UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: March 31, 1998
-------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _________________
Commission File Number: 0-11774
-----------------
INVESTORS TITLE COMPANY
-----------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1110199
-----------------------------------------------------------
(State of Incorporation) (I.R.S. Employer)
121 North Columbia Street, Chapel Hill, North Carolina 27514
-------------------------------------------------------------------
(Address of Principal Executive Offices) Zip Code)
(919) 968-2200
--------------
(Registrant's Telephone Number Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
---- ----
Shares outstanding of each of the issuer's classes of common stock as of March
31, 1998:
Common Stock, no par value 2,805,173
- --------------------------------------------------------------------
Class Shares Outstanding
1
<PAGE>
INVESTORS TITLE COMPANY AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997....3
Consolidated Statements of Income:
Three Months Ended March 31, 1998 and 1997 ............................4
Consolidated Statements of Cash Flows:
Three Months Ended March 31, 1998 and 1997 ............................5
Notes to Condensed Consolidated Financial Statements .....................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................8
PART II. OTHER INFORMATION...................................................10
Item 6. Exhibits and Reports on Form 8-K....................................10
SIGNATURES...................................................................11
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of March 31, 1998 and December 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
3/31/98 12/31/97
------- --------
<S> <C> <C>
Assets
Cash and Cash Equivalents $ 3,652,670 $ 2,823,177
Investments in securities:
Held-to-maturity:
Certificates of deposit 131,725 130,985
Bonds, at amortized cost 5,163,585 4,710,481
Available-for-sale, at fair value:
Bonds 20,229,252 19,752,550
Common and nonredeemable preferred stocks 6,648,115 6,530,394
----------------- -----------------
Total investments 32,172,677 31,124,410
----------------- -----------------
Premiums ( less allowance for doubtful accounts: 1998: $425,000; 1997: $350,000) 3,852,776 3,372,751
Accrued interest and dividends 444,889 429,064
Prepaid expenses and other assets 449,033 462,801
Property acquired in settlement of claims 265,725 280,725
Property, net 2,856,537 2,800,079
----------------- -----------------
Total Assets $ 43,694,307 $ 41,293,007
================= =================
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Note 2) $ 8,498,765 $ 7,622,140
Accounts payable and accrued liabilities 816,272 1,069,372
Commissions and reinsurance payables 89,210 96,241
Premium taxes payable 131,618 153,857
Current income taxes payable 528,263 25,081
Deferred income taxes, net 1,230,461 1,197,408
----------------- -----------------
Total liabilities 11,294,589 10,164,099
----------------- -----------------
Stockholders' Equity:
Common stock-no par value (shares authorized 6,000,000;
2,855,744 and 2,855,744 shares issued; and 2,805,173 and
2,800,240 shares outstanding 1998 and 1997, respectively) 979,002 879,612
Retained earnings 28,915,637 27,933,688
Net unrealized gain on investments (accumulated other comprehensive income - Note 3)
(net of deferred taxes: 1998: $1,291,067; 1997: $1,193,461) 2,505,079 2,315,608
----------------- -----------------
Total stockholders' equity 32,399,718 31,128,908
----------------- -----------------
Total Liabilities and Stockholders' Equity $ 43,694,307 $ 41,293,007
================= =================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
Investors Title Company and Subsidiaries
Consolidated Statements of Income
March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
For The Three
Months Ended
March 31
-----------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Underwriting income:
Premiums written $ 9,516,951 $ 5,487,630
Less-premiums for reinsurance ceded 75,103 68,842
------------- -------------
Net premiums written 9,441,848 5,418,788
Investment income-interest and dividends 420,286 398,113
Net realized gain on sales of investments 70,175 107,081
Other 150,011 121,529
------------- -------------
Total 10,082,320 6,045,511
------------- -------------
Operating Expenses:
Commissions to agents 3,531,840 1,672,088
