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, 1998
[ ] 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 March 1, 1999, the aggregate market value of the voting and nonvoting common
equity held by nonaffiliates of the registrant was $53,142,021.
On March 1, 1999, the number of common shares outstanding was 2,810,349.
<TABLE>
<CAPTION>
DOCUMENTS INCORPORATED BY REFERENCE
<S> <C>
Documents Form 10-K Reference
Portions of Annual Report to Shareholders Part I, Items 1 and 2
for fiscal year ended December 31, 1998 Part II, Items 5 - 8
Part IV, Item 14
Portions of Proxy Statement (in connection with Annual Meeting Part III, Items 10 - 13
to be held on May 11, 1999)
Location of Exhibit Index: The Index to Exhibits is contained in Part IV herein on page 14.
</TABLE>
1
<PAGE>
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, Rhode Island, Texas, Utah, Vermont,
Wisconsin and Wyoming.
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 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. ITIC is the leading title insurer of North
Carolina property and has held this position for fifteen years.
2
<PAGE>
In the State of North Carolina, title insurance commitments and policies
are issued by the home office and branch offices. ITIC has 28 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.
The risk retention limits of ITIC and NE-ITIC are self-imposed and more
conservative than state insurance regulations.
ITIC's financial stability has been recognized by two independent Fannie
Mae approved actuarial firms with the highest rating categories of "A Double
Prime - unsurpassed financial stability" and "A+ - strong overall financial
condition."
NE-ITIC's financial stability has been recognized by two independent
Fannie Mae approved actuarial firms with rating categories of "A Prime -
unsurpassed financial stability" and "A - strong overall financial condition."
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.
3
<PAGE>
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 net premiums written
during the years 1996 through 1998 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 net premiums written
during the years 1996 through 1998 by this subsidiary.
ITEC offers services in connection with tax-free exchanges. Schedule A
summarizes total revenues during the years 1996 through 1998.
SCDP had revenues of $21,628, $4,186 and $3,712 in 1998, 1997 and 1996,
respectively.
For a description of Net Premiums Written geographically, refer to the
Management's Discussion and Analysis of Results of Operations and Financial
Condition in the 1998 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 based upon providing 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 28 branch offices. In South Carolina, ITIC operates
through a branch office and issuing agents located conveniently to customers
throughout the State. ITIC also writes title insurance policies through issuing
agents in Arkansas, Florida, Georgia, Indiana, Kentucky, Maryland, Michigan,
Minnesota, Mississippi, Nebraska, Pennsylvania, Tennessee, Virginia and West
Virginia.
ITIC intends to establish branch and/or agency offices in the other
states in which it is licensed.
4
<PAGE>
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.
5
<PAGE>
SCHEDULE A
INVESTORS TITLE INSURANCE COMPANY
NET PREMIUMS WRITTEN
For The Years Ended December 31
1998 1997 1996
$44,870,338 $29,434,155 $20,577,779
=========== =========== ===========
NORTHEAST INVESTORS TITLE INSURANCE COMPANY
NET PREMIUMS WRITTEN
For The Years Ended December 31
1998 1997 1996
$509,358 $441,195 $533,376
======== ======== ========
INVESTORS TITLE EXCHANGE CORPORATION
FEES EARNED
For The Years Ended December 31
1998 1997 1996
$627,729 $542,688 $272,998
======== ======== ========
6
<PAGE>
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 five 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. Examinations are scheduled periodically by the
South Carolina Department of Insurance. NE-ITIC was last examined by the South
Carolina Department of Insurance commencing on June 22, 1998 for the period
January 1, 1994 through December 31, 1997, with no material deficiencies noted.
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 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
7
<PAGE>
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 subsidiaries. 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, 1998, ITIC reported $23,307,030 of capital and surplus, and
net income of $6,033,721; and NE-ITIC reported $2,294,878 of capital and
surplus, and net income of $173,474.
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. Key elements that 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.
8
<PAGE>
The Company, ITIC, NE-ITIC, ITEC and SCDP had investment income as set
out in the following table for the years 1994 through 1998:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Company $ 76,390 $ 15,295 $67,162 $16,238 $12,225
ITIC 1,612,066 1,476,807 1,161,795 1,007,255 926,976
NE-ITIC 133,975 126,426 121,007 111,939 103,600
ITEC 11,875 9,616 2,708 3,457 3,911
SCDP 643 44 260 1,747 0
---------- ---------- ---------- ---------- ----------
TOTAL $1,834,949 $1,628,188 $1,352,932 $1,140,636 $1,046,712
========== ========== ========== ========== ==========
</TABLE>
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 209 full-time
employees and 19 part-time employees as of December 31, 1998.
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.
9
<PAGE>
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 31 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, 1998.
10
<PAGE>
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, 1998. 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.
<TABLE>
<CAPTION>
Position with Officer Term to
Name Age Registrant Since Expire
- ---- --- ---------- ----- ------
<S> <C> <C> <C>
J. Allen Fine 64 Chairman, 1973 1999
Director and
CEO
James A. Fine, Jr. 36 President, Director 1987 1999
and Treasurer
W. Morris Fine 32 Executive Vice 1992 1999
President and
Secretary
Elizabeth P. Bryan 38 Vice President 1987 1999
and Assistant Secretary
L. Dawn Martin 33 Vice President 1993 1999
and Assistant Secretary
</TABLE>
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 has been Chairman of the Board and Chief Executive Officer of the
Company since its incorporation. Mr. Fine also served as President of the
Company until May 1997. Mr. Fine is the father 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. was named Vice President of the Company in 1987. In 1997, Mr.
Fine was named President and Treasurer and appointed a Director of the Company.
James A. Fine, Jr. is the
11
<PAGE>
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. In 1993, Mr. Fine was named Treasurer of the Company
and served in that capacity until 1997. In 1997, Mr. Fine was named Executive
Vice President and Secretary of the Company. 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 and in 1987, she was
named Vice President of the Company.
L. Dawn Martin joined the Company in February, 1991 and in 1993, she was named
Vice President of the Company.
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 1998 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, 1998
is in the 1998 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 1998 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 1998 Annual Report to Shareholders is incorporated
herein by reference.
12
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management's Discussion and Analysis of Quantitative and Qualitative
Disclosures about Market Risk in the 1998 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data in the 1998 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 20 through 27.
The supplementary financial information (Selected Quarterly Financial
Data) in the 1998 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.
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 11, 1999 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 11, 1999 is incorporated
herein by reference.
13
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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 11,
1999 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 11, 1999 is incorporated herein by reference.
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 1998 Annual Report to
Shareholders are hereby incorporated by reference:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income for the Years Ended December 31, 1998,
1997 and 1996
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
14
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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.
****
3. Exhibits
<TABLE>
<CAPTION>
Page Number or
Exhibit Incorporation by
Number Description Reference to
- ------ ----------- ------------
<S> <C> <C>
(3)(i) Articles of Incorporation Exhibit 1 to Form 10,
dated June 12, 1984
(3)(ii) Bylaws 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
15
<PAGE>
Page Number or
Exhibit Incorporation by
Number Description Reference to
- ------ ----------- ------------
(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 date 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, 1989 March 31, 1995
(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 Non-employee 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 Exhibit 10(x) to Form
Agreement under 1997 Stock Option 10-K, page 27, dated
and Restricted Stock Plan December 31, 1997
(10)(xi) Form of Incentive Stock Option Exhibit 10(xi) to Form
Agreement under 1997 Stock Option 10-K, page 34, dated
and Restricted Stock Plan December 31, 1997
16
<PAGE>
Page Number or
Exhibit Incorporation by
Number Description Reference to
- ------ ----------- ------------
(13) Portions of 1998 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) Financial Data Schedule - 1998 Included herewith
(B) Reports on Form 8-K
No reports were filed on Form 8-K for the fourth quarter.
