-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UQ/jQa3jP9JdxFCN5tI7uHth7HOk8syH4y+T5IACfYyx36hkYtgt/eGdrttmB4UH S0NCbjuDeP99UHQjjFpqxw== 0001144204-08-015783.txt : 20080317 0001144204-08-015783.hdr.sgml : 20080317 20080317154629 ACCESSION NUMBER: 0001144204-08-015783 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20071231 FILED AS OF DATE: 20080317 DATE AS OF CHANGE: 20080317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVESTORS TITLE CO CENTRAL INDEX KEY: 0000720858 STANDARD INDUSTRIAL CLASSIFICATION: TITLE INSURANCE [6361] IRS NUMBER: 561110199 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11774 FILM NUMBER: 08692872 BUSINESS ADDRESS: STREET 1: 121 N COLUMBIA ST STREET 2: P O DRAWER 2687 CITY: CHAPEL HILL STATE: NC ZIP: 27514 BUSINESS PHONE: 9199682200 MAIL ADDRESS: STREET 1: 121 NORTH COLUMBIA STREET CITY: CHAPEL HILL STATE: NC ZIP: 27514 10-K 1 v106766_10k.htm Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2007

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from __to __

Commission file number 0-11774

INVESTORS TITLE COMPANY
(Exact name of registrant as specified in its charter)

North Carolina
56-1110199
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

121 North Columbia Street
Chapel Hill, North Carolina 27514
(919) 968-2200
(Address and telephone number of principal executive office)

Securities registered pursuant to section 12(b) of the Act:
Common Stock, no par value 

Securities registered pursuant to section 12(g) of the Act:
None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o  No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes o  No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer  o  Accelerated filer  x  Non-accelerated filer o Smaller reporting company
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of the common shares held by non-affiliates was $90,590,399 based on the closing sales price on the NASDAQ National Market System on the last business day of the registrant's most recently completed second fiscal quarter (June 30, 2007).

As of March 7, 2008, there were 2,703,154 common shares of the registrant outstanding.
 

DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of Investors Title Company's Annual Report to Shareholders for the fiscal year ended December 31, 2007 are incorporated by reference in Parts I, II and IV hereof and portions of Investors Title Company's definitive proxy statement for the Annual Meeting of Shareholders to be held on May 21, 2008 are incorporated by reference in Part III hereof.
 
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SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
 
This Annual Report on Form 10-K, as well as information included in future filings by the Company with the Securities and Exchange Commission and information contained in written material, press releases and oral statements issued by or on behalf of the Company, contains, or may contain, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect management’s current outlook for future periods. These statements may be identified by the use of words such as "plan," "expect," "aim," "believe," "project," "anticipate," "intend," "estimate," "should," "could" and other expressions that indicate future events and trends. All statements that address expectations or projections about the future, including statements about the Company's strategy for growth, product and service development, market share position, claims, expenditures, financial results and cash requirements, are forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events that are subject to a number of risks and uncertainties. Actual future results and trends may differ materially from historical results or those projected in any such forward-looking statements depending on a variety of factors, including, but not limited to, the following:
 
 
·
the demand for title insurance will vary over time due to factors such as the level of real estate transactions, the level of mortgage origination volumes including refinancing and changes to the insurance requirements of the participants in the secondary mortgage market;
 
·
significant changes to applicable government regulations;
 
·
losses from claims may be greater than anticipated such that reserves for possible claims are inadequate;
 
·
heightened regulatory scrutiny;
 
·
unanticipated adverse changes in securities markets, including interest rates, could result in material losses on the Company's investments;
 
·
the Company's dependence on key management personnel, the loss of whom could have a material adverse affect on the Company's business;
 
·
the Company’s ability to develop and offer products and services that meet changing industry standards in a timely and cost-effective manner;
 
·
the requirement by state statutes of the Company’s insurance subsidiaries to maintain minimum levels of capital, surplus and reserves and restrict the amount of dividends that the insurance subsidiaries may pay to the Company without prior regulatory approval; and
 
·
the concentration of key accounting and information systems in a few locations.

