Exhibit
      13




**Common
      Stock Data**


The
      Common Stock of the Company is traded under the symbol "ITIC" on the NASDAQ
      Global Market. The number of record holders of common stock at December 31,
      2007
      was 468. The number of record holders is based upon the actual number of holders
      registered on the books of the Company at such date and does not include holders
      of shares in “street names” or persons, partnerships, associations, corporations
      or other entities identified in security position listings maintained by
      depository trust companies. The following table shows the high and low sales
      prices reported on the NASDAQ Global Market.





**2007**
            
            2006**High**
            
            **Low**
            
            High
            
            LowFirst
                Quarter
            
            **$**
            **55.73**
            
            **$**
            **49.13**
            
            $
            48.99
            
            $
            40.17Second
                Quarter
            
            **$**
            **50.58**
            
            **$**
            **47.02**
            
            $
            47.88
            
            $
            40.02Third
                Quarter
            
            **$**
            **50.58**
            
            **$**
            **37.92**
            
            $
            48.99
            
            $
            42.94Fourth
                Quarter
            
            **$**
            **42.21**
            
            **$**
            **35.50**
            
            $
            54.76
            
            $
            45.50





The
      Company paid cash dividends of $0.06 per share in each of the four quarters
      in
      2007 and 2006, respectively.





The
      Company’s current dividend policy anticipates the payment of quarterly dividends
      in the future. The declaration and payment of dividends will be in the
      discretion of the Board of Directors and will be dependent upon the Company’s
      future earnings, financial condition and capital requirements. The payment
      of
      dividends is subject to the restrictions described in Management’s Discussion
      and Analysis of Financial Condition and Results of Operations, “Liquidity and
      Capital Resources.”





**Market
      Makers for** **2007**




The
                Archipelago Exchange
            Citigroup
                Global Markets Inc.
            Hill,
                Thompson, Magid and Co.Automated
                Trading Desk
            Davenport
                & Company, LLC
            Knight
                Equity Markets, L.P.B-Trade
                Services LLC
            E*Trade
                Capital Markets LLC
            Nasdaq
                Execution Services LLCCitadel
                Derivatives Group LLC
            Ferris,
                Baker Watts, Inc.
            UBS
                Securities LLC





Financial
      Highlights


(dollars
      in thousands except per share
      information)




**For
                the Year**
            
            **2007**
            
            2006.
            
            2005
            
            2004
            
            2003Net
                premiums written
            
            **$**
            **69,984**
            
            $
            70,196
            
            $
            76,522
            
            $
            71,843
            
            $
            83,945Revenues
            
            
            **84,942**
            
            
            84,662
            
            
            87,864
            
            
            79,841
            
            
            90,830Investment
                income
            
            
            **5,197**
            
            
            4,326
            
            
            3,336
            
            
            2,753
            
            
            2,692Net
                income
            
            
            **8,402**
            
            
            13,185
            
            
            13,293
            
            
            10,719
            
            
            10,965**Per
                Share Data**Basic
                earnings per common share
            
            **$**
            **3.39**
            
            $
            5.22
            
            $
            5.19
            
            $
            4.29
            
            $
            4.38Weighted
                average shares outstanding—Basic
            
            
            **2,479**
            
            
            2,528
            
            
            2,560
            
            
            2,497
            
            
            2,504Diluted
                earnings per common share
            
            **$**
            **3.35**
            
            $
            5.14
            
            $
            5.10
            
            $
            4.09
            
            $
            4.18Weighted
                average shares outstanding—Diluted
            
            
            **2,509**
            
            
            2,564
            
            
            2,608
            
            
            2,621
            
            
            2,624Cash
                dividends per share
            
            **$**
            **.24**
            
            $
            .24
            
            $
            .16
            
            $
            .15
            
            $
            .12**At
                Year End**Assets
            
            **$**
            **149,642**
            
            $
            143,516
            
            $
            128,472
            
            $
            113,187
            
            $
            100,472Investments
                in securities
            
            
            **129,026**
            
            
            121,580
            
            
            95,153
            
            
            93,261
            
            
            79,842Stockholders'
                equity
            
            
            **99,276**
            
            
            95,276
            
            
            84,297
            
            
            72,507
            
            
            63,189Book
                value/share
            
            
            **41.17**
            
            
            38.00
            
            
            33.07
            
            
            29.22
            
            
            25.24**Performance
                Ratios**Net
                income to:Average
                stockholders' equity
            
            
            **8.64**
            **%**
            
            14.69
            %
            
            16.95
            %
            
            15.80
            %
            
            18.93
            %Total
                revenues (profit margin)
            
            
            **9.89**
            **%**
            
            15.57
            %
            
            15.13
            %
            
            13.43
            %
            
            12.07
            %




1




Investors
      Title Company


Investors Title


***Period
                Ending******Index***
            
            **12/31/02**
            
            **12/31/03**
            
            **12/31/04**
            
            **12/31/05**
            
            **12/31/06**
            
            **12/31/07**Investors
                Title Company
            
            
            100.00
            
            
            136.35
            
            
            163.44
            
            
            187.08
            
            
            238.17
            
            
            172.16Custom
                Peer Group*
            
            
            100.00
            
            
            146.92
            
            
            166.94
            
            
            214.97
            
            
            208.43
            
            
            148.18NASDAQ
                Composite
            
            
            100.00
            
            
            150.01
            
            
            162.89
            
            
            165.13
            
            
            180.85
            
            
            198.60




**The
      Custom Peer Group consists of Fidelity National Financial, Inc., First American
      Corporation, LandAmerica Financial* *Group,
      Inc., and Stewart Information Services Corporation.*




2




Investors
      Title Company and Subsidiaries


Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations


The
      following discussion should be read in conjunction with the consolidated
      financial statements and the related notes in this report.





**Overview**


*Title
      Insurance:* Investors Title Company (the "Company") engages primarily in two segments of
      business. Its primary business activity is the issuance of title insurance
      through two subsidiaries, Investors Title Insurance Company ("ITIC") and
      Northeast Investors Title Insurance Company ("NE-ITIC"), which accounted for
      91.1% of the Company’s operating revenues in 2007. Through ITIC and NE-ITIC, the
      Company underwrites land title insurance for real estate owners and mortgagees
      as a primary insurer. Title insurance protects against loss or damage resulting
      from title defects that affect real property.




There
      are
      two basic types of title insurance policies - one for the mortgage lender and
      one for the real estate owner. A lender often requires property owners to
      purchase title insurance to protect its position as a holder of a mortgage
      loan,
      but the lender's title insurance policy does not protect the property owner.
      The
      property owner has to purchase a separate owner's title insurance policy to
      protect their investment. When real property is conveyed from one party to
      another, occasionally there is an undisclosed defect in the title or a mistake
      or omission in a prior deed, will or mortgage that may give a third party a
      legal claim against such property. If a claim is made against real property,
      title insurance provides indemnification against insured defects. The title
      insurer has the option to retain counsel and pay the legal expenses to eliminate
      or defend against any title defects, pay any third party claims arising from
      errors in title examination and recording or pay the insured’s actual losses, up
      to policy limits, arising from defects in title as defined in the policy.




ITIC
      issues title insurance policies through issuing agencies and also directly
      through home and branch offices. Issuing agents are typically real estate
      attorneys or subsidiaries of community and regional mortgage lending
      institutions, depending on local customs and regulations and the Company’s
      marketing strategy in a particular territory. The ability to attract and retain
      issuing agents is a key determinant of the Company’s growth in premiums
      written.




The
      Company's overall level of premiums written is affected by real estate activity.
      In turn, real estate activity is affected by a number of factors, including
      the
      level of interest rates, the availability of mortgage credit, the cost of real
      estate, employment levels, family income levels and other general economic
      conditions. The cyclical nature of the land title insurance industry has
      historically caused fluctuations in revenues and profitability, and it is
      expected to continue to do so in the future. The Company’s title segment also
      experiences annual seasonality. Revenues for this segment result from refinance
      activity, purchases of new and existing residential and commercial real estate,
      and certain other types of mortgage lending such as home equity lines of credit.




Volume
      is
      a factor in the Company's profitability due to the existence of fixed
      operating  costs.
      These expenses will be incurred by the Company regardless of the level of
      premiums written. The resulting operating leverage has historically tended
      to
      amplify the impact of changes in volume on the Company’s
      profitability.




*Exchange
      Services:* The
      Company's second business segment provides customer services in connection
      with
      tax-deferred real property exchanges through its subsidiaries, Investors Title Exchange
      Corporation ("ITEC") and Investors Title Accom modation
      Corporation ("ITAC"). ITEC serves as a qualified intermediary in like-kind
      exchanges of real or personal property under Section 1031 of the Internal
      Revenue Code of 1986, as amended. In its role as qualified intermediary, ITEC
      coordinates the exchange aspects of the real estate transaction, and its duties
      include drafting standard exchange documents, holding the exchange funds between
      the sale of the old property and the purchase of the new property, and accepting
      the formal identification of the replacement property within the required
      identification period. ITAC serves as exchange accommodation titleholder in
      reverse exchanges. As exchange accommodation titleholder, ITAC offers a vehicle
      for accommodating a reverse exchange when the taxpayer must acquire replacement
      property before selling the relinquished property.




Factors
      that influence the title insurance industry will also generally affect the
      exchange services industry. In addition, the services provided by the Company’s
      exchange services segment are pursuant to provisions in the Internal Revenue
      Code. From time to time, these exchange provisions are subject to review and
      proposed changes.




*Other
      Services:* Other
      operating business segments not required to be reported separately are reported
      in a category called All Other. Other services include those offered by
      Investors Trust Company (“Investors Trust”), Investors Capital Management
      Company ("ICMC") and Investors Title Management Services, Inc. (“ITMS”), wholly
      owned subsidiaries of the Company. In conjunction with Investors Trust, ICMC
      provides investment management and trust services to individuals, companies,
      banks and trusts. ITMS offers consulting services to clients.





**Business
      Trends and Recent Conditions**


The
      continued downturn in the mortgage and real estate markets was the primary
      reason for title business declining slightly during 2007. Between
      2002  through
      2005, real estate activity steadily increased and multiple transaction records
      were set . In
      2006
      and 2005, refinance activity was lower than prior years due to moderate
      increases in the interest rate environment that began in 2005. Existing home
      sales, which represent the majority of all real estate transactions, reached
      a
      new record high in 2005 for the fifth year in a row.




3




During
      the real estate boom, many lenders loosened their underwriting guidelines,
      particularly in the sub prime loan market. These lower underwriting standards,
      when combined with new methods of financing loans created a supply of cheap
      credit which led to a build up in mortgage loans to high risk borrowers. As
      a
      result, there has been a substantial increase in loan defaults and mortgage
      foreclosures. Lenders are now returning to stricter loan underwriting standards,
      which will likely result in lower overall loan volume. This lower loan volume
      will, in turn, result in a lower level of title premiums generated in the
      marketplace. In addition, an increase in property foreclosures tends to surface
      title defects. A slowing pace of real estate activity also triggers the
      likelihood of certain types of title claims, such as mechanics’ liens on newly
      constructed property. These factors have historically caused title claims to
      increase in past real estate market cyclical downturns.




Historically,
      activity in real estate markets has varied over the course of market cycles
      in
      response to evolving economic factors. Current market conditions including
      the
      subprime lending crisis, rising foreclosures, weakening home sales and falling
      home prices will be primary influences on the Company’s operations until some
      stabilization occurs. Operating results for the years ended 2005, 2006 and
      2007,
      therefore, should not be viewed as indicative of the Company's future operating
      results and cash flows.





**Credit
      Rating**


ITIC
      has
      been recognized by two independent Fannie Mae-approved actuarial firms,
      Demotech, Inc. and LACE Financial Corporation, with ratings of A” (A Double
      Prime) and B+, respectively. NE-ITIC's financial stability also has been
      recognized by Demotech, Inc. and LACE Financial Corporation (“LACE”) with
      ratings of A” (A Double Prime), and A, respectively. According to Demotech,
      title underwriters earning a Financial Stability Rating of A” (A Double Prime)
      possess financial stability related to maintaining positive surplus as regards
      policyholders, regardless of the severity of a general economic downturn or
      deterioration in the title insurance cycle. A LACE rating of "A" or “B+”
indicates that a title insurance company has a strong overall financial
      condition that will allow it to meet its future claims, and that, generally,
      the
      company has good operating earnings, is well-capitalized and has adequate
      reserves.





**Critical
      Accounting Estimates and Policies**


This
      discussion and analysis of the Company’s financial condition and results of
      operations is based upon the Company’s accompanying Consolidated Financial
      Statements, which have been prepared in accordance with accounting principles
      generally accepted in the United States. The Company's management makes various
      estimates and judgments when applying policies affecting the preparation of
      the
      Consolidated Financial Statements. Actual results could differ from those
      estimates. Significant accounting policies of the Company are discussed in
      Note
      1 to the accompanying Consolidated Financial Statements. Following are those
      accounting estimates and policies considered critical to the Company.




Reserves
      for Claim Losses


The
      total
      reserve for all reported and unreported losses the Company incurred through
      December 31, 2007 is represented by the reserve for claims of $36,975,000 on
      the
      consolidated balance sheet. Of that total, $3,927,050 was reserved for specific
      claims, and $33,047,950 was reserved for claims for which the Company had no
      notice. The Company's reserves for claims are established using estimated
      amounts required to settle claims for which notice has been received (reported)
      and the amount estimated to be required to satisfy incurred claims of
      policyholders which may be reported in the future (incurred but not reported).




In
      accordance with the requirements of paragraph 17 of Statement of Financial
      Accounting Standards No. 60, a provision for estimated future claims payments
      is
      recorded at the time policy revenue is recorded. The Company records the claims
      provision as a percentage of premium income. By their nature, title claims
      can
      often be complex, vary greatly in dollar amounts, vary in number due to economic
      and market conditions  such
      as
      an increase in mortgage foreclosures; and involve uncertainties as to ultimate
      exposure. In addition, some claims may require a number of years to settle
      and
      determine the final liability for indemnity and loss adjustment expense. The
      payment experience may extend for more than twenty years after the issuance
      of a
      policy.Events such as fraud, defalcation and multiple property defects
      can substantially and unexpectedly cause increases in estimates of losses.
      Due
      to the length of time over which claim payments are made and regularly occurring
      changes in underlying economic and market conditions, these estimates are
      subject to variability.




Management
      considers factors such as the Company’s historical claims experience, case
      reserve estimates on reported claims, large claims, actuarial projections and
      other relevant factors in determining loss provision rates and the aggregate
      recorded expected liability for claims. In establishing reserves, actuarial
      projections are compared with recorded reserves to evaluate the adequacy of
      such
      recorded claims reserves and any necessary adjustments are then recorded in
      current operations. As the most recent claims experience develops and new
      information becomes available, the loss reserve estimate related to prior
      periods will change to more accurately reflect updated and improved emerging
      data. The Company reflects any adjustments to reserves in the results of
      operations in the period in which new information (principally claims
      experience) becomes available.




The
      Company initially reserves for each known claim based upon an assessment of
      specific facts and updates the reserve amount as necessary over the course
      of
      administering each file. In determining its incurred but not reported claims
      (“IBNR”), the Company assumes future losses will be consistent with historical
      data, unless factors, such as loss experience, change significantly. Loss ratios
      for earlier years tend to be more reliable than recent policy years as they
      are
      more fully developed. In making loss estimates, management determines a loss
      provision rate, which it then applies to net premiums written.




There
        are
        key assumptions that materially affect the reserve estimates. The
        Company assumes the aggregate reported liability for known claims and IBNR,
        in
        the aggregate, will be comparable to its historical claims experience unless
        factors, such as loss experience, change significantly.The factors the
        Company considered did not cause any of its key assumptions to change from
        assumptions used in the immediately preceding period. Also affecting the
        Company’s assumptions are large losses related to fraud and defalcation, as
        these can cause significant variances in loss emergence patterns. Management
        defines a large loss as one where incurred losses exceed $250,000. Due to
        the
        small volume of large claims, the long-tail nature of title insurance claims
        and
        the inherent uncertainty in loss emergence patterns, large claim activity
        can
        vary significantly between policy years. The estimated development of large
        claims by policy year is therefore subject to significant changes as experience
        develops. In recent years, the Company has generally followed the same
        methodology for estimating loss reserves. The loss provision rate is set
        to
        provide for losses on current year policies and to provide for estimated
        positive or negative development on prior year loss estimates.




4




Management
        also considers actuarial analyses in evaluating claims reserves.The actuarial
        methods used to evaluate reserves are loss development methods, expected
        loss
        methods and Cape Cod methods, all of which are accepted actuarial methods
        for
        estimating ultimate losses and, therefore, loss reserves. In the loss
        development method, each policy year’s paid or incurred losses are projected to
        an “ultimate” level using loss development factors. In the Cape Cod method,
        expected losses for one policy year are estimated based on the loss results
        for
        the other policy years, trended to the level of the policy year being estimated.
        Expected loss methods produce more stable ultimate loss estimates than do
        loss
        development methods, which are more responsive to the current loss data.
        The
        Cape Cod method, a special case of the Bornhuetter-Ferguson method, blends
        the
        results of the loss development and expected loss methods. For more recent
        policy years, more weight is given to the results of the expected loss methods;
        for older policy years, more weight is given to the loss development method
        results.