</TABLE>
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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 30, 1999
----------------------
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 30th day of March, 1999.
/s/J. Allen Fine
- ------------------------------------------------
J. Allen Fine, Chairman and Chief Executive
Officer
/s/James A. Fine, Jr.
- ---------------------------------------------
James A. Fine, Jr., President, Treasurer
and Director (Principal Financial Officer)
/s/Elizabeth P. Bryan
- --------------------------------------------
Elizabeth P. Bryan, Vice President and Asst.
Secretary (Principal Accounting Officer)
/s/Lillard H. Mount
- --------------------------------------------
Lillard H. Mount, Director
/s/David L. Francis
- ---------------------------------------------
David L. Francis, Director
- ---------------------------------------------
Loren B. Harrell, Jr., Director
/s/William J. Kennedy III
- ------------------------------------------
William J. Kennedy III, Director
/s/H. Joe King, Jr.
- ----------------------------------------------
H. Joe King, Jr., Director
/s/James R. Morton
- -------------------------------------------
James R. Morton, Director
/s/A. Scott Parker, III
- -----------------------
A.Scott Parker, III, Director
18
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INDEPENDENT AUDITORS' REPORT
Investors Title Company and subsidiaries:
We have audited the consolidated financial statements of Investors Title Company
(the "Company") and its subsidiaries as of December 31, 1998 and 1997, and for
each of the three years in the period ended December 31, 1998, and have issued
our report thereon dated January 29, 1999; such consolidated financial
statements and report are included in your 1998 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, LLP.
Raleigh, North Carolina
January 29, 1999
19
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<TABLE>
<CAPTION>
SCHEDULE I
INVESTORS TITLE COMPANY AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
As of December 31, 1998
- -------------------------------------------------------------------------------------------------------------
Amount at
which shown
in the
Type of Investment Cost(1) Market Value Balance Sheet
- -------------------------------------------------------------------------------------------------------------
Fixed Maturities:
Bonds:
<S> <C> <C> <C> <C> <C> <C>
States, municipalities and political
subdivisions $26,384,756 $27,667,864 $27,439,790
Public utilities 199,078 225,440 225,440
All other corporate bonds 735,815 759,000 759,000
Certificates of deposit 98,982 98,982 98,982
-------------- ---------------- ----------------
Total fixed maturities 27,418,631 28,751,286 28,523,212
-------------- ---------------- ----------------
Equity Securities:
Common Stocks:
Public utilities 385,394 719,200 719,200
Banks, trust and insurance companies 415,810 1,543,907 1,543,907
Industrial, miscellaneous and all other 1,113,472 2,399,244 2,399,244
Nonredeemable preferred stocks 608,117 613,561 613,561
-------------- ---------------- ----------------
Total equity securities 2,522,793 5,275,912 5,275,912
-------------- ---------------- ----------------
Total investments per the consolidated balance sheet 29,941,424 33,799,124
-------------- ----------------
Short-term investments 7,466,378 7,466,378
-------------- ----------------
Total investments $37,407,802 $41,265,502
============== ================
</TABLE>
(1) Fixed maturities are shown at amortized cost and equity securities are shown
at original cost.
20
<PAGE>
SCHEDULE II
INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
Assets
Cash and Cash Equivalents $ 208,315 $ 535,565
Investments in equity securities 75,000 75,000
Investments in affiliated companies 31,421,749 26,685,072
Income taxes receivable 1,171,548 392,531
Other receivables 94,133 116,039
Deferred income tax 110,025 94,571
Prepaid expenses and other assets 2,423 68,645
Property, net 1,737,491 1,765,509
----------------- ------------------
TOTAL ASSETS $ 34,820,684 $ 29,732,932
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued liabilities $ 119,826 $ 148,894
----------------- ------------------
STOCKHOLDERS' EQUITY:
Common stock-No par (shares authorized,
6,000,000; 2,855,744 and 2,855,744 shares issued
and 2,809,123 and 2,800,240
shares outstanding 1998 and
1997, respectively) 1,650,350 1,650,350
Retained earnings 33,050,508 27,933,688
----------------- ------------------
Total stockholders' equity 34,700,858 29,584,038
----------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 34,820,684 $ 29,732,932
================= ==================
</TABLE>
See notes to condensed financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<S> <C> <C> <C>
1998 1997 1996
Revenues:
Investment income-interest and dividends $ 76,390 $ 15,295 $ 67,163
Rental income 435,821 362,889 350,331
Miscellaneous income 23,014 - 1,000
---------------- ------------------ ------------------
Total 535,225 378,184 418,494
---------------- ------------------ ------------------
OPERATING EXPENSES:
Office occupancy and operations 138,475 133,283 142,872
Business development 13,234 10,927 8,593
Taxes-other than payroll and income 48,569 30,499 49,579
Professional fees 22,269 43,516 33,684
Interest expense - - 7,692
Other expenses 105,857 184,492 36,231
---------------- ------------------ ------------------
Total 328,404 402,717 278,651
---------------- ------------------ ------------------
Equity in Net Income of Affiliated Cos.* 5,311,677 4,536,715 3,745,375
---------------- ------------------ ------------------
Income Before Income Taxes 5,518,498 4,512,182 3,885,218
---------------- ------------------ ------------------
Provision for Income Taxes 58,989 (18,200) 41,681
================ ================== ==================
Net Income $ 5,459,509 $ 4,530,382 $ 3,843,537
================ ================== ==================
Basic Earnings per Common Share $ 1.95 $ 1.63 $ 1.39
================ ================== ==================
Weighted Average Shares Outstanding-Basic 2,806,267 2,782,449 2,772,286
================ ================== ==================
Diluted Earnings Per Common Share $ 1.92 $ 1.60 $ 1.37
================ ================== ==================
Weighted Average Shares Outstanding-Diluted 2,841,035 2,826,730 2,813,001
================ ================== ==================
</TABLE>
* Eliminated in consolidation
See notes to condensed financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<S> <C> <C> <C>
1998 1997 1996
Operating Activities:
Net income $ 5,459,509 $ 4,530,382 $ 3,843,537
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in net earnings of subsidiaries less dividends received of
$575,000, $595,000 and $510,000 in 1998, 1997 and 1996,
respectively (4,736,677) (3,941,715) (3,235,375)
Gain on disposal of property (20,475) - -
Depreciation 57,573 62,362 68,560
Benefit for deferred income taxes (15,454) (68,883) (7,116)
(Increase) decrease in receivables 21,906 (70,806) 13,607
(Increase) decrease in income taxes receivable-current (779,017) 70,914 100,942
Increase in prepaid expenses 66,222 149,477 -
Increase (decrease) in accounts payable and accrued liabilities (29,068) 27,967 (19,580)
--------------- ---------------- -----------------
Net cash provided by operating activities 24,519 759,698 764,575
--------------- ---------------- -----------------
INVESTING ACTIVITIES:
Purchases of securities - - (30,000)
Proceeds from sales of securities - 15,000 -
Purchases of furniture and equipment and building (31,555) (36,112) (2,980)
Proceeds from the disposal of property 22,475 - -
--------------- ---------------- -----------------
Net cash used in investing activities (9,080) (21,112) (32,980)
--------------- ---------------- -----------------
FINANCING ACTIVITIES:
Payments on demand notes - - (362,000)
Dividends paid (342,689) (342,689) (271,297)
--------------- ---------------- -----------------
Net cash used in financing activities (342,689) (342,689) (633,297)
--------------- ---------------- -----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (327,250) 395,897 98,298
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 535,565 139,668 41,370
=============== ================ =================
CASH AND CASH EQUIVALENTS, END OF YEAR $ 208,315 $ 535,565 $ 139,668
=============== ================ =================
SUPPLEMENTAL DISCLOSURES:
CASH PAID DURING THE YEAR FOR:
Interest $ - $ - $ 15,837
=============== ================ =================
Income Taxes $ 853,460 $ (20,231) $ (48,801)
=============== ================ =================
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
During 1996, the Company exchanged assets with a value of $60,000 for an equity
investment.