Provision for claims (Note 2) 1,564,370 814,821
Salaries 1,226,059 991,476
Employee benefits and payroll taxes 811,034 463,472
Office occupancy and operations 659,734 546,940
Business development 307,775 145,947
Taxes, other than payroll and income 242,440 172,844
Professional fees 89,136 35,136
Other 123,814 21,863
------------- -------------
Total 8,556,202 4,864,587
------------- -------------
Income Before Income Taxes 1,526,118 1,180,924
------------- -------------
Provision For Income Taxes 458,497 319,870
------------- -------------
Net Income $ 1,067,621 $ 861,054
============= =============
Basic Earnings per Common Share $ 0.38 $ 0.31
============= =============
Weighted Average Shares Outstanding-Basic 2,803,028 2,768,947
============= =============
Diluted Earnings per Common Share $ 0.38 $ 0.31
============= =============
Weighted Average Shares Outstanding-Diluted 2,846,113 2,816,123
============= =============
Dividends Paid $ 85,672 $ 85,672
============= =============
Dividends per Share $ 0.03 $ 0.03
============= =============
</TABLE>
Consolidated Statements of Comprehensive Income
March 31, 1998 and 1997
(Unaudited)
<TABLE>
<S> <C> <C>
Net Income $ 1,067,621 $ 861,054
------------- -------------
Other comprehensive income, net of tax:
Net unrealized gain (loss) on investments arising
during the period 189,471 (380,976)
------------- -------------
Comprehensive Income (Note 3) $ 1,257,092 $ 480,078
============= =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1998 and 1997 (Unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Operating Activities:
Net income $ 1,067,621 $ 861,054
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 79,184 80,106
Net (accretion) amortization (2,294) 1,176
Provision for losses on premiums receivable 75,000 -
Net loss on disposals of property 83 956
Net realized gain on sales of investments (70,175) (107,081)
Benefit for deferred income taxes (64,553) (37,527)
Provision for claims 1,564,370 814,821
Payments of claims, net of recoveries (687,745) (464,821)
Changes in assets and liabilities:
Increase in receivables and other assets (542,082) (69,769)
Decrease in accounts payable and accrued liabilities (253,100) (429,646)
Increase (decrease) in commissions and reinsurance payables (7,031) 28,252
Decrease in premium taxes payable (22,239) (111,552)
Increase in current income taxes payable 503,182 208,410
----------------- ---------------
Net cash provided by operating activities 1,640,221 774,379
----------------- ---------------
Investing Activities:
Purchases of available-for-sale securities (996,730) (1,326,176)
Purchases of held-to-maturity securities (584,035) -
Proceeds from sales of available-for-sale securities 762,044 1,305,447
Proceeds from sales of held-to-maturity securities 130,000 285,000
Purchases of property (135,725) (80,615)
Proceeds from sales of property - 45
----------------- ---------------
Net cash provided by (used in) investing activities (824,446) 183,701
----------------- ---------------
Financing Activities:
Distributions (repurchases) of common stock 99,390 (16,355)
Dividends paid (85,672) (85,672)
----------------- ---------------
Net cash provided by (used in) financing activities 13,718 (102,027)
----------------- ---------------
Net Increase in Cash and Cash Equivalents 829,493 856,053
Cash and Cash Equivalents, Beginning of Year 2,823,177 4,244,570
----------------- ---------------
Cash and Cash Equivalents, End of Period $ 3,652,670 $ 5,100,623
================= ===============
Supplemental Disclosures:
Cash Paid During the Year for:
Interest $ 6,000 $ -
================= ===============
Income Taxes $ 20,062 $ 148,987
================= ===============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
INVESTORS TITLE COMPANY
AND SUBSIDIARIES
----------------
Notes to Condensed Consolidated Financial Statements
----------------------------------------------------
March 31, 1998
--------------
(Unaudited)
-----------
Note 1 - Basis of Presentation
- ------------------------------
The consolidated financial statements include Investors Title Company
and its subsidiaries, and have been prepared in conformity with generally
accepted accounting principles.
In the opinion of management all necessary adjustments have been
reflected for a fair presentation of the financial position, results of
operations and cash flows in the accompanying unaudited consolidated
financial statements. All such adjustments are of a normal recurring
nature.
