UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-11774 INVESTORS TITLE COMPANY (Exact name of registrant as specified in its charter) North Carolina 56-1110199 (State of Incorporation) (I.R.S. Employer) 121 North Columbia Street, Chapel Hill, North Carolina 27514 (Address of Principal Executive Offices) (Zip Code) (919) 968-2200 ( Registrant's Telephone Number Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Shares outstanding of each of the issuer's classes of common stock as of June 30, 1996: Common Stock, no par value 2,768,070 Class Shares Outstanding 1
INVESTORS TITLE COMPANY AND SUBSIDIARIES Index PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995. . . . . . . . . . . . . . . . . . .3 Consolidated Statements of Income: Six Months and Three Months Ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . .4 Consolidated Statements of Cash Flows: Six Months Ended June 30, 1996 and 1995. . . . . . . .5 Notes to Condensed Consolidated Financial Statements. . .6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . .7 PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . .9 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . .9 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . .9 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 2
PART I. FINANCIAL INFORMATION Item 1. Financial Statements Investors Title Company and Subsidiaries Consolidated Balance Sheets As of June 30, 1996 and December 31, 1995 (Unaudited) <TABLE> <S> <C> <C> 6/30/96 12/31/95 Assets Cash and Cash Equivalents $ 3,029,399 $ 2,527,008 Investments: Held-to-maturity: Certificates of deposit 214,334 399,203 Bonds - at amortized cost 5,305,461 4,748,276 Available-for-sale - at market: Bonds and redeemable preferred stocks 10,247,774 10,310,737 Common and nonredeemable preferred stocks 4,908,399 4,284,423 Total investments 20,675,968 19,742,639 Receivables: Premiums, net 2,325,337 1,703,395 Accrued interest and dividends 298,747 299,159 Recoveries of claims previously paid 410,164 426,056 Other 35,369 34,159 Total receivables 3,069,617 2,462,769 Prepaid Expenses and Other Assets 394,608 378,191 Property Acquired in Settlement of Claims 165,500 250,500 Property-At Cost: Land 782,582 782,582 Office buildings and improvements 1,293,726 1,293,726 Furniture, fixtures and equipment 1,754,214 1,694,657 Automobiles 169,423 151,374 Total 3,999,945 3,922,339 Less accumulated depreciation 1,193,973 1,059,170 Property, net 2,805,972 2,863,169 Total Assets $ 30,141,064 $ 28,224,276 Liabilities and Stockholders' Equity Liabilities: Accounts payable and accrued liabilities $ 800,181 $ 997,823 Commissions and reinsurance payables 36,063 38,601 Premium taxes payable 13,001 35,840 Income taxes payable: Current 187,514 119,500 Deferred 981,778 986,633 Total liabilities 2,018,537 2,178,397 Reserve for Claims 4,486,065 3,836,065 Stockholders' Equity: Common stock-No par value (shares authorized 6,000,000; 2,855,744 and 2,855,744 shares issued and 2,768,070 and 2,790,633 shares outstanding 1996 and 1995, respectively) 783,200 1,038,414 Retained earnings 21,771,748 20,173,755 Net unrealized gain on investments (net of deferred taxes: 1996: $539,305; 1995: $514,130) 1,081,514 997,645 Total stockholders' equity 23,636,462 22,209,814 Total Liabilities and Stockholders' Equity $ 30,141,064 $ 28,224,276 </TABLE> 3
Investors Title Company and Subsidiaries Consolidated Statements of Income June 30, 1996 and 1995 (Unaudited) <TABLE> <S> <C> <C> <C> <C> For The Three For The Six Months Ended Months Ended June 30 June 30 1996 1995 1996 1995 Revenues: Underwriting income: Premiums written $ 5,505,691 $ 3,773,439 $ 9,958,580 $ 6,894,750 Less-premiums for reinsurance ceded 24,199 12,167 42,289 29,453 Net premiums written 5,481,492 3,761,272 9,916,291 6,865,297 Investment income-interest and dividends 314,286 268,484 609,077 535,431 Rental income 10,228 5,441 19,125 9,764 Gain on disposals of investments and property, net 46,803 27,841 20,514 46,538 Other 63,821 100,910 110,871 169,728 Total 5,916,630 4,163,948 10,675,878 7,626,758 Operating Expenses: Salaries 919,272 860,889 1,781,158 1,715,254 Commissions to agents 1,362,102 865,818 2,449,054 1,532,462 Provision for claims 830,812 336,482 1,512,145 586,573 Employee benefits and payroll taxes 448,131 272,413 730,381 550,319 Office occupancy and operations 558,384 446,411 987,357 868,396 Business development 167,026 132,302 296,191 245,659 Taxes, other than payroll and income 147,528 97,595 259,080 191,311 Professional fees 38,920 80,737 71,171 136,988 Interest expense 0 0 0 10,638 Other 93,066 32,989 191,249 62,682 Total 4,565,241 3,125,636 8,277,786 5,900,282 Income Before Income Taxes 1,351,389 1,038,312 2,398,092 1,726,476 Provision For Income Taxes: Current 454,377 275,350 701,622 242,870 Deferred (81,770) 6,556 (30,031) 120,026 Total 372,607 281,906 671,591 362,896 Net Income $ 978,782 $ 756,406 $ 1,726,501 $ 1,363,580 Net Income Per Share* $ 0.35 $ 0.27 $ 0.62 $ 0.49 Dividends Paid $ 71,394 $ 57,116 $ 128,508 $ 114,230 Dividends Per Share $ 0.025 $ 0.02 $ 0.045 $ 0.04 * Net income per share is computed based on the weighted average number of common shares outstanding (1996, 2,778,105 and 1995, 2,810,222 shares, respectively.) The effect of stock options is not material to the computation of earnings per share. </TABLE> 4
