this purpose.
17. Entire Agreement; Modification. This Agreement is the entire agreement
and understanding of the parties hereto with respect to the Option granted
herein and supersedes any and all prior and contemporaneous negotiations,
understandings and agreements with regard to the Option and the matters set
forth herein, whether oral or written. No representation, inducement, agreement,
promise or understanding altering, modifying, taking from or adding to the terms
and conditions hereof shall have any force or effect unless the same is in
writing and validly executed by the parties hereto.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
32
<PAGE>
IN WITNESS WHEREOF, the Optionee has executed this Agreement and the
Company has caused this Agreement to be executed by its duly authorized officer,
effective as of the day and year first above written.
INVESTORS TITLE COMPANY
By:
-----------------------------------
ATTEST:
- -----------------------------------
Secretary
(Corporate Seal)
-----------------------------------
Optionee
33
EXHIBIT 10(xi)
INVESTORS TITLE COMPANY
1997 STOCK OPTION AND RESTRICTED STOCK PLAN
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Agreement") is made and entered
into as of __________, 199__, by and between Investors Title Company, a North
Carolina corporation (the "Company") and ______________, a key employee of the
Company (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Company recognizes the value to it of the services of the
Optionee and desires to provide the Optionee with an incentive to remain in the
employment of the Company and an opportunity to purchase common stock of the
Company, so that the Optionee may acquire or increase a proprietary interest in
the Company's success, and
WHEREAS, the Company desires to grant the Optionee an incentive stock
option under Article II of the Company's 1997 Stock Option and Restricted Stock
Plan (the "Plan"), and the Optionee desires to accept such options in accordance
with the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and intending to be legally bound hereby, the parties agree as
follows:
1. Grant of Option. Subject to the terms and conditions of this Agreement
and the Plan, the Company hereby grants to the Optionee an option (the "Option")
to purchase all or any portion of _________________ (____) shares (the "Shares")
of the Company's common stock, no par value ("Common Stock"), at an exercise
price of ______ ($___) per Share (the "Exercise Price"). This Option is intended
to be an "Incentive Stock Option" within the meaning specified in the Plan and
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and is hereby designated as such pursuant to Article II, Section 1(a) of
the Plan. The grant of the Option has been duly authorized by the Committee that
administers the Plan, as established by the Board of Directors of the Company
pursuant to Article I, Section 3 of the Plan (the "Committee").
2. Term of Option. Subject to the further restrictions and provisions of
the Plan and this Agreement, the Option shall become exercisable in
installments, with the Optionee having the right to purchase from the Company
the following number of Shares subject to this Option, on and after the
following dates, in cumulative fashion:
34
<PAGE>
[(a) At any time after ________, 199__ and prior to _________, 199__,
up to _____ of the Shares subject to this Option;
(b) At any time after ________, 199__ and prior to ________, 199__,
this Option shall be exercisable in full, to the extent it has not
previously been exercised.]
No fractional shares of Common Stock shall be issued upon any exercise of this
Option. Notwithstanding the provisions of paragraph 5 hereof, this Option, or
any unexercised portion thereof, shall expire and no longer be exercisable on
the date that is ten (10) years from the date hereof.
3. Transfer of Option. The Option may not be sold, pledged, assigned or
transferred in any manner other than by will or by the laws of descent or
distribution.
4. Adjustments. If the shares of Common Stock are increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
through merger, consolidation, combination, exchange of shares, other
reorganization, recapitalization, reclassification, stock dividend, stock split
or reverse stock split in which the Company is the surviving entity, the
aggregate number of Shares subject to the Option and the Exercise Price per
Share subject to the Option shall be appropriately and proportionately adjusted
in the manner provided in the Plan, provided, however, that the aggregate
purchase price applicable to the unexercised portion of the Option shall not be
affected by such adjustment.
5. Termination of Option. The Option hereby granted shall terminate and be
of no force or effect upon the happening of the first to occur of the following
events:
(a) except as provided in subparagraphs 5(b) and 5(c) hereof, the date
of termination [or a stated period of up to three months] of the Optionee's
employment with the Company for any reason;
(b) expiration of [three months] after the date of termination of the
Optionee's employment with the Company because Optionee becomes disabled
within the meaning of Section 22(e)(3) of the Code;
(c) expiration of [one year] after the death of the Optionee while
employed by the Company;
(d) occurrence of any event described in paragraph 10 hereof that
causes a termination of the Option; or
(e) expiration of the term of this Option as provided in paragraph 2
above.
35
<PAGE>
Any Option that may be exercised for a period following termination of the
Optionee's employment may be exercised only to the extent it was exercisable
immediately before such termination and in no event after the Option would
expire by its terms without regard to such termination.
6. Method of Exercise. The Option shall be exercised by tender of payment
of the Exercise Price and delivery to the Company at least three business days
prior to the proposed date of exercise at its principal office of a written
notice, which notice shall:
(a) state the election to exercise the Option, the number of Shares
with respect to which the Option is being exercised, and the name, address,
and social security number of the person in whose name the stock
certificate or certificates for such Shares is to be registered;
(b) contain any such representations and agreements as to Optionee's
investment intent with respect to such Shares as shall be reasonably
required by the Committee pursuant to paragraph 8; and
(c) be signed by the person entitled to exercise the Option, and if
the Option is being exercised by any person or persons other than the
Optionee, be accompanied by proof, satisfactory to the Committee, of the
right of such person or persons to exercise the Option.
Payment of the Exercise Price may be made in cash or by certified or
official bank check payable to the order of the Company. [Optional: Payment may
also be made by surrendering shares of Common Stock (including any Shares
received upon a prior or simultaneous exercise of the Option) at the fair market
value of such Common Stock, as determined pursuant to Section 1(b) of Article II
of the Plan, as of the date of surrender. Payment may also be made by combining
cash, check or Common Stock.]
After receipt of such notice in a form satisfactory to the Committee and
the acceptance of payment, the Company shall deliver to the Optionee a
certificate or certificates representing the Shares purchased hereunder,
provided, that if any law or regulation requires the Company to take any action
with respect to the Shares specified in such notice before the issuance thereof,
the date of delivery of such Shares shall be extended for the period necessary
to take such action.
7. Rights of a Shareholder. The Optionee shall not be deemed for any
purpose to be a shareholder of the Company with respect to any shares covered by
this Option unless this Option shall have been exercised and the Exercise Price
paid in the manner provided herein. No adjustment will be made for dividends or
other rights where the record date is prior to
36
<PAGE>
the date of exercise and payment. Upon the exercise of the Option and the
issuance of the certificate or certificates evidencing the shares of Common
Stock received, except as otherwise provided herein, the Optionee shall have all
the rights of a shareholder of the Company including the rights to receive all
dividends or other distributions paid or made with respect to such shares.