See notes to condensed financial statements.
23
<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 $350,000 in 1998, 1997 and 1996, respectively. Cash dividends paid
to Investors Title Company by its wholly-owned subsidiary, Investors
Title Exchange Corporation, were $225,000, $245,000 and $160,000 in
1998, 1997 and 1996, respectively.
24
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
INVESTORS TITLE COMPANY AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Future
Policy Other
Benefits, Policy Benefits Amortization
Deferred Losses, Claims Claims, of Deferred
Policy Claims and Net 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, 1998
Title -- $ 13,362,665 -- $ 84,598 $45,379,696 $1,834,949 $ 8,094,950 -- $32,685,804 N/A
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
</TABLE>
25
<PAGE>
SCHEDULE IV
INVESTORS TITLE COMPANY AND SUBSIDIARIES
REINSURANCE
For the Years Ended December 31, 1998, 1997, and 1996
<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, 1998
TITLE INSURANCE PREMIUMS $45,618,518 $312,627 $73,805 $45,379,696 0.2%
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%
</TABLE>
26
<PAGE>
SCHEDULE V
INVESTORS TITLE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1998, 1997 and 1996
<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>
1998
Premiums Receivable
Valuation Provision $ 350,000 $ 425,000 $- $ - $ 775,000
Impairment of
Building Plans $ 150,000 $ 68,122 $- $ - $ 218,122
Reserves for
Claims $ 7,622,140 $ 8,094,950 $- $(2,354,425) $13,362,665
Provision for
Equipment Disposal $ - $ 280,000 $- $ - $ 280,000
1997
Premiums Receivable
Valuation Provision $ 200,000 $ 150,000 $- $ - $ 350,000
Impairment of
Building Plans $ - $ 150,000 $- $ - $ 150,000
Reserves for
Claims $ 5,086,065 $ 4,679,353 $- $(2,143,278) $ 7,622,140
1996
Premiums Receivable
Valuation Provision $ 120,000 $ 80,000 $- $ - $ 200,000
Reserves For
Claims $ 3,836,065 $ 2,939,741 $- $(1,689,741) $ 5,086,065
</TABLE>
*Payments of Claims
27
Investors Title Company and Subsidiaries
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net premiums written $45,379,696 $29,875,350 $21,111,155 $15,854,140 $15,596,643
- -----------------------------------------------------------------------------------------------------------------------
Revenues 48,476,263 32,390,516 22,991,182 17,365,950 16,933,925
- -----------------------------------------------------------------------------------------------------------------------
Investment income 1,834,949 1,628,188 1,352,932 1,140,636 1,046,712
- -----------------------------------------------------------------------------------------------------------------------
Net income 5,459,509 4,530,382 3,843,537 3,250,658 3,126,859
- -----------------------------------------------------------------------------------------------------------------------
Per Share Data
Basic earnings per common share $ 1.95 $ 1.63 $ 1.39 $ 1.16 $ 1.10
- -----------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding - Basic 2,806,267 2,782,449 2,772,286 2,804,632 2,833,778
- -----------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share $ 1.92 $ 1.60 $ 1.37 $ 1.15 $ 1.10
- -----------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding - Diluted 2,841,035 2,826,730 2,813,001 2,816,544 2,845,199
- -----------------------------------------------------------------------------------------------------------------------
Cash dividends per share $ .12 $ .12 $ .095 $ .08 $ .08
At Year End
Assets $51,597,812 $41,293,007 $33,642,528 $28,224,276 $24,242,060
- -----------------------------------------------------------------------------------------------------------------------
Investments in securities 33,799,124 31,124,410 23,573,663 19,742,639 16,362,082
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' equity 36,328,665 31,128,908 25,988,177 22,209,814 18,554,012
- -----------------------------------------------------------------------------------------------------------------------
Book value/share 12.93 11.12 9.39 7.96 6.60
- -----------------------------------------------------------------------------------------------------------------------
Performance Ratios
Net income to:
Average stockholders' equity 16.19% 15.86% 15.95% 15.95% 17.99%
Total revenues (profit margin) 11.26% 13.99% 16.72% 18.72% 18.47%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<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 12-22 of
this report.
Overview
Investors Title Company's (the "Company's") primary business activity is
the issuance of title insurance through its two title insurance subsidiaries,
Investors Title Insurance Company ("ITIC") and Northeast Investors Title
Insurance Company (NE-ITIC.) 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. The
Company has continued to experience strong operating results during the past
three years. These strong results are attributable to a healthy 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 6.9%, 7.6% and 7.8% in 1998, 1997 and 1996, respectively. Housing starts
were 1.62, 1.47 and 1.48 in 1998, 1997 and 1996, respectively. New and existing
home sales were 5.68 million, 5.02 million and 4.84 million in 1998, 1997 and
1996, respectively.
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%, 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.
During 1998, 30-year fixed mortgage interest rates rose slightly to 7.14%
in April, after starting the year at 7.1%, and ending the year at 6.74%. The
overall decline in interest rates spurred an increase in real estate sales,
which was a contributing factor to the increase of $15,504,346 in the Company's
1998 net premiums written as compared with 1997 net premiums written. The
Company's record operating results for the past five years have resulted from
the strength in the real estate market since the latter part of 1995 coupled
with the Company's expansion into new operating territories.
Management believes that the current low level of interest rates bodes well
for activity in the real estate market, 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 expanding into new markets
primarily by continuing to develop agency relationships, as well as improving
market penetration with existing offices and agents.
Credit Rating
ITIC's financial stability has been recognized by two independent Fannie
Mae approved actuarial firms with the highest rating categories of "A Double
Prime - unsurpassed financial stability" and "A+ -strong overall financial
condition."
NE-ITIC's financial stability has been recognized by two independent Fannie
Mae approved actuarial firms with rating categories of "A Prime-unsurpassed
financial stability" and "A -strong overall financial condition."
Results of Operations
Operating Revenues
Net premiums written increased 52% and 42% in 1998 and 1997, respectively.
Growth in revenues has resulted from a combination of continued marketing
efforts and a strong real estate market. The volume of business continued to
increase in 1998 as the number of policies and commitments issued rose to
281,251, an increase of 53% compared with 184,237 in 1997. In 1997, policies and
commitments issued rose to 184,237, an increase of 30% compared with 142,009 in
1996.
In addition to an improved real estate market and increases in the number
of issuing agents, management believes that other factors contributing to sales
growth were (1) the establishment, in 1997, of a Commercial Real Estate
Transactions Department to offer assistance in connection with commercial
transactions, (2) the refinement of employee incentives to achieve revenue
targets, (3) the increased use of tax-deferred exchanges by real estate
investors, (4) continued improvements to computerized underwriting systems which
favorably impact labor costs and increase productivity, and (5) the
establishment of a National Accounts Department, which through an extensive
network of attorneys and agents, acts as a liaison for customers by placing
title orders and providing regular follow-up throughout the entire settlement
process.