For a description of factors that may cause actual results to differ materially from such forward-looking statements, see Item 1A, “Risk Factors” of this annual report on Form 10-K.

These and other risks and uncertainties may be described from time to time in the Company's other reports and filings with the Securities and Exchange Commission. The Company does not undertake to update any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.
 
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INVESTORS TITLE COMPANY AND SUBSIDIARIES

TABLE OF CONTENTS

   
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GENERAL 

Investors Title Company (the "Company") is a holding company that operates through its subsidiaries and was incorporated in the state of North Carolina in February 1973. The Company became operational on June 24, 1976, when it acquired Investors Title Insurance Company ("ITIC") as a wholly owned subsidiary under a plan of exchange of shares of common stock. On September 30, 1983, the Company acquired Northeast Investors Title Insurance Company ("NE-ITIC"), formerly Investors Title Insurance Company of South Carolina, as a wholly owned subsidiary under a plan of exchange of shares of common stock. Investors Capital Management Company ("ICMC"), a wholly owned subsidiary of the Company, was organized on October 17, 2003. The Company's most recent subsidiary, Investors Trust Company ("Investors Trust"), was granted a trust charter by the North Carolina Banking Commissioner on February 17, 2004. The Company's executive offices are located at 121 North Columbia Street, Chapel Hill, North Carolina 27514 and its telephone number is (919) 968-2200. The Company maintains a website at www.invtitle.com.

OVERVIEW OF THE BUSINESS

The Company engages in several lines of business. Its primary business activity is the issuance of residential and commercial title insurance through ITIC and NE-ITIC. The second line of business provides tax-deferred real property exchange services through its subsidiaries, Investors Title Exchange Corporation (“ITEC”) and Investors Title Accommodation Corporation (“ITAC”). The Company entered into the business of providing investment management and trust services to individuals, trusts and other entities in 2003. The Company has two reportable operating segments. The title insurance segment consists of the operations of ITIC and NE-ITIC. The exchange services segment consists of the operations of ITEC and ITAC. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 13 of Notes to Consolidated Financial Statements in the 2007 Annual Report to Shareholders incorporated by reference in this Form 10-K Annual Report for additional information related to the revenues, income and assets attributable to the Company's primary operating segments.
 
Title Insurance

Through its two wholly owned title underwriting subsidiaries, ITIC and NE-ITIC, the Company underwrites land title insurance for owners and mortgagees as a primary insurer. ITIC and NE-ITIC offer primary title insurance coverage to both owners and mortgagees of real estate and also offers the reinsurance of title insurance risks to other title insurance companies. Title insurance protects against loss or damage resulting from title defects that affect real property. The commitment and policies issued are predominantly the standard American Land Title Association (“ALTA”) approved forms.

Title Insurance Policies. 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. The Company issues title insurance policies on the basis of a title report. The title report documents the current status of title to the property.
 
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Upon a closing, the seller executes a deed to the new owner. When real property is conveyed from one party to another, occasionally there is an undisclosed defect in the title or a mistake 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 title risks as defined in the policy.

A title risk is one of any number of things that could jeopardize the property owner's or mortgagee’s interest in the property defined in the title policy. Such risks include title being vested in someone or some entity other than the insured, unmarketable title, lack of a right of access to the property, invalidity or unenforceability of the insured mortgage, or other defects, liens, or encumbrances against the property. Examples of common types of covered risks include defects arising from prior unsatisfied mortgages, tax liens or confirmed assessments, judgments against the property or encumbrances against the property arising through easements, restrictions or other existing covenants. Title insurance also generally protects against deeds or mortgages that contain inaccurate legal descriptions, that were forged or improperly acknowledged or delivered, that were executed by spouses without the other spouse’s signature or release of marital interest or that were conveyed by minors or incompetents.

Insured Risk on Policies in Force. Generally, the amount of the insured risk or “face amount”of insurance on a title insurance policy is equal to the lesser of the purchase price of the insured property or the fair market value of the property. In the event that a claim is made against the property, the insurer is responsible for paying the legal costs associated with eliminating covered title defects or defending the insured party against covered title defects affecting the property. The insurer may choose to pay the policy limits to the insured or, if the loss is less than policy limits, the amount of the insured’s actual loss due to the title defect, at which time the insurer's duty to defend the claim and all other obligations of the insurer with respect to the claim are satisfied.