8. Compliance with Securities Laws. The Optionee recognizes that any
registration of the shares of Common Stock issuable pursuant to this Option
under applicable federal and state securities laws, or actions to qualify for
applicable exemptions from such registrations, shall be at the option of the
Company. The Optionee acknowledges that, in the event that no such registrations
are undertaken and the Company relies on exemptions from such registrations, the
shares shall be issued only if the Optionee qualifies to receive such shares in
accordance with the exemptions from registration on which the Company relies and
that, in connection with any issuance of certificates evidencing such shares,
the Board of Directors may require appropriate representations from the Optionee
and take such other action as the Board of Directors may deem necessary,
including but not limited to placing restrictive legends on such certificates
and placing stop transfer instructions in the Company's stock transfer records,
or delivering such instructions to the Company's transfer agent, in order to
assure compliance with any such exemptions. Notwithstanding any other provision
of the Plan or this Agreement (i) no shares will be issued upon any exercise of
the Option unless and until such shares have been registered under all
applicable federal and state securities laws or unless, in the opinion of
counsel satisfactory to the Company, all actions necessary to qualify for
exemptions from such registrations shall have been taken and (ii) the Company
shall have no obligation to undertake such registrations or such actions
necessary to qualify for exemptions from registrations and shall have no
liability whatsoever for not doing so except to refund any option price tendered
to the Company.
9. Rule 144. The Optionee acknowledges that, notwithstanding the
registration of the Option and the shares of Common Stock issuable upon its
exercise under the Securities Act of 1933 or under the securities laws of any
state, if, at the time of exercise of the Option, he is deemed to be an
"affiliate" of the Company as defined in Rule 144 of the Securities and Exchange
Commission, any shares purchased thereunder will nevertheless be subject to sale
only in compliance with Rule 144 (but without any holding period), and that the
Company shall take such action as it deems necessary or appropriate to assure
such compliance, including placing restrictive legends on certificates
evidencing such shares and delivering stop transfer instructions to the
Company's transfer agent.
10. Reorganizations. If the Company shall be a party to any merger or
consolidation in which it is not the surviving entity or pursuant to which the
shareholders of the Company exchange their Common Stock, or if the Company shall
dissolve or liquidate or sell all or substantially all of its assets, the Option
granted hereunder shall terminate on the effective date of such merger,
consolidation, dissolution, liquidation or sale; provided,
37
<PAGE>
however, that prior to such effective date, the Committee may, in its
discretion, cause the Option to become immediately exercisable, and may, to the
extent the Option is terminated as provided in this paragraph 10, authorize a
payment to the Optionee that approximates the economic benefit that he would
realize if the Option were exercised immediately before such effective date, or
authorize a payment in such other amount as it deems appropriate to compensate
the Optionee for the termination of the unexercised portion of the Option, or
arrange for the granting of a substitute option to the Optionee.
This Agreement shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations or changes of
its capital or business structure, or to merge or consolidate, or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.
11. No Right to Continued Employment. This Agreement does not confer upon
the Optionee any right to continued employment by the Company, nor shall it
interfere in any way with the right of the Company to terminate or alter the
terms of that employment.
12. Construction. This Agreement shall be construed so as to be consistent
with the Plan and the provisions of the Plan shall be deemed to be controlling
in the event that any provision hereof should be inconsistent therewith. The
Optionee hereby acknowledges receipt of a copy of the Plan from the Company and
agrees to be bound by all of the terms and provisions of the Plan.
Whenever the word "Optionee" is used in any provision of this Agreement
under circumstances where the provision should logically be construed to apply
to (i) the estate, personal representative, or beneficiary to whom this Option
may be transferred by will or by the laws of descent and distribution or (ii)
the guardian or legal representative of the Optionee acting pursuant to a valid
power of attorney or the decree of a court of competent jurisdiction, then the
term "Optionee" shall be construed to include such estate, personal
representative, beneficiary, guardian or legal representative.
13. Severability. The provisions of this Agreement shall be severable and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereto.
14. Successor and Assigns. The terms of this Agreement shall be binding
upon and shall enure to the benefit of any successors or assigns of the Company
and of the Optionee.
15. Notices. Notices under this Agreement shall be in writing and shall be
deemed to have been duly given (i) when personally delivered, (ii) when
forwarded by Federal Express, Airborne, or another private carrier which
maintains records showing delivery
38
<PAGE>
information, (iii) when sent via facsimile but only if a written facsimile
acknowledgment of receipt is received by the sending party, or (iv) when placed
in the United States Mail and forwarded by registered or certified mail, return
receipt requested, postage prepaid, addressed to the party to whom such notice
is being given or such other address as furnished to the Company from time to
time for this purpose.
16. Entire Agreement; Modification. This Agreement is the entire agreement
and understanding of the parties hereto with respect to the Option granted
herein and supersedes any and all prior and contemporaneous negotiations,
understandings and agreements with regard to the Option and the matters set
forth herein, whether oral or written. No representation, inducement, agreement,
promise or understanding altering, modifying, taking from or adding to the terms
and conditions hereof shall have any force or effect unless the same is in
writing and validly executed by the parties hereto.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
IN WITNESS WHEREOF, the Optionee has executed this Agreement and the
Company has caused this Agreement to be executed by its duly authorized officer,
effective as of the day and year first written above .
INVESTORS TITLE COMPANY
By:
-----------------------------------
ATTEST:
- -----------------------------------
Secretary
(Corporate Seal)
-----------------------------------
Optionee
39
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
For the Year 1997 1996
<S> <C> <C>
Net premiums written $ 29,875,350 $ 21,111,155
Revenues 32,390,516 22,991,182
Investment income 1,628,188 1,352,932
Net income 4,530,382 3,843,537
Per Share Data
Basic earnings per common share $ 1.63 $ 1.39
Weighted average shares
outstanding - Basic 2,782,449 2,772,286
Diluted earnings per common share $ 1.60 $ 1.37
Weighted average shares outstanding - Diluted 2,826,730 2,813,001
Cash dividends per share $ .12 $ .095
At Year End
Assets $ 41,293,007 $ 33,642,528
Investments in securities 31,124,410 23,573,663
Stockholders' equity 31,128,908 25,988,177
Book value/share 11.12 9.39
Performance Ratios
Net income to:
Average stockholders' equity 15.86% 15.95 %
Total revenues (profit margin) 13.99% 16.72 %
<CAPTION>
For the Year 1995 1994 1993
<S> <C> <C> <C>
Net premiums written $ 15,854,140 $ 15,596,643 $ 14,300,622
Revenues 17,365,950 16,933,925 15,463,260
Investment income 1,140,636 1,046,712 954,440
Net income 3,250,658 3,126,859 2,313,014
Per Share Data
Basic earnings per common share $ 1.16 $ 1.10 $ .81
Weighted average shares
outstanding - Basic 2,804,632 2,833,778 2,855,744
Diluted earnings per common share $ 1.15 $ 1.10 $ .81
Weighted average shares outstanding - Diluted 2,816,544 2,845,199 2,864,912
Cash dividends per share $ .08 $ .08 $ .055
At Year End
Assets $ 28,224,276 $ 24,242,060 $ 22,589,386
Investments in securities 19,742,639 16,362,082 14,914,140
Stockholders' equity 22,209,814 18,554,012 16,203,627
Book value/share 7.96 6.60 5.67
Performance Ratios
Net income to:
Average stockholders' equity 15.95% 17.99% 15.36%
Total revenues (profit margin) 18.72% 18.47% 14.96%
</TABLE>
[Line graph appears here with the following plot points]
Five Year Stockholder's Equity History
(in thousands)
1993 1994 1995 1996 1997
$16,204 $18,554 $22,210 $25,988 $31,129
Since January 1, 1993, stockholders' equity has grown at an annual compounded
rate of 17.47%
<PAGE>
SHAREHOLDER INFORMATION
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
1997
<S> <C> <C>
First Quarter $15 3/4 - $14 1/4 3 cents - 3/24/97
Second Quarter 15 3/4 - 14 3 cents - 6/1/97
Third Quarter 20 3/4 - 15 1/2 3 cents - 9/1/97
Fourth Quarter 24 1/4 - 19 5/8 3 cents - 12/15/97
1996
First Quarter $12 1/4 - $10 2 cents - 3/1/96
Second Quarter 13 - 11 1/4 2.5 cents - 6/1/96
Third Quarter 14 - 11 1/4 2.5 cents - 9/1/96
Fourth Quarter 16 3/4 - 12 3/4 2.5 cents - 12/12/96
</TABLE>
Market Makers
Davenport & Co. of Virginia, Inc.
