-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RuImyJRyKbTLhEkC6+UFlFKnmxmgp8uCIjvMuN2e287QIKDVyDGGhMxAlJzcGrrS Ipz2OSy688ebyhSGzRI8Uw== 0000905870-98-000014.txt : 19980814 0000905870-98-000014.hdr.sgml : 19980814 ACCESSION NUMBER: 0000905870-98-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVESTORS TITLE CO CENTRAL INDEX KEY: 0000720858 STANDARD INDUSTRIAL CLASSIFICATION: TITLE INSURANCE [6361] IRS NUMBER: 561110199 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11774 FILM NUMBER: 98686282 BUSINESS ADDRESS: STREET 1: 121 N COLUMBIA ST STREET 2: P O DRAWER 2687 CITY: CHAPEL HILL STATE: NC ZIP: 27514 BUSINESS PHONE: 9199682200 MAIL ADDRESS: STREET 1: 121 NORTH COLUMBIA STREET CITY: CHAPEL HILL STATE: NC ZIP: 27514 10-Q 1 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, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-11774 INVESTORS TITLE COMPANY (Exact name of registrant as specified in its charter) North Carolina 56-1110199 (State of Incorporation) (I.R.S. Employer) 121 North Columbia Street, Chapel Hill, North Carolina 27514 (Address of Principal Executive Offices) (Zip Code) (919) 968-2200 (Registrant's Telephone Number Including Area Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Shares outstanding of each of the issuer's classes of common stock as of June 30, 1998: Common Stock, no par value 2,809,212 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, 1998 and December 31, 1997...3 Consolidated Statements of Income: Three and Six Months Ended June 30, 1998 and 1997.....4 Consolidated Statements of Cash Flows: Six Months Ended June 30, 1998 and 1997...............5 Notes to Condensed Consolidated Financial Statements...........6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........................................7 PART II. OTHER INFORMATION..................................................10 Item 4. Submission of Matters to a Vote of Security Holders................10 Item 5. Other Information..................................................10 Item 6. Exhibits and Reports on Form 8-K...................................10 SIGNATURES..................................................................11 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Investors Title Company and Subsidiaries Consolidated Balance Sheets As of June 30, 1998 and December 31, 1997
6/30/98 12/31/97 ----------- ----------- (Unaudited) Assets Cash and Cash Equivalents $ 4,764,362 $ 2,823,177 Investments in securities: Held-to-maturity: Certificates of deposit 98,982 130,985 Bonds, at amortized cost 5,376,128 4,710,481 Available-for-sale, at fair value: Bonds 22,059,438 19,752,550 Common and nonredeemable preferred stocks 6,385,988 6,530,394 ----------- ------------ Total investments 33,920,536 31,124,410 ----------- ------------ Premiums receivable (less allowance for doubtful accounts: 1998: $525,000; 1997: $350,000) $ 4,564,666 3,372,751 Accrued interest and dividends 469,768 429,064 Prepaid expenses and other assets 410,460 462,801 Property acquired in settlement of claims 108,500 280,725 Property, net 2,997,288 2,800,079 ----------- ------------ Total Assets $ 47,235,580 $ 41,293,007 =========== ============ Liabilities and Stockholders' Equity Liabilities: Reserves for claims (Note 2) $ 10,002,165 $ 7,622,140 Accounts payable and accrued liabilities 2,248,749 1,069,372 Commissions and reinsurance payables 175,088 96,241 Premium taxes payable 67,302 153,857 Current income taxes payable 283,863 25,081 Deferred income taxes, net 888,479 1,197,408 ----------- ------------ Total liabilities 13,665,646 10,164,099 ----------- ------------ Stockholders' Equity: Common stock-no par value (shares authorized 6,000,000; 2,855,744 and 2,855,744 shares issued; and 2,809,212 and 2,800,240 shares outstanding 1998 and 1997, respectively) 902,942 879,612 Retained earnings 30,205,263 27,933,688 Net unrealized gain on investments (accumulated other comprehensive income - Note 3) (net of deferred taxes: 1998: $1,268,735; 1997: $1,193,461) 2,461,729 2,315,608 ----------- ------------ Total stockholders' equity 33,569,934 31,128,908 ----------- ------------ Total Liabilities and Stockholders' Equity $ 47,235,580 $ 41,293,007 =========== ===========
See notes to consolidated financial statements. 3 Investors Title Company and Subsidiaries Consolidated Statements of Income June 30, 1998 and 1997 (Unaudited)