At any given time, the insurer's actual risk of monetary loss under outstanding policies is only a portion of the aggregate insured risk, or total face amount, of all policies in force. The lower risk results primarily from the reissuance of title insurance policies by other underwriters over time when the property is conveyed or refinanced. The coverage on a lender's title insurance policy is reduced and eventually terminated as the mortgage loan it secures is paid. An owner's policy is effective as long as the insured has an ownership interest in the property or has liability under warranties of title. Due to the variability of these factors, the aggregate contingent liability of a title underwriter on outstanding policies of the Company and its subsidiaries cannot be determined with any precision.

Losses and Reserves. While most other forms of insurance provide for the assumption of risk of loss arising out of unforeseen events, title insurance is based upon a process of loss avoidance. Title insurance generally serves to protect the policyholder from the risk of loss from events that predate the issuance of the policy.  Losses on policies typically occur when a title defect is not discovered during the examination and settlement process or the occurrence of certain hidden risks which cannot be determined from an accurate search of public land records. The maximum amount of liability under a title insurance policy is generally the face amount of the policy plus the cost of defending the insured’s title against an adverse claim. Reserves for claim losses are established based upon known claims, as well as estimated losses incurred but not yet reported to the Company, based upon historical experience and other factors.
 
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Title claims can often be complex, vary greatly in dollar amounts and are affected by economic and market conditions and may involve uncertainties as to ultimate exposure, and therefore, reserve estimates are subject to variability. For a more complete description of the Company’s reserves for claims, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2007 Annual Report of Shareholders incorporated by reference in this Form 10-K Annual Report.

Geographic Operations. ITIC was incorporated in the State of North Carolina on January 28, 1972, and became licensed to write title insurance in the State of North Carolina on February 1, 1972. At present, ITIC primarily writes land title insurance in 22 states and the District of Columbia, primarily in the eastern half of the United States. ITIC is licensed to write title insurance in 44 states and the District of Columbia.

NE-ITIC was incorporated in the State of South Carolina on February 23, 1973, and became licensed to write title insurance in that state on November 1, 1973. It currently writes title insurance as a primary insurer and as a reinsurer in the State of New York. NE-ITIC is also licensed to write title insurance in 18 additional states and the District of Columbia.

Premiums from title insurance written in the state of North Carolina represent the largest source of revenue for the title insurance segment. In the state of North Carolina, ITIC primarily issues title insurance commitments and policies through branch offices. Title policies are primarily issued through issuing agents in other states. For a description of the level of net premiums written geographically by state, refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2007 Annual Report of Shareholders incorporated by reference in this Form 10-K Annual Report.

Each state license authorizing ITIC or NE-ITIC to write title insurance must be renewed annually. These licenses are necessary for the companies to operate as a title insurer in each state in which they write premiums.
  
Ratings. The Company’s title insurance subsidiaries are regularly assigned ratings by independent agencies designed to indicate their financial condition and/or its claims paying ability. The rating agencies determine ratings primarily by analyzing financial data. ITIC has been rated by two independent Fannie Mae-approved financial analysis firms, Demotech, Inc. and LACE Financial Corporation (“LACE”), with financial stability ratings of A" (A Double Prime), and B+, respectively. NE-ITIC's financial stability also has been recognized by Demotech, Inc. and 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 Unsurpassed 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.
 
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Reinsurance. The Company assumes and cedes reinsurance with other insurance companies in the normal course of business. Reinsurance is a contractual arrangement whereby one insurer assumes some or all of the risk exposure written by another insurer. Ceded reinsurance is comprised of excess of loss treaties, which protects against losses over certain amounts.

In the ordinary course of business, ITIC and NE-ITIC reinsure certain risks with other title insurers for the purpose of limiting their risk exposure and to comply with state insurance regulations. They also assume reinsurance for certain risks of other title insurers for which they receive additional income. For the last three years, revenues from reinsurance activities accounted for less than 1% of total premium volume.