Herzog, Heine, Geduld, Inc.
Interstate/Johnson Lane
Scott & Stringfellow, Inc.
[Line graph appears here with the following plot points]
Five-Year Stock Price History
1993 1994 1995 1996 1997
$8.50 $6.75 $10.50 $15.75 $21.25
Since inception of the Company, the compounded appreciation of the common stock
has been 16.3%.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Results of Operations and Financial Condition
The following discussion should be read in conjunction with the
consolidated financial statements and the related footnotes on pages 12-21 of
this report.
Overview
The Company's primary business activity is the issuance of title
insurance. Factors which influence the land title business include mortgage
interest rates, the availability of mortgage funds, the level of real estate
activity, the cost of real estate, consumer confidence, the supply and demand
of real estate, inflation and general economic conditions.
During the past three years, the Company's operating results improved
significantly. These improvements are attributable to a strong real estate
market and the Company's efforts to increase market share and to improve the
efficiency of operations. According to the Mortgage Bankers Association of
America, the monthly average 30-year fixed mortgage interest rates were
reported to be 7.6% in 1997, 7.81% in 1996 and 7.96% in 1995. Housing starts
were 1.47 million in 1997, 1.48 million in 1996, and 1.35 million in 1995. New
and existing home sales were 5.02 million in 1997, 4.84 million in 1996, and
4.47 million in 1995.
During 1995, 30-year fixed mortgage interest rates began to drop,
declining from 9.15% in January to 7.2% 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.
In 1996, 30-year fixed mortgage interest rates rose more than one
percentage point through September, then began to decline, falling to 7.6% by
year-end. Despite the increase in rates, the pace of real estate transactions
increased.
In January of 1997, 30-year fixed mortgage interest rates were 7.82%,
then rose to 8.14% in April, and finally began a steady decline to end up the
year at 7.1%. Over the course of the year this .72% overall decline contributed
to an increase in real estate sales, which is reflected in an increase of
$8,884,923 in the Company's 1997 premiums compared with 1996 premiums. The
strength in the real estate market since the latter part of 1995 coupled with
expansion into new operating territories contributed to the Company's record
operating results for the past four years.
Management believes that the current low level of interest bodes well for
activity in the real estate market. A further decline in 30-year fixed mortgage
interest rates in January of 1998 to 6.99% increases management's optimism for
1998, although future trends in interest rates are extremely difficult to
predict because of the variety of potential influences including U.S. monetary
policy and inflationary pressures. The Company strives to offset the cyclical
nature of the real estate market by increasing its market share. These efforts
include developing new agent relationships and increasing the number of
underwriting offices as well as improving market penetration with existing
offices and agents.
Credit Rating
Investors Title Insurance Company's financial strength was recognized
with a rating of "A Double Prime" (unsurpassed financial stability) by a Fannie
Mae approved actuarial firm. Northeast Investors Title Insurance Company
received a rating of "A Prime" (unsurpassed financial stability) from the same
firm.
Results of Operations
Operating Revenues
Total premiums written increased 41.8% in 1997 compared with 1996.
Premiums written in 1996 increased 33.3% compared with 1995. Growth in sales
has resulted from a combination of continued marketing efforts and a strong
real estate market. The volume of business continued to increase in 1997 as the
number of policies and commitments issued rose to 184,237, an increase of 29.7%
compared with 142,009 in 1996. In 1996, policies and commitments issued rose to
142,009, an increase of 29.1% compared with 110,036 in 1995.
In addition to an improved real estate market and increases in the number
of branch offices and issuing agents, management believes that other factors
contributing to sales growth were (1) enhanced customer services provided
through additions to the Company's legal department, (2) the establishment of a
Commercial Real Estate Transactions Department to offer assistance in
connection with commercial transactions, (3) the establishment of Agent
Training and Support Departments to instruct and advise agents, (4) employee
incentives to achieve revenue targets, and (5) increased revenues related to
tax-deferred exchanges of real property.
Shown below is a schedule of title premiums written for 1997, 1996 and
1995 in all states where our two insurance subsidiaries, Investors Title
Insurance Company and Northeast Investors Title Insurance Company, currently
underwrite insurance:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- --------------- ---------------
<S> <C> <C> <C>
Florida $ 95,790 $ 73,529 $ 128,124
Georgia 558,988 192,731 31,812
Indiana 111,131 91,417 47,342
Kentucky 265 239 -
Maryland 94,253 69,346 6,499
Michigan 4,796,435 458,198 -
Minnesota 198,728 - -
Mississippi 29,183 - -
Nebraska 572,685 531,688 323,290
New York 441,479 535,952 385,258
North Carolina 15,368,830 12,492,684 10,254,900
Pennsylvania 1,019 2,321 25,276
South Carolina 3,006,167 2,906,361 1,974,607
Tennessee 140,937 109,679 37,992
Virginia 4,642,834 3,723,544 2,687,906
----------- ----------- -----------
Direct Premiums 30,058,724 21,187,689 15,903,006
Reinsurance Assumed 58,447 44,559 29,817
Reinsurance Ceded (241,821) (121,093) (78,683)
----------- ----------- -----------
Net Premiums Written $29,875,350 $21,111,155 $15,854,140
=========== =========== ===========
</TABLE>
<PAGE>
Shown below is a breakdown of branch and agency premiums:
[Bar Graph appears here with the following plot points]
Branch vs. Agency Premiums
(in thousands)
<TABLE>
<CAPTION>
1997 % 1996 % 1995 %
-------------- --------- -------------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Branch $15,676,780 52.2 $12,670,101 59.8 $10,453,167 65.7
Agency 14,381,944 47.8 8,517,588 40.2 5,449,839 34.3
----------- ----- ----------- ----- ----------- -----
Total $30,058,724 100.0 $21,187,689 100.0 $15,903,006 100.0
=========== ===== =========== ===== =========== =====
</TABLE>
Premiums written from branch operations increased 23.7% in 1997 compared
with 1996 and increased 21.2% in 1996 compared with 1995.
Due to the Company's efforts to increase the distribution of its products
through an agency network, agency premiums increased 68.8% in 1997 compared
with 1996 and increased 56.3% in 1996 compared with 1995. The Company's ability
to increase this agency network with qualified agents, primarily in Michigan
and Virginia, directly affects its market share in these states.