The
      key
      actuarial assumptions are principally loss development factors and expected
      loss
      ratios. The selected loss development factors are based on a combination of
      the
      Company’s historical loss experience and title industry loss experience.
      Expected loss ratios are estimated for each policy year based on the Company’s
      own experience and title industry loss ratios. When updated data is incorporated
      into the actuarial models, the resulting loss development factors and expected
      loss ratios will likely change from the prior values. Changes in these values
      from 2005 through 2007 have been the result of actual Company and industry
      experience during the calendar year and not to changes in
      assumptions.




If
      one or
      more of the variables or assumptions used changed such that the Company’s
      recorded loss ratio, or loss provision as a percentage of net title premiums,
      increased or decreased two loss ratio percentage points, the impact on after-tax
      income for the year ended December 31, 2007, would be as follows. Company
      management believes that using a sensitivity of two loss percentage points
      for
      the loss ratio provides a reasonable benchmark for analysis of the calendar
      year
      loss provision of the Company based on historical loss ratios by
      year.


Increase
                  in Loss Ratio of two percentage points
              
              $
              (924,000
              )Decrease
                  in Loss Ratio of two percentage points
              
              $
              924,000




Despite
      the variability of such estimates, management believes based on historical
      claims experience and actuarial analysis that the reserves are adequate to
      cover
      claim losses resulting from pending and future claims for policies issued
      through December 31, 2007. The
      ultimate settlement of policy and contract claims will likely vary from the
      reserve estimates included in the Company’s financial statements.The
      Company continually reviews and adjusts its reserve estimates to reflect its
      loss experience and any new information that becomes available. There are no
      known claims that are expected to have a materially adverse effect on the
      Company's financial position or operating results.




Premiums
      Written and Commissions to Agents


Generally,
      title insurance premiums are recorded and recognized as revenue at the time
      of
      closing of the related transaction as the earnings process is then considered
      complete. Policies or commitments are issued upon receipt of final certificates
      or preliminary reports with respect to titles. Title insurance commissions
      earned by the Company's agents are recognized as expense concurrently with
      premium recognition.




Valuation
      of Investments in Securities


Securities
      for which the Company has the intent and ability to hold to maturity are
      classified as held-to-maturity and are reported at cost, adjusted for
      amortization of premiums or accretion of discounts and other-than-temporary
      declines in fair value. Securities held principally for resale in the near
      term
      are classified as trading securities and recorded at fair values. Realized
      and
      unrealized gains and losses on trading securities are included in other income.
      Securities not classified as either trading or held-to-maturity are classified
      as available-for-sale and reported at fair value, adjusted for
      other-than-temporary declines in fair value, with unrealized gains and losses
      reported as accumulated other comprehensive income. Securities are regularly
      reviewed for differences between the cost and estimated fair value of each
      security for factors that may indicate that a decline in fair value is
      other-than-temporary.  Some
      factors considered in evaluating whether or not a decline in fair value is
      other-than-temporary include the duration and extent to which the fair value
      has
      been less than cost and the Company’s ability and intent to retain the
      investment for a period of time sufficient to allow for a recovery in
      value.  Such
      reviews are inherently uncertain and the value of the investment may not fully
      recover or may decline in future periods resulting in a realized
      loss.  Fair
      values of all investments are based on quoted market prices. Realized gains and
      losses are determined on the specific identification method.




Deferred
      Tax Asset


The
      Company recorded net deferred tax assets at December 31, 2007 and 2006 related
      primarily to reserves for claims, allowance for doubtful accounts and employee
      benefits. Based upon the Company's historical results of operations, the
      existing financial condition of the Company and management's assessment of
      all
      other available information, management believes that it is more likely than
      not
      that the benefit of these assets will be realized.




**Results
      of Operations**


**Operating
      Revenues**


Operating
      revenues include net premiums written plus fee income as well as gains and
      losses on the disposal of fixed assets. Investment income and realized
      gains/losses are not included in operating revenues for the purpose of the
      following summary schedule. Following is a summary of the Company's operating
      revenues. Intersegment eliminations have been netted with each segment;
      therefore, the individual segment amounts will not agree to Note 13 in the
      accompanying Consolidated Financial Statements.




5




**2007**
            
            2006
            
            2005Title
                Insurance
            
            **$**
            **71,827,793**
            
            
            **91.1**
            **%**
            $
            71,733,763
            
            
            89.9
            %
            $
            78,046,368
            
            
            92.5
            %Exchange
                Services
            
            
            **4,340,062**
            
            
            **5.5**
            **%**
            
            5,980,027
            
            
            7.5
            %
            
            4,543,049
            
            
            5.4
            %All
                Other
            
            
            **2,655,383**
            
            
            **3.4**
            **%**
            
            2,070,533
            
            
            2.6
            %
            
            1,819,679
            
            
            2.1
            %**$**
            **78,823,238**
            
            
            **100**
            **%**
            $
            79,784,323
            
            
            100
            %
            $
            84,409,096
            
            
            100
            %





Title
      Insurance


*Net
      Premiums:* Net
      premiums written decreased 0.3% in 2007 from 2006 and 8.3% in 2006 from 2005.
      During 2007 and 2006, revenues were primarily impacted by the decline in net
      premiums written due to lower levels of real estate sales and mortgage
      refinancing activity compared with 2005. According
      to data published by Freddie Mac, the annual average thirty-year fixed mortgage
      interest rates in the United States were reported to be 6.34%, 6.41% and 5.87%
      in 2007, 2006 and 2005, respectively. During
      2007, the quarterly average
      thirty-year fixed mortgage interest rates were 6.22%, 6.37%, 6.55% and 6.23%
      for
      the first, second, third and fourth quarters, respectively.




*Policies
      and Commitments:* The
      volume of business decreased in 2007, as 229,329 policies and commitments were
      issued in 2007, which is a decrease of 7.7%, compared with 248,341 policies
      and
      commitments issued in 2006 due to a decline in real estate activity. In 2006,
      policies and commitments issued declined 9.3% compared with 273,857 policies
      and
      commitments issued in 2005.




Following
      is a schedule of net premiums written in all states where ITIC and
      NE-ITIC currently underwrite title insurance:




State
            
            **2007**
            
            2006
            
            2005Illinois
            
            **$**
            **1,653,518**
            
            $
            1,115,890
            
            $
            1,000,273Kentucky
            
            
            **2,563,039**
            
            
            2,292,194
            
            
            2,115,579Maryland
            
            
            **1,167,576**
            
            
            1,532,915
            
            
            1,754,867Michigan
            
            
            **3,073,006**
            
            
            3,488,984
            
            
            4,591,639New
                York
            
            
            **2,412,625**
            
            
            2,436,563
            
            
            3,248,635North
                Carolina
            
            
            **34,544,366**
            
            
            35,200,769
            
            
            36,269,649Pennsylvania
            
            
            **1,512,745**
            
            
            1,472,615
            
            
            1,687,410South
                Carolina
            
            
            **7,637,330**
            
            
            7,177,871
            
            
            7,011,099Tennessee
            
            
            **2,599,686**
            
            
            2,466,956
            
            
            2,767,576Virginia
            
            
            **6,121,746**
            
            
            6,734,698
            
            
            7,740,671West
                Virginia
            
            
            **2,029,885**
            
            
            2,132,330
            
            
            2,246,142Other
                States
            
            
            **4,889,828**
            
            
            4,564,106
            
            
            6,383,883Direct
                Premiums
            
            
            **70,205,350**
            
            
            70,615,891
            
            
            76,817,423Reinsurance
                Assumed
            
            
            **42,816**
            
            
            22,158
            
            
            20,976Reinsurance
                Ceded
            
            
            **(264,177**
            **)**
            
            (441,582
            )
            
            (316,133
            )Net
                Premiums Written
            
            **$**
            **69,983,989**
            
            $
            70,196,467
            
            $
            76,522,266




*Branch
      Office Net Premiums:* Branch
      office net premiums written as a percentage of total net premiums written were
      43.0%, 46.1% and 44.6% in 2007, 2006 and 2005, respectively. Net premiums
      written from branch operations decreased 7.0% in 2007 compared with 2006 and
      decreased 5.1% in 2006 compared with 2005 primarily due to the general slowdown
      in the real estate economy.




*Agency
      Net Premiums:* Agency
      net premiums written as a percentage of total net premiums written were 57.0%,
      53.9% and 55.4% in 2007, 2006 and 2005, respectively. Net premiums written
      from
      agency operations increased 5.5% in 2007 compared with 2006, as a result of
      additional agencies and additional business written by the Company’s agencies.
      Net premiums written from agency operations decreased 10.8% in 2006 compared
      with 2005. The primary decrease in agency net premiums written in 2006 can
      be
      attributed to the general slowdown in real estate activity.




Exchange
      Services


Operating
      revenues from the Company's two subsidiaries that provide tax-deferred exchange
      services (ITEC and ITAC) decreased 27.4% from 2006 to 2007 and increased 31.6%
      from 2005 to 2006. The decline in 2007 revenue compared with 2006 resulted
      from
      a decrease in transaction volume and related income primarily due to a decline
      in real estate activity and exchange transactions. The increase in 2006 compared
      with 2005 was primarily due to higher levels of interest income earned on
      exchange funds held by the Company.




6




On
      February 3, 2006, the IRS proposed new regulations which, if adopted, may
      negatively affect the ability of qualified intermediaries to retain a portion
      of
      the interest earned on exchange funds held during exchange transactions. If
      passed as proposed, these regulations would materially adversely impact the
      exchange services segment and the Company’s net income, since a significant
      portion of the exchange segment’s revenues are based on retaining a portion of
      the interest income earned on deposits held by the Company. A public hearing
      on
      the proposed regulations was held on June 6, 2006, and as a result the IRS
      agreed to revise its initial regulatory flexibility analysis on the impact
      of
      the proposed regulations to small businesses. In March 2007, the IRS issued
      a
      revised regulatory flexibility analysis and requested more specific information
      to help in determining the impact the rules would have on small businesses.
      The
      proposed regulations have still not been finalized.





Other
      Revenues


Other
      revenues primarily include investment management fee income and agency service
      fees, as well as search fee and other ancillary fees and income related to
      the
      Company’s other equity method investments. Other revenues increased in 2007
      compared with 2006 primarily due to increases in equity method investments,
      investment management fee income generated by the Company’s trust division and
      search fee income. Other revenues increased in 2006 compared with 2005 primarily
      due to increases in investment management fee income generated by the Company’s
      trust division.




**Cyclicality
      and Seasonality**




Title
      Insurance


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. Home sales and mortgage lending
      are highly cyclical businesses. Other factors include mortgage interest rates,
      consumer confidence, economic conditions, supply and demand, and family income
      levels. Historically, residential real estate activity has been generally slower
      in the winter because fewer real estate transactions occur, while the spring
      and
      summer are more active. Refinance activity is generally less seasonal, but
      it is
      subject to interest rate volatility. Fluctuations in mortgage interest rates,
      as
      well as other economic factors, can cause shifts in real estate activity outside
      of the normal seasonal pattern.




Exchange
      Services


Seasonal
      factors affecting the level of real estate activity and the volume of title
      premiums written will also affect the demand for exchange services. Slowing
      real
      estate sales led to a decline in average balances of deposits held at
      year-end.




**Nonoperating
      Revenues**


**Investment
      Income**


The
      Company derives a substantial portion of its income from investments in bonds
      (municipal and corporate) and equity securities. The Company's title insurance
      subsidiaries are required by statute to maintain minimum levels of investments
      in order to protect the interests of policyholders. Bonds totaling approximately
      $6,471,000 and $5,724,000 at December 31, 2007 and 2006, respectively, are
      deposited with the insurance departments of the states in which business is
      conducted. In formulating its investment strategy, the Company has emphasized
      after-tax income. Investments in marketable securities have increased from
      Company profits. The investments are primarily in fixed maturity securities
      and,
      to a lesser extent, equity securities. The effective maturity of the majority
      of
      the fixed income investments is within 15 years.




As
      new
      funds become available, they are invested in accordance
      with the Company's investment policy and corporate goals.
      Securities purchased may include a combination of taxable fixed-income
      securities, tax-exempt securities and equities. The Company strives to maintain
      a high quality investment portfolio.




Investment
      income was $5,197,178 in 2007 compared with $4,326,335 in 2006 and $3,335,767
      in
      2005. Investment income increased 20.1% from 2006 to 2007 and 29.7% from 2005 to
      2006. The increases in 2007 and 2006 were primarily attributable to increases
      in
      the average investment portfolio balance and higher rates of interest earned
      on
      short-term investments. See Note 3 for the major categories of investments,
      scheduled maturities, amortized cost, market values of investment securities
      and
      earnings by category.





**Net
      Realized Gain on Sales of Investments**


Net
      realized gain on the sales of investment securities totaled $921,871 in 2007,
      $551,058 in 2006 and $119,015 in 2005. These gains  resulted
      primarily from the sale of equity securities and other investments in the
      Company’s investment portfolio.





**Expenses**


The
      Company’s operating expenses consist primarily of commissions to agents,
      salaries, employee benefits and payroll taxes, provisions for claims and office
      occupancy and operations. Operating expenses increased 8.6% compared with 2006
      primarily due to increases in the provision for claims, commissions to agents
      and salaries, employee benefits and payroll taxes. Operating expenses in 2006
      decreased 2.8% compared with 2005 primarily due to a decline in commissions
      paid
      to agents and a lower claims provision. Partially offsetting these decreases
      were increases in compensation expenses, office occupancy expenses, and
      professional and contract labor fees. Following is a summary of the Company's
      operating expenses. Intersegment eliminations have been netted with each
      segment; therefore, the individual segment amounts will not agree to Note 13
      in
      the accompanying Consolidated Financial Statements.




7




**2007**
            
            2006
            
            2005Title
                Insurance
            
            **$**
            **68,168,856**
            
            
            **93.2**
            **%**
            $
            62,962,703
            
            
            93.5
            %
            $
            66,014,889
            
            
            95.3
            %Exchange
                Services
            
            
            **1,480,094**
            
            
            **2.0**
            **%**
            
            1,346,743
            
            
            2.0
            %
            
            907,414
            
            
            1.3
            %All
                Other
            
            
            **3,469,002**
            
            
            **4.8**
            **%**
            
            3,022,836
            
            
            4.5
            %
            
            2,358,652
            
            
            3.4
            %**$**
            **73,117,952**
            
            
            **100**
            **%**
            $
            67,332,282
            
            
            100
            %
            $
            69,280,955
            
            
            100
            %




On
      a
      combined basis, profit margins were 9.9%, 15.6% and 15.1% in 2007, 2006 and
      2005, respectively.




Title
      Insurance


*Profit
      Margin:* The
      Company’s title insurance profit margin varies according to a number of factors,
      including the volume and type of real estate activity. Profit margin for the
      title insurance segment was 8.6%, 12.7% and 13.1% in 2007, 2006 and 2005,
      respectively. The profit margin for 2007 was primarily affected by the increase
      in the provision for claims and commissions to agents. The decline in the
      profit margin for 2006 was affected by the decrease in premiums written.




*Commissions:* Agent
      commissions represent the portion of premiums retained by agents pursuant to
      the
      terms of their respective agency contracts. Commissions to agents increased
      6.4%
      from 2006 to 2007 primarily due to an increasing percentage of premiums
      originating from agency operations in 2007. Commissions to agents decreased
      11.9% from 2005 to 2006 primarily due to decreased premiums from agency
      operations in 2006. Commission rates vary geographically.




*Provisions
      for Claims:* The
      provision for claims as a percentage of net premiums written was 14.5% in 2007,
      10.5% in 2006 and 10.7% in 2005. The increase in the loss percentage in 2007
      compared with 2006 reflects the negative impact of two large claims resulting
      from mortgage fraud and theft which became known in the second quarter of 2007.
      The additional provision as a result of these two claims, in addition to the
      Company’s expected provision, was approximately $2.34 million. The increase in
      the loss provision in 2007 from the 2006 level resulted in approximately $2.8
      million more in reserves than would have been recorded at the lower 2006 level.
      Currently, it is unknown to the Company if there will be any recovery related
      to
      these claims. If material occurrences of mortgage-related fraud and other
      similar types of claims continue, the Company’s ultimate loss estimates for
      recent policy years could increase.




The
      Company reduced its loss provision rate slightly in 2005 and 2006 relative
      to
      2004 in recognition of favorable claims experience. In 2006, the favorable
      experience was primarily because of a reduction in large claim activity for
      policy year 2005. Calendar year 2006 also included an increase for policy year
      2006 due to claims activity late in the calendar year. In calendar year 2005,
      in
      addition to anticipating a higher loss ratio for policy year 2005,the
      Company incurred lower than expected overall claims payments, including large
      claims, for policy year 2003. The reduction in the loss provision rates in
      2005
      and 2006 from the 2004 level resulted in approximately $716,000 ($387,000
      for 2006 and $329,000 for 2005)less in reserves than would have been
      recorded at the higher 2004 level. Management considers the loss provision
      ratios for 2007, 2006 and 2005 to be appropriate given the long-tail nature
      of
      title insurance claims and the inherent uncertainty in title insurance claims
      emergence patterns.




The
      provision for claims reflects actual payments of claims, net of recovery
      amounts, plus adjustments to the specific and incurred but not reported claims
      reserves, the latter of which are actuarially determined based on historical
      claims experience. Payments
      of claims, net of recoveries, were $10,065,719, $5,356,211 and $5,149,783 in
      2007,
      2006 and 2005, respectively.