Reference should be made to the "Notes to Consolidated Financial
Statements" of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1997 for a description of accounting policies.
Note 2 - Reserves for Claims
- ----------------------------
Transactions in the reserves for claims for the three months ended
March 31, 1998 were as follows:
Balance, beginning of year $7,622,140
Provision, charged to operations 1,564,370
Recoveries 222,652
Payments of claims (910,397)
------------
Balance, March 31, 1998 $8,498,765
============
In management's opinion, the reserves are adequate to cover claim
losses which might result from pending and possible claims.
6
<PAGE>
Note 3 - Comprehensive Income
- -----------------------------
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"). The Company adopted SFAS 130 as of
January 1, 1998. Adoption of SFAS 130 has not had a financial impact on
the Company. This statement requires that an enterprise (a) classify items
of other comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. Reclassification of
financial statements for earlier periods provided for comparative purposes
is required.
Accumulated other comprehensive income is summarized as follows:
Net Unrealized Gain
(Loss) on Investments
-----------------
Three months Three months
ended ended
March 31, 1998 March 31, 1997
------------------------ ------------------------
Beginning balance $ 2,315,608 $ 1,519,861
Current period change 189,471 (380,976)
------------------------ ------------------------
Ending balance $ 2,505,079 $ 1,138,885
======================== ========================
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
The 1997 Form 10-K and the 1997 Annual Report should be
read in conjunction with the following discussion since they contain
important information for evaluating the Company's operating results
and financial condition.
Results of Operations:
----------------------
For the quarter ended March 31, 1998, premiums written
increased 74% to $9,441,848, investment income increased 6% to
$420,286, revenues increased 67% to $10,082,320, net income increased
24% to $1,067,621 and net income per basic and diluted share
increased 23% to $.38 all compared to the same quarter in 1997.
Growth in sales has resulted from the Company's continuing
efforts to increase market share in both existing and new operating
territories and an extremely robust real estate market. Falling
interest rates have spurred a surge in mortgage refinancing and a
significant increase in real estate transactions. According to the
Mortgage Bankers Association of America, the monthly average 30-year
fixed mortgage interest rates declined to 7.04% for the three months
ended March 31, 1998 compared with 7.79% for the three months ended
March 31, 1997. The volume of business continued to increase in the
first quarter of 1998 as the number of policies and commitments
issued rose to 62,363, an increase of 79% compared with 34,857 in the
same period in 1997. For the quarter ended March 31, 1998, premiums
from branch operations increased 50% to $4,579,686 compared with
$3,043,006 in the same quarter in 1997. Premiums from agency
operations increased 105% to $4,862,162 for the three months ended
March 31, 1998 compared with $2,375,782 for the same period in 1997.
Shown below is a schedule of title premiums written for
the three months ended March 31, 1998 and 1997 in all states where
our two insurance subsidiaries, Investors Title Insurance Company and
Northeast Investors Title Insurance Company, currently underwrite
insurance:
1998 1997
--------------------- --------------------
Florida $ 8,224 $ 22,773
Georgia 141,944 192,909
Indiana 31,812 18,939
Kentucky 102 -
Maryland 37,036 20,365
Michigan 2,076,358 668,290
Minnesota 225,206 -
Mississippi 10,973 10,788
Nebraska 177,171 158,870
New York 101,765 99,355
North Carolina 4,574,551 2,966,363
Pennsylvania 250 -
South Carolina 593,595 408,054
8
<PAGE>
Shown below is a schedule of title premiums written for the three
months ended March 31, 1998 and 1997 in all states (continued):
1998 1997
------------------- ---------------------
Tennessee 35,951 13,884
Virginia 1,474,921 884,793
------------------- ---------------------
Direct Premiums 9,489,859 5,465,383
Reinsurance, net (48,011) (46,595)
------------------- ---------------------
Net Premiums $ 9,441,848 $ 5,418,788
=================== =====================
Operating expenses increased 76% for the three months
ended March 31, 1998 compared with the same period in 1997. Salaries
and employee benefits increased due to additional staffing needed to
process the rise in premium volume. Office occupancy and operations,
business development and premium taxes rose primarily due to the
increase in premium volume. The increase in commissions is the result
of the Company's expansion into new markets primarily through
continuing to grow agency relationships. The provision for
claims as a percentage of net premiums written was 17% for the three
months ended March 31, 1998 versus 15% for the same period in 1997.