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, supply and 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. Fluctuations in
mortgage interest rates can cause shifts in real estate activity outside of the
normal seasonal pattern.
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 20 years.
In 1998, the Company intends to seek growth in investment income by
increasing 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 20.3% in 1997 compared with 1996 and
increased 18.6% in 1996 compared with 1995. These increases were primarily
attributable to increases in the average investment portfolio balances.
Expenses
Profit margins were 13.99% in 1997, 16.72% in 1996, and 18.72% in 1995.
In 1997 and 1996, the profit margins declined primarily due to increased
commissions paid to agents coupled with a rise in the claims provision. Margins
from agent business are typically lower than those from branch business since
agent commissions are generally higher than the operating expenses incurred for
direct business. The Company's profit margins continued to exceed industry
averages principally due to steps taken to refine operating procedures to
better support its branch offices and agents, tight monitoring of expenses, and
increased operating leverage resulting from a rise in premiums written.
The Company maintains an automated system that computerizes underwriting.
Resulting benefits include a more streamlined and consistent underwriting
process and greater efficiency per underwriter. Computer automation has
favorably impacted our labor costs and future improvements should continue to
increase productivity and efficiency. The underwriting system is Year 2000
compliant. The Company does not expect the expenses related to converting the
other systems to materially affect its financial position.
Another step taken to streamline operations was the development of a
training center for underwriters that standardizes underwriting practices. As
part of this effort, the Company developed underwriting manuals to be used by
branch and agency underwriting personnel.
In 1997, salaries as a percentage of branch premiums written declined to
29% compared with 29.8% and 33.6% in 1996 and 1995, respectively. The number of
branch offices increased from 26 in 1995 to 29 in 1997. Office occupancy and
operations as a percentage of branch premiums improved over the three- year
period (16% in 1997, 17% in 1996, and 17.5% in 1995). Continued expense
monitoring and increased automation have enabled the Company to reduce these
operating expenses.
Commissions increased 74.1% in 1997 compared with 1996 and increased
57.5% in 1996 compared with 1995 due to increased business from agent sources.
The overall commission rate has increased due to higher commission rates in
certain new operating territories. Commission rates vary geographically and may
be influenced by state regulators.
In 1997, the provision for claims as a percentage of net premiums written
increased to 15.7% compared with 13.9% in 1996 and 9% in 1995. The increase in
the 1997 claims provision is primarily due to increases in claims payments and
the reserves for claims. Payments of claims, net of recoveries, were
$2,143,278, $1,689,741 and $1,229,445 in 1997, 1996 and 1995, respectively.
The Company has continued to strengthen its reserves for claims. At
December 31, 1997, the total reserves for claims were $7,622,140. Of that
total, $1,346,423 was reserved for specific claims, and $6,275,717 was reserved
for claims for which the Company had no notice. Management relies on actuarial
techniques to estimate future claims by analyzing historical 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 net premiums written remained constant
at 2% from 1995 to 1997.
<PAGE>
Income Taxes
Income tax expense as a percentage of income before income taxes was
29.8%, 29.1% and 26.2% in 1997, 1996 and 1995, respectively. The lower
percentage in 1995 was primarily due to a refund of taxes paid in prior years
totaling $119,994.
Net Income
The Company reported a 17.9% increase in net income in 1997 compared with
1996, and an 18.2% increase in 1996 compared with 1995. These increases were
primarily attributable to increased revenues and improved operating
efficiencies resulting from expense control procedures, partially offset by
increased commissions and claims expense.
Liquidity and Capital Resources
Cash flows provided by operating activities were $5,233,328, $5,397,301
and $3,257,858 in 1997, 1996 and 1995, respectively. In addition to operational
liquidity, the Company has no long-term debt. Nonoperating funds were primarily
used to purchase investments.
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 1998, the amount of dividends that can be paid without prior approval from
the insurance commissioner is approximately $2,090,000. These funds should be
adequate to cover the Company's operating needs.
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 22,134
shares at an average purchase price of $17.10 per share as of December 31, 1997.
During 1996, the Company also repurchased an additional 40,936 shares at an
average purchase price of $11.85 per share under another plan approved by the
Board of Directors. The Board has authorized management to repurchase up to an
additional 127,866 shares.
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.
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 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.
SELECTED QUARTERLY OPERATING RESULTS
<TABLE>
<CAPTION>
1997 March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Net premiums written $5,418,788 $7,661,689 $8,106,160 $8,688,713
Investment income 398,113 385,606 412,742 431,727
Net income 861,054 1,145,474 1,328,572 1,195,282
Basic earnings per common share .31 .41 .48 .43
Diluted earnings per common share .30 .41 .47 .42
1996
Net premiums written $4,434,799 $5,481,492 $5,574,243 $5,620,621
Investment income 294,791 314,286 329,113 414,742
Net income 747,719 978,782 1,072,350 1,044,686
Basic earnings per common share .27 .35 .39 .38
Diluted earnings per common share .27 .35 .38 .37
</TABLE>
<PAGE>
Investors Title Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
as of December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Assets
Cash and cash equivalents ........................................................... $ 2,823,177 $ 4,244,570
Investments in securities (Notes 2 and 3):
Fixed maturities:
Held-to-maturity, at amortized cost (fair value: 1997: $5,053,485;
1996: $5,422,644)................................................................ 4,841,466 5,267,372
Available-for-sale, at fair value (amortized cost: 1997: $18,928,948;
1996: $12,518,544)............................................................... 19,752,550 12,832,724
Equity securities, at fair value (cost: 1997: $3,844,927; 1996: $3,484,927)........ 6,530,394 5,473,567
----------- -----------
Total investments ................................................................ 31,124,410 23,573,663
Premiums (less allowance for doubtful accounts: 1997: $350,000; 1996: $200,000) ..... 3,372,751 2,016,122
Accrued interest and dividends ...................................................... 429,064 321,634
Prepaid expenses and other assets ................................................... 462,801 556,969
Property acquired in settlement of claims ........................................... 280,725 165,500
Property, net (Notes 4 and 9) ....................................................... 2,800,079 2,764,070
----------- -----------
Total Assets ........................................................................ $41,293,007 $33,642,528
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Notes 6 and 8) ................................................. $ 7,622,140 $ 5,086,065
Accounts payable and accrued liabilities ............................................ 1,069,372 997,759
Commissions and reinsurance payables (Note 5) ....................................... 96,241 60,902
Premium taxes payable ............................................................... 153,857 101,766
Current income taxes payable ........................................................ 25,081 175,143
Deferred income taxes, net (Note 8) ................................................. 1,197,408 1,232,716
----------- -----------
Total liabilities ................................................................. 10,164,099 7,654,351
----------- -----------
Commitments and Contingencies
(Notes 5, 9 and 11)
Stockholders' Equity (Notes 2, 3, 7 and 12):
Common stock-no par value (shares authorized 6,000,000; 2,855,744
and 2,855,744 shares issued; and 2,800,240 and 2,767,830 shares
outstanding 1997 and 1996, respectively) .......................................... 879,612 722,321
Retained earnings ................................................................... 27,933,688 23,745,995
Net unrealized gain on investments