*Reserves
      for Claims:* At
      December 31, 2007, the total reserves for claims were $36,975,000. Of that
      total, $3,927,050 was reserved for specific claims, and $33,047,950 was reserved
      for claims for which the Company had no notice.  Because
      of the uncertainty of future claims, changes in economic conditions, and the
      fact that many claims do not materialize for several years, reserve estimates
      are subject to variability. Changes in the expected liability for claims for
      prior periods reflect the uncertainty of the claim environment, as well as
      the
      limited predicting power of historical data. The Company continually updates
      and
      refines its reserve estimates as current experience develops and credible data
      emerges. Adjustments may be required as new information develops which often
      varies from past experience.




Movements
      in the reserves related to prior periods were primarily the result of changes
      to
      estimates to better reflect the latest reported loss data, rather than as a
      result of material changes to underlying key actuarial assumptions or
      methodologies. Such changes include payments on claims closing during the year,
      new details that emerge on still-open cases that cause claims adjusters to
      increase or decrease the case reserve and the impact that these types of changes
      have on the Company’s total loss provision. The change in prior year estimates
      for calendar year 2007 resulted primarily from two large fraudulent claims
      incurred in policy year 2006. In calendar year 2006, the Company incurred lower
      than expected large claims payments for policy year 2005. In calendar
      year 2005, overall
      claims payments indicated that policy year 2003 was trending more favorably
      than
      originally anticipated. Since the variances relate to recent policy years and
      are therefore not fully developed, there will be further development that could
      be favorable or unfavorable.




*Salaries,
      Employee Benefits and Payroll Taxes:* On a
      consolidated basis, salaries and employee benefits as a percentage of total
      revenues were 24.5%, 23.7% and 21.9% in 2007, 2006 and 2005, respectively.
      The
      increase in these costs in 2007 and 2006 was primarily attributable to salary
      increases and additional personnel costs related to staff hired by the recently
      formed Investors Trust Company. The title insurance segment's total salaries
      and
      employee benefits accounted for 84.9%, 85.3% and 89.1% of total salaries for
      2007, 2006, and 2005, respectively.




8




*Office
      Occupancy and Operations:* Overall
      office occupancy and operations as a percentage of total revenues was 6.6%,
      6.6%
      and 5.7% in 2007, 2006 and 2005, respectively. The title insurance segment's
      total office occupancy and operations expense accounted for 90.2%, 90.9% and
      91.0% in 2007, 2006 and 2005, respectively, of total office occupancy and
      operations expense.




*Premium
      and Retaliatory Taxes:* Title
      insurance companies are generally not subject to state income or franchise
      taxes. However, in most states they are subject to premium and retaliatory
      taxes. Premium and retaliatory taxes as a percentage of net premiums written
      were 2.1%, 1.9%, 2.0% for the years ended December 31, 2007, 2006 and 2005,
      respectively.




*Professional
      and Contract Labor Fees:* Professional
      fees for 2007 and 2006 compared with 2005 increased primarily due to an increase
      in contract labor fees incurred, mostly related to projects in
      information  technology.




Exchange
      Services


The
      exchange services segment's total operating expenses as a percentage of the
      Company's total expenses were 2.0%, 2.0% and 1.3% for 2007, 2006 and 2005,
      respectively. The principal operating expenses of this segment are salaries,
      employee benefits and payroll taxes.




**Income
      Taxes**


The
      provision for income taxes was 28.9%, 23.9% and 28.5% of income before income
      taxes for the years ended December 31, 2007, 2006 and 2005, respectively. During
      the fourth quarter of 2007, management discovered certain understatements in
      the
      provision for income taxes in its financial statements in 2006 and the first
      three quarters of 2007 as a result of certain taxable municipal bonds that
      had
      been previously misclassified as tax-exempt by the Company’s custodian bank. The
      additional amount of the increase in income taxes in the fourth quarter related
      to the misclassification was approximately $425,000 related to the 2006 tax
      year
      and approximately $325,000 related to the first three quarters of 2007.
      Information regarding the components of the income tax expense can be found
      in
      Note 8 to the accompanying Consolidated Financial Statements.




**Net
      Income**


The
      Company reported net income for 2007 of $8,402,335, or $3.35 per share on a
      diluted basis, compared with $13,185,434, or $5.14 per share on a diluted
      basis, for 2006, and $13,292,923, or $5.10 per share on a diluted basis, for
      2005.


**Liquidity
        and Capital Resources**


*Liquidity:* Due to
      the Company’s consistent ability to generate positive cash flows from its
      operations and investment income, management believes that funds generated
      from
      operations will enable the Company to adequately meet its operating needs and
      is
      unaware of any trend that is likely to result in material adverse liquidity
      changes. The Company’s cash requirements include general operating expenses,
      taxes, capital expenditures and dividends on its common stock declared by the
      Board of Directors. In addition to operational liquidity, the Company maintains
      a high degree of liquidity within its investment portfolio in the form of
      short-term investments and other readily marketable securities.





The
      majority of the Company’s investment portfolio is considered as available for
      sale. The Company reviews the status of each of its securities quarterly to
      determine whether an other-than-temporary impairment has occurred. The Company’s
      criteria include the degree to which the fair value of a security is less than
      80% of its amortized cost and the investment grade of the security, as well
      as
      how long the security has been in an unrealized loss position. The Company’s
      securities that have had an unrealized loss in excess of one year are primarily investment-grade,
      long-term bonds and equities that the Company has the ability and intent to
      hold
      until a recovery of fair value, which may be until maturity for fixed income
      securities.





*Cash
      Flows:* Net
      cash
      flows provided by operating activities were $11,939,659, $17,856,793
      and $ 17,383,090 in
      2007,
      2006 and 2005, respectively. Cash flows from operations has been the primary
      source of financing for expanding operations, additions to property and
      equipment, dividends to shareholders, and other requirements. The net decrease
      in cash flow from operations in 2007 compared with 2006 was primarily the
      result of the decrease in net income.  The
      net
      increase in cash flow from operations in 2006 compared with 2005 is primarily
      attributable to a decrease in receivables and other assets, partially offset
      by
      a decrease in current income taxes payable and a decrease in the provision
      for
      claims.





The
      principal non-operating uses of cash and cash equivalents for the three-year
      period ended December 31, 2007 were primarily for additions to the investment
      portfolio and, to a lesser extent, capital expenditures and repurchases of
      common stock. The net effect of all activities on total cash and cash
      equivalents was a decrease of $457,670 for 2007,  $11,150,049
      for 2006 and an increase of $9,882,038 for 2005. As of December 31, 2007, the
      Company held cash and cash equivalents of $3,000,762, short-term investments
      of
      $21,222,533 and fixed maturities securities of $91,583,481.





As
      noted
      previously, the Company’s operating results and cash flows are heavily dependent
      on the real estate market, particularly in the title insurance segment. A
      significant downturn in the real estate market could adversely impact the
      Company’s cash flows. The Company’s business has certain  fixed
      costs such as personnel, and changes in the real estate market are monitored
      closely and operating expenses such as staffing levels are managed and adjusted
      accordingly. The Company believes that its significant working capital position
      and management of operating expenses, along with its product diversification
      efforts will aid its ability to manage cash resources through declines in the
      real estate market.




9




*Payment
      of Dividends:*  The
      Company believes that all anticipated cash requirements for current operations
      will be met from internally generated funds, through cash dividends and
      distributions from subsidiaries and cash generated by investment securities. The
      Company’s significant sources of funds are dividends and distributions from its
      subsidiaries. The holding company receives cash from its subsidiaries in the
      form of dividends and as reimbursements for operating and other administrative
      expenses. The reimbursements are executed within the guidelines of management
      agreements between the holding company and its subsidiaries. The
      Company's ability to pay dividends and operating expenses is dependent on funds
      received from the insurance subsidiaries, which are subject to regulation in
      the
      states in which they do business. As
      of
      December 31, 2007, approximately $63,219,000 of
      the
      consolidated stockholders' equity represented net assets of the Company's
      subsidiaries that cannot be transferred in the form of dividends, loans or
      advances to the parent company under statutory regulations without prior
      insurance department approval. These regulations, among other things, require
      prior regulatory approval of the payment of dividends and other intercompany
      transfers. The Company believes, however, that amounts available for transfer
      from the insurance and other subsidiaries are adequate to meet the Company's
      operating needs.





*Purchase
      of Company Stock:* In
      2000
      and 2005, the Board of Directors of ITIC and ITC, respectively approved the
      purchase of 500,000 shares of the Company's common stock. Subsequently, the
      Board of Directors approved the purchase of an additional 125,000 shares of
      the
      Company’s common stock pursuant to the plan. Pursuant to this approval, ITC
      or ITIC purchased 111,437 shares in the twelve months ended December 31,
      2007, 51,949 shares in the twelve months ended December 31, 2006 and 96,150
      shares in the twelve months ended December 31, 2005 at an average per share
      price of $41.82, $43.85 and $33.32, respectively.





*Capital
      Expenditures:* During
      2008, the Company has plans for various capital improvement projects, including
      hardware purchases and several software development projects. All
      material  anticipated
      capital expenditures are subject to periodic review and revision and may vary
      depending on a number of factors.




**Quantitative
      and Qualitative Disclosures About Market Risk**


The
      Company's primary exposure to market risk relates to the impact of adverse
      changes in interest rates and market prices of its investment portfolio.
      Increases in interest rates diminish the value of fixed income securities and
      preferred stock, and decreases in stock market values diminish the value of
      common stocks held.




Corporate
      Oversight


The
      Company generates substantial investable funds from its two insurance
      subsidiaries. In formulating and implementing policies for investing new and
      existing funds, the Company has emphasized maximizing total after-tax return
      on
      capital and earnings while ensuring the safety of funds under management and
      adequate liquidity. The Company's Board of Directors oversees investment risk
      management processes. The Company seeks to invest premiums and other income
      to
      create future cash flows that will fund future claims, employee benefits and
      expenses, and earn stable margins across a wide variety of interest rate and
      economic scenarios. The Board of Directors has established specific investment
      policies that define the overall framework for managing market and other
      investment risks, including the accountabilities and controls over these
      activities. The Company may rebalance its existing asset portfolios or change
      the character of future investments from time to time in order to manage its
      exposure to market risk within defined tolerance ranges.




Interest
      Rate Risk


Interest
      rate risk is the risk that the Company will incur economic losses due to adverse
      changes in interest rates. This risk arises from the Company's investments
      in
      interest-sensitive debt
      securities. These securities are primarily fixed rate municipal
      bonds and corporate bonds. The Company does not purchase such securities for
      trading purposes. At December 31, 2007, the Company had approximately $74
      million in fixed rate bonds. The Company manages the interest rate risk inherent
      in its assets by monitoring its liquidity needs and by targeting a specific
      range for the portfolio's duration or weighted average maturity.





To
      determine the potential effect of interest rate risk on interest-sensitive
      assets, the Company calculates the effect of a 10% change in prevailing interest
      rates ("rate shock") on the fair market value of these securities considering
      stated interest rates and time to maturity. Based upon the information and
      assumptions the Company uses in its calculation, management estimates that
      a 10%
      immediate, parallel increase in prevailing interest rates would decrease the
      net
      fair market value of its fixed rate debt securities by approximately $1.6
      million. **** The
      selection of a 10% immediate parallel increase in prevailing interest rates
      should not be construed as a prediction by the Company's management of future
      market events, but rather, to illustrate the potential impact of such an event.
      To the extent that actual results differ from the assumptions utilized, the
      Company's rate shock measures could be significantly impacted. Additionally,
      the
      Company's calculation assumes that the current relationship between short-term
      and long-term interest rates (the term structure of interest rates) will remain
      constant over time. As a result, these calculations may not fully capture the
      impact of nonparallel changes in the term structure of interest rates and/or
      large changes in interest rates.




10




Equity
      Price Risk


Equity
      price risk is the risk that the Company will incur economic losses due to
      adverse changes in a particular stock or stock index. At December 31, 2007,
      the
      Company had approximately $14.1 million in common stocks. Equity price risk
      is
      addressed in part by varying the specific allocation of equity investments
      over
      time pursuant to management's assessment of market and business conditions
      and
      ongoing liquidity needs analysis. The Company's largest equity exposure is
      declines in the S&P 500; its portfolio of equity instruments is similar to
      those that comprise this index. Based upon the information and assumptions
      the
      Company used
      in
      its calculation, management estimates that an immediate
      decrease in the S&P 500 of 10% would decrease the net fair value of the
      Company's assets identified above by approximately $1,410,000. The selection
      of
      a 10% immediate decrease
      in the S&P 500 should not be construed as a prediction
      by the Company's management of future market events, but rather, to illustrate
      the potential impact of such an event. Since this calculation is based on
      historical performance, projecting future price volatility using this method
      involves an inherent assumption that historical volatility and correlation
      relationships will remain stable. Therefore, the results noted above may not
      reflect the Company's actual experience if future volatility and correlation
      relationships differ from such historical relationships.




**Off-Balance
      Sheet Arrangements and Contractual Obligations**


As
      a
      service to its customers, the Company, through ITIC, administers escrow and
      trust deposits representing earnest money received under real estate contracts,
      undisbursed amounts received for settlement of mortgage loans and indemnities
      against specific title risks. Cash held by the Company for these purposes was
      approximately $23,665,000 and $15,828,000 as of December 31, 2007 and 2006,
      respectively. These amounts are not considered assets of the Company and,
      therefore, are excluded from the accompanying consolidated balance sheets.
      However, the Company remains contingently liable for the disposition of these
      deposits.





In
      addition, in administering tax-deferred property exchanges,
      ITEC serves as a qualified intermediary for exchanges, holding
      the net sales proceeds from relinquished property to be used for purchase of
      replacement property. ITAC serves as exchange accommodation titleholder and,
      through LLCs that are wholly owned subsidiaries of ITAC, holds property for
      exchangers in reverse exchange transactions. Like-kind exchange deposits and
      reverse exchange property held by the Company for the purpose of completing
      such
      transactions totaled $115,515,000 and $186,579,000 as of December 31, 2007
      and
      2006, respectively. These amounts are not considered assets of the Company
      for
      accounting purposes and, therefore, are excluded from the accompanying
      consolidated balance sheets. Exchange services revenues include earnings on
      these deposits; therefore, investment income is shown as exchange services
      revenue, rather than investment income. The Company remains contingently liable
      to customers for the transfers of property, disbursements of proceeds, and
      the
      return on the proceeds of the agreed upon rate.





External
      assets managed by the Investors Trust Company totaled over $500,000,000 and
      $284,000,000 for the years ended December 31, 2007 and 2006, respectively.
      These
      amounts are not considered assets of the Company and, therefore, are excluded
      from the accompanying consolidated balance sheets.





It
      is not
      the general practice of the Company to enter into off-balance sheet
      arrangements; nor is it the policy of the Company to issue guarantees to third
      parties. Off-balance sheet arrangements are generally limited to the future
      payments under noncancelable operating leases, payments due under various
      agreements with third party service providers, and unaccrued obligations
      pursuant to certain executive employment agreements.





The
      following table summarizes the Company’s future estimated cash payments under
      existing contractual obligations at December 31, 2007, including payments due
      by
      period:




**Payments
                due by period****Contractual****Obligations**
            
            Total
            
            Less than 1 year
            
            1 - 3 years
            
            3 - 5 years
            
            More than 5
              yearsOperating
                lease obligations
            
            $
            1,583,741
            
            $
            696,828
            
            $
            740,279
            
            $
            146,634
            
            $
            -Reserves
                for claims
            
            
            36,975,000
            
            
            7,296,000
            
            
            11,829,000
            
            
            6,872,000
            
            
            10,978,000Other
                obligations
            
            
            532,565
            
            
            465,065
            
            
            67,500
            
            
            -
            
            
            -Obligations
                under executive employment plans and agreements
            
            
            5,496,000
            
            
            -
            
            
            -
            
            
            -
            
            
            5,496,000Total
            
            $
            44,587,306
            
            $
            8,457,893
            
            $
            12,636,779
            
            $
            7,018,634
            
            $
            16,474,000




As
      of
      December 31, 2007, the Company had a claims reserve of $36,975,000. The amounts
      and timing of these obligations are estimated and are not set contractually.
      Nonetheless, based on historical claims experience, the Company anticipates
      the
      above payment patterns.




**Recent
      Accounting Standards**


In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 establishes a
      common definition for fair value to be applied to accounting principles
      generally accepted in the United States of America (“GAAP”) requiring use of
      fair value, establishes a framework for measuring fair value, and expands
      disclosure about such fair value measurements. SFAS No. 157 is effective for
      fiscal years beginning after November 15, 2007. FASB Staff Position (“FSP”) No.
      157-2 allows for a one year deferral of implementation for non-financial assets
      and liabilities, except items recognized or disclosed at fair value on an annual
      or more frequently recurring basis. The Company is currently assessing the
      impact of SFAS No. 157 on its consolidated financial position and results of
      operations.




11




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (“SFAS 159”). This statement, which
      is expected to expand fair value measurement, permits entities to choose to
      measure many financial instruments and certain other items at fair value. SFAS
      No. 159 is effective for fiscal years beginning after November 15, 2007. The
      Company is currently assessing the impact of SFAS No. 159 on its consolidated
      financial position and results of operations.




