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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, 2005
   
OR
   
o
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 Identification No.)
 
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 o

                Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

                As of March 31, 2005, there were 2,855,744 outstanding shares of common stock of Investors Title Company, including 293,881 shares held by Investors Title Insurance Company, a wholly owned subsidiary of Investors Title Company.



INVESTORS TITLE COMPANY
AND SUBSIDIARIES
 
INDEX

PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements:  
     
  Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004 1
     
  Consolidated Statements of Income
     For the Three Months Ended March 31, 2005 and 2004		 2
     
  Consolidated Statements of Stockholders’ Equity
     For the Three Months Ended March 31, 2005 and 2004		 3
     
  Consolidated Statements of Cash Flows
     For the Three Months Ended March 31, 2005 and 2004		 4
     
  Notes to Consolidated Financial Statements 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 10
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
     
Item 4. Controls and Procedures 16
     
PART II. OTHER INFORMATION  
     
Item 2. Unregistered Sales of Equity and Use of Proceeds 17
     
Item 6. Exhibits 17
     
SIGNATURES 18


Item 1. Financial Statements

Investors Title Company and Subsidiaries
Consolidated Balance Sheets
As of March 31, 2005 and December 31, 2004

March 31, 2005
December 31, 2004
(Unaudited)
Assets        
  Cash and cash equivalents $ 4,838,159   $ 4,726,443  
 
  Investments in securities:            
     Fixed maturities:            
       Held-to-maturity, at amortized cost   2,203,026     2,202,635  
       Available-for-sale, at fair value   72,253,978     72,471,766  
     Equity securities, available-for-sale, at fair value   7,296,885     7,240,306  
     Short-term investments   8,833,528     10,134,321  
     Other investments   1,342,747     1,211,517  
 
 
 
        Total investments   91,930,164     93,260,545  
 
  Premiums receivable, less allowance for doubtful accounts of
     $2,240,000 for 2005 and 2004		   6,473,197     6,679,994  
  Accrued interest and dividends   794,995     753,638  
  Prepaid expenses and other assets   1,674,056     1,410,584  
  Property acquired in settlement of claims   278,550     322,517  
  Property, net   4,514,530     4,592,784  
  Deferred income taxes, net   1,566,179     1,440,247  
 
 
 
 
Total Assets $ 112,069,830   $ 113,186,752  
 
 
 
 
Liabilities and Stockholders’ Equity            
Liabilities:            
  Reserves for claims (Note 2) $ 32,098,000   $ 31,842,000  
  Accounts payable and accrued liabilities   5,369,145     7,919,651  
  Commissions and reinsurance payables   432,638     551,662  
  Current income taxes payable   556,807     366,168  
 
 
 
      Total liabilities   38,456,590     40,679,481  
 
 
 
 
Commitments and Contingencies   (Note  7)            
Stockholders’ Equity:            
  Class A Junior Participating preferred stock (shares authorized
    100,000; no shares issued)		   —     —  
  Common stock-no par value (shares authorized 10,000,000;
    2,561,863 and 2,481,024 shares issued and outstanding 2005 and 2004,
    respectively, excluding 293,881 and 374,720 shares 2005 and 2004,
    respectively, of common stock held by the Company’s subsidiary)		   1     1  
  Retained earnings   70,890,920     69,272,092  
  Accumulated other comprehensive income, net of deferred taxes of
    $1,400,420 and $1,663,447 for 2005 and 2004, respectively (Note 3)		   2,722,319     3,235,178  
 
 
 
      Total stockholders’ equity   73,613,240     72,507,271  
 
 
 
 
Total Liabilities and Stockholders’ Equity $ 112,069,830   $ 113,186,752  
 
 
 
  
See notes to Consolidated Financial Statements.

1


Investors Title Company and Subsidiaries
Consolidated Statements of Income
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
  
   2005    2004   
  
  
  
Revenues:                  
          Underwriting income:            
                  Premiums written $ 17,222,198    $ 17,051,282   
                  Less-premiums for reinsurance ceded    139,079       69,526   
  
  
  
                  Net premiums written    17,083,119       16,981,756   
          Investment income - interest and dividends    752,765       656,375   
          Net realized gain (loss) on sales of investments    (10,894 )    3,431   
          Exchange services revenue (Note 5)    809,639       479,894   
          Other    694,950       495,113   
  
  
  
                  Total    19,329,579       18,616,569   
  
  
  
              
Operating Expenses:            
          Commissions to agents    6,991,749       6,998,595   
          Provision for claims (Note 2)    1,899,005       1,844,379   
          Salaries, employee benefits and payroll taxes (Note 6)    5,367,312       3,847,905   
          Office occupancy and operations    1,512,090       1,203,798   
          Business development    427,473       353,414   
          Taxes, other than payroll and income    110,754       201,114   
          Premium and retaliatory taxes    399,545       333,004   
          Professional fees    275,046       410,675   
          Other    45,111       37,874   
  