For The Three For The Six Months Ended Months Ended June 30 June 30 --------------------------- ---------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Revenues: Underwriting income: Premiums written $ 11,443,747 $ 7,703,332 $ 20,960,698 $ 13,190,962 Less-premiums for reinsurance ceded 137,696 41,643 212,799 110,485 ------------- ----------- ------------- ------------ Net premiums written 11,306,051 7,661,689 20,747,899 13,080,477 Investment income-interest and dividends 445,491 385,606 865,777 783,719 Net realized gain (loss) on sales of investments 51,875 (32) 122,050 107,049 Other 225,549 144,536 375,560 266,065 ------------- ----------- ------------- ------------ Total 12,028,966 8,191,799 22,111,286 14,237,310 ------------- ----------- ------------- ------------ Operating Expenses: Commissions to agents 4,175,171 2,588,253 7,707,011 4,260,341 Provision for claims (Note 2) 2,127,920 1,003,167 3,692,290 1,817,988 Salaries 1,471,519 1,087,793 2,697,578 2,079,269 Employee benefits and payroll taxes 516,881 486,780 1,327,915 950,252 Office occupancy and operations 879,329 623,376 1,539,063 1,170,316 Business development 326,431 324,805 634,206 470,752 Taxes, other than payroll and income 288,265 173,702 530,705 346,546 Professional fees 119,884 64,121 209,020 99,257 Other 120,227 241,537 244,041 263,400 ------------- ----------- ------------- ------------ Total 10,025,627 6,593,534 18,581,829 11,458,121 ------------- ----------- ------------- ------------ Income Before Income Taxes 2,003,339 1,598,265 3,529,457 2,779,189 ------------- ----------- ------------- ------------ Provision For Income Taxes 628,040 452,791 1,086,537 772,661 ------------- ----------- ------------- ------------ Net Income $ 1,375,299 $ 1,145,474 $ 2,442,920 $ 2,006,528 ============= =========== ============= ============ Basic Earnings per Common Share (Note 4) $ 0.49 $ 0.41 $ 0.87 $ 0.72 ============= =========== ============= ============ Weighted Average Shares Outstanding-Basic (Note 4) 2,808,935 2,773,582 2,805,982 2,771,264 ============= =========== ============= ============ Diluted Earnings per Common Share (Note 4) $ 0.48 $ 0.41 $ 0.86 $ 0.71 ============= =========== ============= ============ Weighted Average Shares Outstanding-Diluted (Note 4) 2,848,202 2,818,554 2,847,698 2,817,812 ============= =========== ============= ============ Dividends Paid $ 85,673 $ 85,673 $ 171,345 $ 171,345 ============= =========== ============= ============ Dividends per Share $ 0.03 $ 0.03 $ 0.06 $ 0.06 ============= =========== ============= ============
See notes to consolidated financial statements. 4 Investors Title Company and Subsidiaries Consolidated Statements of Cash Flows For the Six Months Ended June 30, 1998 and 1997 (Unaudited)
1998 1997 ---- ---- Operating Activities: Net income $ 2,442,920 $ 2,006,528 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 181,911 166,434 Net (accretion) amortization (3,039) 2,132 Provision for losses on premiums receivable 175,000 - Net (gain) loss on disposals of property (18,721) 422 Net realized gain on sales of investments (122,050) (107,049) Provision for deferred income taxes (384,203) (135,957) Provision for claims 3,692,290 1,817,988 Payments of claims, net of recoveries (1,312,265) (825,723) Changes in assets and liabilities: Increase in receivables (1,183,053) (364,694) Increase (decrease) in accounts payable and accrued liabilities 1,179,377 (181,966) Increase in commissions and reinsurance payables 78,847 6,842 Decrease in premium taxes payable (86,555) (88,123) Increase in current income taxes payable 258,782 33,011 --------------- ---------------- Net cash provided by operating activities 4,899,241 2,329,845 --------------- ---------------- Investing Activities: Purchases of available-for-sale securities (3,046,749) (2,525,212) Purchases of held-to-maturity securities (1,025,057) - Proceeds from sales of available-for-sale securities 1,231,190 1,305,447 Proceeds from sales of held-to-maturity securities 390,974 460,000 Purchases of property (388,020) (120,849) Proceeds from sales of property 27,621 21,080 ------------- -------------- Net cash used in investing activities (2,810,041) (859,534) ------------- -------------- Financing