Investors Title Company and Subsidiaries Consolidated Statements of Cash Flows For the Six Months Ended June 30, 1996 and 1995 (Unaudited) <TABLE> <S> <C> <C> 1996 1995 Operating Activities: Net income $1,726,501 $1,363,580 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 158,208 151,081 Amortization, net of accretion 6,942 34,001 (Gain) loss on disposals of property (11,910) 1,019 Gain on sales of investments (8,604) (47,556) Provision (benefit) for deferred income taxes (30,031) 120,026 Provision for possible claims 1,512,145 586,573 Payments of claims, net of recoveries (862,145) (527,573) Increase in receivables (606,848) (149,044) Increase in prepaid expenses and other assets (16,417) (287,947) (Increase) decrease in assets acquired in settlement of claims 85,000 (109,900) Decrease in accounts payable and accrued liabilities (197,642) (341,726) Decrease in commissions and reinsurance payables (2,538) (11,246) Decrease in premium taxes payable (22,839) (67,121) Increase in income taxes payable - current 68,014 143,479 Net cash provided by operating activities 1,797,836 857,646 Investing Activities: Purchases of investments held-to-maturity (897,846) (995,620) Purchases of investments available-for-sale (1,010,755) (462,212) Proceeds from sales of investments held-to-maturity 491,019 1,142,979 Proceeds from sales of investments available-for-sale 594,960 368,887 Purchases of property (171,080) (135,985) Proceeds from sales of property 81,979 1,932 Net cash used in investing activities (911,723) (80,019) Financing Activities: Dividends paid (128,508) (114,230) Repurchases of common stock, net (255,214) (10,766) Repayment of notes payable 0 (500,000) Net cash used in financing activities (383,722) (624,996) Net Increase in Cash and Cash Equivalents 502,391 152,631 Cash and Cash Equivalents, Beginning of Year 2,527,008 2,590,071 Cash and Cash Equivalents, End of Period $3,029,399 $2,742,702 Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest $0 $14,476 Income Taxes $784,006 $104,612 </TABLE> 5
INVESTORS TITLE COMPANY AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 1996 (Unaudited) Note 1 - Basis of Presentation The consolidated financial statements include Investors Title Company and its subsidiaries, and have been prepared in conformity with generally accepted accounting principles. In the opinion of management all necessary adjustments have been reflected for a fair presentation of the financial position, results of operations and cash flows in the accompanying unaudited consolidated financial statements. All such adjustments are of a normal recurring nature. Reference should be made to the "Notes to Consolidated Financial Statements" of the Registrant's Annual Report to Shareholders for the year ended December 31, 1995 for a description of accounting policies. Note 2 - Reinsurance The Company assumes and cedes reinsurance with other insurance companies in the normal course of business. Premiums assumed and ceded were $22,306 and $42,289, respectively for the six months ended June 30, 1996, and $19,295 and $29,453, respectively for the six months ended June 30, 1995. Note 3 - Reserve for Claims Transactions in the reserve for claims for the six months ended June 30, 1996 were as follows: Balance, beginning of year $3,836,065 Provision, charged to operations 1,512,145 Recoveries 68,805 Payments of claims (930,950) Balance, June 30, 1996 $4,486,065 In management's opinion, the reserve is adequate to cover claim losses which might result from pending and possible claims. Note 4 - Leases Rent expense totaled $189,057 and $206,407, respectively for the six months ended June 30, 1996 and 1995. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The 1995 Form 10-K and the 1995 Annual Report should be read in conjunction with the following discussion since they contain important information for evaluating the Company's operating results and financial condition. Results of Operations: For the quarter ended June 30, 1996, premiums written increased 46% to $5,505,691, investment income increased 17% to $314,286, revenues increased 42% to $5,916,630, net income increased 29% to $978,782 and net income per share increased 30% to $.35 all compared to the same quarter in 1995. For the six months ended June 30, 1996, premiums written increased 44% to $9,958,580, investment income increased 14% to $609,077, revenues increased 40% to $10,675,878, net income increased 27% to $1,726,501 and net income per share increased 27% to $.62 all compared to the same period in 1995. Sales growth in 1996 resulted from a combination of continued marketing efforts and a generally healthy real estate market, despite an approximately one point rise