UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-11774 INVESTORS TITLE COMPANY (Exact name of registrant as specified in its charter) North Carolina 56-1110199 (State of Incorporation) (I.R.S. Employer) 121 North Columbia Street, Chapel Hill, North Carolina 27514 (Address of Principal Executive Offices) (Zip Code) (919) 968-2200 ( Registrant's Telephone Number Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Shares outstanding of each of the issuer's classes of common stock as of March 31, 1997: Common Stock, no par value 2,766,739 Class Shares Outstanding 1
INVESTORS TITLE COMPANY AND SUBSIDIARIES Index PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996 . . . . . . . . . . . . . . . .3 Consolidated Statements of Income: Three Months Ended March 31, 1997 and 1996 . . . .4 Consolidated Statements of Cash Flows: Three Months Ended March 31, 1997 and 1996 . . . .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 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 March 31, 1997 and December 31, 1996 (Unaudited) <TABLE> <S> <C> <C> 3/31/97 12/31/96 Assets Cash and Cash Equivalents $ 5,100,623 $ 4,244,570 Investments: Held-to-maturity: Certificates of deposit 169,004 169,004 Bonds - at amortized cost 4,812,753 5,098,368 Available-for-sale - at market: Bonds 13,276,954 12,832,724 Common and nonredeemable preferred stocks 4,579,347 5,473,567 Total investments 22,838,058 23,573,663 Receivables: Premiums, net 1,917,370 2,016,122 Accrued interest and dividends 332,828 321,634 Recoveries of claims previously paid 68,777 69,334 Other 91,552 35,663 Total receivables 2,410,527 2,442,753 Prepaid Expenses and Other Assets 488,754 451,972 Property Acquired in Settlement of Claims 240,500 165,500 Property-At Cost: Land 782,582 782,582 Office buildings and improvements 1,293,726 1,293,726 Furniture, fixtures and equipment 1,888,138 1,843,636 Automobiles 203,377 169,423 Total 4,167,823 4,089,367 Less accumulated depreciation 1,404,245 1,325,297 Property, net 2,763,578 2,764,070 Total Assets $ 33,842,040 $ 33,642,528 Liabilities and Stockholders' Equity Liabilities: Accounts payable and accrued liabilities $ 568,113 $ 997,759 Commissions and reinsurance payables 89,154 60,902 Premium taxes payable - 101,766 Income taxes payable: Current 383,553 175,143 Deferred 998,927 1,232,716 Total liabilities 2,039,747 2,568,286 Reserves for Claims 5,436,065 5,086,065 Stockholders' Equity: Common stock-No par value (shares authorized 6,000,000; 2,855,744 and 2,855,744 shares issued; and 2,766,739 and 2,767,830 shares outstanding 1997 and 1996, respectively) 705,966 722,321 Retained earnings 24,521,377 23,745,995 Net unrealized gain on investments (net of deferred taxes: 1997: $586,696; 1996: $782,959) 1,138,885 1,519,861 Total stockholders' equity 26,366,228 25,988,177 Total Liabilities and Stockholders' Equity $ 33,842,040 $ 33,642,528 </TABLE> 3
Investors Title Company and Subsidiaries Consolidated Statements of Income March 31, 1997 and 1996 (Unaudited) <TABLE> <S> <C> <C> For The Three Months Ended March 31 1997 1996 Revenues: Underwriting income: Premiums written $ 5,487,630 $ 4,452,889 Less-premiums for reinsurance ceded 68,842 18,090 Net premiums written 5,418,788 4,434,799 Investment income-interest and dividends 398,113 294,791 Gain (loss) on sales of investments, net 107,081 (40,052) Other 121,529 69,710 Total 6,045,511 4,759,248 Operating Expenses: Salaries 991,476 861,886 Commissions to agents 1,672,088 1,086,952 Provision for claims 814,821 681,333 Employee benefits and payroll taxes 463,472 282,250 Office occupancy and operations 546,940 428,973 Business development 145,947 129,165 Taxes, other than payroll and income 172,844 111,552 Professional fees 35,136 32,251 Other 21,863 98,183 Total 4,864,587 3,712,545 Income Before Income Taxes 1,180,924 1,046,703 Provision For Income Taxes: Current 357,397 247,245 Deferred (37,527) 51,739 Total 319,870 298,984 Net Income $ 861,054 $ 747,719 Net Income Per Share* $ 0.31 $ 0.27 Dividends Paid $ 85,672 $ 57,114 Dividends Per Share $ 0.03 $ 0.02 </TABLE> * Net income per share is computed based on the weighted average number of common shares outstanding (1997, 2,768,947 and 1996, 2,782,457 shares, respectively). The effect of stock options is not material to the computation of earnings per share. 4
