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, 1996 [ ] 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 February 15, 1997, the aggregate market value of the voting stock held by those other than executive officers and directors of the registrant was $33,780,013. On February 15, 1997, the number of common shares outstanding was 2,767,629. DOCUMENTS INCORPORATED BY REFERENCE Documents Form 10-K Reference - ---------- ------------------- Portions of Annual Report to Shareholders Part I, Items 1 and 2 for fiscal year ended December 31, 1996 Part II, Items 5 - 8 Part IV, Item 14 Portions of Proxy Statement (in connection with Annual Meeting to be held on May 13, 1997) Part III, Items 10 - 13 Location of Exhibit Index: The Index to Exhibits is contained in Part IV herein on page 14. 1
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, Illinois, Indiana, Kentucky, Maryland, Michigan, Minnesota, Mississippi, Nebraska, Pennsylvania, Tennessee and 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, Colorado, Connecticut, Delaware, Idaho, Kansas, Louisiana, Massachusetts, Missouri, Montana, Nevada, New Jersey, North Dakota, Oklahoma, Texas and West Virginia. 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. 2
In the State of North Carolina, title insurance commitments and policies are issued by the home office and branch offices. ITIC has 29 branch offices. In 1996, four offices were opened 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 $500,000, reinsures the next $250,000 of risk with NE-ITIC, and all risks above $750,000 are then reinsured with a non-related reinsurer in the industry. NE-ITIC currently assumes primary risks up to $250,000, reinsures the next $500,000 of risk with ITIC, and reinsures all amounts above $750,000 with a non-related reinsurer in the industry. Each insurance subsidiaries' risk retention limits are self-imposed and more conservative than state insurance regulations. In 1984, ITIC became the leading title insurer of North Carolina property and has held this position in the marketplace since that time. ITIC's financial stability was recognized by a Fannie Mae and Freddie Mac approved actuarial firm with a rating of "A Double Prime - unsurpassed financial stability". NE-ITIC's financial stability was recognized by a Fannie Mae and Freddie Mac approved actuarial firm with a rating of "A - exceptional financial stability". 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
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 insurance premiums written during the years 1994 through 1996 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 insurance premiums written during the years 1994 through 1996 by this subsidiary. ITEC offers services in connection with tax-free exchanges. Schedule A summarizes the fees earned during the years 1994 through 1996. SCDP had revenues of $3,712, $40,926 and $97,924 in 1996, 1995 and 1994, respectively. For a description of Premiums Written geographically, see Management's Discussion and Analysis of Results of Operations and Financial Condition in the 1996 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 had the least real estate activity, while the remaining quarters have been more active. Fluctuations in mortgage interest rates can cause shifts in real estate activity outside the normal seasonal pattern. Marketing ITIC's current and future marketing plan is to provide 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 27 branch offices. In South Carolina, ITIC operates through a branch office and issuing agents located conveniently to customers throughout the State. ITIC also operates through issuing agents located in Arkansas, Florida, Georgia, Illinois, Indiana, Kentucky, Maryland, Michigan, Minnesota, Mississippi, Nebraska, Pennsylvania, Tennessee and 4
SCHEDULE A INVESTORS TITLE INSURANCE COMPANY PREMIUMS WRITTEN For The Years Ended December 31 1996 1995 1994 $20,696,625 $15,547,967 $15,151,448 =========== =========== =========== NORTHEAST INVESTORS TITLE INSURANCE COMPANY PREMIUMS WRITTEN For The Years Ended December 31 1996 1995 1994 $535,623 $384,856 $496,301 ======== ======== ======== INVESTORS TITLE EXCHANGE CORPORATION FEES EARNED For The Years Ended December 31 1996 1995 1994 $272,998 $241,281 $153,144 ======== ======== ======= 5