In
        December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
        Consolidated Financial Statements - an amendment of ARB No. 51” (“SFAS 160”).
        SFAS No. 160 amends ARB 51 to establish accounting and reporting standards
        for
        the noncontrolling interest in a subsidiary and for the deconsolidation of
        a
        subsidiary. This statement changes the way the consolidated statement of
        operations are presented by requiring consolidated net income to be reported
        at
        amounts that include the amounts attributable to both the parent and the
        noncontrolling interest. SFAS No. 160 is effective for fiscal years and interim
        periods within those fiscal years, beginning on or after January 1, 2009
        and is
        to be applied prospectively except for the presentation and disclosure
        requirements which shall be applied retrospectively for all periods presented.
        The Company is evaluating the effect of adopting SFAS No. 160 on its financial
        statements.




**Selected
      Quarterly Financial Data**




**2007**
              
              **March
                  31**
              
              **June
                  30**
              
              **September
                  30**
              
              **December
                  31**Net
                  premiums written
              
              **$**
              **16,792,542**
              
              **$**
              **18,626,179**
              
              **$**
              **18,994,453**
              
              **$**
              **15,570,815**Net
                  income
              
              
              **2,322,214**
              
              
              **1,154,149**
              
              
              **3,857,892**
              
              
              **1,068,080**Basic
                  earnings per common share
              
              
              **.93**
              
              
              **.46**
              
              
              **1.56**
              
              
              **.44**Diluted
                  earnings per common share
              
              
              **.92**
              
              
              **.46**
              
              
              **1.54**
              
              
              **.43**
 
 2006
              
              March
                  31
              
              June
                  30
              
              September
                  30
              
              December
                  31Net
                  premiums written
              
              $
              16,631,626
              
              $
              19,123,591
              
              $
              18,242,676
              
              $
              16,198,574Net
                  income
              
              
              2,874,941
              
              
              4,315,537
              
              
              3,672,069
              
              
              2,322,887Basic
                  earnings per common share
              
              
              1.13
              
              
              1.70
              
              
              1.46
              
              
              .93Diluted
                  earnings per common share
              
              
              1.11
              
              
              1.68
              
              
              1.44
              
              
              .91
 
 12




Investors
      Title Company and Subsidiaries


**Consolidated
      Balance Sheets**




**As
                of December 31,**
            
            **2007**
            
            2006**Assets**Investments
                in securities (Notes 2 and 3):Fixed
                maturitiesHeld-to-maturity,
                at amortized cost (fair value: 2007: $1,078,229; 2006:
                $1,237,613)
            
            **$**
            **1,052,535**
            
            $
            1,195,617Available-for-sale,
                at fair value (amortized cost: 2007: $89,228,010; 2006:
                $100,979,825)
            
            
            **90,530,946**
            
            
            101,954,292Equity
                securities, available-for-sale, at fair value (cost: 2007: $10,437,658;
                2006: $8,653,003)
            
            
            **14,586,066**
            
            
            12,495,923Short-term
                investments
            
            
            **21,222,533**
            
            
            4,460,911Other
                investments
            
            
            **1,634,301**
            
            
            1,473,303Total
                investments
            
            
            **129,026,381**
            
            
            121,580,046Cash
                and cash equivalents (Note 15)
            
            
            **3,000,762**
            
            
            3,458,432Premium
                and fees receivable (less allowance for doubtful accounts: 2007:
                $2,170,000;2006:
                $2,128,000)
            
            
            **6,900,968**
            
            
            6,693,706Accrued
                interest and dividends
            
            
            **1,254,641**
            
            
            1,336,790Prepaid
                expenses and other assets
            
            
            **1,276,806**
            
            
            1,479,366Property
                acquired in settlement of claims
            
            
            **278,476**
            
            
            303,538Property,
                net (Note 4)
            
            
            **5,278,891**
            
            
            6,134,304Deferred
                income taxes, net (Note 8)
            
            
            **2,625,495**
            
            
            2,530,196**Total
                Assets**
            
            **$**
            **149,642,420**
            
            $
            143,516,378**Liabilities
                and Stockholders’ Equity****Liabilities**Reserves
                for claims (Note 6)
            
            **$**
            **36,975,000**
            
            $
            36,906,000Accounts
                payable and accrued liabilities (Note 10)
            
            
            **11,236,781**
            
            
            10,537,992Commissions
                and reinsurance payable (Note 5)
            
            
            **406,922**
            
            
            470,468Current
                income taxes payable (Note 8)
            
            
            **1,747,877**
            
            
            326,255Total
                liabilities
            
            
            **50,366,580**
            
            
            48,240,715**Commitments
                and Contingencies (Notes 5, 9, 10 and 11)****Stockholders’
                Equity (Notes 2, 3, 7, 12 and 14)**Class
                A Junior Participating preferred stock (shares authorized 100,000;
                no
                shares issued)
            
            
            -
            
            
            -Common
                stock-no par value (shares authorized 10,000,000; 2,411,318 and 2,507,325shares
                issued and outstanding 2007 and 2006, respectively, excluding 291,676
                sharesfor
                2007 and 2006, respectively, of common stock held by the Company’s
                subsidiary)
            
            
            **1**
            
            
            1Retained
                earnings
            
            
            **95,739,827**
            
            
            92,134,608Accumulated
                other comprehensive income (net unrealized gain on investments,Note
                8; net unrealized loss on postretirement benefits, Note
                10)
            
            
            **3,536,012**
            
            
            3,141,054Total
                stockholders’ equity
            
            
            **99,275,840**
            
            
            95,275,663**Total
                Liabilities and Stockholders’ Equity**
            
            **$**
            **149,642,420**
            
            $
            143,516,378




See
      notes
      to the Consolidated Financial Statements.




13




Investors
      Title Company and Subsidiaries


**Consolidated
      Statements of Income**


**For
                  the Years Ended December 31,**
              
              **2007**
              
              2006
              
              2005**Revenues**Underwriting
                  incomePremiums
                  written (Note 5)
              
              **$**
              **70,248,166**
              
              $
              70,638,049
              
              $
              76,838,399Less-premiums
                  for reinsurance ceded (Note 5)
              
              
              **264,177**
              
              
              441,582
              
              
              316,133Net
                  premiums written
              
              
              **69,983,989**
              
              
              70,196,467
              
              
              76,522,266Investment
                  income-interest and dividends (Note 3)
              
              
              **5,197,178**
              
              
              4,326,335
              
              
              3,335,767Net
                  realized gain on sales of investments (Note 3)
              
              
              **921,871**
              
              
              551,058
              
              
              119,015Exchange
                  services revenue
              
              
              **4,340,062**
              
              
              5,980,027
              
              
              4,543,049Other
              
              
              **4,499,187**
              
              
              3,607,829
              
              
              3,343,781Total
                  Revenues
              
              
              **84,942,287**
              
              
              84,661,716
              
              
              87,863,878**Operating
                  Expenses**Commissions
                  to agents
              
              
              **28,424,960**
              
              
              26,714,784
              
              
              30,309,405Provision
                  for claims (Note 6)
              
              
              **10,134,719**
              
              
              7,405,211
              
              
              8,164,783Salaries,
                  employee benefits and payroll taxes (Notes 7 and 10)
              
              
              **20,819,094**
              
              
              20,036,079
              
              
              19,208,112Office
                  occupancy and operations (Note 9)
              
              
              **5,590,827**
              
              
              5,599,382
              
              
              5,030,412Business
                  development
              
              
              **2,183,853**
              
              
              2,247,826
              
              
              2,001,504Filing
                  fees and taxes, other than payroll and income
              
              
              **531,777**
              
              
              573,395
              
              
              513,153Premium
                  and retaliatory taxes
              
              
              **1,496,448**
              
              
              1,348,850
              
              
              1,556,529Professional
                  and contract labor fees
              
              
              **2,789,878**
              
              
              2,659,238
              
              
              1,937,233Other
              
              
              **1,146,396**
              
              
              747,517
              
              
              559,824Total
                  Operating Expenses
              
              
              **73,117,952**
              
              
              67,332,282
              
              
              69,280,955Income
                  before Income Taxes
              
              
              **11,824,335**
              
              
              17,329,434
              
              
              18,582,923Provision
                  for Income Taxes (Note 8)
              
              
              **3,422,000**
              
              
              4,144,000
              
              
              5,290,000**Net
                  Income**
              
              **$**
              **8,402,335**
              
              $
              13,185,434
              
              $
              13,292,923**Basic
                  Earnings per Common Share (Note 7)**
              
              **$**
              **3.39**
              
              $
              5.22
              
              $
              5.19**Weighted
                  Average Shares Outstanding – Basic**
              
              
              **2,479,321**
              
              
              2,527,927
              
              
              2,560,418**Diluted
                  Earnings per Common Share (Note 7)**
              
              **$**
              **3.35**
              
              $
              5.14
              
              $
              5.10**Weighted
                  Average Shares Outstanding – Diluted**
              
              
              **2,508,609**
              
              
              2,564,216
              
              
              2,607,633




See
      notes
      to the Consolidated Financial Statements.





14




Investors
      Title Company and Subsidiaries


**Consolidated
      Statements of Stockholders’ Equity**


Accumulated
              
              TotalCommon Stock
              
              Retained
              
              Other Comprehensive
              
              Stockholders’For the Years Ended December 31, 2005, 2006 and 2007
              
              Shares
              
              Amount
              
              Earnings
              
              Income
              
              Equity**Balance,
                  January 1, 2005**
              
              
              2,481,024
              
              $
              1
              
              $
              69,272,092
              
              $
              3,235,178
              
              $
              72,507,271Net
                  income
              
              
              
              
              
              
              
              
              13,292,923
              
              
              
              
              
              13,292,923Dividends
                  ($.16 per share)
              
              
              
              
              
              
              
              
              (410,202
              )
              
              
              
              
              (410,202
              )Shares
                  of common stock repurchased
              
              
              (87,623
              )
              
              
              
              
              (2,839,697
              )
              
              
              
              
              (2,839,697
              )Shares
                  of common stock repurchased and retired
              
              
              (8,527
              )
              
              
              
              
              (363,765
              )
              
              
              
              
              (363,765
              )Issuance
                  of common stock in payment of bonuses and fees
              
              
              1,140
              
              
              
              
              
              43,090
              
              
              
              
              
              43,090Stock
                  options exercised
              
              
              163,420
              
              
              
              
              
              2,482,581
              
              
              
              
              
              2,482,581Net
                  unrealized loss on investment
              
              
              
              
              
              
              
              
              
              
              
              (414,945
              )
              
              (414,945
              )**Balance,
                  December 31, 2005**
              
              
              2,549,434
              
              $
              1
              
              $
              81,477,022
              
              $
              2,820,233
              
              $
              84,297,256Net
                  income
              
              
              
              
              
              
              
              
              13,185,434
              
              
              
              
              
              13,185,434Dividends
                  ($.24 per share)
              
              
              
              
              
              
              
              
              (606,423
              )
              
              
              
              
              (606,423
              )Shares
                  of common stock repurchased
              
              
              (500
              )
              
              
              
              
              (22,445
              )
              
              
              
              
              (22,445
              )Shares
                  of common stock repurchased and retired
              
              
              (51,449
              )
              
              
              
              
              (2,255,735
              )
              
              
              
              
              (2,255,735
              )Issuance
                  of common stock in payment of bonuses and fees
              
              
              500
              
              
              
              
              
              21,826
              
              
              
              
              
              21,826Stock
                  options exercised
              
              
              9,340
              
              
              
              
              
              219,342
              
              
              
              
              
              219,342Share-based
                  compensation expense
              
              
              
              
              
              
              
              
              91,209
              
              
              
              
              
              91,209Change
                  in investment accounting method
              
              
              
              
              
              
              
              
              24,378
              
              
              
              
              
              24,378Adjustment
                  to initially apply FASB Statement No. 158, net of tax
              
              
              
              
              
              
              
              
              
              
              
              (40,810
              )
              
              (40,810
              )Net
                  unrealized gain on investment
              
              
              
              
              
              
              
              
              
              
              
              361,631
              
              
              361,631**Balance,
                  December 31, 2006**
              
              
              2,507,325
              
              $
              1
              
              $
              92,134,608
              
              $
              3,141,054
              
              $
              95,275,663Net
                  income
              
              
              
              
              
              
              
              
              8,402,335
              
              
              
              
              
              8,402,335Dividends
                  ($.24 per share)
              
              
              
              
              
              
              
              
              (595,808
              )
              
              
              
              
              (595,808
              )Shares
                  of common stock repurchased and retired
              
              
              (111,437
              )
              
              
              
              
              (4,660,259
              )
              
              
              
              
              (4,660,259
              )Issuance
                  of common stock in payment of bonuses and fees
              
              
              40
              
              
              
              
              
              1,998
              
              
              
              
              
              1,998Stock
                  options exercised
              
              
              15,390
              
              
              
              
              
              365,284
              
              
              
              
              
              365,284Share-based
                  compensation expense
              
              
              
              
              
              
              
              
              91,669
              
              
              
              
              
              91,669Amortization
                  related to FASB Statement No. 158
              
              
              
              
              
              
              
              
              
              
              
              11,736
              
              
              11,736Accumulated
                  post-retirement benefit obligation adjustment
              
              
              
              
              
              
              
              
              
              
              
              (31,734
              )
              
              (31,734
              )Net
                  unrealized gain on investment
              
              
              
              
              
              
              
              
              
              
              
              414,956
              
              
              414,956**Balance,
                  December 31, 2007**
              
              
              **2,411,318**
              
              **$**
              **1**
              
              $
              **95,739,827**
              
              $
              **3,536,012**
              
              $
              **99,275,840**




See
      notes
      to the Consolidated Financial Statements.




15




Investors
      Title Company and Subsidiaries


**Consolidated
      Statements of Comprehensive Income**


**For
                  the Years Ended December 31,**
              
              **2007**
              
              2006
              
              2005Net
                  income
              
              **$**
              **8,402,335**
              
              $
              13,185,434
              
              $
              13,292,923Other
                  comprehensive income (loss), before tax:Amortization
                  related to prior year service cost
              
              
              **20,388**
              
              
              -
              
              
              -Amortization
                  of unrecognized gain
              
              
              **(2,604**
              **)**
              
              -
              
              
              -Accumulated
                  postretirement benefit obligation adjustment
              
              
              **(48,082**
              **)**
              
              -
              
              
              -Unrealized
                  gains (losses) on investments arising during the year
              
              
              **1,555,828**
              
              
              1,098,165
              
              
              (509,330
              )Less:
                  reclassification adjustment for gains realized in net
                  income
              
              
              **(921,871**
              **)**
              
              (551,058
              )
              
              (119,015
              )Other
                  comprehensive income (loss), before tax
              
              
              **603,659**
              
              
              547,107
              
              
              (628,345
              )Income
                  tax benefit related to FASB Statement No. 158
              
              
              **(10,300**
              **)**
              
              -
              
              
              -Income
                  tax expense (benefit) related to unrealized gains (losses)
                  oninvestments
                  arising during the tax year
              
              
              **551,029**
              
              
              372,836
              
              
              (172,935
              )Income
                  tax expense related to reclassification adjustment for
                  gainsrealized
                  in net income
              
              
              **(332,028**
              **)**
              
              (187,360
              )
              
              (40,465
              )Net
                  income tax expense (benefit) on other comprehensive income
              
              
              **208,701**
              
              
              185,476
              
              
              (213,400
              )Other
                  comprehensive income (loss)
              
              
              **394,958**
              
              
              361,631
              
              
              (414,945
              )**Comprehensive
                  income**
              
              **$**
              **8,797,293**
              
              $
              13,547,065
              
              $
              12,877,978




See
      notes
      to the Consolidated Financial Statements.