(net of deferred taxes: 1997: $1,193,461; 1996: $782,959).......................... 2,315,608 1,519,861
----------- -----------
Total stockholders' equity ........................................................ 31,128,908 25,988,177
----------- -----------
Total Liabilities and Stockholders' Equity ........................................... $41,293,007 $33,642,528
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Investors Title Company and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
for the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Underwriting income:
Premiums written (Note 5) ............................... $ 30,117,171 $ 21,232,248 $ 15,932,823
Less-premiums for reinsurance ceded (Note 5) ............ 241,821 121,093 78,683
------------ ------------ ------------
Net premiums written.................................... 29,875,350 21,111,155 15,854,140
Investment income-interest and dividends (Note 3) ........ 1,628,188 1,352,932 1,140,636
Net realized gain on sales of investments (Note 3) ....... 269,396 178,238 45,242
Other .................................................... 617,582 348,857 325,932
------------ ------------ ------------
Total .................................................. 32,390,516 22,991,182 17,365,950
------------ ------------ ------------
Operating Expenses:
Commissions to agents .................................... 10,065,249 5,780,048 3,669,995
Provision for claims (Note 6) ............................ 4,679,353 2,939,741 1,429,660
Salaries ................................................. 4,543,598 3,773,550 3,515,480
Employee benefits and payroll taxes (Notes 7 and 10) ..... 1,578,688 1,224,659 1,107,465
Office occupancy and operations (Note 9) ................. 2,512,370 2,159,175 1,831,074
Business development ..................................... 1,091,812 665,705 573,874
Taxes, other than payroll and income ..................... 168,607 150,617 142,811
Premium taxes ............................................ 592,660 420,963 328,791
Professional fees ........................................ 317,294 160,929 212,279
Other .................................................... 390,103 294,258 150,863
------------ ------------ ------------
Total .................................................. 25,939,734 17,569,645 12,962,292
------------ ------------ ------------
Income Before Income Taxes ................................. 6,450,782 5,421,537 4,403,658
Provision for Income Taxes (Note 8) ........................ 1,920,400 1,578,000 1,153,000
------------ ------------ ------------
Net Income ................................................. $ 4,530,382 $ 3,843,537 $ 3,250,658
============ ============ ============
Basic Earnings per Common Share ............................ $ 1.63 $ 1.39 $ 1.16
============ ============ ============
Weighted Average Shares Outstanding-Basic .................. 2,782,449 2,772,286 2,804,632
========= ========= =========
Diluted Earnings per Common Share .......................... $ 1.60 $ 1.37 $ 1.15
============ ============ ============
Weighted Average Shares Outstanding-Diluted ................ 2,826,730 2,813,001 2,816,544
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Investors Title Company and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Net
Unrealized Total
Common Stock Retained Gain On Stockholders'
Shares Amount Earnings Investments Equity
------------- ------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Balance,
January 1, 1995 ............................ 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)
Purchases of 21,429 shares of
common stock (net of distributions) ...... (21,429) (224,904) (224,904)
Net unrealized gain on investments
(net of deferred taxes of $441,254)....... 858,508 858,508
---------- -----------
Balance,
December 31, 1995 .......................... 2,790,633 1,038,414 20,173,755 997,645 22,209,814
Net income ................................. 3,843,537 3,843,537
Dividends ($.095 per share)................. (271,297) (271,297)
Purchases of 22,803 shares of common
stock (net of distributions) ............. (22,803) (316,093) (316,093)
Net unrealized gain on investments
(net of deferred taxes of $268,829)....... 522,216 522,216
---------- -----------
Balance,
December 31, 1996 .......................... 2,767,830 722,321 23,745,995 1,519,861 25,988,177
Net Income ................................. 4,530,382 4,530,382
Dividends ($.12 per share).................. (342,689) (342,689)
Distributions of 32,410 shares of common
stock (net of purchases) ................. 32,410 157,291 157,291
Net unrealized gain on investments
(net of deferred taxes of $410,502)....... 795,747 795,747
---------- -----------
Balance,
December 31, 1997 .......................... 2,800,240 $ 879,612 $27,933,688 $2,315,608 $31,128,908
========= ========== =========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Investors Title Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Operating Activities:
Net income ............................................................... $ 4,530,382 $ 3,843,537 $ 3,250,658
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation ........................................................... 346,547 328,682 307,649
Amortization, net of accretion ......................................... 3,767 11,114 50,369
Provision for losses on premiums receivable ............................ 150,000 80,000 -
(Gain) loss on disposals of property ................................... 7,326 (9,895) 11,028
Net realized gain on sales of investments .............................. (269,396) (178,238) (45,242)
Provision (benefit) for deferred income taxes .......................... (445,238) (22,940) 74,654
Provision for claims .......................................... ........ 4,679,353 2,939,741 1,429,660
Payments of claims, net of recoveries .................................. (2,143,278) (1,689,741) (1,229,445)
Changes in assets and liabilities:
Increase in receivables ................................................ (1,635,116) (48,765) (582,264)
Increase (decrease) in accounts payable and accrued liabilities ........ 71,613 (64) (2,036)
Increase (decrease) in commissions and reinsurance payables ............ 35,339 22,301 (14,247)
Increase in premium taxes payable ...................................... 52,091 65,926 7,074
Increase (decrease) in current income taxes payable .................... (150,062) 55,643 -
------------ ------------ ------------
Net cash provided by operating activities .............................. 5,233,328 5,397,301 3,257,858
------------ ------------ ------------
Investing Activities:
Purchases of available-for-sale securities .............................. (9,036,039) (4,370,919) (4,419,434)
Purchases of held-to-maturity securities ................................ (297,951) (997,220) (415,000)
Proceeds from sales of available-for-sale securities .................... 2,530,426 1,437,173 1,688,312
Proceeds from sales of held-to-maturity securities ...................... 724,123 1,118,305 1,060,200
Purchases of property ................................................... (422,111) (303,417) (315,763)
Proceeds from sales of property ......................................... 32,229 23,729 34,128
------------ ------------ ------------
Net cash used in investing activities .................................. (6,469,323) (3,092,349) (2,367,557)
------------ ------------ ------------
Financing Activities:
Repayment of notes payable .............................................. - - (500,000)
Distributions (repurchases) of common stock ............................. 157,291 (316,093) (224,904)
Dividends paid .......................................................... (342,689) (271,297) (228,460)
------------ ------------ ------------
Net cash used in financing activities .................................. (185,398) (587,390) (953,364)
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents ..................... (1,421,393) 1,717,562 (63,063)
Cash and Cash Equivalents, Beginning of Year ............................. 4,244,570 2,527,008 2,590,071
------------ ------------ ------------
Cash and Cash Equivalents, End of Year ................................... $ 2,823,177 $ 4,244,570 $ 2,527,008
============ ============ ============
Supplemental Disclosures:
Cash Paid During the Year For:
Interest ............................................................... $ 481 $ 33 $ 14,962
============ ============ ============
Income taxes ........................................................... $ 2,516,000 $ 1,418,000 $ 897,000
============ ============ ============
</TABLE>
The change in unrealized gain on investments in securities (which is included in
stockholders' equity, net of deferred income taxes) was $1,206,249, $791,045,
and $1,299,762, in 1997, 1996 and 1995, respectively. The change in the deferred
income taxes (benefit) on the net unrealized gain and loss was $410,502,
$268,829, and $441,254 in 1997, 1996 and 1995, respectively.