Shown below is a schedule of net premiums written for 1998, 1997 and 1996
in all states where our two insurance subsidiaries, Investors Title Insurance
Company and Northeast Investors Title Insurance Company, currently underwrite
insurance:
1998 1997 1996
--------------------------------------------
Arkansas $ 17,711 $ -- $ --
Florida 75,957 95,790 73,529
Georgia 715,560 558,988 192,731
Indiana 158,194 111,131 91,417
Kentucky 252 265 239
Maryland 515,763 94,253 69,346
Michigan 9,145,165 4,796,435 458,198
Minnesota 1,044,599 198,728 --
Mississippi 37,479 29,183 --
Nebraska 791,121 572,685 531,688
New York 507,324 441,479 535,952
North Carolina 21,188,663 15,368,830 12,492,684
Pennsylvania 7,783 1,019 2,321
South Carolina 3,940,872 3,006,167 2,906,361
Tennessee 219,649 140,937 109,679
Virginia 7,020,000 4,642,834 3,723,544
West Virginia 232,426 -- --
------------ ------------ ------------
Direct Premiums 45,618,518 30,058,724 21,187,689
Reinsurance Assumed 73,805 58,447 44,559
Reinsurance Ceded (312,627) (241,821) (121,093)
------------ ------------ ------------
Net Premiums Written $ 45,379,696 $ 29,875,350 $ 21,111,155
============ ============ ============
8
<PAGE>
Branch net premiums written as a percentage of total net premiums written
were 46.9%, 51.9% and 59.6% in 1998, 1997 and 1996, respectively. Net premiums
written from branch operations increased 37.2% and 23.2% in 1998 and 1997,
respectively.
Agency net premiums written as a percentage of total net premiums written
were 53.1%, 48.1% and 40.4% in 1998, 1997 and 1996, respectively. Due to the
Company's efforts to increase the distribution of its products through an agency
network, agency net premiums increased 67.8% and 68.6% in 1998 and 1997,
respectively.
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.
As new funds become available, they are 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 12.7% and 20.3% in 1998 and 1997, respectively.
These increases were primarily attributable to increases in the average
investment portfolio balances.
Expenses
Profit margins were 11.26%, 13.99% and 16.72% in 1998, 1997 and 1996,
respectively. In 1998 and 1997, 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 net premiums
written.
Commissions increased 72.9%, 74.1% and 57.5% in 1998, 1997 and 1996,
respectively, due to increased business from agent sources. Commission expense
has increased in part due to higher commission rates in certain new operating
territories. Commission rates vary geographically and may be influenced by state
regulations.
The provision for claims as a percentage of net premiums written was 17.8%,
15.7% and 13.9% in 1998, 1997 and 1996, respectively. The increases in the 1998
and 1997 claims provisions are primarily due to increases in claims payments and
the reserves for claims. Payments of claims, net of recoveries, were $2,354,425,
$2,143,278 and $1,689,741 in 1998, 1997 and 1996.
The Company has continued to strengthen its reserves for claims. At
December 31, 1998, the total reserves for claims were $13,362,665. Of that
total, $1,463,465 was reserved for specific claims, and $11,899,200 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
adverse effect on the Company's financial position.
Salaries as a percentage of branch net premiums written were 30%, 29.3% and
29.9% in 1998, 1997 and 1996, respectively. The number of branch offices
remained at 29 from 1996 to 1998. Office occupancy and operations as a
percentage of branch net premiums improved over the three-year period (15.2% in
1998, 16.2% in 1997, and 17.1% in 1996.) Continued expense monitoring and
increased automation have enabled the Company to reduce these operating
expenses.
Premium and retaliatory taxes increased 49%, 41% and 28% in 1998, 1997 and
1996, respectively as a result of increases in premiums written.
The Company recorded a reserve of $280,000 in 1998 in order to write-off
certain electronic data processing equipment. The related equipment will be
replaced as a result of internal technology upgrades and Year 2000 compliance
initiatives. See discussion of Year 2000 issues in "Other Matters."
Net Income
The Company reported an increase in net income of 20.5%, 17.9% and 18.2% in
1998, 1997 and 1996, respectively. 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 $8,887,438, $5,233,328 and
$5,397,301 in 1998, 1997 and 1996, respectively. The increase in 1998 is
primarily the result of an increase in premiums, partially offset by an increase
in commissions expense. Nonoperating funds were primarily used to purchase
investments.
As of December 31, 1998 and 1997, approximately $31,219,000 and $26,810,000
respectively, of 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. The parent company's ability to pay
dividends and operating expenses is dependent on funds received from the
insurance subsidiaries. These funds should be adequate to meet the parent
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 22,010
shares at an average purchase price of $23.60 during 1998 and 22,134 shares at
an average purchase price of $17.10 per share during 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 105,856
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
9
<PAGE>
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.
Other Matters
Year 2000 Issues
In September 1998, the Company created and filled a new position of Vice
President of Information Systems. In addition to overall responsibility for the
Company's information systems, the individual in this position is leading the
Company's Year 2000 Project Committee (the "Committee"), which is comprised of
department heads and high-level managers representing each of the Company's
departments. The Vice President of Information Systems is responsible for
coordinating the Company's Year 2000 compliance efforts, including an evaluation
of the Company's internal systems as well as an assessment of the level of
preparedness of other companies with whom the Company does business where the
Year 2000 compliance of that entity might materially impact the Company's
operations.
The Committee adopted a three-phase approach with estimated completion
dates as follows: awareness (fourth quarter 1998), assessment (first quarter
1999) and implementation (third quarter 1999.) In the awareness phase, the
Committee and the Company as a whole became educated about the nature of the
Year 2000 problem, particularly as applied to the Company's business
circumstances. During the assessment phase, the Committee has identified
potential points of failure and evaluated Year 2000 compliance status of such
functions. In the implementation phase, the Committee will begin by implementing
any necessary modifications that serve critical functions and will proceed to
address other less critical systems later in the process.
The Company has inventoried all hardware and software for date-sensitive
function. As part of a regular technology refresh cycle, the Company is
currently replacing most existing PC workstations and servers. Desktop operating
systems, network operating systems and commercial off-the-shelf application
suites are also being standardized and upgraded to Year 2000 compliant versions.
This replacement strategy will have the added benefit of obtaining vendor
representations that all hardware and operating system software being purchased
are Year 2000 compliant. The Company previously budgeted for these technology
upgrades; therefore, additional costs specifically allocated to Year 2000
compliance efforts are expected to be minimal. The Company currently estimates
that costs directly attributable solely to its Year 2000 compliance program will
be less than $250,000. The Company has incurred no material costs directly
related to its Year 2000 compliance program as of December 31, 1998.
The Company completed an inventory of all embedded system technology under
the assessment phase. The Company is currently evaluating the results of the
assessment phase and determining how to proceed.
The Company is also working with its third-party business partners and
vendors to assure they are on schedule to detect and address any Year 2000
problems that might affect the Company's systems or business processes. The
Company will assess and attempt to mitigate risks with respect to the failure of
any mission critical third-party business partners and vendors to be Year 2000
ready.
The Company's preparation of contingency plans for Year 2000-related
occurrences is ongoing and will continue throughout 1999. The elements of the
contingency plan will depend upon the results of the Company's assessment phase,
and will become better defined as these results are analyzed.
The Company's current assessment of the most likely Year 2000-related worst
case scenario is that it may experience a decline in its volume of business or a
delay in its ability to write title insurance as a result of failures in various
functions and services in the real estate transaction business.
Although the Company believes it will have completed all the remaining
phases of its Year 2000 initiative in sufficient time to identify and remedy any
noncompliant programs and systems and avoid any material adverse impact on its
business, failure of third-party business partners and governmental services to
be Year 2000 compliant, as well as a possible downturn in the economy due to
Year 2000 related failures, could have a material adverse effect on the
Company's operations.
Quantitative and Qualitative Disclosures
About Market Risk
Market risk is the risk that the Company will incur losses due to adverse
changes in market rates and prices. The Company's primary market risk exposures
are changes in interest rates and equity prices. The active management of market
risk is integral to the Company's operations.