Activities: Distributions of common stock 23,330 82,748 Dividends paid (171,345) (171,345) ------------- -------------- Net cash used in financing activities (148,015) (88,597) ------------- -------------- Net Increase in Cash and Cash Equivalents 1,941,185 1,381,714 Cash and Cash Equivalents, Beginning of Year 2,823,177 4,244,570 ------------- -------------- Cash and Cash Equivalents, End of Period $ 4,764,362 $ 5,626,284 =============== ============== Supplemental Disclosures: Cash Paid During the Year for: Interest $ 6,000 $ - =============== ============== Income Taxes $ 1,213,126 $ 875,765 =============== ============== See notes to consolidated financial statements.
5 INVESTORS TITLE COMPANY AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 1998 (Unaudited) Note 1 - Basis of Presentation The consolidated financial statements include Investors Title Company and its subsidiaries, and have been prepared in conformity with generally accepted accounting principles. In the opinion of management all necessary adjustments have been reflected for a fair presentation of the financial position, results of operations and cash flows in the accompanying unaudited consolidated financial statements. All such adjustments are of a normal recurring nature. Reference should be made to the "Notes to Consolidated Financial Statements" of the Registrant's Annual Report to Shareholders for the year ended December 31, 1997 for a description of accounting policies. Note 2 - Reserves for Claims Transactions in the reserves for claims for the six months ended June 30, 1998 were as follows: Balance, beginning of year $ 7,622,140 Provision, charged to operations 3,692,290 Recoveries 88,613 Payments of claims (1,400,878) --------------- Balance, June 30, 1998 $ 10,002,165 =============== In management's opinion, the reserves are adequate to cover claim losses which might result from pending and possible claims. Note 3 - Comprehensive Income In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS 130"). The Company adopted SFAS 130 as of January 1, 1998. Adoption of SFAS 130 has not had a financial impact on the Company. This statement requires that an enterprise (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. Other comprehensive income is comprised solely of unrealized gains or losses on the Company's available-for-sale securities. Total comprehensive income for the three months ended June 30, 1998 and 1997 was $1,331,949 and $1,574,622, respectively. Total comprehensive income for the six months ended June 30, 1998 and 1997 was $2,589,041 and $2,054,700, respectively. 6 Note 4 - Earnings Per Common Share The Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128") effective December 31, 1997. Earnings per share for the three and six months ending June 30, 1997 have been restated to comply with SFAS 128. 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 39,267 and 44,972 for the three months ending June 30, 1998 and 1997, respectively and 41,716 and 46,548 for the six months ending June 30, 1998 and 1997, respectively. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The 1997 Form 10-K and the 1997 Annual Report should be read in conjunction with the following discussion since they contain important information for evaluating the Company's operating results and financial condition. Results of Operations: For the quarter ended June 30, 1998, net premiums written increased 48% to $11,306,051, investment income increased 16% to $445,491, revenues increased 47% to $12,028,966 and net income increased 20% to $1,375,299 all compared with the same quarter in 1997. Net income per basic and diluted common share increased 20% and 17% to $0.49 and $0.48, all respectively, as compared to the year ago period. For the six months ended June 30, 1998, net premiums written increased 59% to $20,747,899, investment income increased 10% to $865,777, revenues increased 55% to $22,111,286, net income increased 22% to $2,442,920 and both net income per basic and diluted common share increased 21% to $0.87 and $0.86, respectively, all compared with the same period in 1997. Growth in sales has resulted from the Company's efforts to profitably expand the distribution of products and an extremely healthy real estate market. Economic conditions have continued to produce an ideal climate for real estate activity. According to the Mortgage Bankers Association of America, the monthly average 30-year fixed mortgage interest rates declined to 7.07% for the six months ended June 30, 1998 compared with 7.86% for the six months ended June 30, 1997. The volume of business continued to increase in the second quarter of 1998 as the number of policies and commitments issued rose to 68,932, an increase of 47% compared with 46,946 in the same period in 1997. Policies and commitments issued for the six months ended June 30, 1998 were 131,295 compared with 81,803 in 1997. 