Exchange Services

In 1988, the Company established Investors Title Exchange Corporation, a wholly owned subsidiary ("ITEC"), to provide services in connection with tax-deferred exchanges of like-kind property pursuant to Section 1031 of the Internal Revenue Code. ITEC acts as an intermediary in tax-deferred exchanges of property held for productive use in a trade or business or for investments, and its income is derived from fees for handling exchange transactions and interest earned on client deposits held by the Company.

Investors Title Accommodation Corporation ("ITAC") provides services for accomplishing reverse exchanges when taxpayers decide to acquire replacement property before selling the relinquished property.

In February 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 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. Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2007 Annual Report to Shareholders incorporated by reference in this Form 10-K Annual Report for additional information regarding IRS regulations.

Investment Management and Trust Services

Other services provided include those offered by Investors Trust Company (“Investors Trust”), Investors Capital Management Company (“ICMC”), and Investors Title Management Services, Inc. (“ITMS”), all wholly owned subsidiaries of the Company. Investors Trust and ICMC work together to provide investment management and trust services to individuals, companies, banks and trusts. ITMS offers various consulting services to provide clients with the technical expertise to start and successfully operate a title insurance agency. These subsidiaries are not currently a reportable segment for which financial information is presented in the Company’s financial statements and are included and reported in the category All Other.  
 
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OPERATIONS OF SUBSIDIARIES

See Note 13 of Notes to Consolidated Financial Statements in the 2007 Annual Report to Shareholders incorporated by reference in this Form 10-K Annual Report for additional information related to the Company's operating segments.

Title Insurance

ITIC and NE-ITIC issue title insurance coverage through direct operations or through partially owned or independent title insurance agents who issue title policies on behalf of ITIC or NE-ITIC. Title insurance premiums written reflect a one-time premium payment, with no recurring premiums.

Generally, premiums are recorded and recognized as revenue at the time of closing of the related transaction as the earnings process is considered complete. Where the policy is issued directly through a branch office, the premiums collected are retained by the Company. Where the policy is issued through a title insurance agent, the agent retains a majority of the premium as a commission. Title insurance commissions earned by the Company's agents are recognized as expense concurrently with premium recognition. The percentage of the premium retained by agents varies by region to region and is sometimes regulated by the states.

For a description of the level of net premiums written by direct and agency operations, refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2007 Annual Report to Shareholders incorporated by reference in this Form 10-K Annual Report.

Exchange Services

ITEC and ITAC provide customer services in connection with tax-deferred exchanges pursuant to Section 1031 of the Internal Revenue Code. Acting as a qualified intermediary, ITEC holds the proceeds from sales of relinquished properties until the acquisition of identified replacement properties occurs. ITAC facilitates reverse tax-deferred exchanges pursuant to IRS Revenue Procedure 2000-37.

CYCLICALITY AND SEASONALITY

Title Insurance

Real estate activity is cyclical in nature. Title insurance premiums are closely related to the level of real estate activity and the volume of mortgage origination. A number of general and economic factors influence demand for title insurance, including changes in mortgage interest rates, consumer confidence, economic conditions, supply and demand and family income levels.
 
The title insurance business tends to be seasonal as well as cyclical. Historically, the winter months have the least real estate activity because fewer real estate transactions occur, while the remaining quarters are more active. Refinance activity is generally less seasonal, but it is subject to interest rate fluctuations.  
 
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Exchange Services
 
Seasonal and other factors affecting the level of real estate activity and the volume of title premiums written will also generally affect the demand for exchange services.

MARKETING

Title Insurance
 
The Company markets its title insurance services to a broad range of customers in the residential and commercial market sectors of the real estate industry. 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.

ITIC and NE-ITIC strive to provide superior service to their customers and consider this an important factor in attracting and retaining customers. Branch and corporate personnel strive to develop new business and agency relationships to increase market share and ITIC's Commercial Services Division provides services to commercial clients.