Income tax expense as a percentage of income before income taxes was
30% and 27% for the three months ended March 31, 1998 and 1997,
respectively. The increase in 1998 was primarily the result of an
increase in the deferred tax provision.
Liquidity and Capital Resources:
--------------------------------
Net cash provided by operating activities for the three
months ended March 31, 1998, amounted to $1,640,221 compared with
$774,379 for the same three month period during 1997. In addition to
operational liquidity, the Company has no long-term debt.
Nonoperating funds were primarily used to purchase investments.
On December 9, 1996, the Board of Directors approved the
repurchase by the Company of shares of the Company's common stock
from time to time at prevailing market prices. The purpose of the
repurchases is to avoid dilution to existing shareholders as a result
of issuances of stock in connection with stock options and stock
bonuses. Pursuant to this approval, the Company has repurchased
23,106 shares at an average price of $17.38 per share as of April 17,
1998, including 972 shares purchased at an average purchase price of
$23.73 during the quarter ended March 31, 1998. The Board has
authorized management to repurchase up to an additional 126,894
shares.
Management believes that funds generated from operations
(primarily underwriting and investment income) will enable the
Company to adequately meet its operating needs. In addition to
operational liquidity, the Company maintains a high degree of
liquidity within the investment portfolio in the form of short-term
investments and other readily marketable securities.
9
<PAGE>
Safe Harbor Statement
---------------------
Except for the historical information presented, the
matters disclosed in the foregoing discussion and analysis and other
parts of this report include forward-looking statements. These
statements represent the Company's current judgment on the future and
are subject to risks and uncertainties that could cause actual
results to differ materially. Such factors include, without
limitation: (i) the demand for title insurance will vary with factors
beyond the control of the Company such as changes in mortgage
interest rates, availability of mortgage funds, level of real estate
activity, cost of real estate, consumer confidence, supply and demand
for real estate, inflation and general economic conditions; (ii) the
risk that losses from claims are greater than anticipated such that
reserves for possible claims are inadequate; (iii) the risk that
unanticipated adverse changes in securities markets could result in
material losses on investments made by the Company; and (iv) the
dependence of the Company on key management personnel the loss of
whom could have a material adverse affect on the Company's business.
Other risks and uncertainties may be described from time to time in
the Company's other reports and filings with the Securities and
Exchange Commission.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
-------------
(27) Financial Data Schedule included herewith.
(b) Reports on Form 8-K
------------------------
There were no reports filed on Form 8-K for this quarter.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed in its behalf by the
undersigned hereunto duly authorized.
INVESTORS TITLE COMPANY
(Registrant)
By: /s/ James A. Fine, Jr.
----------------------
James A. Fine, Jr.
President
By: /s/ Elizabeth P. Bryan
----------------------
Elizabeth P. Bryan
Vice President
(Principal Accounting Officer)
Dated: May 8, 1998
11
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
*Not disclosed on a quarterly basis.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 20,229,252
<DEBT-CARRYING-VALUE> 5,163,585
<DEBT-MARKET-VALUE> 0*
<EQUITIES> 6,648,115
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 32,172,677
<CASH> 3,652,670
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 43,694,307
<POLICY-LOSSES> 8,498,765
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 89,210
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 979,002
<OTHER-SE> 31,420,716
<TOTAL-LIABILITY-AND-EQUITY> 43,694,307
9,441,848
<INVESTMENT-INCOME> 420,286
<INVESTMENT-GAINS> 70,175
<OTHER-INCOME> 150,011
<BENEFITS> 1,564,370
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 6,991,832
<INCOME-PRETAX> 1,526,118
<INCOME-TAX> 458,497
<INCOME-CONTINUING> 1,067,621
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,067,621
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