Virginia. ITIC intends to establish branch and/or agency offices in the other states in which it is licensed. A time frame has not been determined for any additional expansion. 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. 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 possible claims for financial reporting purposes are established based on criteria discussed in Notes 1 and 5 to Consolidated Financial Statements of the 1996 Annual Report to Shareholders 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 three 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. NE-ITIC was last examined by the South Carolina Department of Insurance on November 14, 1994 for the period December 31, 1991 through December 31, 1993 with no material deficiencies noted. Examinations are scheduled periodically by the South Carolina Department of Insurance. 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. 6
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 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 subsidiary. 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, 1996, ITIC reported $14,286,267 of capital and surplus, and net income of $2,957,206; and NE-ITIC reported $1,957,088 of capital and surplus, and net income of $160,882. 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 the State of North Carolina. There are 19 title insurance companies operating in the State of North Carolina. In 1996 Investors Title had approximately 26% of the title insurance market in the State, and ranked first in the amount of premiums written among companies doing business in the State. 7
ITIC's major competitors in North Carolina are Chicago Title Insurance Company, Commonwealth Land Title Insurance Company, Fidelity National Title Insurance Company of Pennsylvania, First American Title Insurance Company, Lawyers Title Insurance Corporation, Old Republic National Title Insurance Company and Stewart Title Guaranty Company. ITIC and NE-ITIC have a number of competitors in each state where they operate. The title insurance industry is highly competitive. Key elements which affect competition are price, expertise, 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), certificates of deposit, 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. The Company, ITIC, NE-ITIC, ITEC and SCDP had investment income as set out in the following table for the years 1992 through 1996: FOR THE YEARS ENDED DECEMBER 31 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Company $ 67,162 $16,238 $12,225 $10,529 $ 11,755 ITIC 1,161,795 1,007,255 926,976 842,367 733,676 NE-ITIC 121,007 111,939 103,600 100,576 99,691 ITEC 2,708 3,457 3,911 968 357 SCDP 260 1,747 0 0 0 TOTAL $1,352,932 $1,140,636 $1046,712 $954,440 $845,479 ========== ========== ========= ======== ======== See Note 3 in the 1996 Annual Report to Shareholders incorporated herein by reference for the major categories of investments, earnings by investment categories, scheduled maturities, amortized cost, and market values of investment securities. 8
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 132 full-time employees and 17 part-time employees as of December 31, 1996. 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. 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 for employees and guests of the Company. 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 30 locations throughout North Carolina, South Carolina, Michigan and Virginia. See Note 8 in the 1996 Annual Report to Shareholders 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, 1996. 9
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, 1996. 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. Position with Officer Term to Name Age Registrant Since Expire J. Allen Fine 62 President 1973 1997 and Director Elizabeth P. Bryan 36 Vice President 1987 1997 and Assistant Secretary James A. Fine, Jr. 34 Vice President 1987 1997 W. Morris Fine 30 Vice President and 1992 1997 Treasurer L. Dawn Martin 31 Vice President 1993 1997 and Assistant Secretary Carl E. Wallace, Jr. 52 Vice President 1977 1997 and Secretary J. Allen Fine, President and Chairman of the Board of Directors, is the father of James A. Fine, Jr., Vice President of the Company, and W. Morris Fine, also a Vice President and Treasurer of the Company. The business experience of the Executive Officers of the Company is set forth below: J. Allen Fine was the principal organizer of ITIC and has been Chairman of the Board of that Company, the Registrant, and NE-ITIC since their incorporation. Mr. Fine served as President of ITIC until February, 1997 when he was named Chief Executive Officer. Additionally, Mr. Fine serves as President of the Company and President and Chief Executive Officer of NE-ITIC. Mr. Fine also serves as Chairman of the Board 10