16





Investors
      Title Company and Subsidiaries


**Consolidated
      Statements of Cash Flows**


**For
                  the Years Ended December 31,**
              
              **2007**
              
              2006
              
              2005**Operating
                  Activities**Net
                  income
              
              $
              **8,402,335**
              
              $
              13,185,434
              
              $
              13,292,923Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
              
              
              **1,183,155**
              
              
              1,146,509
              
              
              1,010,366Amortization,
                  net
              
              
              **274,944**
              
              
              197,972
              
              
              79,525Amortization
                  related to FASB Statement No. 158
              
              
              **17,784**
              
              
              -
              
              
              -Issuance
                  of common stock in payment of bonuses and fees
              
              
              **1,998**
              
              
              21,826
              
              
              43,090Share-based
                  compensation expense related to stock options
              
              
              **91,669**
              
              
              91,209
              
              
              -Provision
                  for losses (benefit) on premiums receivable
              
              
              **42,000**
              
              
              (316,000
              )
              
              204,000Net
                  (gain) loss on disposals of property
              
              
              **(15,264**
              **)**
              
              22,650
              
              
              (24,831
              )Net
                  realized gain on sales of investments
              
              
              **(921,871**
              **)**
              
              (551,058
              )
              
              (119,015
              )Provision
                  for claims
              
              
              **10,134,719**
              
              
              7,405,211
              
              
              8,164,783Benefit
                  for deferred income taxes
              
              
              **(304,000**
              **)**
              
              (232,000
              )
              
              (809,000
              )Changes
                  in assets and liabilities:(Increase)
                  decrease in receivables and other assets
              
              
              **143,427**
              
              
              1,283,662
              
              
              (1,818,329
              )Increase
                  in accounts payable and accrued liabilities
              
              
              **1,596,406**
              
              
              1,549,754
              
              
              2,038,303Increase
                  (decrease) in commissions and reinsurance payable
              
              
              **(63,546**
              **)**
              
              28,370
              
              
              (109,564
              )Increase
                  (decrease) in current income taxes payable
              
              
              **1,421,622**
              
              
              (620,535
              )
              
              580,622Payments
                  of claims, net of recoveries
              
              
              **(10,065,719**
              **)**
              
              (5,356,211
              )
              
              (5,149,783
              )Net
                  cash provided by operating activities
              
              
              **11,939,659**
              
              
              17,856,793
              
              
              17,383,090**Investing
                  Activities**Purchases
                  of available-for-sale securities
              
              
              **(53,409,065**
              **)**
              
              (55,092,700
              )
              
              (42,380,220
              )Purchases
                  of short-term securities
              
              
              **(17,073,905**
              **)**
              
              (1,934,879
              )
              
              (3,041,163
              )Purchases
                  of and net earnings (losses) from other investments
              
              
              **(999,166**
              **)**
              
              (780,273
              )
              
              (653,873
              )Proceeds
                  from sales and maturities of available-for-sale securities
              
              
              **63,607,086**
              
              
              26,428,538
              
              
              36,566,880Proceeds
                  from maturities of held-to-maturity securities
              
              
              **149,000**
              
              
              461,000
              
              
              562,000Proceeds
                  from sales and maturities of short-term securities
              
              
              **312,282**
              
              
              4,731,702
              
              
              5,917,750Proceeds
                  from sales and distributions of other investments
              
              
              **1,248,317**
              
              
              749,331
              
              
              547,743Other
                  investment transactions
              
              
              -
              
              
              (65,622
              )
              
              -Purchases
                  of property
              
              
              **(463,828**
              **)**
              
              (1,902,619
              )
              
              (1,897,230
              )Proceeds
                  from disposals of property
              
              
              **151,350**
              
              
              42,236
              
              
              37,714Other
                  property transactions
              
              
              -
              
              
              23,685
              
              
              -Net
                  change in pending trades
              
              
              **(1,028,617**
              **)**
              
              998,020
              
              
              (2,029,570
              )Net
                  cash used in investing activities
              
              
              **(7,506,546**
              **)**
              
              (26,341,581
              )
              
              (6,369,969
              )**Financing
                  Activities**Repurchases
                  of common stock
              
              
              **(4,660,259**
              **)**
              
              (2,278,180
              )
              
              (3,203,462
              )Exercise
                  of options
              
              
              **365,284**
              
              
              219,342
              
              
              2,482,581Dividends
                  paid
              
              
              **(595,808**
              **)**
              
              (606,423
              )
              
              (410,202
              )Net
                  cash used in financing activities
              
              
              **(4,890,783**
              **)**
              
              (2,665,261
              )
              
              (1,131,083
              )**Net
                  Increase (Decrease) in Cash and Cash Equivalents**
              
              
              **(457,670**
              **)**
              
              (11,150,049
              )
              
              9,882,038**Cash
                  and Cash Equivalents, Beginning of Year**
              
              
              **3,458,432**
              
              
              14,608,481
              
              
              4,726,443**Cash
                  and Cash Equivalents, End of Year**
              
              $
              **3,000,762**
              
              $
              3,458,432
              
              $
              14,608,481




17


**Consolidated
        Statements of Cash Flows, continued**


**For
                  the Years Ended December 31,**
              
              **2007**
              
              2006
              
              2005**Supplemental
                  Disclosures****Cash
                  Paid During the Year for**Income
                  Taxes (net of refunds)
              
              $
              **2,288,000**
              
              $
              4,989,000
              
              $
              5,537,000Non
                  cash net unrealized (gain) loss on investments, net of deferred
                  tax
                  provision of ($219,001), ($185,475) and $213,400 for 2007, 2006
                  and 2005,
                  respectively
              
              **$**
              **(414,956**
              **)**
              $
              (361,631
              )
              $
              414,945Adjustments
                  to apply FASB Statement No. 158, net of deferred tax provision
                  of $16,348
                  and $21,024 for 2007 and 2006, respectively
              
              $
              **31,734**
              
              $
              40,810
              
              $
              -




See
      notes
      to the Consolidated Financial Statements.




18





Investors
      Title Company and Subsidiaries


Notes
      to
      Consolidated Financial Statements




**1.
      Basis of Presentation and Summary of Significant Accounting Policies**


Description
      of Business —Investors
      Title Company's (the "Company") two primary business segments are title
      insurance and exchange services. The Company's title insurance segment, through
      its two subsidiaries, Investors Title Insurance Company ("ITIC") and Northeast
      Investors Title Insurance Company ("NE-ITIC"), is licensed to insure titles
      to
      residential, institutional, commercial and industrial properties. The Company
      issues title insurance policies primarily through approved attorneys from
      underwriting offices and through independent issuing agents in 23 states and
      the
      District of Columbia primarily in the eastern half of the United States. The
      majority of the Company's business is concentrated in Kentucky, Michigan, New
      York, North Carolina, South Carolina, Tennessee, Virginia and West Virginia.
      Investors Title Exchange Corporation ("ITEC") acts as an intermediary in
      tax-deferred exchanges of property held for productive use in a trade or
      business or for investments, while Investors Title Accommodation Corporation
      ("ITAC") provides services for accomplishing reverse exchanges when taxpayers
      decide to acquire replacement property before selling the relinquished property.





Principles
      of Consolidation and Basis of Presentation —The
      accompanying consolidated financial statements include the accounts of the
      Company and its wholly owned subsidiaries. All significant intercompany balances
      and transactions have been eliminated.





Reclassification —Certain
      2006 and 2005 amounts in the accompanying consolidated financial statements
      have
      been reclassified to conform to the 2007 classifications. These
      reclassifications had no effect on stockholders’ equity or net income as
      previously reported.





Significant
      Accounting Policies —The
      significant accounting policies of the Company are summarized
      below.




***Cash
      and Cash Equivalents***


For
      the
      purpose of presentation in the Company's statements of cash flows, cash
      equivalents are highly liquid instruments with original maturities of three
      months or less. The carrying amount of cash and cash equivalents is a reasonable
      estimate of fair value due to the short-term maturity of these
      instruments.




***Investments
      in Securities***


Securities
      for which the Company has the intent and ability to hold to maturity are
      classified as held-to-maturity and reported at cost, adjusted for amortization
      of premiums or accretion of discounts, and other-than-temporary declines in
      fair
      value. Securities held principally for resale in the near term are classified
      as
      trading securities and recorded at fair values. Realized and unrealized gains
      and losses on trading securities are included in other income. Securities not
      classified as either trading or held-to-maturity are classified as
      available-for-sale and reported at fair value, adjusted for other-than-temporary
      declines in fair value, with unrealized gains and losses, net of tax, reported
      as accumulated other comprehensive income. Securities are regularly reviewed
      for
      differences between the cost and estimated fair value of each security for
      factors that may indicate that a decline in fair value is other-than-temporary.
      Some factors considered in evaluating whether or not a decline in fair value
      is
      other-than-temporary include the duration and extent to which the fair value
      has
      been less than cost and the Company’s ability and intent to retain the
      investment for a period of time sufficient to allow for a recovery in value.
      Such reviews are inherently uncertain and the value of the investment may not
      fully recover or may decline in future periods resulting in a realized loss.
      Fair values of all investments are based on quoted market prices. Realized
      gains
      and losses are determined on the specific identification method.




***Short-term
      Investments***


Short-term
      investments comprise money market accounts, time deposits with banks and savings
      and loan associations, and other investments expected to have maturities or
      redemptions greater than three months and less than twelve months. The Company
      did not identify any events or changes in circumstances that may have had a
      significant adverse effect on the fair value of these investments.




***Other
      Investments***


Other
      investments consist primarily of investments through LLC structures, which
      are
      accounted for under the equity or cost method of accounting. The aggregate
      cost
      of the Company’s cost method investments totaled $792,835 at December 31, 2007.
      The Company did not identify any events or changes in circumstances that may
      have had a significant adverse effect on the fair value of these
      investments.




***Property
      Acquired in Settlement of Claims***


Property
      acquired in settlement of claims is held for sale and valued at the lower of
      cost or market. Adjustments to reported estimated realizable values and realized
      gains or losses on dispositions are recorded as increases or decreases in claim
      costs.




***Property
      and Equipment***


Property
      and equipment are recorded at cost and are depreciated principally under the
      straight-line method over the estimated useful lives (three to 25 years) of
      the
      respective assets. Maintenance and repairs are charged to operating expenses
      and
      improvements are capitalized.




19




***Reserves
      for Claims***


The
      total
      reserve for all reported and unreported losses the Company incurred through
      December 31, 2007 is represented by the reserves for claims. The Company's
      reserves for unpaid losses and loss adjustment expenses are established using
      estimated amounts required to settle claims for which notice has been received
      (reported) and the amount estimated to be required to satisfy incurred claims
      of
      policyholders which may be reported in the future. Despite the variability
      of
      such estimates, management believes that the reserves are adequate to cover
      claim losses resulting from pending and future claims for policies issued
      through December 31, 2007. The Company continually reviews and adjusts its
      reserve estimates as necessary to reflect its loss experience and any new
      information that becomes available. Adjustments resulting from such reviews
      may
      be significant.




Claims
      and losses paid are charged to the reserves for claims. Although claims losses
      are typically paid in cash, occasionally claims are settled by purchasing the
      interest of the insured or the claimant in the real property. When this event
      occurs, the acquiring company carries assets at the lower of cost or estimated
      realizable value, net of any indebtedness on the property.




***Income
      Taxes***


The
      Company makes certain estimates and judgments in determining income tax expense
      for financial statement purposes. These estimates and judgments occur in the
      calculation of certain tax assets and liabilities which arise from differences
      in the timing of recognition of revenue and expense for tax and financial
      statement purposes. The Company provides for deferred income taxes (benefits)
      for the tax consequences on future years on temporary differences between the
      financial statements' carrying values and the tax bases of assets and
      liabilities using currently enacted tax rates.




***Premiums
      Written and Commissions to Agents***


Premiums
      are generally recorded and recognized as revenue at the time of closing of
      the
      related transaction as the earnings process is considered complete. Title
      insurance commissions earned by the Company's agents are recognized as expense
      concurrently with premium recognition.




***Fair
      Values of Financial Instruments***


Fair
      values for investment securities are based on quoted market prices. The carrying
      amounts reported in the balance sheets for short-term investments, premiums
      receivable, accrued interest and dividends, accounts payable, commissions and
      reinsurance payable and current income taxes payable approximates cost, which
      is
      what is reflected on the balance sheets due to the short-term nature of these
      assets and liabilities.




***Comprehensive
      Income***


The
      Company's accumulated other comprehensive income is comprised of unrealized
      holding gains on available-for-sale securities, net of tax, and unrealized
      losses associated with FASB Statement No. 158 related to postretirement benefit
      liabilities, net of tax.




***Stock-Based
      Compensation Disclosure***


The
      Company adopted the provisions of Statement of Financial Accounting Standards
      No. 123R (“SFAS 123R”) on January 1, 2006, the first day of the Company’s fiscal
      year 2006, using a modified prospective application, which provides for certain
      changes to the method for valuing share-based compensation. Under the modified
      prospective application, prior periods are not revised for comparative purposes.
      The valuation provisions of SFAS 123R apply to new awards and to awards that
      are
      outstanding on the effective date and subsequently modified or cancelled.
      Estimated compensation expense for awards outstanding at the effective date
      will
      be recognized over the remaining service period using the compensation cost
      calculated for pro forma disclosure purposes under FASB Statement No. 123,
      “Accounting for Stock-Based Compensation” (“SFAS 123”). Under SFAS 123R,
      share-based compensation cost is generally measured at the grant date, based
      on
      the estimated fair value of the award, and is recognized as expense over the
      employee’s requisite service period.




As
      share-based compensation expense recognized in the consolidated statements
      of
      income is based on awards ultimately expected to vest, it should be reduced
      for
      estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the
      time of grant and revised, if necessary, in subsequent periods if actual
      forfeitures differ from those estimates. In the Company’s pro forma information
      required under SFAS 123 for the periods prior to fiscal 2006, the Company
      accounted for forfeitures as they occurred.




Prior
      to
      adopting the provisions of SFAS 123R, the Company recorded estimated
      compensation expense for employee stock options based upon their intrinsic
      value
      on the date of grant pursuant to Accounting Principles Board Opinion No. 25,
      (“APB 25”), “Accounting for Stock Issued to Employees,” and provided the
      required pro forma disclosures of SFAS 123. Because the Company established
      the
      exercise price based on the fair market value of the Company’s stock at the date
      of grant, the stock options had no intrinsic value upon grant, and therefore
      no
      estimated expense was recorded prior to adopting SFAS 123R. Each accounting
      period, the Company reported the potential dilutive impact of stock options
      in
      its diluted earnings per common share using the treasury-stock method.
      Out-of-the-money stock options (i.e., the average stock price during the period
      was below the exercise price of the stock option) were not included in diluted
      earnings per common share as their effect was anti-dilutive.




Pro
      forma
      net earnings for 2005 including effects of expensing stock options
      follows:





20




**For
                the Year Ended December 31,**
            
            **2005**Net
                income, as reported
            
            **$**
            **13,292,923**Add
                back issuance of common stock in payment of bonuses and fees, net
                of
                tax
            
            
            **28,439**Deduct –
                total stock-based compensation expense under fair value method forall
                awards, net of tax
            
            
            **(175,531**
            **)**Pro
                forma net income
            
            **$**
            **13,145,831**Basic
                earnings per common share:As
                reported
            
            **$**
            **5.19**Pro
                forma net earnings
            
            
            **5.13**Diluted
                earnings per common share:As
                reported
            
            **$**
            **5.10**Pro
                forma net earnings
            
            
            **5.04**




Prior
      to
      the adoption of SFAS 123R, all tax benefits resulting from share-based
      compensation were presented as operating activities in the consolidated
      statements of cash flows. SFAS 123R requires cash flows resulting from tax
      deductions in excess of the grant date fair value of share-based awards to
      be
      included in cash flows from financing activities.




***Escrows
      and Like-Kind Exchanges***


As
      a
      service to its customers, the Company, through ITIC, administers escrow and
      trust deposits representing earnest money received under real estate contracts,
      undisbursed amounts received for settlement of mortgage loans and indemnities
      against specific title risks. Cash held by the Company for these purposes was
      approximately $23,665,000 and $15,828,000 as of December 31, 2007 and 2006,
      respectively. In administering tax-deferred exchanges,
      ITEC serves as a qualified intermediary for exchanges, holding
      the net sales proceeds from relinquished property to be used for purchase of
      replacement property. ITAC serves as exchange accommodation titleholder and,
      through LLCs that are wholly owned subsidiaries of ITAC, holds property for
      exchangers in reverse exchange transactions. Like-kind exchange deposits and
      reverse exchange property totaled $115,515,000 and $186,579,000 as of December
      31, 2007 and 2006, respectively. These amounts are not considered assets of
      the
      Company and, therefore, are excluded from the accompanying consolidated balance
      sheets. Exchange services revenues include earnings on these deposits;
      therefore, investment income is shown as exchange services revenue, rather
      than
      investment income. The Company remains contingently liable for the disposition
      of these deposits and for the transfers of property, disbursements of proceeds
      and the return on the proceeds at the agreed upon rate.




***Recent
      Accounting Standards***


In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
      Measurements” (“SFAS No. 157”). SFAS No. 157 establishes a common definition for
      fair value to be applied to accounting principles generally accepted in the
      United States of America (“GAAP”) requiring use of fair value, establishes a
      framework for measuring fair value, and expands disclosure about such fair
      value
      measurements. SFAS No. 157 is effective for fiscal years beginning after
      November 15, 2007. FASB Staff Position (“FSP”) No. 157-2 allows for a one year
      deferral of implementation for non-financial assets and liabilities, except
      items recognized or disclosed at fair value on an annual or more frequently
      recurring basis. The Company is currently assessing the impact of SFAS No.
      157
      on its consolidated financial position and results of operations.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (“SFAS 159”). This statement, which
      is expected to expand fair value measurement, permits entities to choose to
      measure many financial instruments and certain other items at fair value. SFAS
      No. 159 is effective for fiscal years beginning after November 15, 2007. The
      Company is currently assessing the impact of SFAS No. 159 on its consolidated
      financial position and results of operations.


In
        December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
        Consolidated Financial Statements - an amendment of ARB No. 51” (“SFAS 160”).
        SFAS No. 160 amends ARB 51 to establish accounting and reporting standards
        for
        the noncontrolling interest in a subsidiary and for the deconsolidation of
        a
        subsidiary. This statement changes the way the consolidated statement of
        operations are presented by requiring consolidated net income to be reported
        at
        amounts that include the amounts attributable to both the parent and the
        noncontrolling interest. SFAS No. 160 is effective for fiscal years and interim
        periods within those fiscal years, beginning on or after January 1, 2009
        and is
        to be applied prospectively except for the presentation and disclosure
        requirements which shall be applied retrospectively for all periods presented.
        The Company is evaluating the effect of adopting SFAS No. 160 on its financial
        statements.




***Use
      of Estimates and Assumptions***


The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities, and disclosures of contingent assets and liabilities at the date
      of
      the financial statements, and the reported amounts of revenues and expenses
      during the reporting period and accompanying notes. Actual results could differ
      from those estimates and assumptions used.