Corporate Oversight
The Company generates substantial investable funds from its two insurance
subsidiaries. In formulating and implementing policies for investing new and
existing funds, the Company has emphasized maximizing total after-tax return on
capital and earnings while ensuring the safety of funds under management and
adequate liquidity. The Company's Board of Directors administers and oversees
investment risk management processes. The Company seeks to invest premiums and
deposits to create future cash flows that will fund future claims, employee
benefits and expenses, and earn stable margins across a wide variety of interest
rate and economic scenarios. The Board has established specific investment
policies that define the overall framework for managing market and other
investment risks, including the accountabilities and controls over these
activities. The Company may use the following tools to manage its exposure to
market risk within defined tolerance ranges: 1) rebalance its existing asset
portfolios or 2) change the character of future investments.
Interest Rate Risk
Interest rate risk is the risk that the Company will incur economic losses
due to adverse changes in interest rates. This risk arises from the Company's
investments in interest-sensitive debt securities. These securities are
primarily fixed-rate municipal bonds, and the Company does not purchase such
securities for trading purposes. At December 31, 1998, the Company had
approximately $28.7 million in fixed rate bonds. The Company manages the
interest rate risk inherent in its assets by monitoring its liquidity needs and
matching the effective maturity of its fixed income portfolio accordingly. The
effective maturity is managed by targeting a specific range for the portfolio's
duration or weighted average maturity.
To determine the potential effect of interest rate risk on
interest-sensitive assets, the Company calculates the effect of a 10% change in
prevailing interest rates ("rate shock") on the fair market value of these
securities considering stated interest rates and time to maturity. Based upon
the information and assumptions the Company uses in its calculation and in
effect at December 31, 1998, management estimates that a 10% immediate, parallel
increase in prevailing interest rates would decrease the net fair market value
of its debt securities by approximately $1.2 million. The selection of a 10%
immediate parallel
10
<PAGE>
increase in prevailing interest rates should not be construed as a
prediction by the Company's management of future market events; but rather, to
illustrate the potential impact of such an event. To the extent that actual
results differ from the assumptions utilized, the Company's rate shock measures
could be significantly impacted. Additionally, the Company's calculation assumes
that the current relationship between short-term and long-term interest rates
(the term structure of interest rates) will remain constant over time. As a
result, these calculations may not fully capture the impact of non-parallel
changes in the term structure of interest rates and/or large changes in interest
rates.
Equity Price Risk
Equity price risk is the risk that the Company will incur economic losses
due to adverse changes in a particular stock or stock index. At December 31,
1998, the Company had approximately $5.3 million in common stocks. By internal
policy, the Company's maximum exposure to the equity market is limited to 20% of
the Company's statutorily admitted assets. Equity price risk is addressed in
part by varying the specific allocation of equity investments over time pursuant
to management's assessment of market and business conditions and ongoing
liquidity needs analysis. The Company's largest equity exposure is declines in
the S&P 500; its portfolio of equity instruments is similar to those that
comprise this index. Based upon the information and assumptions the Company uses
in its calculation and in effect at December 31, 1998, management estimates that
an immediate decrease in the S&P 500 of 10% would decrease the net fair value of
the Company's assets identified above by approximately $528,000. The selection
of a 10% immediate decrease in the S&P 500 should not be construed as a
prediction by the Company's management of future market events; but rather, to
illustrate the potential impact of such an event. Since this calculation is
based on historical performance, projecting future price volatility using this
method involves an inherent assumption that historical volatility and
correlation relationships will remain stable. Therefore, the results noted above
may not reflect the Company's actual experience if future volatility and
correlation relationships differ from such historical relationships.
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) that 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) that losses from claims may be greater than
anticipated such that reserves for possible claims are inadequate; (iii) 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. The Company's discussion of Year 2000
issues under the heading "Other Matters" contains forward-looking statements
that are subject to risks and uncertainties that could cause the actual results
to differ from those projected. These include the risks associated with
unforeseen technological issues associated with the Company's own Year 2000
compliance efforts and the compliance efforts of third parties on whose systems
the Company relies. 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 FINANCIAL DATA
<TABLE>
<CAPTION>
1998 March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Net premiums written $ 9,441,848 $11,306,051 $11,678,518 $12,953,279
- -----------------------------------------------------------------------------------------
Investment income 420,286 445,491 459,947 509,225
- -----------------------------------------------------------------------------------------
Net income 1,067,621 1,375,299 1,546,940 1,469,649
- -----------------------------------------------------------------------------------------
Basic earnings per common share .38 .49 .55 .52
- -----------------------------------------------------------------------------------------
Diluted earnings per common share .38 .48 .55 .52
- -----------------------------------------------------------------------------------------
1997
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 .31 .41 .47 .42
- -----------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Investors Title Company and Subsidiaries
Consolidated Balance Sheets
as of December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Assets
Cash and cash equivalents ................................................................. $ 8,141,354 $ 2,823,177
Investments in securities (Notes 2 and 3):
Fixed maturities:
Held-to-maturity, at amortized cost (fair value: 1998: $5,515,532;
1997: $5,053,485) ......................................................... 5,287,458 4,841,466
Available-for-sale, at fair value (amortized cost: 1998 $22,131,173;
1997: $18,928,948) ........................................................ 23,235,754 19,752,550
Equity securities, at fair value (cost:1998: $2,522,793; 1997: $3,844,927) ........ 5,275,912 6,530,394
----------- -----------
Total investments ......................................................... 33,799,124 31,124,410
Premiums receivable (less allowance for doubtful accounts: 1998: $775,000; 1997: $350,000) 5,357,000 3,372,751
Accrued interest and dividends ............................................................ 481,741 429,064
Prepaid expenses and other assets ......................................................... 410,778 462,801
Property acquired in settlement of claims ................................................. 108,500 280,725
Property, net (Note 4) .................................................................... 3,299,315 2,800,079
----------- -----------
Total Assets .............................................................................. $51,597,812 $41,293,007
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Reserves for claims (Note 6) .............................................................. $13,362,665 $ 7,622,140
Accounts payable and accrued liabilities .................................................. 1,258,802 1,069,372
Commissions and reinsurance payables (Note 5) ............................................. 84,598 96,241
Premium taxes payable ..................................................................... 277,887 153,857
Current income taxes payable .............................................................. 207,350 25,081
Deferred income taxes, net (Note 8) ....................................................... 77,845 1,197,408
----------- -----------
Total liabilities ................................................................. 15,269,147 10,164,099
----------- -----------
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 2,809,123 and 2,800,240 shares
outstanding 1998 and 1997, respectively) .......................................... 732,453 879,612
Retained earnings ......................................................................... 33,050,508 27,933,688
Accumulated other comprehensive income (net unrealized gain on investments)
(net of deferred taxes: 1998: $1,311,995; 1997: $1,193,461) (Note 8) .............. 2,545,704 2,315,608
----------- -----------
Total stockholders' equity ........................................................ 36,328,665 31,128,908
----------- -----------
Total Liabilities and Stockholders' Equity ........................................................ $51,597,812 $41,293,007
=========== ===========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
Investors Title Company and Subsidiaries
Consolidated Statements of Income
for the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Underwriting income:
Premiums written (Note 5) .................... $45,692,323 $30,117,171 $21,232,248