During 1996, the Company exchanged assets with a value of $60,000 for an equity
investment.
See notes to consolidated financial statements.
<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 and South
Carolina, and through independent issuing agents in Florida, Georgia, Indiana,
Kentucky, Maryland, Michigan, Minnesota, Mississippi, Nebraska, New York,
Pennsylvania, South Carolina, Tennessee, and Virginia. The majority of the
Company's business is concentrated in Michigan, North Carolina, South Carolina,
and Virginia. Investors Title Exchange Corporation ("ITEC"), a wholly owned
subsidiary, 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.
Principles of Consolidation and Basis of Presentation - The accompanying
consolidated financial statements include the accounts of the Company and 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 cost, adjusted for
amortization of premiums or accretion of 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.
Reserves for Claims
The reserves for claims and the annual provision for 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 reserves for claims (see Note
6).
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. Title
insurance commissions earned by the Company's agents are recognized as expense
concurrently with premium recognition.
Earnings Per Common Share
Effective December 31, 1997, the Company adopted Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 128, Earnings
Per Share ("SFAS 128"). Adoption of this standard required the Company to
restate all prior period earnings per share data presented to conform with SFAS
128. This statement requires companies to compute net earnings per share under
two different methods, basic and diluted, and to disclose the methodology used
for the calculation. Basic earnings per common share under SFAS 128 for 1996
and 1995 is not different from net income per common share amounts as
previously reported. Diluted earnings per common share had not been previously
reported. The employee stock options discussed in Note 7 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 44,281, 40,715 and 11,912 for 1997, 1996 and 1995, respectively.
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.
<PAGE>
In administering tax-free exchanges, the Company 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 the Company for the
purchase of exchange properties was approximately $21,015,000 and $14,016,000
as of December 31, 1997 and 1996, respectively.
Effects of Inflation
The effect of inflation on the Company has not been material in recent
years.
Accounting Changes Pending Implementation
In June 1997, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 130, Reporting Comprehensive Income
("SFAS 130") and No. 131, Disclosures about Segments of an Enterprise and
Related Information ("SFAS 131"). SFAS 130 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 the balance sheet. The Company will be required to adopt the new
reporting guidelines for the fiscal year beginning January 1, 1998. Adoption of
this statement will not have a financial impact on the Company; however, the
Company anticipates additional disclosure requirements on comprehensive income
upon adoption of SFAS 130.
SFAS 131 requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. This statement
defines operating segments as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. The Company will be required to adopt the new reporting guidelines
for the fiscal year beginning January 1, 1998. Adoption of this statement will
not have a financial impact on the Company; however, the Company has not
determined whether additional disclosures will be required on segment
information upon adoption of SFAS 131.
Use of Estimates and Assumptions
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.
Reclassification
Certain 1996 and 1995 amounts have been reclassified to conform with 1997
classifications.
2. Statutory Restrictions on Consolidated Stockholders' Equity and Investments
The Company has designated approximately $13,135,000 and $10,909,000 of
retained earnings as of December 31, 1997 and 1996, respectively, as
appropriated to reflect the required statutory premium reserve. See Note 8 for
the tax treatment of the statutory premium reserve.
As of December 31, 1997 and 1996, approximately $26,810,000 and
$22,550,000 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 $2,755,000 and
$2,290,000 at December 31, 1997 and 1996, 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 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
December 31, 1997:
Fixed maturities -
Held-to-maturity, at amortized cost:
Certificates of deposit .................................. $ 130,985 $ - $ - $ 130,985
Obligations of states and political subdivisions ......... 4,710,481 212,019 - 4,922,500
----------- ---------- -------- -----------
Total ..................................................... $ 4,841,466 $ 212,019 - $ 5,053,485
=========== ========== ======== ===========
Fixed maturities -
Available-for-sale, at fair value:
Obligations of states and political subdivisions ......... $17,465,766 $ 786,550 $ 2,766 $18,249,550
Corporate debt securities ................................ 1,463,182 39,818 - 1,503,000
----------- ---------- -------- -----------
Total ..................................................... $18,928,948 $ 826,368 $ 2,766 $19,752,550
=========== ========== ======== ===========
Equity securities, at fair value -
Common stocks and nonredeemable preferred stocks .......... $ 3,844,927 $2,862,442 $176,975 $ 6,530,394
=========== ========== ======== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
December 31, 1996:
Fixed maturities - .........................................
Held-to-maturity, at amortized cost:
Certificates of deposit .................................. $ 169,004 $ - $ - $ 169,004
Obligations of states and political subdivisions ......... 5,098,368 157,719 2,447 5,253,640
----------- ---------- -------- -----------
Total ..................................................... $ 5,267,372 $ 157,719 2,447 $ 5,422,644
=========== ========== ===== ===========
Fixed maturities -
Available-for-sale, at fair value:
Obligations of states and political subdivisions ......... $10,496,691 $ 329,912 $ 32,453 $10,794,150
Corporate debt securities ................................ 1,875,931 25,062 693 1,900,300
Debt securities issued by foreign governments ............ 145,922 2,036 9,684 138,274
----------- ---------- -------- -----------
Total ..................................................... $12,518,544 $ 357,010 $ 42,830 $12,832,724
=========== ========== ======== ===========
Equity securities, at fair value -
Common stocks and nonredeemable preferred stocks .......... $ 3,484,927 $2,095,430 $106,790 $ 5,473,567
=========== ========== ======== ===========
</TABLE>
The scheduled maturities of fixed maturities at December 31, 1997 are 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 ........................ $ 401,585 $ 406,000 $ 356,094 $ 357,735
Due after one year through five years .......... 3,126,751 3,226,550 872,940 915,800
Due after five years through ten years ......... 3,505,134 3,716,500 579,832 608,250
Due after ten years ............................ 11,895,478 12,403,500 3,032,600 3,171,700
----------- ----------- ---------- ----------
Total ......................................... $18,928,948 $19,752,550 $4,841,466 $5,053,485
=========== =========== ========== ==========
</TABLE>
Earnings on investments and net realized gains for the three years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Fixed maturities ....................................... $1,186,248 $1,026,010 $ 853,705
Equity securities ...................................... 191,471 137,065 142,899
Invested cash and other short term investments ......... 245,907 156,885 138,768
Miscellaneous interest ................................. 4,562 32,972 5,264
Net realized gains ..................................... 269,396 178,238 45,242
---------- ---------- ----------
Investment income ...................................... $1,897,584 $1,531,170 $1,185,878
========== ========== ==========
</TABLE>
Gross realized gains and losses on sales of available-for-sale securities
for the years ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
Gross realized gains:
U.S. Treasury securities and obligations of U.S. Government
corporations and agencies ................................ $ - $ - $ 3,937
Redeemable preferred stocks ............................... - 11,274 -
Obligations of states and political subdivisions .......... 3,641 - 727
Common stocks and nonredeemable preferred stocks .......... 369,779 233,129 67,590
---------- --------- ---------
Total .................................................... 373,420 244,403 72,254
---------- --------- ---------
Gross realized losses:
Obligations of states and political subdivisions .......... (1,554) (3,838) (500)
Debt securities issued by foreign governments ............. (29,278) - (800)
Common stocks and nonredeemable preferred stocks .......... (73,192) (62,327) (25,712)
---------- --------- ---------
Total .................................................... (104,024) (66,165) (27,012)
---------- --------- ---------
Net realized gain ......................................... $ 269,396 $ 178,238 $ 45,242
========== ========= =========
</TABLE>
4. Property and Equipment
Property and equipment at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Land ...................................... $ 782,582 $ 782,582
Office buildings and improvements ......... 1,317,766 1,293,726
Furniture, fixtures and equipment ......... 2,159,176 1,843,636
Automobiles ............................... 181,093 169,423
------------ ------------
Total ................................... 4,440,617 4,089,367
Less accumulated depreciation ............. (1,640,538) (1,325,297)
------------ ------------
Property and equipment, net ............. $ 2,800,079 $ 2,764,070
============ ============
</TABLE>
5. Reinsurance
The Company assumes and cedes reinsurance with other insurance companies
in the normal course of business. Premiums assumed and ceded were approximately
$58,000 and $242,000, respectively for 1997, $45,000 and $121,000, respectively
for 1996, and $30,000 and $79,000, respectively for 1995. 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.