of ITEC and SCDP. Mr. Fine is the father of James A. Fine, Jr., Vice President of the Company, and W. Morris Fine, Vice President and Treasurer of the Company. Elizabeth P. Bryan joined the Company in 1985 as Controller of the Company, ITIC and NE-ITIC. In 1987 she was named Vice President of the Company, Vice President- Accounting of ITIC and Vice President of NE-ITIC. In 1988, Ms. Bryan was named Vice President, Treasurer and Director of ITEC. In 1996, she was named Treasurer of NE-ITIC, and Vice President and Treasurer of SCDP. In 1997, Ms. Bryan was named Assistant Secretary of the Company. James A. Fine, Jr. joined the Company in 1986 as Investment Manager of ITIC and NE- ITIC. In 1987 he was named Vice President of the Company and Vice President-Finance of ITIC and Vice President of NE-ITIC. In 1988, he was named President and Director of ITEC. In 1990, he was appointed Director of ITIC and in 1991 was appointed Director of NE-ITIC. In 1994, Mr. Fine was named Vice President and Director of SCDP. In 1996, he was named Executive Vice President and Chief Financial Officer of NE-ITIC and President of SCDP. In 1997, Mr. Fine was named Executive Vice President and Chief Financial Officer of ITIC. James A. Fine, Jr. is the son of J. Allen Fine, President and Chairman of the Board of the Company, and brother of W. Morris Fine, Vice President and Treasurer of the Company. W. Morris Fine joined the Company in July, 1992, and was subsequently named Vice President of the Company, Vice President-Marketing of ITIC, and Vice President of ITEC. In 1993, Mr. Fine was named Treasurer of the Company and ITIC; Vice President and Director of NE-ITIC; and Director of ITIC and ITEC. In 1994, Mr. Fine was named Treasurer and Director of SCDP. In 1995, he was named Treasurer of NE- ITIC. In 1996, he was named Executive Vice President and Chief Operating Officer of NE-ITIC. In 1997, Mr. Fine was named President and Chief Operating Officer of ITIC. Mr. Fine graduated from the University of North Carolina at Chapel Hill in 1988 and, upon graduation, was employed by Ernst & Young as a Senior Auditor prior to joining Investors Title. W. Morris Fine is the son of J. Allen Fine, President and Chairman of the Board of the Company, and brother of James A. Fine, Jr., Vice President of the Company. L. Dawn Martin joined the Company in February, 1991, and was subsequently named Vice President, Assistant Secretary and Director of ITEC. In 1993, Ms. Martin was named Vice President of the Company and Vice President-Human Resources of ITIC. In 1994, Ms. Martin was named Assistant Secretary for both the Company and ITIC, and Secretary of ITEC and SCDP. In 1995, she was appointed as Director of ITIC and SCDP, and named Assistant Secretary of NE-ITIC. Ms. Martin was previously employed by Elite Personnel, Inc., as a Personnel Coordinator and by Judith Fox Temporaries, Inc., as a Senior Personnel Coordinator. Carl E. Wallace, Jr. is Vice President and Secretary of the Company. Since 1974, he has 11
also held the positions of Vice President and Secretary of NE-ITIC, as well as Vice President-Business Development, Secretary and Title Attorney for ITIC. In 1990, he was appointed Director of ITIC. In 1994, Mr. Wallace was named Vice President and Director of SCDP. 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 "Operations Summaries" in the 1996 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, 1996 is in the 1996 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 1996 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 1996 Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data in the 1996 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 19 through 26. The supplementary data (Selected Quarterly Operating Results) in the 1996 Annual Report to Shareholders is incorporated herein by reference. 12