**2.
      Statutory Restrictions on Consolidated Stockholders' Equity and
      Investments**


The
      Company has designated approximately $39,879,000 and $38,108,000 of retained
      earnings as of December 31, 2007 and 2006, respectively, as appropriated to
      reflect the required statutory premium reserve. See Note 8 for the tax treatment
      of the statutory premium reserve.





21




As
      of
      December 31, 2007 and 2006, approximately $63,219,000 and $66,180,000,
      respectively, of consolidated stockholders'
      equity represents net assets of the Company's subsidiaries that cannot be
      transferred in the form of dividends, loans or advances to the parent company
      under statutory regulations without prior insurance department
      approval.




Bonds
      totaling approximately $6,471,000 and $5,724,000 at December 31, 2007 and 2006
      respectively, are deposited with the insurance departments of the states in
      which business is conducted.


**3.
        Investments in Securities**
 The
        aggregate fair value, gross unrealized holding gains, gross unrealized holding
        losses, and amortized cost for securities by major security type at December
        31
        were as follows:




Gross
              
              Gross
              
              EstimatedAmortized
              
              Unrealized
              
              Unrealized
              
              FairCost
              
              Gains
              
              Losses
              
              Value**December
                  31, 2007**Fixed
                  Maturities-Held-to-maturity,
                  at amortized cost-Obligations
                  of states and political subdivisions
              
              **$**
              **1,052,535**
              
              **$**
              **25,694**
              
              **$**
              **-**
              
              **$**
              **1,078,229**Total
              
              **$**
              **1,052,535**
              
              **$**
              **25,694**
              
              **$**
              **-**
              
              **$**
              **1,078,229**Fixed
                  Maturities-Available-for-sale,
                  at fair value:Obligations
                  of states and political subdivisions
              
              **$**
              **85,019,914**
              
              **$**
              **1,158,282**
              
              **$**
              **38,824**
              
              **$**
              **86,139,372**Corporate
                  debt securities
              
              
              **4,208,096**
              
              
              **183,478**
              
              
              **-**
              
              
              **4,391,574**Total
              
              **$**
              **89,228,010**
              
              **$**
              **1,341,760**
              
              **$**
              **38,824**
              
              **$**
              **90,530,946**Equity
                  Securities, available-for-sale, at fair value-Common
                  stocks and nonredeemable preferred stocks
              
              **$**
              **10,437,658**
              
              **$**
              **4,610,111**
              
              **$**
              **461,703**
              
              **$**
              **14,586,066**Total
              
              **$**
              **10,437,658**
              
              **$**
              **4,610,111**
              
              **$**
              **461,703**
              
              **$**
              **14,586,066**Short-term
                  investments-Certificates
                  of deposit and other
              
              **$**
              **21,222,533**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **21,222,533**Total
              
              **$**
              **21,222,533**
              
              **$**
              **-**
              
              **$**
              **-**
              
              **$**
              **21,222,533**December
                  31, 2006Fixed
                  Maturities-Held-to-maturity,
                  at amortized cost-Obligations
                  of states and political subdivisions
              
              $
              1,195,617
              
              $
              41,996
              
              $
              -
              
              $
              1,237,613Total
              
              $
              1,195,617
              
              $
              41,996
              
              $
              -
              
              $
              1,237,613Fixed
                  Maturities-Available-for-sale,
                  at fair value:Obligations
                  of states and political subdivisions
              
              $
              95,969,124
              
              $
              935,898
              
              $
              170,421
              
              $
              96,734,601Corporate
                  debt securities
              
              
              5,010,701
              
              
              209,005
              
              
              15
              
              
              5,219,691Total
              
              $
              100,979,825
              
              $
              1,144,903
              
              $
              170,436
              
              $
              101,954,292Equity
                  Securities, available-for sale, at fair value -Common
                  stocks and nonredeemable preferred stocks
              
              $
              8,653,003
              
              $
              3,953,710
              
              $
              110,790
              
              $
              12,495,923Total
              
              $
              8,653,003
              
              $
              3,953,710
              
              $
              110,790
              
              $
              12,495,923Short-term
                  investments -Certificates
                  of deposit and other
              
              $
              4,460,911
              
              $
              -
              
              $
              -
              
              $
              4,460,911Total
              
              $
              4,460,911
              
              $
              -
              
              $
              -
              
              $
              4,460,911
  22
  The
        scheduled maturities of fixed maturity securities at
        December 31, 2007 were as follows:
  Available-for-Sale
              
              Held-to-MaturityAmortized
              
              Fair
              
              Amortized
              
              FairCost
              
              Value
              
              Cost
              
              ValueDue
                  in one year or less
              
              $
              2,725,203
              
              $
              2,722,978
              
              $
              4,998
              
              $
              5,172Due
                  after one year through five years
              
              
              22,132,336
              
              
              22,690,072
              
              
              12,000
              
              
              12,843Due
                  five years through ten years
              
              
              32,657,994
              
              
              33,310,231
              
              
              740,457
              
              
              757,792Due
                  after ten years
              
              
              31,712,477
              
              
              31,807,665
              
              
              295,080
              
              
              302,422Total
              
              $
              89,228,010
              
              $
              90,530,946
              
              $
              1,052,535
              
              $
              1,078,229




Earnings
      on investments for the years ended December 31 were as follows:




**2007**
            
            2006
            
            2005Fixed
                maturities
            
            **$**
            **4,241,522**
            
            $
            3,784,337
            
            $
            2,714,441Equity
                securities
            
            
            **255,467**
            
            
            254,110
            
            
            160,439Invested
                cash and other short-term investments
            
            
            **643,654**
            
            
            277,006
            
            
            454,358Miscellaneous
                interest
            
            
            **56,535**
            
            
            10,882
            
            
            6,529Investment
                income
            
            **$**
            **5,197,178**
            
            $
            4,326,335
            
            $
            3,335,767




Gross
      realized gains and losses on sales of available-for-sale securities for the
      years ended December 31 are summarized as follows:




**2007**
            
            2006
            
            2005Gross
                realized gains:Obligations
                of states and political subdivisions
            
            $
            23,926
            
            $
            20,380
            
            $
            29,130Debt
                securities of domestic corporations
            
            
            -
            
            
            -
            
            
            18,464Common
                stocks and nonredeemable preferred stocks
            
            
            900,855
            
            
            611,906
            
            
            261,380Total
            
            
            924,781
            
            
            632,286
            
            
            308,974Gross
                realized losses:Obligations
                of states and political subdivisions
            
            
            -
            
            
            -
            
            
            (1,529
            )Common
                stocks and nonredeemable preferred stocks
            
            
            (413,058
            )
            
            (97,478
            )
            
            (188,430
            )Total
            
            
            (413,058
            )
            
            (97,478
            )
            
            (189,959
            )Net
                realized gain
            
            $
            511,723
            
            $
            534,808
            
            $
            119,015




Also
      included in net realized gain on sales of investments in the Consolidated
      Statements of Income for the years ended December 31, 2007 and 2006 is $410,148
      and $16,250, respectively, of gains from the sale of other
      investments.




The
      following table presents the gross unrealized losses on investment securities
      and the fair value of the related securities, aggregated by investment category
      and length of time that individual securities have been in a continuous loss
      position at December 31, 2007 and 2006.


Less than 12 Months
              
              12 Months or Longer
              
              TotalFair
              
              Unrealized
              
              Fair
              
              Unrealized
              
              Fair
              
              Unrealized**December 31, 2007**
              
              Value
              
              Losses
              
              Value
              
              Losses
              
              Value
              
              LossesObligations
                  of states and political subdivisions
              
              **$**
              **5,798,040**
              
              **$**
              **(20,164**
              **)**
              **$**
              **5,460,380**
              
              **$**
              **(18,660**
              **)**
              **$**
              **11,258,420**
              
              **$**
              **(38,824**
              **)**Total
                  Fixed Securities
              
              **$**
              **5,798,040**
              
              **$**
              **(20,164**
              **)**
              **$**
              **5,460,380**
              
              **$**
              **(18,660**
              **)**
              **$**
              **11,258,420**
              
              **$**
              **(38,824**
              **)**Equity
                  Securities
              
              
              **2,652,452**
              
              
              **(425,176**
              **)**
              
              **174,927**
              
              
              **(36,527**
              **)**
              
              **2,827,379**
              
              
              **(461,703**
              **)**Total
                  temporarily impaired securities
              
              **$**
              **8,450,492**
              
              **$**
              **(445,340**
              **)**
              **$**
              **5,635,307**
              
              **$**
              **(55,187**
              **)**
              **$**
              **14,085,799**
              
              **$**
              **(500,527**
              **)**December
                  31, 2006Obligations
                  of states and political subdivisions
              
              $
              10,897,630
              
              $
              (57,795
              )
              $
              6,642,342
              
              $
              (112,626
              )
              $
              17,539,972
              
              $
              (170,421
              )Debt
                  securities of domestic corporations
              
              
              600,253
              
              
              (15
              )
              
              -
              
              
              -
              
              
              600,253
              
              
              (15
              )Total
                  Fixed Securities
              
              $
              11,497,883
              
              $
              (57,810
              )
              $
              6,642,342
              
              $
              (112,626
              )
              $
              18,140,225
              
              $
              (170,436
              )Equity
                  Securities
              
              
              778,529
              
              
              (69,491
              )
              
              254,480
              
              
              (41,299
              )
              
              1,033,009
              
              
              (110,790
              )Total
                  temporarily impaired securities
              
              $
              12,276,412
              
              $
              (127,301
              )
              $
              6,896,822
              
              $
              (153,925
              )
              $
              19,173,234
              
              $
              (281,226
              )




23




A
      total
      of 57 and 45 securities had unrealized losses at December 31, 2007 and December
      31, 2006, respectively, and the duration of these securities range from less
      than one to more than ten years. As of December 31, 2007, the majority of the
      Company’s unrealized losses relate to its portfolio of equity securities, which
      was comprised of 40 different securities. The Company’s unrealized losses on its
      fixed securities were caused by interest rate increases. Unrealized losses
      related to holdings of equity securities were caused by market changes that
      the
      Company considers to be temporary.





Since
      the
      decline in fair value was attributable to changes in interest rates and
      temporary market changes and not credit quality, and the Company has the intent
      and ability to hold these securities until a recovery of fair value, the Company
      does not consider these investments other-than-temporarily impaired. Reviews
      of
      securities are inherently uncertain and the value of the investment may not
      fully recover or may decline in future periods resulting in a realized
      loss.




**4.
      Property and Equipment**


Property
      and equipment and estimated useful lives at December 31 are summarized as
      follows:




**2007**
            
            2006Land
            
            **$**
            **1,107,582**
            
            $
            1,107,582Title
                plant
            
            
            **200,000**
            
            
            200,000Office
                buildings and improvements (25 years)
            
            
            **3,178,632**
            
            
            3,125,077Furniture,
                fixtures and equipment (3 to 10 years)
            
            
            **6,129,659**
            
            
            7,285,097Automobiles
                (3 years)
            
            
            **586,297**
            
            
            559,265Total
            
            
            **11,202,170**
            
            
            12,277,021Less
                accumulated depreciation
            
            
            **(5,923,279**
            **)**
            
            (6,142,717
            )Property
                and equipment, net
            
            **$**
            **5,278,891**
            
            $
            6,134,304




**5.
      Reinsurance**


The
      Company assumes and cedes reinsurance with other insurance
      companies in the normal course of business. Premiums  assumed
      and ceded were approximately $43,000 and $264,000, respectively, for 2007,
      $22,000 and $442,000, respectively, for 2006 and $21,000 and $316,000, respectively, for 2005. Ceded
      reinsurance is comprised of excess of loss treaties, which protects against
      losses over certain amounts. The Company remains liable to the insured for
      claims under ceded insurance policies in the event that the assuming insurance
      companies are unable to meet their obligations under these contracts. The
      Company has not paid or recovered any reinsured losses during the three years
      ended December 31, 2007.




**6.
      Reserves for Claims**


Changes
      in the reserves for claims for the years ended December 31 are summarized as
      follows based on the year in which the policies were written:




**2007**
            
            2006
            
            2005Balance,
                beginning of year
            
            **$**
            **36,906,000**
            
            $
            34,857,000
            
            $
            31,842,000Provisions
                related to:Current
                year
            
            
            **9,787,529**
            
            
            9,845,776
            
            
            9,816,189Prior
                years
            
            
            **347,190**
            
            
            (2,440,565
            )
            
            (1,651,406
            )Total
                provision charged to operations
            
            
            **10,134,719**
            
            
            7,405,211
            
            
            8,164,783Claims
                paid, net of recoveries, related to:Current
                year
            
            
            **(624,484**
            **)**
            
            (618,965
            )
            
            (253,922
            )Prior
                years
            
            
            **(9,441,235**
            **)**
            
            (4,737,246
            )
            
            (4,895,861
            )Total
                claims paid, net of recoveries
            
            
            **(10,065,719**
            **)**
            
            (5,356,211
            )
            
            (5,149,783
            )Balance,
                end of year
            
            **$**
            **36,975,000**
            
            $
            36,906,000
            
            $
            34,857,000







24




The
      Company continually refines its reserve estimates as current loss experience
      develops and credible data emerges. Movements in the reserves related to prior
      periods were primarily the result of changes to estimates to better reflect
      the
      latest reported loss data.




The
      provision for claims as a percentage of net premiums written was 14.5%, 10.5%
      and 10.7% in 2007, 2006 and 2005, respectively. The change in estimate for
      calendar year 2007 resulted primarily from policy year 2006, which incurred
      two
      large fraudulent claims. The change in estimate for calendar year 2006 resulted
      primarily from lower than expected large claims payments for policy year 2005
      and the change in estimate for calendar year 2005 resulted primarily from lower
      than expected overall claim payments, including large claims, for policy year
      2003. Due to variances between actual and expected loss payments, loss
      development is subject to significant variability. A large claim is defined
      as a
      claim with incurred losses exceeding $250,000. Due to the small volume of large
      claims, the long-tail nature of title insurance claims and the inherent
      uncertainty in loss emergence patterns, large claim activity can vary
      significantly between policy years. The estimated development of large claims
      by
      policy year is therefore subject to significant changes as experience
      develops.




In
      management's opinion, the reserves are adequate to cover claim losses which
      might result from pending and future claims.




**7.
      Earnings Per Share and Stock Options**




Basic
      earnings per common share is computed by dividing net income by the
      weighted-average number of common shares outstanding during the reporting
      period. Diluted earnings per common share is computed by dividing net income
      by
      the combination of dilutive common share equivalents, comprised of shares
      issuable under the Company’s share-based compensation plans and the
      weighted-average number of common shares outstanding during the reporting
      period. Dilutive common share equivalents include the dilutive effect of
      in-the-money shares, which is calculated based on the average share price for
      each period using the treasury stock method. Under the treasury stock method,
      the exercise price of a share, the amount of compensation cost, if any, for
      future service that the Company has not yet recognized, and the amount of
      estimated tax benefits that would be recorded in additional paid-in capital,
      if
      any, when the share is exercised are assumed to be used to repurchase shares
      in
      the current period. The incremental dilutive common share equivalents,
      calculated using the treasury stock method were 29,288, 36,289 and 47,215 for
      2007, 2006 and 2005, respectively.




The
      following table sets forth the computation of basic and diluted earnings per
      share for the years ended December 31:




**For
                the Years Ended December 31,**
            
            **2007**
            
            2006
            
            2005Net
                income
            
            **$**
            **8,402,335**
            
            $
            13,185,434
            
            $
            13,292,923Weighted
                average common shares outstanding - Basic
            
            
            **2,479,321**
            
            
            2,527,927
            
            
            2,560,418Incremental
                shares outstanding assumingthe
                exercise of dilutive stock options and SARS
            
            
            **29,288**
            
            
            36,289
            
            
            47,215Weighted
                average common shares outstanding - Diluted
            
            
            **2,508,609**
            
            
            2,564,216
            
            
            2,607,633Basic
                earnings per common share
            
            **$**
            **3.39**
            
            $
            5.22
            
            $
            5.19Diluted
                earnings per common share
            
            **$**
            **3.35**
            
            $
            5.14
            
            $
            5.10




All
      outstanding options and Stock Appreciation Rights (“SARS”) during 2006 and 2005
      were included in the computation of diluted earnings per share because the
      options’ exercise prices were less than or equal to the average market price of
      the common shares. In 2007, 3,000 SARS were excluded from the computation of
      diluted earnings per share because their exercise price was greater than the
      stock price and therefore considered anti-dilutive.




The
      Company has adopted Employee Stock Option Purchase Plans (the "Plans") under
      which options or SARS to purchase shares (not to exceed 500,000 shares) of
      the
      Company's stock may be granted to key employees of the Company at a price not
      less than the market value on the date of grant. SARS and options, which are
      predominantly incentive stock options, are exercisable and vest immediately
      or
      within one year or at 10% to 20% per year beginning on the date of grant and
      generally expire in five to ten years. There were not any SARS exercised in
      2007
      or 2006.