<PAGE>
6. Reserves for Claims
Changes in the reserves for claims for the years ended December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance, beginning of year .................... $ 5,086,065 $ 3,836,065 $ 3,635,850
Provision related to:
Current year ................................. 2,394,138 1,143,070 1,050,005
Prior years .................................. 2,285,215 1,796,671 379,655
------------ ------------ ------------
Total provision charged to operations ......... 4,679,353 2,939,741 1,429,660
------------ ------------ ------------
Claims paid, net of recoveries, related to:
Current year ................................. (333,160) (64,582) (81,148)
Prior years .................................. (1,810,118) (1,625,159) (1,148,297)
------------ ------------ ------------
Total claims paid, net of recoveries .......... (2,143,278) (1,689,741) (1,229,445)
------------ ------------ ------------
Balance, end of year .......................... $ 7,622,140 $ 5,086,065 $ 3,836,065
============ ============ ============
</TABLE>
In management's opinion, the reserves are adequate to cover claim losses
which might result from pending and possible claims.
7. 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 443,300 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. All options are exercisable at
10 to 20% per year beginning on the date of grant or one year from the date of
grant and generally expire in five to ten years. The Company applies Accounting
Principles Board Opinion No. 25 and related Interpretations in accounting for
its plans and accordingly, no compensation cost has been recognized. Had
compensation cost for the Plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of
Financial Accounting Standards Board Statement No. 123, Accounting for
Stock-Based Compensation, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Net income:
As reported .............. $ 4,530,382 $ 3,843,537 $ 3,250,658
Pro forma ................ 4,427,593 3,767,770 3,217,552
Basic earnings per share:
As reported .............. $ 1.63 $ 1.39 $ 1.16
Pro forma ................ 1.59 1.36 1.15
Diluted earnings per share:
As reported .............. 1.60 1.37 1.15
Pro forma ................ 1.57 1.34 1.14
</TABLE>
The estimated weighted average grant-date fair values of options granted
in 1997, 1996 and 1995 were $7.09, $4.35 and $2.28 per share, respectively. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively: dividend yield
of .7%, .7% and .8%; expected volatility of 22%, 22% and 21%; risk-free
interest rates of 6%, 6% and 5%; and expected lives of 5 to 10 years. A summary
of the status of the Company's plans as of December 31 and changes during the
years ended on those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- ------------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year ................................ 114,010 $ 8.84 107,860 $ 7.79 99,400 $ 7.76
Granted ................................. 14,500 17.80 17,400 14.60 14,500 8.30
Exercised ............................... (42,091) 7.18 (8,150) 7.41 (40) 8.50
Terminated .............................. (6,100) 9.30 (3,100) 8.50 (6,000) 8.47
------- ------- ------- ------ ------ -------
Outstanding at end of year .............. 80,319 $ 11.29 114,010 $ 8.84 107,860 $ 7.79
====== ======= ======= ====== ======= =======
Options exercisable at year end ......... 40,896 $ 9.62 37,830 $ 7.48 25,640 $ 7.04
====== ======= ====== ====== ====== =======
</TABLE>
<PAGE>
The following table summarizes information about fixed stock options
outstanding at December 1997:
<TABLE>
<CAPTION>
Options Exercisable at
Options Outstanding at Year-End Year-End
------------------------------------------------ --------------------------
Weighted- Weighted- Weighted-
Average Average Average
Number Remaining Exercise Number Exercise
Range of Exercise Prices Outstanding Contractual Life Price Exercisable Price
- -------------------------- ------------- ------------------ ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
$ 6.75-$ 9.75.......... 49,719 1 $ 8.27 32,859 $ 8.19
10.00- 15.50 ......... 20,700 5 13.93 6,940 14.81
17.50- 22.25 ......... 9,900 9 19.45 1,097 19.58
------ ------
$ 6.75-$22.25.......... 80,319 3 $ 11.29 40,896 $ 9.62
====== = ======= ====== ======
</TABLE>
8. Income Taxes
At December 31 the approximate effect on each component of deferred income
taxes and liabilities is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Deferred income tax assets:
Accrued vacation ....................................................... $ 70,828 $ 82,426
Reinsurance payable .................................................... 13,142 14,875
Bad debt reserve ....................................................... 119,000 68,000
Net state operating loss carryforward .................................. - 310,857
Other .................................................................. 62,625 -
---------- ----------
Total ................................................................. 265,595 476,158
Less valuation allowance ............................................... - 310,857
---------- ----------
Total ................................................................. 265,595 165,301
---------- ----------
Deferred income tax liabilities:
Statutory premium reserves net of recorded reserves for claims ......... 130,577 486,521
Net unrealized gain on investments ..................................... 1,193,461 782,959
Excess of tax over book depreciation ................................... 106,034 109,314
Discount accretion on tax-exempt obligations ........................... 25,696 19,223
Other .................................................................. 7,235 -
---------- ----------
Total ................................................................. 1,463,003 1,398,017
---------- ----------
Net deferred income tax liabilities ..................................... $1,197,408 $1,232,716
========== ==========
</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>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Anticipated income tax expense ..................................... $2,193,266 $1,843,323 $1,497,244
Increase (reduction) related to:
State income taxes, net of the federal income tax benefit ......... 11,626 9,240 10,560
Tax exempt interest income (net of amortization) .................. (352,477) (276,678) (227,206)
Refund of taxes paid in prior years ............................... - - (119,994)
Other, net ........................................................ 67,985 2,115 (7,604)
---------- ---------- ----------
Provision for income taxes ......................................... $1,920,400 $1,578,000 $1,153,000
========== ========== ==========
</TABLE>
The components of income tax expense for the years ended December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal ........................... $2,329,333 $1,586,940 $1,062,346
State ............................. 36,305 14,000 16,000
---------- ---------- ----------
Total ............................ 2,365,638 1,600,940 1,078,346
Deferred expense (benefit) ......... (445,238) (22,940) 74,654
---------- ---------- ----------
Total ............................ $1,920,400 $1,578,000 $1,153,000
========== ========== ==========
</TABLE>
For state income tax purposes, ITIC and NE-ITIC must pay only a gross
premium tax.