in mortgage rates since January. The volume of business continued to increase in the second quarter of 1996 as the number of policies and commitments issued rose to 36,875, an increase of 41% compared to 26,194 in the same period in 1995. Policies and commitments issued for the six months ended June 30, 1996 were 69,090 compared to 48,322 in 1995. Premiums from direct operations increased 37%, while premiums from agency operations increased 58% for the six months ended June 30, 1996 compared to the same period in 1995. Operating expenses increased 46% and 40% for the three and six months ended June 30, 1996, respectively, when compared to the same periods in 1995. Salaries and employee benefits increased due to additional staffing needs and an increase in accrued bonuses. Office occupancy and operations, business development, and premium taxes increased primarily due to the increase in premium volume. The increase in commissions is the result of the Company's expansion into new markets primarily through establishing new agency relationships. The provision for possible claims increased as a result of the increase in premiums written coupled with a 63% increase in claims payments compared to the same period in 1995. The increase in claims payments was largely the result of the occurrence of a few larger than average claims. The reserve for claims has increased $650,000 in 1996 compared to year-end based on management's assessment of the reserve. Although operating expenses increased, there was a slight gain in operating efficiencies in the first half of 1996 compared to the same period in 1995 as premiums rose 44% while operating expenses only increased 40%. This improvement is primarily due to the Company's cost control efforts. 7
The provision for current income taxes increased in 1996 compared to 1995 primarily due to a 1995 current income tax benefit resulting from loss carrybacks, increases in the reserves for claims and statutory premiums in 1996 which are not currently tax deductible, and an increase in income in 1996. The increase in the provision for current income taxes was partially offset by a decline in the provision for deferred income taxes. Deferred income taxes decreased primarily as a result of increases in the reserves for claims and statutory premiums which are not deductible from taxable income. Liquidity and Capital Resources: Net cash provided by operating activities for the six months ended June 30, 1996, amounted to $1,797,836 compared to $857,646 for the same six month period during 1995. This increase is attributable to the increase in net income and a number of other factors, including a smaller increase in prepaid expenses and other assets in 1996, a decrease in assets acquired in settlement of claims in 1996, a smaller decrease in accounts payable and accrued liabilities in 1996, and a higher provision for possible claims in 1996 (which is added back to net income to reconcile net income to net cash), partially offset by an increase in receivables in 1996. The Board of Directors has approved the repurchase by the Company of shares of the Company's common stock from time to time at prevailing market prices for the purpose of issuances of stock in connection with stock options and stock bonuses. For the six months ended June 30, 1996, the Company repurchased 32,000 shares at an average purchase price of $11.00 per share. Management believes that funds generated from operations (primarily underwriting and investment income) will enable the Company to adequately meet its operating needs. In addition to operational liquidity, the Company maintains a high degree of liquidity within the investment portfolio in the form of short-term investments and other readily marketable securities. 8
PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders Investors Title Company's Annual Meeting of Shareholders was held May 14, 1996. The proposals voted upon and the results of the voting were as follows: 1. Election of three Directors for a three-year term. <TABLE> <S> <C> <C> <C> <C> <C> Broker For Against Abstentions Withheld Non-votes Loren B. Harrell, Jr. 2,296,811 N/A N/A 1,562 N/A H. Joe King, Jr. 2,295,695 N/A N/A 2,678 N/A William J. Kennedy III 2,296,381 N/A N/A 1,992 N/A 2. Ratification of the selection of Deloitte & Touche LLP, Certified Public Accountants to audit the books and accounts of the Company for the calendar year ending December 31, 1996. Broker For Against Abstentions Withheld Non-votes 2,295,403 11 3,159 N/A N/A </TABLE> Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27) Financial Data Schedule (b) Reports on Form 8-K There were no reports filed on Form 8-K for this quarter. 9
SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed in its behalf by the undersigned hereunto duly authorized. INVESTORS TITLE COMPANY (Registrant) By: /s/J. Allen Fine J. Allen Fine President, Chairman By: /s/Elizabeth P. Bryan Elizabeth P. Bryan Vice President (Principal Accounting Officer) Dated: July 30, 1996 10