A
      summary
      of stock option transactions for all stock option plans follows:




25




**Weighted**
            
            **Average****Average**
            
            **Remaining**
            
            **Aggregate****Number**
            
            **Exercise**
            
            **Contractual**
            
            **Intrinsic****of
                Shares**
            
            **Price**
            
            **Term
                (years)**
            
            **Value**Outstanding
                as of January 1, 2005
            
            
            246,781
            
            $
            16.45Options
                granted
            
            
            3,000
            
            
            36.79Options
                exercised
            
            
            (163,420
            )
            
            14.85Options
                cancelled/forfeited/expired
            
            
            (4,360
            )
            
            14.26Outstanding
                as of December 31, 2005
            
            
            82,001
            
            $
            20.50SARS
                granted
            
            
            3,000
            
            
            43.78Options
                exercised
            
            
            (9,340
            )
            
            17.21Options
                cancelled/forfeited/expired
            
            
            (1,610
            )
            
            22.12Outstanding
                as of December 31, 2006
            
            
            74,051
            
            $
            21.82SARS
                granted
            
            
            3,000
            
            
            49.04Options
                exercised
            
            
            (15,390
            )
            
            23.74Options
                cancelled/forfeited/expired
            
            
            (1,181
            )
            
            17.38**Outstanding
                as of December 31, 2007**
            
            
            **60,480**
            
            **$**
            **22.77**
            
            
            **4.11**
            
            **$**
            **1,377,390****Exercisable
                as of December 31, 2007**
            
            
            **39,970**
            
            **$**
            **24.20**
            
            
            **4.08**
            
            **$**
            **967,347****Unvested
                as of December 31, 2007**
            
            
            **20,510**
            
            **$**
            **19.99**
            
            
            **4.15**
            
            **$**
            **410,043**




The
      aggregate intrinsic value is calculated as the difference between the exercise
      price of the underlying awards and the quoted price of the Company’s common
      stock at December 31, 2007. The intrinsic value of options exercised during
      2007
      was approximately $299,000.




The
      following tables summarize information about fixed stock options outstanding
      at
      December 31, 2007:




Options Outstanding at Year-End
            
            Options Exercisable at Year-EndWeighted
            
            Weighted
            
            
            
            WeightedAverage
            
            Average
            
            
            
            AverageNumber
            
            Remaining
            
            Exercise
            
            Number
            
            ExerciseRange of Exercise Prices
            
            Outstanding
            
            Contractual Life
            
            Price
            
            Exercisable
            
            Price$
            10.00
            
            -
            
            $
            12.00
            
            
            13,520
            
            
            2.4
            
            $
            11.32
            
            
            7,940
            
            $
            11.2113.06
            
            -
            
            
            15.58
            
            
            7,000
            
            
            3.2
            
            
            14.91
            
            
            4,600
            
            
            14.8617.25
            
            -
            
            
            19.35
            
            
            2,350
            
            
            4.2
            
            
            19.00
            
            
            850
            
            
            19.2020.00
            
            -
            
            
            22.75
            
            
            16,260
            
            
            4.2
            
            
            21.08
            
            
            8,580
            
            
            20.6825.28
            
            -
            
            
            36.79
            
            
            15,350
            
            
            5.2
            
            
            29.58
            
            
            12,750
            
            
            29.37$
            10.00
            
            -
            
            $
            36.79
            
            
            54,480
            
            
            3.9
            
            $
            20.17
            
            
            34,720
            
            $
            20.90





SARS Outstanding at Year-End
            
            SARS Exercisable at Year-EndWeighted
            
            Weighted
            
            
            
            WeightedAverage
            
            Average
            
            
            
            AverageNumber
            
            Remaining
            
            Exercise
            
            Number
            
            ExerciseRange of Exercise Prices
            
            Outstanding
            
            Contractual Life
            
            Price
            
            Exercisable
            
            Price$
            43.78
            
            -
            
            $
            49.04
            
            
            6,000
            
            
            5.9
            
            $
            46.41
            
            
            5,250
            
            $
            46.03




In
      2007,
      12,845 options and SARS vested with a fair value of approximately
      $127,000.




During
      the second quarter of 2007, the Company issued 3,000 SARS to the directors
      of
      the Company. SARS give the holder the right to receive stock in the appreciation
      in the value of shares of stock from the grant date for a specified period
      of
      time, and as a result, are accounted for as equity instruments. As such, these
      were valued using the Black-Scholes option valuation model. The fair value
      of
      each option grant is estimated on the date of grant using the Black-Scholes
      option valuation model with the weighted-average assumptions noted in the
      following table. Expected volatilities are based on both the implied and
      historical volatility of the Company’s stock. The Company uses historical data
      to estimate option exercise and employee termination within the valuation model.
      The expected term of options represents the period of time that options granted
      are expected to be outstanding. The interest rate for periods during the
      expected life of the option is based on the U.S. Treasury yield curve in
      effect at the time of the grant. The weighted-average fair value for the SARS
      issued was $14.68 and was estimated using the following weighted-average
      assumptions:




26




2007Expected
                Life in Years
            
            
            5.0Volatility
            
            
            25.20
            %Interest
                Rate
            
            
            4.62
            %Yield
                Rate
            
            
            0.48
            %




The
      estimated weighted-average grant-date fair value of options
      (2005) and SARS (2006-2007) granted for the years ended December 31 was as
      follows:




**For
                the Years Ended December 31,**
            
            **2007**
            
            2006
            
            2005Exercise
                price equal to market price on date of grant:Weighted-average
                market price
            
            **$**
            **49.04**
            
            $
            43.78
            
            $
            36.79Weighted-average
                grant-date fair value
            
            
            **14.68**
            
            
            13.96
            
            
            17.03




There
      are
      no stock options or SARS granted where the exercise price is less than the
      market price on the date of grant.




The
      fair
      value of each option (2005) or SAR (2006-2007) granted is estimated on the
      date
      of grant using the Black-Scholes option pricing method with the following
      weighted-average assumptions:




**2007**
            
            2006
            
            2005Expected
                Life in Years
            
            
            **5.0**
            
            
            5.0
            
            
            10.0Volatility
            
            
            **25**
            **%**
            
            27
            %
            
            30
            %Interest
                Rate
            
            
            **4.6**
            **%**
            
            5.0
            %
            
            4.1
            %Yield
                Rate
            
            
            **0.5**
            **%**
            
            0.6
            %
            
            0.4
            %




There
      was
      approximately $92,000 of compensation expense relating to shares vesting on
      or
      before December 31, 2007 included in salaries, employee benefits and payroll
      taxes of the consolidated statements of income. As of December 31, 2007, there
      was approximately $211,000 of total unrecognized compensation cost related
      to
      unvested share-based compensation arrangements granted under the Company’s stock
      awards plans. That cost is expected to be recognized over a weighted-average
      period of 1.6 years.




**8.
      Income Taxes**





The
      components of income tax expense for the years ended December 31 are summarized
      as follows:




**For
                the Years Ended December 31,**
            
            **2007**
            
            2006
            
            2005Current:Federal
            
            **$**
            **3,489,000**
            
            $
            4,042,000
            
            $
            5,818,000State
            
            
            **237,000**
            
            
            334,000
            
            
            281,000Total
            
            
            **3,726,000**
            
            
            4,376,000
            
            
            6,099,000Deferred
                expense (benefit):Federal
            
            
            **(315,518**
            **)**
            
            (210,552
            )
            
            (779,617
            )State
            
            
            **11,518**
            
            
            (21,448
            )
            
            (29,383
            )Total
            
            
            **(304,000**
            **)**
            
            (232,000
            )
            
            (809,000
            )Total
            
            **$**
            **3,422,000**
            
            $
            4,144,000
            
            $
            5,290,000




For
      state
      income tax purposes, ITIC and NE-ITIC generally pay only a gross premium
      tax.


At
      December 31, the approximate effect on each component of deferred income taxes
      and liabilities is summarized as follows:




27




**For
                the Years Ended December 31,**
            
            **2007**
            
            2006Deferred
                income tax assets:Recorded
                reserves for claims, net of statutory premium reserves
            
            **$**
            **1,209,018**
            
            $
            1,197,635Accrued
                benefits and retirement services
            
            
            **2,359,699**
            
            
            2,023,905Reinsurance
                and commissions payable
            
            
            **32,829**
            
            
            59,644Allowance
                for doubtful accounts
            
            
            **737,800**
            
            
            723,520FASB
                Statement No. 158
            
            
            **31,325**
            
            
            21,024Net
                operating loss carryforward
            
            
            **64,000**
            
            
            68,000Other
            
            
            **221,784**
            
            
            248,116Total
            
            
            **4,656,455**
            
            
            4,341,844Deferred
                income tax liabilities:Net
                unrealized gain on investments
            
            
            **1,854,147**
            
            
            1,635,145Excess
                of tax over book depreciation
            
            
            **(10,125**
            **)**
            
            51,689Discount
                accretion on tax-exempt obligations
            
            
            **24,515**
            
            
            40,398Other
            
            
            **162,423**
            
            
            84,416Total
            
            
            **2,030,960**
            
            
            1,811,648Net
                deferred income tax assets
            
            $
            **2,625,495**
            
            $
            2,530,196




At
      December 31, 2007 and 2006, no valuation allowance was recorded. Based upon
      the
      Company’s historical results of operations, the existing financial condition of
      the Company and management’s assessment of all other available information,
      management believes that it is more likely than not that the benefit of these
      net deferred income tax assets will be realized.




A
      reconciliation of income tax as computed for the years ended December 31 at
      the
      U.S. federal statutory income tax rate (34%) to income tax expense
      follows:




**For
                the Years Ended December 31,**
            
            **2007**
            
            2006
            
            2005Anticipated
                income tax expense
            
            **$**
            **4,020,274**
            
            $
            5,892,008
            
            $
            6,318,194Increase
                (reduction) related to:State
                income taxes, net of federal income tax benefit
            
            
            **156,420**
            
            
            220,400
            
            
            185,460Tax-exempt
                interest income (net of amortization)
            
            
            **(1,247,536**
            **)**
            
            (2,044,576
            )
            
            (1,407,055
            )Misclassified
                tax-exempt interest related to prior years
            
            
            **425,000**
            
            
            -
            
            
            -Other,
                net
            
            
            **67,842**
            
            
            76,168
            
            
            193,401Provision
                for income taxes
            
            **$**
            **3,422,000**
            
            $
            4,144,000
            
            $
            5,290,000




During
      the fourth quarter of 2007, the Company discovered certain understatements
      in
      the provision for income taxes in its financial statements in 2006 and the
      first
      three quarters of 2007 relating to taxable municipal bonds that had been
      previously misclassified as tax exempt by the Company’s custodian bank.




The
      Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes – an interpretation of FASB Statement
      No. 109,” (“FIN 48”) on January 1, 2007. This interpretation requires
      that the Company recognize in its financial statements the impact of a tax
      position if that position is more likely than not of being sustained on an
      audit, based on the technical merits of the position. As a result of the
      implementation of FIN 48, the Company made a comprehensive review of its
      portfolio of uncertain tax positions in accordance with recognition standards
      established by FIN 48. In this regard, an uncertain tax position represents
      the Company’s expected treatment of a tax position taken in a filed tax return,
      or planned to be taken in a future tax return, that has not been reflected
      in
      measuring income tax expense for financial reporting purposes. As a result
      of
      this review, the Company did not recognize any increase in the liability for
      unrecognized tax benefits, nor did it reduce the January 1, 2007 balance in
      retained earnings for any additional liability.




The
      amount of unrecognized tax benefit or liability may increase or decrease in
      the
      future for various reasons, including adding amounts for current tax year
      positions, expiration of open income tax returns due to the statute of
      limitation, changes in management’s judgment about the level of uncertainty,
      status of examinations, litigation and legislative activity and the additions
      or
      eliminations of uncertain tax positions.




The
      Company’s policy is to report interest and penalties related to unrecognized tax
      benefits or liabilities in the Consolidated Statements of Income. As of December
      31, 2007, there was $16,886 related to interest and $12,423 related to penalties
      recorded in other operating expenses.




The
      Company, or one of its subsidiaries, files income tax returns in the U.S.
      federal jurisdiction and various states. With few exceptions, the Company is
      no
      longer subject to U.S. federal or state and local examinations by taxing
      authorities for years before 2004.




The
      following table sets forth the total amounts of unrecognized tax
      benefits.




28




Balance
                January 1, 2007
            
            $
            -Additions
                related to prior years
            
            
            123,605Reductions
                related to prior years
            
            
            -Settlements
            
            
            -Balance
                at December 31, 2007
            
            $
            123,605




Included
      in the balance of unrecognized tax benefits at December 31, 2007, is
      approximately $48,000 related to tax positions, penalties and interest for
      which the statute of limitations will expire within the next 12 months. Of
      the
      total unrecognized tax benefits, approximately $94,000 represents the amount
      that if recognized, would favorably affect the effective tax rate in future
      periods. Included in the $123,605 are penalties and interest in the amount
      of
      $29,289.




**9.
      Leases**





The
      Company leases certain office facilities and equipment under operating leases.
      Rental expense also includes occasional rental of automobiles. Rent expense
      totaled approximately $930,000, $889,000 and $846,000 in 2007, 2006 and 2005,
      respectively. The future minimum lease payments under operating leases that
      have
      initial or remaining noncancelable lease terms in excess of one year as of
      December 31, 2007, are summarized as follows:




Year
                Ended:2008
            
            $
            696,8282009
            
            
            476,1512010
            
            
            264,1282011
            
            
            90,7312012
            
            
            55,903Total
            
            $
            1,583,741




**10.
      Retirement and Other Postretirement Benefit Plans**




After
      three years of service, employees are eligible to participate in a Simplified
      Employee Pension Plan. Contributions, which are made at the discretion of the
      Company, are based on the employee's salary, but in no case will such
      contribution exceed $45,000 annually per employee. All contributions are
      deposited in Individual Retirement Accounts for participants. Contributions
      expensed under this plan were approximately $878,000, $712,000 and $602,000
      for
      2007, 2006 and 2005, respectively.




In
      November 2003, ITIC, a wholly owned subsidiary of the Company, entered into
      employment agreements with the Chief Executive Officer, Chief Financial Officer
      and the Chief Operating Officer of ITIC. These individuals also serve as the
      Chief Executive Officer, President and Executive Vice President, respectively,
      of the Company. The agreements provide compensation and life, health, dental
      and
      vision benefits upon the occurrence of specific events, including death,
      disability, retirement, termination without cause or upon a change in control.
      The agreements provide for annual salaries to be fixed by the Compensation
      Committee and, among other benefits, ITIC shall make quarterly contributions
      pursuant to a supplemental executive retirement plan on behalf of each executive
      equal to 22% of the base salary and bonus paid to each during such quarter.
      The
      agreements also prohibit each of these executives from competing with ITIC
      and
      its parent, subsidiaries and affiliates in the state of North Carolina while
      employed by ITIC and for a period of two years following termination of their
      employment. In addition, during the second quarter of 2004, ITIC entered into
      nonqualified deferred compensation plan agreements with these executives. The
      amount accrued for these plans at December 31, 2007 and 2006 was approximately
      $5,496,000 and $3,948,000, respectively, which includes postretirement
      compensation and health benefits, and was calculated based on the terms of
      the
      contract. These executive contracts are accounted for on an individual contract
      basis.




On
      November 17, 2003, ITIC entered into employment agreements with key executives
      that provide for the continuation of certain employee benefits upon retirement.
      The executive employee benefits include health insurance, dental insurance,
      vision insurance and life insurance. The plan is unfunded. Estimated future
      benefit payouts expected to be paid for each of the next five years are $2,455
      in 2008, $2,820 in 2009, $2,959 in 2010, $3,038 in 2011, $3,957 in 2012 and
      $37,603 in the next five years thereafter.