7 Shown below is a breakdown of branch and agency premiums:
Three Months Ended Six Months Ended June 30 June 30 -------------------------------------------------------------------- 1998 % 1997 % 1998 % 1997 % ---- - ---- - ---- - ---- - Branch $ 5,507,971 49 $ 3,981,608 52 $10,087,657 49 $ 7,024,614 54 Agency 5,798,080 51 3,680,081 48 10,660,242 51 6,055,863 46 ----------- -- ----------- -- ----------- -- ----------- -- Total $11,306,051 100 $ 7,661,689 100 $20,747,899 100 $13,080,477 100 =========== === =========== === =========== === =========== ===
Shown below is a schedule of title premiums written for the three and six months ended June 30, 1998 and 1997 in all states where our two insurance subsidiaries, Investors Title Insurance Company and Northeast Investors Title Insurance Company, currently underwrite insurance: Three Months Ended Six Months Ended June 30 June 30 ------------------------------------------------------------ 1998 1997 1998 1997 ---- ---- ---- ---- Arkansas $ 17,711 $ 0 $ 17,711 $ 0 Florida 38,392 17,062 46,616 39,835 Georgia 141,146 118,741 283,090 311,650 Indiana 34,475 30,279 66,287 49,218 Kentucky 0 0 102 0 Maryland 141,398 28,239 178,434 48,604 Michigan 2,103,380 1,249,142 4,179,738 1,917,432 Minnesota 191,270 7,719 416,476 7,719 Mississippi 13,090 4,982 24,063 15,770 Nebraska 224,964 171,739 402,135 330,609 New York 136,854 118,175 238,619 217,530 North Carolina 5,542,565 3,945,470 10,117,116 6,911,833 Pennsylvania 0 0 250 0 South Carolina 845,091 692,295 1,438,686 1,100,349 Tennessee 47,583 62,683 83,534 76,567 Virginia 1,947,615 1,241,178 3,422,536 2,125,971 --------------------------------------------------------- Direct Premiums 11,425,534 7,687,704 20,915,393 13,153,087 Reinsurance, net (119,483) (26,015) (167,494) (72,610) --------------------------------------------------------- Net Premiums $11,306,051 $7,661,689 $ 20,747,899 $13,080,477 =========== ========== ============ =========== Total operating expenses increased 52% and 62% for the three and six months ended June 30, 1998, respectively compared with the same periods in 1997. The increase in commissions is the result of the Company's expansion into new markets primarily by continuing to develop agency relationships. Salaries and employee benefits increased 8 primarily due to additional staffing needed to process the increase in premium volume. Office occupancy and operations, business development and premium taxes rose primarily due to the increase in premium volume. The provision for claims as a percentage of net premiums written was 19% and 18% for the three and six months ended June 30, 1998, respectively versus 13% and 14% for the same periods in 1997. The reserves for claims have increased $2,380,025 in 1998 compared with year-end based on premium growth, claims experience and management's assessment of the reserve. Income tax expense as a percentage of income before income taxes was 31% and 28% for the six months ended June 30, 1998 and 1997, respectively. The increase in 1998 was primarily the result of an increase in the tax provision and an increase in income from taxable sources. Liquidity and Capital Resources: Net cash provided by operating activities for the six months ended June 30, 1998, amounted to $4,899,241 compared with $2,329,845 for the same six month period during 1997. In addition to operational liquidity, the Company has no long-term debt. Nonoperating funds were primarily used to purchase investments. On December 9, 1996, the Board of Directors approved the repurchase by the Company of shares of the Company's common stock from time to time at prevailing market prices. The purpose of the repurchases is to avoid dilution to