At December 31, 1996 and 1995, the Company had available state net
operating loss carryforwards of approximately $3,900,000 and $4,100,000,
respectively, that originated in 1992 and expired in 1997.
<PAGE>
9. Leases
Rent expense totaled approximately $409,000, $400,000, and $373,000 in
1997, 1996 and 1995, 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,
1997 are summarized as follows:
<TABLE>
<S> <C>
Year End:
1998 $178,156
1999 150,086
2000 82,604
2001 30,299
2002 18,771
--------
Total $459,916
========
</TABLE>
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 $24,000 per employee. All contributions are
deposited in Individual Retirement Accounts for participants. Contributions
under the plan were approximately $259,000, $216,000, and $193,000 for 1997,
1996 and 1995, 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 $23,900,461 and $18,985,205
as of December 31, 1997 and 1996, respectively. Net income on a statutory basis
was $4,564,782, $3,322,356 and $3,377,015 for the twelve months ended December
31, 1997, 1996 and 1995, respectively.
REPORT OF INDEPENDENT ACCOUNTANTS
Investors Title Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Investors
Title Company and its subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. 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 Investors Title Company and
its subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
January 30, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<DEBT-HELD-FOR-SALE> 11,122,024 10,247,774 11,239,947 12,832,724
<DEBT-CARRYING-VALUE> 4,773,802 5,385,784 5,579,075 5,118,367
<DEBT-MARKET-VALUE> 0<F1> 0<F1> 0<F1> 5,273,639
<EQUITIES> 3,923,286 4,908,399 5,275,938 5,473,639
<MORTGAGE> 0 0 0 0
<REAL-ESTATE> 0 0 0 0
<TOTAL-INVEST> 19,943,423 20,675,968 22,240,439 23,573,663
<CASH> 3,111,968 3,029,399 3,577,290 4,244,570
<RECOVER-REINSURE> 0 0 0 0
<DEFERRED-ACQUISITION> 0 0 0 0
<TOTAL-ASSETS> 29,028,800 30,141,064 31,846,199 33,642,528
<POLICY-LOSSES> 4,186,065 4,486,065 4,786,065 5,086,065
<UNEARNED-PREMIUMS> 0 0 0 0
<POLICY-OTHER> 30,682 36,063 44,115 60,902
<POLICY-HOLDER-FUNDS> 0 0 0 0
<NOTES-PAYABLE> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 910,970 783,200 746,424 722,321
<OTHER-SE> 21,882,473 22,853,262 24,071,109 25,265,856
<TOTAL-LIABILITY-AND-EQUITY> 29,028,800 30,141,064 31,846,199 33,642,528
4,434,799 9,916,291 15,490,534 21,111,155
<INVESTMENT-INCOME> 294,791 609,077 938,190 1,352,932
<INVESTMENT-GAINS> (40,052) 8,604 46,810 178,238
<OTHER-INCOME> 69,710 141,906 224,896 348,857
<BENEFITS> 681,333 1,512,145 2,226,658 2,939,741
<UNDERWRITING-AMORTIZATION> 0 0 0 0
<UNDERWRITING-OTHER> 3,031,212 6,765,641 10,597,816 14,629,904
<INCOME-PRETAX> 1,046,703 2,398,092 3,875,956 5,421,537
<INCOME-TAX> 298,984 671,591 1,077,105 1,578,000
<INCOME-CONTINUING> 747,719 1,726,501 2,798,851 3,843,537
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 747,719 1,726,501 2,798,851 3,843,537
<EPS-PRIMARY> .27 .62 1.01 1.39
<EPS-DILUTED> .27 .62 1.00 1.37
<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
<F1>
<FN>
<F1>* NOT DISCLOSED ON A QUARTERLY BASIS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<DEBT-HELD-FOR-SALE> 13,276,954 14,567,157 17,523,066
<DEBT-CARRYING-VALUE> 4,832,752 4,687,316 4,644,864
<DEBT-MARKET-VALUE> 0<F1> 0<F1> 0<F1>
<EQUITIES> 4,579,347 5,137,853 6,255,731
<MORTGAGE> 0 0 0
<REAL-ESTATE> 0 0 0
<TOTAL-INVEST> 22,838,058 24,511,331 28,534,646
<CASH> 5,100,623 5,626,284 4,309,264
<RECOVER-REINSURE> 0 0 0
<DEFERRED-ACQUISITION> 0 0 0
<TOTAL-ASSETS> 33,842,040 36,259,517 39,422,126
<POLICY-LOSSES> 5,436,065 6,078,330 7,171,295
<UNEARNED-PREMIUMS> 0 0 0
<POLICY-OTHER> 89,154 67,744 47,188
<POLICY-HOLDER-FUNDS> 0 0 0
<NOTES-PAYABLE> 0 0 0
0 0 0
0 0 0
<COMMON> 705,966 805,069 818,235
<OTHER-SE> 25,660,262 27,149,211 28,829,318
<TOTAL-LIABILITY-AND-EQUITY> 33,842,040 36,259,517 39,422,126
5,418,788 13,080,477 21,186,637
<INVESTMENT-INCOME> 398,113 783,719 1,196,461
<INVESTMENT-GAINS> 107,081 107,049 233,387
<OTHER-INCOME> 121,529 266,065 403,166
<BENEFITS> 814,821 1,817,988 3,100,832
<UNDERWRITING-AMORTIZATION> 0 0 0
<UNDERWRITING-OTHER> 4,049,766 9,640,133 15,258,218
<INCOME-PRETAX> 1,180,924 2,779,189 4,660,601
<INCOME-TAX> 319,870 772,661 1,325,501
<INCOME-CONTINUING> 861,054 2,006,528 3,335,100
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 861,054 2,006,528 3,335,100
<EPS-PRIMARY> .31 .72 1.20
<EPS-DILUTED> .30 .71 1.18
<RESERVE-OPEN> 0 0 0
<PROVISION-CURRENT> 0 0 0
<PROVISION-PRIOR> 0 0 0
<PAYMENTS-CURRENT> 0 0 0
<PAYMENTS-PRIOR> 0 0 0
<RESERVE-CLOSE> 0 0 0
<CUMULATIVE-DEFICIENCY> 0 0 0
<F1>
<FN>
<F1>NOT DISCLOSED ON A QUARTERLY BASIS.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 19,752,550
<DEBT-CARRYING-VALUE> 4,730,481
<DEBT-MARKET-VALUE> 4,942,500
<EQUITIES> 6,530,394
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 31,124,410
<CASH> 2,823,177
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 41,293,007
<POLICY-LOSSES> 7,622,140
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 96,241
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 879,612
<OTHER-SE> 30,249,296
<TOTAL-LIABILITY-AND-EQUITY> 41,293,007
29,875,350
<INVESTMENT-INCOME> 1,628,188
<INVESTMENT-GAINS> 269,396
<OTHER-INCOME> 617,582
<BENEFITS> 4,679,353
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 21,260,381
<INCOME-PRETAX> 6,450,782
<INCOME-TAX> 1,920,400
<INCOME-CONTINUING> 4,530,382
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,530,382
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.60
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