Exchange Services

Marketing of tax-deferred exchange services offered by ITEC and ITAC has been incorporated into the marketing of the core title products offered by ITIC and NE-ITIC. The Commercial Services Division of ITIC also markets the services offered by ITEC and ITAC to its commercial clients.

REGULATION

Title Insurance

The Company is an insurance holding company and therefore it is subject to regulation in the states in which its insurance subsidiaries do business. These regulations, among other things, require insurance holding companies to register and file certain reports and require prior regulatory approval of the payment of dividends and other intercompany distributions or transfers.

Title insurance companies are extensively regulated under applicable state laws. All states have requirements for admission to do business as an insurance company, including minimum levels of capital and surplus and establishing reserves. State regulatory authorities monitor the stability and service of insurance companies and possess broad powers with respect to the licensing of title insurers and agents, approving rate schedules and policy forms, financial reporting and accounting practices, reserve requirements, investments and dividend restrictions, as well as examinations and audits of title insurers. Both ITIC and NE-ITIC meet the statutory premium reserve requirements and the minimum capital and surplus requirements of the states in which they are licensed. A substantial portion of the assets of the Company’s title insurance subsidiaries consists of their portfolios of investment securities. Both of these subsidiaries are required by various states’ laws to maintain assets of a defined quality and amount. 

The Company's two insurance subsidiaries are subject to examination at any time by the insurance regulators in the states where they are licensed. These and other governmental authorities have the power to enforce state and federal laws to which the title insurance subsidiaries are subject, including but not limited to, the Real Estate Settlement Procedures Act.  
 
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ITIC is domiciled in North Carolina and is subject to North Carolina insurance regulations and other states where it does business. The North Carolina Department of Insurance typically schedules financial examinations every five years. ITIC was last examined by the North Carolina Department of Insurance for the period January 1, 2000 through December 31, 2004. No material deficiencies were noted in the report. NE-ITIC is domiciled in South Carolina and subject to South Carolina insurance regulations. The South Carolina Department of Insurance periodically schedules financial examinations. NE-ITIC was examined by the South Carolina Department of Insurance for the period January 1, 2000 through December 31, 2005. No material deficiencies were noted.

In addition to financial examinations, ITIC and NE-ITIC are subject to market conduct examinations by the North Carolina Department of Insurance and the South Carolina Department of Insurance, respectively. These audits examine domiciled state activity. ITIC's last market conduct examination commenced in May 2004 for the period January 1, 2001 through December 31, 2003, with no material deficiencies noted. NE-ITIC's last market conduct examination commenced in November 2001 for the period January 1, 1998 through December 31, 2000, with no material deficiencies noted by the market conduct examiners.

The United States Department of Housing and Urban Development (“HUD”) continues to indicate that it would like to make modifications to the Real Estate Settlement Procedures Act (“RESPA”) and associated regulations. HUD published proposed rules regarding RESPA for public comment on March 14, 2008 with a 60 day comment period that expires on May 13, 2008.  According to HUD, the proposed rules are intended to improve disclosure of the loan terms and closing costs consumers pay when purchasing or refinancing their home. HUD has also indicated that it intends to seek legislative changes to RESPA that will complement the rules and provide HUD with enforcement mechanisms for some of the most important consumer disclosures and protections.  In April 2007, the Government Accountability Office (“GAO”) released a report on the title insurance industry in which it recommended that HUD and state insurance regulators take actions to improve consumers’ ability to comparison shop for title insurance and strengthen the regulation and oversight of the title insurance market, among other measures. Based on the information known to management at this time, it is not possible to predict the outcome of any of the GAO recommendations for the title insurance industry’s market and other matters, or the market’s response to them. However, any material change in the Company’s regulatory environment may have an adverse effect on its business.

Proposals to change the laws and regulations governing insurance holding companies and the title insurance industry are often introduced in Congress, in the state legislatures and before the various insurance regulatory agencies. The Company regularly monitors such proposals and legislation, although the likelihood and timing of them and the impact they may have on the Company and its subsidiaries cannot be determined at this time.
 