Cost
      of
      the Company’s postretirement benefit plan included the following
      components:




29




**2007**
            
            2006
            
            2005**Net
                periodic benefit cost**Service
                cost – benefits earned during the year
            
            **$**
            **13,974**
            
            $
            14,227
            
            $
            14,366Interest
                cost on projected benefit obligation
            
            
            **14,646**
            
            
            14,061
            
            
            13,675Amortization
                of unrecognized prior service cost
            
            
            **20,388**
            
            
            20,388
            
            
            20,388Amortization
                of unrecognized gains
            
            
            **(2,604**
            **)**
            
            (1,665
            )
            
            (591
            )Net
                periodic benefit cost at end of year
            
            **$**
            **46,404**
            
            $
            47,011
            
            $
            47,838




Under
      the
      disclosure provisions of SFAS 158, the Company is required to recognize the
      funded status (i.e., the difference between the fair value of the plan assets
      and the accumulated post retirement projected benefit obligations) of its
      benefit plan in its consolidated balance sheet, with a corresponding adjustment
      to accumulated other comprehensive income, net of tax. The net amount in
      accumulated other comprehensive income is $92,132 ($60,808 net of tax) and
      $61,834 ($40,810, net of tax) for December 31 2007 and 2006, respectively,
      and
      represents the net unrecognized actuarial losses and unrecognized prior service
      costs. The effects of adopting the provisions of SFAS 158 on the Company’s
      consolidated balance sheets at December 31, 2007 and 2006 are presented in
      the
      following table:




**2007**
            
            2006**Funded
                status**Actuarial
                present value of future benefits:Fully
                eligible active employee
            
            **$**
            **(34,622**
            **)**
            $
            (28,486
            )Non-eligible
                active employees
            
            
            **(297,798**
            **)**
            
            (227,232
            )Plan
                assets
            
            
            -
            
            
            -Funded
                status of accumulated postretirement benefit obligation, recognized
                in other liabilities
            
            **$**
            **(332,420**
            **)**
            $
            (255,718
            )




Development
      of the accumulated postretirement benefit obligation for the years ended
      December 31, 2007 and 2006 includes the following:




**2007**
            
            2006Accrued
                postretirement benefit cost at beginning of year
            
            **$**
            **193,884**
            
            $
            146,873Service
                cost – benefits earned during the year
            
            
            **13,974**
            
            
            14,227Interest
                cost on projected benefit obligation
            
            
            **14,646**
            
            
            14,061Amortization
                cost, net
            
            
            **17,784**
            
            
            18,723Unrecognized
                prior service cost
            
            
            **114,351**
            
            
            134,739Unrecognized
                gain
            
            
            **(22,219**
            **)**
            
            (72,905
            )Funded
                status of accumulated postretirement benefit obligation at end of
                year
            
            **$**
            **(332,420**
            **)**
            $
            (255,718
            )




The
      changes in amounts related to accumulated other comprehensive income, pre-tax,
      is as follows:




**2007**
            
            2006Balance
                at beginning of year
            
            **$**
            **61,834**
            
            $
            -Components
                of Accumulated Other Comprehensive IncomeUnrecognized
                prior service cost
            
            
            **(20,388**
            **)**
            
            -Unrecognized
                gain
            
            
            **50,686**
            
            
            -SFAS
                158 adoption adjustment
            
            
            -
            
            
            61,834Balance
                at end of year
            
            **$**
            **92,132**
            
            $
            61,834




For
      2008,
      the amounts in accumulated other comprehensive income, pre-tax, to be recognized
      as components of net periodic benefit costs are:




**Projected**
              **2008**Amortization
                of unrecognized prior service cost
            
            **$**
            **20,388**Amortization
                of unrecognized gains
            
            
            **-**Net
                periodic benefit cost at end of year
            
            **$**
            **20,388**




30




Weighted-average
      actuarial assumptions used to determine benefit obligations at December 31
      were:




**2007**
            
            2006Discount
                rate
            
            
            **5.75**
            **%**
            
            5.75
            %Expected
                return on plan assets
            
            
            **N/A**
            
            
            N/AExpected
                medical cost increase
            
            
            **5-11.5**
            **%**
            
            5-10
            %Expected
                dental and vision cost increase
            
            
            **5**
            **%**
            
            5
            %




Assumed
      health care cost trend rates do have an effect on the amounts reported for
      the
      postretirement benefit plan. The following illustrates the effects on the net
      periodic postretirement benefit cost (NPPBC) and the accumulated postretirement
      benefit obligation (APBO) of a one percentage point increase and one percentage
      point decrease in the assumed health care cost trend rate as of December 31,
      2007:




**One-Percentage**
              **Point Increase**
            
            **One-Percentage**
              **Point Decrease**1.  
                NPPBCEffect on the service cost component
            
            **$**
            **4,272**
            
            **$**
            **(3,276**
            **)**Effect on interest cost
            
            
            **4,260**
            
            
            **(3,293**
            **)**Total effect on the net periodic postretirement benefit
                cost
            
            **$**
            **8,532**
            
            **$**
            **(6,569**
            **)**2.  
                APBO (including active employees who are not fully
                eligible)Effect on those currently receiving benefits (retirees and
                spouses)
            
            **$**
            **-**
            
            **$**
            **-**Effect on active fully eligible
            
            
            **2,685**
            
            
            **(2,408**
            **)**Effect on actives not yet eligible
            
            
            **71,405**
            
            
            **(54,862**
            **)**Total effect on the accumulated postretirement benefit
                obligation
            
            **$**
            **74,090**
            
            **$**
            **(57,270**
            **)**




**11.
      Commitments and Contingencies**





The
      Company and its subsidiaries are involved in various routine legal proceedings
      that are incidental to their business. In the Company’s opinion, based on the
      present status of these proceedings, any potential liability of the Company
      or
      its subsidiaries with respect to these legal proceedings, will not, in the
      aggregate, be material to the Company’s consolidated financial condition or
      operations.




**12.
      Statutory Accounting**





The
      consolidated financial statements have been prepared in conformity with
      accounting principles generally accepted in the United States of America which
      differ in some respects from statutory accounting practices prescribed or
      permitted in the preparation of financial statements for submission to insurance
      regulatory authorities.




Stockholders'
      equity on a statutory basis was $93,079,819 and $88,828,480 as of December
      31,
      2007 and 2006, respectively. Net income on a statutory basis was $7,980,954,
      $11,684,065 and $12,657,658 for the twelve months ended December 31, 2007,
      2006
      and 2005, respectively.




**13.
      Segment Information**





Consistent
      with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
      Information *,* ”
the
      Company has aggregated its operating segments into two reportable segments:
      1)
      title insurance services; and 2) tax-deferred exchange services. The remaining
      immaterial segments have been combined into a group called All
      Other.




The
      title
      insurance segment primarily issues title insurance policies through approved
      attorneys from underwriting offices and through independent issuing agents.
      Title insurance policies insure titles to residential, institutional, commercial
      and industrial properties.




The
      tax-deferred exchange services segment acts as an intermediary in tax-deferred
      exchanges of property held for productive use in a trade or business or for
      investments and serves as exchange accommodation titleholder, holding property
      for exchangers in reverse exchange transactions. Revenues are derived from
      fees
      for handling exchange transactions.




Provided
      below is selected financial information about the Company's operations by
      segment for the three years ended December 31, 2007, 2006 and 2005:




31




Title
            
            Exchange
            
            All
            
            Intersegment**2007**
            
            Insurance
            
            Services
            
            Other
            
            Elimination
            
            TotalOperating
                revenues
            
            **$**
            **71,827,793**
            
            **$**
            **4,340,062**
            
            **$**
            **3,485,281**
            
            **$**
            **(829,898**
            **)**
            **$**
            **78,823,238**Investment
                income
            
            
            **4,024,900**
            
            
            **29,501**
            
            
            **1,212,779**
            
            
            **(70,002**
            **)**
            
            **5,197,178**Net
                realized gain on sales of investments
            
            
            **513,252**
            
            
            **-**
            
            
            **408,619**
            
            
            **-**
            
            
            **921,871**Total
                revenues
            
            **$**
            **76,365,945**
            
            **$**
            **4,369,563**
            
            **$**
            **5,106,679**
            
            **$**
            **(899,900**
            **)**
            **$**
            **84,942,287**Operating
                expenses
            
            
            **68,896,939**
            
            
            **1,546,437**
            
            
            **3,504,474**
            
            
            **(829,898**
            **)**
            
            **73,117,952**Income
                before taxes
            
            **$**
            **7,469,006**
            
            **$**
            **2,823,126**
            
            **$**
            **1,602,205**
            
            **$**
            **(70,002**
            **)**
            **$**
            **11,824,335**Assets
            
            **$**
            **111,384,663**
            
            **$**
            **1,210,438**
            
            **$**
            **37,047,319**
            
            **$**
            **-**
            
            
            **149,642,420**


2006Operating
                  revenues
              
              $
              71,733,764
              
              $
              5,980,027
              
              $
              2,915,065
              
              $
              (844,533
              )
              $
              79,784,323Investment
                  income
              
              
              3,759,367
              
              
              18,138
              
              
              619,231
              
              
              (70,401
              )
              
              4,326,335Net
                  realized gain on sales of investments
              
              
              551,058
              
              
              -
              
              
              -
              
              
              -
              
              
              551,058Total
                  revenues
              
              $
              76,044,189
              
              $
              5,998,165
              
              $
              3,534,296
              
              $
              (914,934
              )
              $
              84,661,716Operating
                  expenses
              
              
              63,667,391
              
              
              1,419,923
              
              
              3,089,501
              
              
              (844,533
              )
              
              67,332,282Income
                  before taxes
              
              $
              12,376,798
              
              $
              4,578,242
              
              $
              444,795
              
              $
              (70,401
              )
              $
              17,329,434Assets
              
              $
              114,599,621
              
              $
              1,087,383
              
              $
              27,829,374
              
              $
              -
              
              $
              143,516,3782005Operating
                  revenues
              
              $
              78,184,904
              
              $
              4,543,049
              
              $
              2,411,446
              
              $
              (730,303
              )
              $
              84,409,096Investment
                  income
              
              
              3,041,553
              
              
              18,463
              
              
              324,154
              
              
              (48,403
              )
              
              3,335,767Net
                  realized gain on sales of investments
              
              
              100,550
              
              
              -
              
              
              18,465
              
              
              -
              
              
              119,015Total
                  revenues
              
              $
              81,327,007
              
              $
              4,561,512
              
              $
              2,754,065
              
              $
              (778,706
              )
              $
              87,863,878Operating
                  expenses
              
              
              66,700,267
              
              
              949,407
              
              
              2,363,270
              
              
              (731,989
              )
              
              69,280,955Income
                  before taxes
              
              $
              14,626,740
              
              $
              3,612,105
              
              $
              390,795
              
              $
              (46,717
              )
              $
              18,582,923Assets
              
              $
              106,407,203
              
              $
              1,502,799
              
              $
              20,561,526
              
              $
              -
              
              $
              128,471,528




**14.
      Stockholders' Equity**


On
      November 12, 2002, the Company's Board of Directors amended the Company's
      Articles of Incorporation, creating a series of Class A Junior Participating
      Preferred Stock (the "Class A Preferred Stock"). There are 1,000,000 shares
      of
      Preferred Stock authorized and 100,000 of these shares have been designated
      Series A Junior Participating Preferred Stock. The Class A Junior Participating
      Preferred Stock is senior to common stock in dividends or distributions of
      assets upon liquidations, dissolutions or winding up of the Company. Dividends
      on the Class A Preferred Stock are cumulative and accrue from the quarterly
      dividend payment date. Each share of Class A Preferred Stock entitles the holder
      thereof to 100 votes on all matters submitted to a vote of shareholders of
      the
      Company. These shares were reserved for issuance under the Shareholder Rights
      Plan (the "Plan"), which was adopted on November 21, 2002, by the Company's
      Board of Directors. Under the terms of the Plan, the Company's common stock
      acquired by a person or a group buying 15% or more of the Company's common
      stock
      would be diluted, except in transactions approved by the Board of
      Directors.




In
      connection with the Plan, the Company's Board of Directors declared a dividend
      distribution of one right (a "Right") for each outstanding share of the
      Company's common stock paid on December 16, 2002, to shareholders of record
      at
      the close of business on December 2, 2002. Each Right entitles the registered
      holder to purchase from the Company a unit (a "Unit") consisting of one
      one-hundredth of a share of Class A Preferred Stock at a purchase price of
      $80
      per Unit. Under the Plan, the Rights detach and become exercisable upon the
      earlier of (a) ten (10) days following public announcement that a person or
      group of affiliated or associated persons has acquired, or obtained the right
      to
      acquire, beneficial ownership of 15% or more of the outstanding shares of the
      Company's common stock, or (b) ten (10) business days following the commencement
      of, or first public announcement of the intent of a person or group to commence,
      a tender offer or exchange offer that would result in a person or group
      beneficially owning 15% or more of such outstanding shares of the Company's
      common stock. The exercise price, the kind and the number of shares covered
      by
      each right are subject to adjustment upon the occurrence of certain events
      described in the Plan.




32




If
      the
      Company is acquired in a merger or consolidation in which the Company is not
      the
      surviving corporation, or the Company engages in a merger or consolidation
      in
      which the Company is the surviving corporation and the Company's common stock
      is
      changed or exchanged, or more than 50% of the Company's assets or earning power
      is sold or transferred, the Rights entitle a holder (other than the acquiring
      person or group) to buy, at the exercise price, stock of the acquiring company
      having a market value equal to twice the exercise price. Following an
      acquisition by such person or group of 50% or more of the outstanding common
      stock, the Company's Board of Directors may exchange the Rights (other than
      the
      Rights owned by such person or group), in whole or in part, at an exchange
      ratio
      of one share of the Company's common stock, or one one-hundredth of a share
      of
      Preferred Stock, per Right.




The
      Rights expire on November 11, 2012, and are redeemable upon action by the Board
      of Directors at a price of $0.01 per right at any time before they become
      exercisable. Until the Rights become exercisable, they are evidenced only by
      the
      common stock certificates and are transferred with and only with such
      certificates.




**15.
      Concentration of Risk**


Financial
      instruments that potentially subject the Company to concentrations of credit
      risk consist primarily of cash and cash equivalents. The Company invests its
      cash and cash equivalents into high credit quality security instruments.
      Deposits which exceed $100,000 at each institution are not insured by the
      Federal Deposit Insurance Corporation. Of the $3.0 million in cash and cash
      equivalents on hand at December 31, 2007, $1.6 million was not insured by the
      Federal Deposit Insurance Corporation.




The
      Company generates a significant amount of title insurance premiums in North
      Carolina. In 2007, 2006 and 2005, North Carolina accounted for 49.2%, 49.8%
      and
      47.2% of total direct title premiums, respectively.





33





Report
      of
      Independent Registered Public Accounting Firm




To
      the
      Board of Directors and Stockholders


Investors
      Title Company


Chapel
      Hill, North Carolina




We
      have
      audited the accompanying consolidated balance sheets of Investors Title Company
      and Subsidiaries as of December 31, 2007 and 2006, and the related consolidated
      statements of income, comprehensive income, stockholders’ equity and cash flows
      for each of the years in the three-year period ended December 31, 2007. These
      consolidated financial statements are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these consolidated
      financial statements based on our audits.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Investors Title Company
      and
      Subsidiaries as of December 31, 2007 and 2006, and the results of their
      operations and their cash flows for each of the years in the three-year period
      ended December 31, 2007 in conformity with accounting principles generally
      accepted in the United States of America.




We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), Investors Title Company’s internal control over
      financial reporting as of December 31, 2007, based on the criteria established
      in Internal Control-Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission, and our report dated March 17, 2008
      expressed an unqualified opinion.




/s/
      Dixon
      Hughes PLLC




March
      17,
      2008


High
      Point, North Carolina





34




Management’s
      Report on Internal Control over Financial Reporting




Management
      of Investors Title Company is responsible for establishing and maintaining
      adequate internal control over financial reporting, as such term is defined
      in
      the Exchange Act Rules 13a-15(f) and 15(d)-15-(f). The Company’s internal
      control over financial reporting has been designed to provide reasonable
      assurance regarding the reliability of the Company’s financial reporting and the
      preparation of published financial statements in accordance with generally
      accepted accounting principles.




The
      Company’s internal control over financial reporting includes policies and
      procedures that (1) pertain to the maintenance of records that, in reasonable
      detail, accurately and fairly reflect transactions and dispositions of assets
      of
      the Company; (2) provide reasonable assurance that transactions are recorded
      as
      necessary to permit preparation of financial statements in accordance with
      accounting principles generally accepted in the United States of America, and
      that receipts and expenditures are being made only in accordance with
      authorization of management and directors of the Company; and (3) provide
      reasonable assurance regarding prevention or timely detection of unauthorized
      acquisition, use or disposition of the Company’s assets that could have a
      material effect on the Company’s consolidated financial statements.




Because
      of its inherent limitation, internal control over financial reporting may not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with policies or procedures may deteriorate.




Management
      conducted an evaluation of the effectiveness of the Company’s internal control
      over financial reporting based on the framework in “Internal Control-Integrated
      Framework” issued by the Committee of Sponsoring Organizations of the Treadway
      Commission (“COSO”) and concluded that internal controls over financial
      reporting are effective as of December 31, 2007.




Management’s
      assessment of the effectiveness of the Company’s internal control over financial
      reporting as of December 31, 2007 has been audited by Dixon Hughes PLLC as
      independent registered public accounting firm, as stated in their report which
      follows.




35




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors and Stockholders


Investors
      Title Company


Chapel
      Hill, North Carolina




We
      have
      audited Investors Title Company and Subsidiaries’ (“the Company”) internal
      control over financial reporting as of December 31, 2007, based on criteria
      established in Internal Control—Integrated Framework issued by the Committee of
      Sponsoring Organizations of the Treadway Commission. Investors Title Company
      and
      Subsidiaries’ management is responsible for maintaining effective internal
      control over financial reporting and for its assessment of the effectiveness
      of
      internal control over financial reporting included in the accompanying
      Management’s Report on Internal Controls over Financial Reporting. Our
      responsibility is to express an opinion on the Company’s internal control over
      financial reporting based on our audit.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit of internal control over financial reporting included
      obtaining an understanding of internal control over financial reporting,
      assessing the risk that a material weakness exists, and testing and evaluating
      the design and operating effectiveness of internal control based on the assessed
      risk. Our audit also included performing such other procedures as we considered
      necessary in the circumstances. We believe that our audit provides a reasonable
      basis for our opinion.




A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (1) pertain
      to the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company;
      (2) provide reasonable assurance that transactions are recorded as
      necessary to permit preparation of financial statements in accordance with
      generally accepted accounting principles, and that receipts and expenditures
      of
      the company are being made only in accordance with authorizations of management
      and directors of the company; and (3) provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use,
      or
      disposition of the company’s assets that could have a material effect on the
      financial statements.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




In
      our
      opinion, Investors Title Company and Subsidiaries maintained, in all material
      respects, effective internal control over financial reporting as of
      December 31, 2007, based on criteria established in *Internal
      Control—Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway
      Commission.




We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of Investors
      Title Company and Subsidiaries as of December 31, 2007 and 2006, and the
      related consolidated statements of income, comprehensive income, changes in
      stockholders’ equity, and cash flows for each of the years in the three-year
      period ended December 31, 2007, and our report dated March 17, 2008, expressed
      an unqualified opinion on those consolidated financial statements.




/s/
      Dixon
      Hughes PLLC




March
      17,
      2008


High
      Point, North Carolina





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