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 13, 1997 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 13, 1997 is incorporated herein by reference. 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 13, 1997 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 13, 1997 is incorporated herein by reference. 13
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 1996 Annual Report to Shareholders are hereby incorporated by reference in Item 8: Independent Auditors' Report Consolidated Balance Sheets as of December 31, 1996 & 1995 Consolidated Statements of Income for the Years Ended December 31, 1996, 1995 & 1994 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995, & 1994 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 & 1994 Notes to Consolidated Financial Statements 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. 14
3. Exhibits Page Number or Exhibit Incorporation by Number Description Reference to (3)(i) Articles of Incorporation Exhibit 1 to Form 10, dated June 12, 1984 (3)(ii) By-Laws Exhibit 2 to Form 10, dated June 12, 1984 (3)(iii) Amendment to Bylaws adopted Page 27 of this report. March 10, 1997 Management contract of compensatory plan or arrangement (Exhibits (10)(i) - (10)(viii)) (10)(i) 1988 Incentive Stock Option Plan Exhibit 10 to Form 10-K, page 31, dated December 31, 1989 (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 dated Exhibit 10 to Form February 9, 1984 with 10-K, page 14, dated J. Allen Fine, President 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, March 31, 1995 1989 15
(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 Page 29 of this report. Stock Plan (13) Portions of 1996 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 Included herewith (B) Reports on Form 8-K No reports were filed on Form 8-K for the fourth quarter. 16
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 President, Chairman Date March 26, 1997 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 26th day of March, 1997. /s/J. Allen Fine /s/William J. Kennedy III J. Allen Fine, President, Chairman William J. Kennedy III, Director /s/Elizabeth P. Bryan /s/H. Joe King, Jr. Elizabeth P. Bryan, Vice President H. Joe King, Jr., Director (Principal Accounting Officer) /s/William Morris Fine William Morris Fine, Vice President Richard W. McEnally, Director and Treasurer (Principal Financial Officer) /s/Lillard H. Mount /s/James R. Morton Lillard H. Mount, Director and James R. Morton, Director General Counsel /s/David L. Francis /s/A. Scott Parker, Jr. David L. Francis, Director A. Scott Parker, Jr., Director Loren B. Harrell, Jr., Director 17
(Deloitte & Touche LLP Letterhead appears here) INDEPENDENT AUDITORS' REPORT Investors Title Company: We have audited the consolidated financial statements of Investors Title Company (the "Company") and its subsidiaries as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, and have issued our report thereon dated January 29, 1997; such consolidated financial statements and report are included in your 1996 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. (Deloitte & Touche LLP signature appears here) January 29, 1997 (Deloitte Touche Footer appears here) 18
SCHEDULE I INVESTORS TITLE COMPANY AND SUBSIDIARIES SUMMARY OF INVESTMENTS As of December 31, 1996 <TABLE> <CAPTION> - --------------------------------------------------------------------------------------------------------------------------- Amount at which shown in the Type of Investment Cost(1) Market Value Balance Sheet - --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Fixed Maturities: Bonds: States, municipalities and political subdivisions $15,595,059 $16,047,790 $15,892,518 Foreign governments 145,922 138,274 138,274 Public utilities 497,933 505,000 505,000 Convertibles and bonds with warrants attached 10,000 11,300 11,300 All other corporate bonds 1,367,998 1,384,000 1,384,000 Certificates of deposit 169,004 169,004 169,004 ------------------ -------------------- -------------------- Total fixed maturities 17,785,916 18,255,368 18,100,096 ------------------ -------------------- -------------------- Equity Securities: Common Stocks: Public utilities 279,864 447,988 447,988 Banks, trust and insurance companies 555,147 1,144,692 1,144,692 Industrial, miscellaneous and all other 2,018,799 3,232,749 3,232,749 Nonredeemable preferred stocks 631,117 648,138 648,138 ------------------ -------------------- -------------------- Total equity securities 3,484,927 5,473,567 5,473,567 ------------------ -------------------- -------------------- Total investments per the consolidated balance sheet 21,270,843 23,573,663 ------------------ -------------------- Short-term investments 3,833,153 3,833,153 ------------------ -------------------- Total investments $25,103,996 $27,406,816 ================== ==================== </TABLE> (1) Fixed maturities are shown at amortized cost and equity securities are shown at original cost. 19