  
  
                  Total    17,028,085       15,230,758   
  
  
  
              
Income Before Income Taxes    2,301,494       3,385,811   
              
Provision For Income Taxes    721,000       1,164,207   
  
  
  
              
Net Income $ 1,580,494    $ 2,221,604   
  
  
  
              
Basic Earnings Per Common Share (Note 4) $ 0.62    $ 0.89   
  
  
  
              
Weighted Average Shares Outstanding - Basic (Note 4)    2,564,490       2,505,368   
  
  
  
              
Diluted Earnings Per Common Share (Note 4) $ 0.60    $ 0.84   
  
  
  
              
Weighted Average Shares Outstanding - Diluted (Note 4)    2,625,447       2,638,264   
  
  
  
  
See notes to Consolidated Financial Statements.

2


Investors Title Company and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)
  
        Retained
Earnings		    Accumulated
Other Comprehensive
Income (Net
Unrealized Gain (Loss)
on Investments)		    Total
Stockholders’
Equity		   
  Common Stock         
 
        
Shares   Amount
 
                                            
Balance, January 1, 2004 2,503,923    $ 1    $ 59,756,927    $ 3,431,818    $ 63,188,746   
Net income                   2,221,604                2,221,604   
Dividends ($.03 per share)                   (75,187 )             (75,187 )
Shares of common stock repurchased (5,823 )             (197,150 )             (197,150 )
Issuance of common stock in payment of
     bonuses and fees		 370                12,281                12,281   
Stock options exercised 7,345                122,814                122,814   
Net unrealized gain on investments                            78,015       78,015   
  
                                            
Balance, March 31, 2004 2,505,815       1       61,841,289       3,509,833    $ 65,351,123   
  
  
                                            
Balance, December 31, 2004 2,481,024       1       69,272,092       3,235,178       72,507,271   
Net income                   1,580,494                1,580,494   
Dividends ($.04 per share)                   (102,717 )             (102,717 )
Shares of common stock repurchased (67,295 )             (2,058,747 )             (2,058,747 )
Issuance of common stock in payment of
     bonuses and fees		 169                6,594                6,594   
Stock options exercised 147,965                2,193,204                2,193,204   
Net unrealized loss on investments                            (512,859 )    (512,859 )
  
                                            
Balance, March 31, 2005 2,561,863 $ 1 $ 70,890,920 $ 2,722,319 $ 73,613,240
  
  
  
See notes to Consolidated Financial Statements.

3


Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2005 and 2004
(Unaudited)

2005
  2004
 
Operating Activities:        
Net income $ 1,580,494   $ 2,221,604  
  Adjustments to reconcile net income to net cash
     provided by operating activities:
        Depreciation   318,555     229,816  
        Amortization, net   17,173     9,500  
        Issuance of common stock in payment of bonuses and fees   6,594     12,281  
        Benefit for losses on premiums receivable   —     (110,000 )
        Net gain on disposals of property   (18,800 )   —  
        Net realized (gain) loss on sales of investments   10,894     (3,431 )
        Provision for claims   1,899,005     1,844,379  
        Provision for deferred income taxes   137,095     319,000  
  Changes in assets and liabilities:
        (Increase) decrease in receivables and other assets   (54,065 )   863,963  
        Decrease in accounts payable and accrued liabilities   (520,936 )   (1,794,336 )
        Decrease in commissions and reinsurance payables   (119,024 )   (335,292 )
        Increase in current income taxes payable   190,639     496,402  
        Payments of claims, net of recoveries   (1,643,005 )   (1,375,379 )
     Net cash provided by operating activities   1,804,619     2,378,507  
 
Investing Activities:
  Purchases of available-for-sale securities   (4,053,851 )   (7,958,134 )
  Purchases of short-term securities   (758,764 )   (8,409,352 )
  Purchases of and net earnings (loss) from other investments   (180,570 )   (211,402 )
  Proceeds from sales and maturities of available-for-sale securities   3,410,716     11,625,000  
  Proceeds from sales of held-to-maturity securities   —     168,000  
  Proceeds from short-term securities   2,059,557     3,012,475  
  Proceeds from sales and distributions from other investments   49,340     —  
  Purchases of property   (244,301 )   (94,322 )
  Proceeds from sales of property   22,800     —  
  Net change in pending trades   (2,029,570 )   (725,564 )
     Net cash used in investing activities   (1,724,643 )   (2,593,299 )
 
Financing Activities:
  Repurchases of common stock, net   (2,058,747 )