Less-premiums for reinsurance ceded (Note 5) ......... 312,627 241,821 121,093
----------- ----------- -----------
Net premiums written ......................... 45,379,696 29,875,350 21,111,155
Investment income-interest and dividends (Note 3) .... 1,834,949 1,628,188 1,352,932
Net realized gain on sales of investments (Note 3) ... 398,610 269,396 178,238
Other ................................................ 863,008 617,582 348,857
----------- ----------- -----------
Total ........................................ 48,476,263 32,390,516 22,991,182
----------- ----------- -----------
Operating Expenses:
Commissions to agents ................................ 17,399,629 10,065,249 5,780,048
Provision for claims (Note 6) ........................ 8,094,950 4,679,353 2,939,741
Salaries ............................................. 6,384,965 4,543,598 3,773,550
Employee benefits and payroll taxes (Notes 7 and 10) . 1,863,400 1,578,688 1,224,659
Office occupancy and operations (Note 9) ............. 3,241,118 2,512,370 2,159,175
Business development ................................. 1,381,717 1,091,812 665,705
Taxes, other than payroll and income ................. 262,995 168,607 150,617
Premium and retaliatory taxes ........................ 880,885 592,660 420,963
Professional fees .................................... 391,971 317,294 160,929
Provision for equipment disposal ..................... 280,000 -- --
Other ................................................ 599,124 390,103 294,258
----------- ----------- -----------
Total ........................................ 40,780,754 25,939,734 17,569,645
----------- ----------- -----------
Income Before Income Taxes ................................... 7,695,509 6,450,782 5,421,537
Provision For Income Taxes (Note 8) .......................... 2,236,000 1,920,400 1,578,000
----------- ----------- -----------
Net Income (Note 12) ......................................... $ 5,459,509 $ 4,530,382 $ 3,843,537
----------- ----------- -----------
Basic Earnings per Common Share .............................. $ 1.95 $ 1.63 $ 1.39
----------- ----------- -----------
Weighted Average Shares Outstanding - Basic .................. 2,806,267 2,782,449 2,772,286
=========== =========== ===========
Diluted Earnings per Common Share (Note 7) ................... $ 1.92 $ 1.60 $ 1.37
=========== =========== ===========
Weighted Average Shares Outstanding - Diluted ................ 2,841,035 2,826,730 2,813,001
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
Investors Title Company and Subsidiaries
Consolidated Statements of stockholders equity
for the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated
Other Comprehensive
Income (Net Total
Common Stock Retained Unrealized Gain Stockholders'
Shares Amount Earnings on Investments) Equity
--------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance,
January 1, 1996 ......................... 2,790,633 $1,038,414 $ 20,173,755 $ 997,645 $ 22,209,814
Net income .............................. 3,843,537 3,843,537
Dividends ($.095 per share) ............. (271,297) (271,297)
Purchases of 22,803 shares of common
stock (net of distributions) .... (22,803) (316,093) (316,093)
Net unrealized gain on investments ...... 522,216 522,216
--------- ---------- ------------ ---------- ------------
Balance,
December 31, 1996 ....................... 2,767,830 722,321 23,745,995 1,519,861 25,988,177
Net income .............................. 4,530,382 4,530,382
Dividends ($.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 ....... 795,747 795,747
--------- ---------- ------------ ---------- ------------
Balance,
December 31, 1997 ........................ 2,800,240 879,612 27,933,688 2,315,608 31,128,908
Net income ............................... 5,459,509 5,459,509
Dividends ($.12 per share) ............... (342,689) (342,689)
Distributions of 8,883 shares
of common stock (net of purchases) 8,883 (147,159) (147,159)
Net unrealized gain on investments ....... 230,096 230,096
--------- ---------- ------------ ---------- ------------
Balance,
December 31, 1998 ................................ 2,809,123 $ 732,453 $ 33,050,508 $2,545,704 $ 36,328,665
========= ========== ============ ========== ============
</TABLE>
Investors Title Company and Subsidiaries
Consolidated Statements of comprehensive Income
for the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net Income .................................................... $ 5,459,509 $ 4,530,382 $ 3,843,537
----------- ----------- -----------
Other comprehensive income, before tax:
Unrealized gains on investments arising during the year 747,240 1,475,645 969,283
Less: reclassification adjustment for gains
realized in net income ........................ (398,610) (269,396) (178,238)
----------- ----------- -----------
Other comprehensive income, before tax ................ 348,630 1,206,249 791,045
Income tax expense related to unrealized
gains on investments arising during the year .. 254,061 501,719 329,556
Income tax expense related to reclassification
adjustment for gains realized in net income ... (135,527) (91,217) (60,727)
----------- ----------- -----------
Net income tax expense on other comprehensive income .. 118,534 410,502 268,829
----------- ----------- -----------
Other comprehensive income .................................... 230,096 795,747 522,216
----------- ----------- -----------
Comprehensive income .......................................... $ 5,689,605 $ 5,326,129 $ 4,365,753
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
----------- ----------- -----------
Operating Activities:
Net income .................................................................... $ 5,459,509 $ 4,530,382 $ 3,843,537
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .................................................. 393,026 346,547 328,682
Amortization (accretion), net ................................. (4,141) 3,767 11,114
Provision for losses on premiums receivable ................... 425,000 150,000 80,000
Provision for equipment disposal .............................. 280,000 -- --
(Gain) loss on disposals of property .......................... (16,182) 7,326 (9,895)
Net realized gain on sales of investments ..................... (398,610) (269,396) (178,238)
Benefit for deferred income taxes ............................. (1,238,097) (445,238) (22,940)
Provision for claims .......................................... 8,094,950 4,679,353 2,939,741
Payments of claims, net of recoveries ......................... (2,354,425) (2,143,278) (1,689,741)
Changes in assets and liabilities:
Increase in receivables and other assets ...................... (2,237,678) (1,635,116) (48,765)
Increase (decrease) in accounts payable and accrued liabilities 189,430 71,613 (64)
Increase (decrease) in commissions and reinsurance payables ... (11,643) 35,339 22,301
Increase in premium taxes payable ............................. 124,030 52,091 65,926
Increase (decrease) in current income taxes payable ........... 182,269 (150,062) 55,643
----------- ----------- -----------
Net cash provided by operating activities ..................... 8,887,438 5,233,328 5,397,301
----------- ----------- -----------
Investing Activities:
Purchases of available-for-sale securities ............................ (4,354,272) (9,036,039) (4,370,919)
Purchases of held-to-maturity securities .............................. (1,025,057) (297,951) (997,220)
Proceeds from sales of available-for-sale securities .................. 2,880,022 2,530,426 1,437,173
Proceeds from sales of held-to-maturity securities .................... 575,974 724,123 1,118,305
Purchases of property ................................................. (1,187,008) (422,111) (303,417)
Proceeds from sales of property ....................................... 30,928 32,229 23,729
----------- ----------- -----------
Net cash used in investing activities ......................... (3,079,413) (6,469,323) (3,092,349)
----------- ----------- -----------
Financing Activities:
Distributions (repurchases) of common stock ........................... (147,159) 157,291 (316,093)
Dividends paid ........................................................ (342,689) (342,689) (271,297)
----------- ----------- -----------
Net cash used in financing activities ......................... (489,848) (185,398) (587,390)
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents .......................... 5,318,177 (1,421,393) 1,717,562
Cash and Cash Equivalents, Beginning of Year .................................. 2,823,177 4,244,570 2,527,008
----------- ----------- -----------
Cash and Cash Equivalents, End of Year ........................................ $ 8,141,354 $ 2,823,177 $ 4,244,570
=========== =========== ===========
Supplemental Disclosures:
Cash Paid During the Year for:
Income Taxes .................................................. $ 3,293,000 $ 2,516,000 $ 1,418,000
=========== =========== ===========
</TABLE>
During 1996, the Company exchanged assets with a value of $60,000 for an equity
investment.
See notes to consolidated financial statements.
15
<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 Arkansas, Florida, Georgia, Indiana, Kentucky,
Maryland, Michigan, Minnesota, Mississippi, Nebraska, New York, Pennsylvania,
South Carolina, Tennessee, Virginia, and West 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
reported as accumulated other comprehensive income. 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
The employee stock options discussed in Note 7 are considered outstanding
for the diluted earnings per common share calculation.
Comprehensive Income
Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130".) Adoption of this standard required the
Company to (a) classify items of other comprehensive income by their nature in
the financial statements 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's other
comprehensive income is solely comprised of its unrealized holding gains on
available-for-sale securities.