SCHEDULE II INVESTORS TITLE COMPANY (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995 <TABLE> <CAPTION> 1996 1995 <S> <C> <C> Assets Cash and Cash Equivalents $ 139,668 $ 41,370 ----------- ----------- Equity Securities 90,000 -- ----------- ----------- Investments in Affiliated Companies at Equity* 22,743,358 19,507,982 ----------- ----------- Receivables: Income taxes receivable 463,445 564,387 Other 45,232 58,839 ----------- ----------- Total receivables 508,677 623,226 ----------- ----------- Deferred Income Tax 25,688 18,572 ----------- ----------- Prepaid Expenses and Other Assets 218,122 218,122 ----------- ----------- Property-At Cost: Land 782,582 782,582 Office buildings and improvements 1,293,726 1,293,726 Furniture, fixtures and equipment 82,138 139,158 ----------- ----------- Total 2,158,446 2,215,466 Less accumulated depreciation 366,687 298,126 ----------- ----------- Property, net 1,791,759 1,917,340 ----------- ----------- Total Assets $25,517,272 $22,326,612 =========== =========== Liabilities and Stockholders' Equity Liabilities: Accounts payable and accrued liabilities $ 120,927 $ 140,507 Notes payable -- 362,000 ----------- ----------- Total liabilities 120,927 502,507 ----------- ----------- Stockholders' Equity: Common stock-No par (shares authorized, 6,000,000; 2,855,744 and 2,855,744 shares issued and 2,767,830 and 2,790,633 shares outstanding 1996 and 1995, respectively) 1,650,350 1,650,350 Retained earnings 23,745,995 20,173,755 ----------- ----------- Total stockholders' equity 25,396,345 21,824,105 ----------- ----------- Total Liabilities and Stockholders' Equity $25,517,272 $22,326,612 =========== =========== </TABLE> *Eliminated in consolidation. See notes to condensed financial statements. 20
SCHEDULE II INVESTORS TITLE COMPANY (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 <TABLE> <CAPTION> 1996 1995 1994 ---- ---- ---- <S> <C> <C> <C> REVENUES: Investment income-interest and dividends $ 67,163 $ 19,430 $ 16,311 Rental income 350,331 304,931 321,057 Miscellaneous income 1,000 -- -- ----------- ----------- ----------- Total 418,494 324,361 337,368 ----------- ----------- ----------- OPERATING EXPENSES: Office occupancy and operations 142,872 121,415 125,088 Business development 8,593 9,079 9,192 Taxes-other than payroll and income 49,579 47,032 39,632 Professional fees 33,684 18,251 8,864 Interest expense 7,692 43,191 76,633 Other expenses 36,231 92,769 33,324 ----------- ----------- ----------- Total 278,651 331,737 292,733 ----------- ----------- ----------- EQUITY IN NET INCOME OF AFFILIATED COS.* 3,745,375 3,138,446 3,103,224 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES 3,885,218 3,131,070 3,147,859 ----------- ----------- ----------- INCOME TAX EXPENSE (BENEFIT): Current 48,797 (113,417) (108,656) Deferred (7,116) (6,171) 129,656 ----------- ----------- ----------- Total 41,681 (119,588) 21,000 ----------- ----------- ----------- NET INCOME $ 3,843,537 $ 3,250,658 $ 3,126,859 =========== =========== =========== EARNINGS PER COMMON SHARE $ 1.39 $ 1.16 $ 1.10 =========== =========== =========== </TABLE> * ELIMINATED IN CONSOLIDATION SEE NOTES TO CONDENSED FINANCIAL STATEMENTS. 21