Investors Title Company and Subsidiaries Consolidated Statements of Cash Flows For the Three Months Ended March 31, 1997 and 1996 (Unaudited) <TABLE> <S> <C> <C> 1997 1996 Operating Activities: Net income $861,054 $747,719 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 80,106 74,715 Amortization, net of accretion 1,176 3,426 (Gain) loss on disposals of property 956 (13,763) (Gain) loss on sales of investments (107,081) 40,052 Provision (benefit) for deferred income taxes (37,527) 51,739 Provision for possible claims 814,821 681,333 Payments of claims, net of recoveries (464,821) (331,333) (Increase) decrease in receivables 42,013 (132,276) Increase in prepaid expenses and other assets (36,782) (27,190) (Increase) decrease in assets acquired in settlement of claims (75,000) 85,000 Decrease in accounts payable and accrued liabilities (429,646) (373,605) Increase (decrease) in commissions and reinsurance payables 28,252 (7,918) Increase (decrease) in premium taxes payable (111,552) 24,308 Increase in income taxes payable - current 208,410 165,826 Net cash provided by operating activities 774,379 988,033 Investing Activities: Purchases of investments held-to-maturity - (153,886) Purchases of investments available-for-sale (1,326,176) (807,108) Proceeds from investments held-to-maturity 285,000 371,019 Proceeds from investments available-for-sale 1,305,447 376,726 Purchases of property (80,615) (85,616) Proceeds from sales of property 45 80,350 Net cash provided by (used in) investing activities 183,701 (218,515) Financing Activities: Dividends paid (85,672) (57,114) Repurchases of common stock, net (16,355) (127,444) Net cash used in financing activities (102,027) (184,558) Net Increase in Cash and Cash Equivalents 856,053 584,960 Cash and Cash Equivalents, Beginning of Year 4,244,570 2,527,008 Cash and Cash Equivalents, End of Period $5,100,623 $3,111,968 Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest $0 $0 Income Taxes $148,987 $235,275 </TABLE> 5
INVESTORS TITLE COMPANY AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements March 31, 1997 (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, 1996 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 $22,247 and $68,842, respectively for the three months ended March 31, 1997, and $12,769 and $18,090, respectively for the three months ended March 31, 1996. Note 3 - Reserves for Possible Claims Transactions in the reserves for possible claims for the three months ended March 31, 1997 were as follows: Balance, beginning of year $5,086,065 Provision, charged to operations 814,821 Recoveries 20,343 Payments of claims (485,164) Balance, March 31, 1997 $5,436,065 In management's opinion, the reserves are adequate to cover claim losses which might result from pending and possible claims. Note 4 - Leases Rent expense totaled $108,021 and $92,292, respectively for the three months ended March 31, 1997 and 1996. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The 1996 Form 10-K and the 1996 Annual Report should be read in conjunction with the following discussion since they contain important information for evaluating the Company's operating results and financial condition. Results of Operations: For the quarter ended March 31, 1997, premiums written increased 23% to $5,487,630, investment income increased 35% to $398,113, revenues increased 27% to $6,045,511, net income increased 15% to $861,054 and net income per share increased 15% to $.31 all compared to the same quarter in 1996. Growth in sales has resulted from a combination of continued marketing efforts and a generally healthy real estate market, despite a rise in 30-year fixed mortgage rates to 7.9% in March 1997 compared to 7.62% in March 1996. The volume of business continued to increase in the first quarter of 1997 as the number of policies and commitments issued rose to 34,857, an increase of 8% compared to 32,215 in the same period in 1996. For the quarter ended March 31, 1997, premiums from branch operations increased 9% to $3,107,413 compared to $2,837,889 in the same quarter in 1996. Premiums from agency operations increased 47% to $2,380,217 for the three months ended