16
<PAGE>
Escrows and Trust Deposits
As a service to its customers, the Company, through its subsidiaries,
administers escrow and trust deposits representing undisbursed amounts received
for settlements of mortgage loans and indemnities against specific title risks.
In administering tax-free exchanges, ITEC serves as qualified intermediary for
exchangers, holding the net sales proceeds from relinquished property to be used
for purchase of replacement property. Cash and other assets held by the Company
for these purposes were approximately $18,564,000 and $27,697,000 as of December
31, 1998 and 1997, respectively. These amounts are not considered assets of the
Company and, therefore, are excluded from the accompanying consolidated balance
sheets.
Accounting Changes Pending Implementation
In June 1998, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company will be required to adopt the new
reporting guidelines for the fiscal year beginning January 1, 2000. The Company
has not fully analyzed the provisions of this statement or its effects on the
Company.
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.
2. Statutory Restrictions on Consolidated Stockholders' Equity and Investments
The Company has designated approximately $16,753,000 and $13,135,000 of
retained earnings as of December 31, 1998 and 1997, 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, 1998 and 1997, approximately $31,219,000 and $26,810,000
respectively, of consolidated stockholders' equity represents net assets of the
Company's insurance 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 $3,120,000 and $2,755,000 at December 31, 1998 and 1997,
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>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
December 31, 1998
Fixed maturities -
Held-to-maturity, at amortized cost:
Certificates of deposit ........................ $ 98,982 $ - $ - $ 98,982
Obligations of states and political subdivisions 5,188,476 229,215 1,141 5,416,550
----------- ----------- ----------- -----------
Total .......................................................... $ 5,287,458 $ 229,215 $ 1,141 $ 5,515,532
=========== =========== =========== ===========
Fixed maturities -
Available-for-sale, at fair value:
Obligations of states and political subdivisions $21,196,280 $ 1,060,745 $ 5,711 $22,251,314
Corporate debt securities ...................... 934,893 49,547 -- 984,440
----------- ----------- ----------- -----------
Total .......................................... $22,131,173 $ 1,110,292 $ 5,711 $23,235,754
=========== =========== =========== ===========
Equity securities, at fair value -
Common stocks and nonredeemable preferred stocks ....... $ 2,522,793 $ 2,975,216 $ 222,097 $ 5,275,912
=========== =========== =========== ===========
</TABLE>
17
<PAGE>
INVESTMENTS IN SECURITIES (Continued)
<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>
The scheduled maturities of fixed maturities at December 31, 1998 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 .............. $ 400,430 $ 406,000 $ 349,841 $ 355,982
Due after one year through five years 2,813,403 2,930,592 545,084 574,000
Due after five years through ten years 5,241,133 5,575,512 1,357,452 1,415,250
Due after ten years .................. 13,676,207 14,323,650 3,035,081 3,170,300
----------- ----------- ----------- -----------
Total ........................... $22,131,173 $23,235,754 $ 5,287,458 $ 5,515,532
=========== =========== =========== ===========
</TABLE>
Earnings on investments and net realized gains for the three years ended
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturities ............................. $1,433,063 $1,186,248 $1,026,010
Equity securities ............................ 168,904 191,471 137,065
Invested cash and other short-term investments 212,652 245,907 156,885
Miscellaneous interest ....................... 20,330 4,562 32,972
Net realized gains ........................... 398,610 269,396 178,238
---------- ---------- ----------
Investment income ....................... $2,233,559 $1,897,584 $1,531,170
========== ========== ==========
</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>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Gross realized gains:
Redeemable preferred stocks .................... $ -- $ -- $ 11,274
Debt securities ................................ 3,133 1,520 --
Obligations of states and political subdivisions 12,192 2,121 --
Common stocks and nonredeemable preferred stocks 751,493 369,779 233,129
--------- --------- ---------
Total ..................................... 766,818 373,420 244,403
--------- --------- ---------
Gross realized losses:
Obligations of states and political subdivisions (3,983) (1,554) (3,838)
Debt securities ................................ (125,000) (29,278) --
Common stocks and nonredeemable preferred stocks (239,225) (73,192) (62,327)
--------- --------- ---------
Total ..................................... (368,208) (104,024) (66,165)
--------- --------- ---------
Net realized gain .............................. $ 398,610 $ 269,396 $ 178,238
========= ========= =========
</TABLE>
4. Property
Property and equipment at December 31 are summarized as follows:
1998 1997
---------- ----------
Land ............................. $ 782,582 $ 782,582
Office buildings and improvements 1,349,321 1,317,766
Furniture, fixtures and equipment 2,830,207 2,159,176
Automobiles ...................... 257,257 181,093
---------- ----------
Total ....................... 5,219,367 4,440,617
Less accumulated depreciation (1,920,052) (1,640,538)
---------- ----------
Property and equipment, net . $ 3,299,315 $ 2,800,079
=========== ===========
18
<PAGE>
5. Reinsurance
The Company assumes and cedes reinsurance with other insurance companies in the
normal course of business. Premiums assumed and ceded were approximately $74,000
and $313,000, respectively for 1998, $58,000 and $242,000, respectively
for 1997, and $45,000 and $121,000, respectively for 1996. 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.
6. Reserves for Claims
Changes in the reserves for claims for the years ended December 31 are
summarized as follows based on the year in which the policy was written:
1998 1997 1996
----- ---- ----
Balance, beginning of year $ 7,622,140 $5,086,065 $3,836,065
Provision related to:
Current year 4,868,576 2,394,138 1,143,070
Prior years 3,226,374 2,285,215 1,796,671
---------- --------- ---------
Total provision charged
to operations 8,094,950 4,679,353 2,939,741
=========== ========== ==========
Claims paid, net of recoveries, related to:
Current year (280,079) (333,160) (64,582)
Prior years (2,074,346) (1,810,118) (1,625,159)
---------- --------- ---------
Total claims paid,
net of recoveries (2,354,425) (2,143,278) (1,689,741)
--------- --------- ---------
Balance, end of year $13,362,665 $7,622,140 $5,086,065
=========== ========== ==========
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:
1998 1997 1996
---- ---- ----
Net income:
As reported $5,459,509 $4,530,382 $3,843,537
Pro forma 4,872,247 4,427,593 3,767,770
Basic earnings per common share:
As reported $ 1.95 $ 1.63 $ 1.39
Pro forma 1.74 1.59 1.36
Diluted earnings per common share:
As reported $ 1.92 $ 1.60 $ 1.37
Pro forma 1.72 1.57 1.34
The estimated weighted average grant-date fair value of options granted for the
years ended December 31 are as follows:
1998 1997 1996
---- ---- ----
Exercise price equal to market price on date
of grant:
Weighted average exercise price $25.62 $17.80 $14.60
Weighted average grant date fair value 11.14 7.09 4.35
Exercise price greater than market price on date
of grant:
Weighted average exercise price $29.15 $ - $ -
Weighted average grant date fair value 10.70 - -
19
<PAGE>
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 1998, 1997 and 1996, respectively: dividend yield
of .5%, .7% and .7%; expected volatility of 22%, 22% and 21%; risk-free interest
rates of approximately 5%, 6% and 6%; 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>
<S> <C> <C> <C>
1998 1997 1996
-------------------- -------------------- -------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ---- ------ -----
Outstanding at beginning of year 80,319 $ 11.29 114,010 8.84 107,860 $ 7.79
Granted 52,150 27.51 14,500 17.80 17,400 14.60
Exercised (24,985) 8.90 (42,091) 7.18 ( 8,150) 7.41
Terminated (10,960) 18.69 (6,100) 9.30 (3,100) 8.50
------ ------ -------
Outstanding at end of year 96,524 $ 19.93 80,319 11.29 114,010 $ 8.84
====== ====== =======
Options exercisable at year-end 37,389 $ 12.67 40,896 9.62 37,830 $ 7.48
====== ====== =======
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 1998:
<TABLE>
<CAPTION>
Options Outstanding at Year-End Options Exercisable at 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> <C>
$ 6.75 - $ 9.75 25,980 1 $ 8.49 23,480 $ 8.51
10.00 - 15.50 18,038 4 14.69 8,498 14.88
20.00 - 25.00 4,966 9 21.97 666 22.04
25.25 - 29.15 47,540 9 27.96 4,745 27.97
------ -----
$ 6.75 - $29.15 96,524 6 $ 19.93 37,389 $ 12.67
====== ======
</TABLE>
The employee stock options are considered outstanding for the diluted earnings
per common share calculation. The total increase in the weighted average shares
outstanding related to these equivalent shares was 34,768, 44,281 and 40,715
for 1998, 1997 and 1996, respectively.