SCHEDULE II INVESTORS TITLE COMPANY (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 <TABLE> <CAPTION> 1996 1995 1994 ---- ---- ---- <S> <C> <C> <C> OPERATING ACTIVITIES: Net income $ 3,843,537 $ 3,250,658 $ 3,126,859 Adjustments to reconcile net income to net cash provided by operating activities: Equity in net earnings of subsidiaries less dividends received of $510,000, $856,828 and $772,774 in 1996, 1995 and 1994, respectively (3,235,375) (2,281,618) (2,350,450) Depreciation 68,560 67,793 58,821 Provision (benefit) for deferred income taxes (7,116) (6,171) 129,656 Decrease in receivables 13,607 1,216 68,987 (Increase) decrease in income taxes receivable-current 100,942 (311,222) 42,388 Decrease in prepaid expenses -- -- 860 Increase (decrease) in accounts payable and accrued liabilities (19,580) 39,861 (6,972) ----------- ----------- ----------- Net cash provided by operating activities 764,575 760,517 1,070,149 ----------- ----------- ----------- INVESTING ACTIVITIES: Purchases of securities (30,000) -- -- Purchases of furniture and equipment (2,980) (69,605) (53,424) ----------- ----------- ----------- Net cash used in investing activities (32,980) (69,605) (53,424) ----------- ----------- ----------- FINANCING ACTIVITIES: Payments on demand notes (362,000) (500,000) (1,000,000) Dividends paid (271,297) (228,460) (228,460) ----------- ----------- ----------- Net cash used in financing activities (633,297) (728,460) (1,228,460) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 98,298 (37,548) (211,735) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 41,370 78,918 290,653 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 139,668 $ 41,370 $ 78,918 =========== =========== =========== SUPPLEMENTAL DISCLOSURES: CASH PAID DURING THE YEAR FOR: Interest $ 15,837 $ 35,046 $ 70,054 =========== =========== =========== Income Taxes $ 371,193 $ 227,087 $ 149,372 =========== =========== =========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES: Net unrealized gains (losses) on investments in common stocks were $0 in 1996, 1995 and 1994. See notes to condensed financial statements. During 1996, the Company exchanged assets with a value of $60,000 for an equity investment. </TABLE> 22
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, $836,828, and $732,774 in 1996, 1995 and 1994, respectively. Cash dividends paid to Investors Title Company by its wholly owned subsidiary, Investors Title Exchange Corporation were $160,000, $20,000, and $40,000 in 1996, 1995 and 1994, respectively. 3. Notes payable consists of one note payable totaling $362,000 to Investors Title Insurance Company. The note was paid off in March 1996. 4. Certain 1995 and 1994 amounts have been reclassified to conform with 1996 classifications. 23
SCHEDULE III INVESTORS TITLE COMPANY AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 <TABLE> <CAPTION> - ------------------------------------------------------------------------------------------------------------------------------------ FUTURE POLICY OTHER BENEFITS, POLICY DEFERRED LOSSES, CLAIMS POLICY CLAIMS AND NET ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT SEGMENT COST EXPENSES PREMIUMS PAYABLE REVENUE INCOME - ------------------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> YEAR ENDED DECEMBER 31, 1996 TITLE --- 5,086,065 --- 60,902 21,111,155 1,352,932 YEAR ENDED DECEMBER 31, 1995 TITLE --- 3,836,065 --- 38,601 15,854,140 1,140,636 YEAR ENDED DECEMBER 31, 1994 TITLE --- 3,635,850 --- 52,848 15,596,643 1,046,712 <CAPTION> -------------------------------------------------------------------- BENEFITS AMORTIZATION CLAIMS, OF DEFERRED LOSSES AND POLICY OTHER SETTLEMENT ACQUISITION OPERATING PREMIUMS EXPENSES COSTS EXPENSES WRITTEN -------------------------------------------------------------------- <S> <C> <C> YEAR ENDED DECEMBER 31, 1996 TITLE 2,939,741 --- 14,629,904 N/A YEAR ENDED DECEMBER 31, 1995 TITLE 1,429,660 --- 11,532,632 N/A YEAR ENDED DECEMBER 31, 1994 TITLE 1,446,068 --- 11,062,998 N/A </TABLE> 24
SCHEDULE IV INVESTORS TITLE COMPANY AND SUBSIDIARIES REINSURANCE FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 <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, 1996 TITLE INSURANCE PREMIUMS $21,187,689 $121,093 $44,559 $21,111,155 0.2% YEAR ENDED DECEMBER 31, 1995 TITLE INSURANCE PREMIUMS 15,903,006 78,683 29,817 15,854,140 0.2% YEAR ENDED DECEMBER 31, 1994 TITLE INSURANCE PREMIUMS 15,579,517 51,106 68,232 15,596,643 0.4% </TABLE> 25
SCHEDULE V INVESTORS TITLE COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 <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> 1996 PREMIUMS RECEIVABLE VALUATION PROVISION $120,000 $80,000 $0 $0 $200,000 1995 PREMIUMS RECEIVABLE VALUATION PROVISION 120,000 0 0 0 120,000 1994 PREMIUMS RECEIVABLE VALUATION PROVISION 120,000 0 0 0 120,000 </TABLE> 26