existing shareholders as a result of issuances of stock in connection with stock options and stock bonuses. Pursuant to this approval, the Company has repurchased 29,233 shares at an average price of $19.37 per share as of July 15, 1998, including 6,127 shares purchased at an average purchase price of $26.91 during the quarter ended June 30, 1998. The Board has authorized management to repurchase up to an additional 120,767 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. Other Matters The Company is continuing to address the Year 2000 issues. Management presently believes that with modifications to existing software or conversions to new software, the Year 2000 issue will not pose material operational problems for its accounting computer systems. The Company has begun to communicate with its financial institutions and other third parties with whom it conducts business to determine that they are addressing Year 2000 issues in a timely manner. 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. 9 These statements represent the Company's current judgment on the future and are subject to risks and uncertainties that could cause actual results to differ materially. Such factors include, without limitation: (i) the demand for title insurance will vary with factors beyond the control of the Company such as changes in mortgage interest rates, availability of mortgage funds, level of real estate activity, cost of real estate, consumer confidence, supply and demand for real estate, inflation and general economic conditions; (ii) the risk that losses from claims are greater than anticipated such that reserves for possible claims are inadequate; (iii) the risk that unanticipated adverse changes in securities markets could result in material losses on investments made by the Company; and (iv) the dependence of the Company on key management personnel the loss of whom could have a material adverse affect on the Company's business. Other risks and uncertainties may be described from time to time in the Company's other reports and filings with the Securities and Exchange Commission. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders Investors Title Company's Annual Meeting of Shareholders was held May 12, 1998. The proposals voted upon and the results of the voting were as follows: Election of three Directors for a three-year term. For Against Abstentions Withheld Broker Non-votes --- ------- ----------- -------- --------- J. Allen Fine 2,745,396 N/A N/A 780 N/A David L. Francis 2,743,396 N/A N/A 2,780 N/A A. Scott Parker III 2,745,396 N/A N/A 780 N/A Item 5. Other Information Unless notice of a matter to be presented by a shareholder of the Company at the next Annual Meeting of Shareholders is received at the Company's principal executive offices on or before February 27, 1999, management's proxies for the meeting conferring discretionary authority may be voted with respect to the matter without indicating in the proxy statement how management intends to exercise its discretion. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27) Financial Data Schedule included herewith. (b) Reports on Form 8-K There were no reports filed on Form 8-K for this quarter. 10 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed in its behalf by the undersigned hereunto duly authorized. INVESTORS TITLE COMPANY (Registrant) By: /s/ James A. Fine, Jr. -------------------------- James A. Fine, Jr. President By: /s/Elizabeth P. Bryan -------------------------- Elizabeth P. Bryan Vice President (Principal Accounting Officer) Dated: August 13, 1998 EX-27 2 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
7 *Not disclosed on a quarterly basis. 3-MOS 6-MOS DEC-31-1998 DEC-31-1998 MAR-31-1998 JUN-30-1998 20,229,252 22,059,438 5,163,585 5,376,128 0* 0* 6,648,115 6,385,988 0 0 0 0 32,172,677 33,920,536 3,652,670 4,764,362 0 0 0 0 43,694,307 47,235,580 8,498,765 10,002,165 0 0 89,210 175,088 0 0 0 0 0 0 0 0 979,002 902,942 31,420,716 32,666,992 43,694,307 47,235,580 9,441,848 20,747,899 420,286 865,777 70,175 122,050 150,011 375,560 1,564,370 3,692,290 0 0 6,991,832 14,889,539 1,526,118 3,529,457 458,497 1,086,537 1,067,621 2,442,920 0 0 0 0 0 0 1,067,621 2,442,920 .38 .87 .38 .86 0 0 0 0 0 0 0 0 0 0 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----