Options to purchase 47,840, 4,900 and 16,400 shares of common stock were
outstanding during 1998, 1997 and 1996, respectively, but were not included in
the computation of diluted EPS because the options' exercise prices were greater
than the average market price of the common shares.
20
<PAGE>
8. Income Taxes
At December 31 the approximate effect on each component of deferred income taxes
and liabilities is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred income tax assets:
Recorded reserves for claims net of statutory premium reserves $ 858,349 $ -
Accrued vacation 105,049 70,828
Reinsurance payable 11,431 13,142
Bad debt reserve 263,500 119,000
Provision for equipment disposal 95,200 -
Other 90,521 62,625
------ ------
Total 1,424,050 265,595
--------- -------
Deferred income tax liabilities:
Statutory premium reserves net of recorded reserves for claims - 130,577
Net unrealized gain on investments 1,311,995 1,193,461
Excess of tax over book depreciation 148,923 106,034
Discount accretion on tax-exempt obligations 34,157 25,696
Other 6,820 7,235
----- -----
Total 1,501,895 1,463,003
--------- ---------
Net deferred income tax liabilities $ 77,845 $1,197,408
========= =========
</TABLE>
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>
1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Anticipated income tax expense $ 2,616,473 $2,193,266 $ 1,843,323
Increase (reduction) related to:
State income taxes, net of the federal income tax benefit 32,778 11,626 9,240
Tax-exempt interest income(net of amortization) (461,731) (352,477) (276,678)
Other, net 48,480 67,985 2,115
----------- ----------- -----------
Provision for income taxes $ 2,236,000 $ 1,920,400 $ 1,578,000
=========== =========== ===========
</TABLE>
The components of income tax expense for the years ended December 31 are
summarized as follows:
1998 1997 1996
----------- ----------- -----------
Current:
Federal $ 3,421,954 $ 2,329,333 $ 1,586,940
State 52,143 36,305 14,000
----------- ----------- -----------
Total 3,474,097 2,365,638 1,600,940
Deferred benefit (1,238,097) (445,238) (22,940)
----------- ----------- -----------
Total $ 2,236,000 $ 1,920,400 $ 1,578,000
=========== =========== ===========
For state income tax purposes, ITIC and NE-ITIC must pay only a gross premium
tax.
9. Leases
Rent expense totaled approximately $460,000, $409,000 and $400,000 in 1998, 1997
and 1996, 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, 1998 are summarized as follows:
Year End:
1999 $ 317,832
2000 268,242
2001 87,194
2002 25,480
------
Total $ 698,748
=======
21
<PAGE>
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 $290,000, $259,000 and $216,000 for 1998, 1997
and 1996, 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 $29,069,033 and $23,900,461 as of
December 31, 1998 and 1997, respectively. Net income on a statutory basis was
$6,667,605, $4,564,782 and $3,322,356 for the twelve months ended December 31,
1998, 1997 and 1996, respectively.
REPORT OF INDEPENDENT ACCOUNTANTS
Investors Title Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Investors
Title Company (the "Company") and its subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, comprehensive income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles.
/s/ Deloitte and Touche, LLP.
Raleigh, North Carolina
January 29, 1999
22
<PAGE>
Shareholder Information
Common Stock Data
The common stock of the Company is traded under the symbol "ITIC" in the
over-the-counter market and is quoted on the National Market System of the
National Association of Securities Dealers Automated Quotation System
("NASDAQ".) The Company has approximately 1,350 shareholders of record,
including shareholders whose shares are held in street name. The following table
shows the 1998 and 1997 high and low sales prices reported on the NASDAQ
National Market System.
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------------
<S> <C> <C> <C> <C>
High Low High Low
----- --- ---- ---
First Quarter $28.50 $21.25 $15.75 $14.25
Second Quarter $28.00 $24.50 $15.75 $14.00
Third Quarter $26.50 $21.00 $20.75 $15.50
Fourth Quarter $24.50 $16.50 $24.25 $19.625
</TABLE>
The Company paid cash dividends of $.03 per share in each of the four quarters
during 1998 and 1997.
Market Makers
Davenport & Co. of Virginia, Inc. Instinet Corporation
Herzog, Heine, Geduld, Inc. Interstate/Johnson Lane Corporation
Knight Securities, Inc.
Scott & Stringfellow, Inc.
24
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1998 JAN-01-1998 JAN-01-1998
<PERIOD-END> MAR-31-1998 JUN-30-1998 SEP-30-1998 DEC-31-1998
<DEBT-HELD-FOR-SALE> 20,229,252 22,059,438 23,213,125 23,235,754
<DEBT-CARRYING-VALUE> 5,163,585 5,376,128 5,175,791 5,188,476
<DEBT-MARKET-VALUE> 0 0 0 5,416,550
<EQUITIES> 6,648,115 6,385,988 5,389,685 5,275,912
<MORTGAGE> 0 0 0 0
<REAL-ESTATE> 0 0 0 0
<TOTAL-INVEST> 32,172,677 33,920,536 33,778,611 33,799,124
<CASH> 3,652,670 4,764,362 5,286,325 8,141,354
<RECOVER-REINSURE> 0 0 0 0
<DEFERRED-ACQUISITION> 0 0 0 0
<TOTAL-ASSETS> 43,694,307 47,235,580 48,158,776 51,597,812
<POLICY-LOSSES> 8,498,765 10,002,165 11,377,665 13,362,665
<UNEARNED-PREMIUMS> 0 0 0 0
<POLICY-OTHER> 89,210 175,088 103,351 84,598
<POLICY-HOLDER-FUNDS> 0 0 0 0
<NOTES-PAYABLE> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 972,002 902,942 701,346 732,453
<OTHER-SE> 31,420,716 32,666,992 33,880,766 35,596,212
<TOTAL-LIABILITY-AND-EQUITY> 43,694,307 47,235,580 48,158,776 51,597,812
9,441,848 20,747,899 32,426,417 45,379,696
<INVESTMENT-INCOME> 420,286 865,777 1,325,724 1,834,949
<INVESTMENT-GAINS> 70,175 122,050 256,988 398,610
<OTHER-INCOME> 150,011 375,560 613,791 863,008
<BENEFITS> 1,564,370 3,692,290 5,816,214 8,094,950
<UNDERWRITING-AMORTIZATION> 0 0 0 0
<UNDERWRITING-OTHER> 6,991,832 14,889,539 23,034,139 32,685,804
<INCOME-PRETAX> 1,526,118 3,529,457 5,772,567 7,695,509
<INCOME-TAX> 458,497 1,086,537 1,782,707 2,236,000
<INCOME-CONTINUING> 1,067,621 2,442,920 3,989,860 5,459,509
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,067,621 2,442,920 3,989,860 5,459,509
<EPS-PRIMARY> 0.38 0.87 1.42 1.95<F1>
<EPS-DILUTED> 0.38 0.86 1.40 1.92
<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
<FN>
<F1> EPS-BASIC
</FN>
</TABLE>