March 31, 1997 compared to $1,615,000 for the same period in 1996. Shown below is a schedule of title premiums written for the three months ended March 31, 1997 and 1996 in all states where our two insurance subsidiaries, Investors Title Insurance Company and Northeast Investors Title Insurance Company, currently underwrite insurance: <TABLE> <S> <C> <C> 1997 1996 Florida $22,773 $19,027 Georgia 192,909 16,419 Indiana 18,939 21,591 Kentucky - 84 Maryland 20,365 11,474 Michigan 668,290 - Mississippi 10,788 - Nebraska 158,870 138,570 New York 99,355 82,479 North Carolina 2,966,363 2,784,721 South Carolina 408,054 565,797 Tennessee 13,884 23,010 Virginia 884,793 776,948 Direct Premiums 5,465,383 4,440,120 Reinsurance Assumed 22,247 12,769 Total Premiums Written $5,487,630 $4,452,889 </TABLE> 7
Operating expenses increased 31% for the three months ended March 31, 1997 compared to the same period in 1996. Salaries and employee benefits increased due to additional staffing needed to process the rise in premium volume. Office occupancy and operations and premium taxes rose primarily due to the increase in premium volume. The increase in commissions is the result of the Company's expansion into new markets primarily through establishing new agency relationships. The provision for possible claims as a percentage of premiums written was 14.85% for the three months ended March 31, 1997 and 15.3% for the same period in 1996. Income tax expense as a percentage of income before income taxes was 27.1% and 28.6% for the three months ended March 31, 1997 and 1996, respectively. The decline in 1997 was primarily due to higher interest income on tax exempt investments in 1997. Liquidity and Capital Resources: Net cash provided by operating activities for the three months ended March 31, 1997, amounted to $774,379 compared to $988,033 for the same three month period during 1996. This decrease is attributable to the gain on sales of investments, decreases in the provision for deferred income taxes, accounts payable and accrued liabilities, and premium taxes payable, an increase in assets acquired in settlement of claims, partially offset by increases in net income and income taxes payable, and a decrease in receivables in 1997. 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 7,900 shares at an average price of $14.99 per share as of April 16, 1997. The Board has authorized management to repurchase up to an additional 142,100 shares. Management believes that funds generated from operations (primarily underwriting and investment income) will enable the Company to adequately meet its operating needs. In addition to operational liquidity, the Company maintains a high degree of liquidity within the investment portfolio in the form of short-term investments and other readily marketable securities. Except for the historical information presented, the matters disclosed in the foregoing discussion and analysis and other parts of this report include forward-looking statements. These statements represent the Company's current judgment on the future and are subject to risks and uncertainties that could cause actual results to differ materially. Such factors include, without limitation: (i) the demand for title insurance will vary with factors beyond the control of the Company such as changes in mortgage interest rates, availability of mortgage funds, level of real estate activity, cost of real estate, consumer confidence, supply and demand for real estate, inflation and general economic conditions; (ii) the risk that losses from claims are greater than anticipated such that reserves for possible claims are inadequate; (iii) the risk that unanticipated 8
adverse changes in securities markets could result in material losses on investments made by the Company; and (iv) the dependence of the Company on key management personnel the loss of whom could have a material adverse affect on the Company's business. Other risks and uncertainties may be described from time to time in the Company's other reports and filings with the Securities and Exchange Commission. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27) Financial Data Schedule (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: May 9, 1997 10