Exchange Services

Intermediary services are not federally regulated by any regulatory commissions, and neither ITEC or ITAC operate in any states that regulate this industry. ITEC and ITAC both provide services to taxpayers pursuant to Internal Revenue Service (“IRS”) regulations that provide taxpayers a safe harbor by using a qualified intermediary to structure tax-deferred exchanges of property and using an exchange accommodation titleholder to hold property in reverse exchange transactions. Periodically, changes to the tax code are proposed containing provisions that impact like-kind exchanges. In 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. Refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2007 Annual Report to Shareholders incorporated by reference in this Form 10-K Annual Report for information regarding IRS regulations. 
 
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Investment Management and Trust Services

Investors Trust Company is regulated by the North Carolina Commissioner of Banks. Investors Trust Company was last examined by the North Carolina Commissioner of Banks for the period ended December 31, 2006. No material deficiencies were noted in the Report of Examination.

COMPETITION 

Title Insurance

The title insurance industry is highly competitive. ITIC's and NE-ITIC's major competitors together comprise a majority of the title insurance market on a national level. The number and size of competing companies varies in the different geographic areas in which the Company conducts business. Key factors that affect competition in the title insurance industry are timeliness and quality of service, price, expertise and the financial strength and size of the insurer. Title insurance underwriters also compete for agents based upon service and commission levels. Some title insurers currently have greater financial resources, larger distribution networks and more extensive computerized databases of property records and related information than the Company.

In addition, there are numerous industry-related regulations and statutes that set out conditions and requirements to conduct business. Changes to or the removal of such regulations and statutes could result in additional competition from alternative title insurance products or new entrants into the industry that could materially affect the Company's business operations and financial condition.

Exchange Services
 
Competition for ITEC and ITAC comes from other title insurance companies and agents, banks, attorneys, and other independently-owned qualified intermediaries that offer exchange services. Key elements that affect competition are price, expertise, timeliness and quality of service and the financial strength and size of the company. Exchange services are not a regulated industry; there is no market data available regarding the Company's market position in this industry.

CUSTOMERS

The Company is not dependent upon any single customer or a few customers, and the loss of any single customer would not have a material adverse effect on the Company.
 
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INVESTMENT POLICIES

The Company and its subsidiaries derive a substantial portion of their income from investments in bonds (municipal and corporate) and equity securities. The investment policy is designed to maintain a high quality portfolio and maximize income. The Company invests primarily in short-term investments, federal and municipal governmental securities and investment grade debt securities and equity securities. Some state laws impose restrictions upon the types and amounts of investments that can be made by the Company's insurance subsidiaries. The Company manages its investment portfolio and does not utilize third party investment managers. The securities in the Company’s portfolio are subject to economic conditions and normal market risks.
 
See Note 3 of Notes to Consolidated Financial Statements in the 2007 Annual Report to Shareholders incorporated by reference in this Form 10-K Annual Report for the major categories of investments, scheduled maturities, amortized cost, market values of investment securities and earnings by category.

ENVIRONMENTAL MATTERS

The title insurance policies ITIC and NE-ITIC currently issue exclude any liability for environmental risks and contamination. Although policies issued prior to 1992 may not specifically exclude such environmental risks, they generally do not provide affirmative coverage for such risks. As a result, the Company has not experienced and does not anticipate that it or its subsidiaries will incur any significant expenses related to environmental claims.

In connection with effecting tax-deferred exchanges of like-kind property, ITEC and ITAC may temporarily hold title to property pursuant to an accommodation titleholder agreement. In such situations, the person or entity for which title is being held must execute an indemnification agreement pursuant to which it agrees to indemnify ITEC or ITAC, as appropriate, for any environmental or other claims which may arise as a result of the arrangement.

EMPLOYEES

The Company has no paid employees. Officers of the Company are full-time paid employees of ITIC. The Company’s subsidiaries had 227 full-time employees and 27 part-time employees as of December 31, 2007. None of the employees are covered by any collective bargaining agreements. Management considers its relationship with its employees to be favorable.

ADDITIONAL INFORMATION

The Company’s internet address is www.invtitle.com, the contents of which are not and shall not be deemed a part of this document or any other U.S. Securities and Exchange filing. The Company makes available free of charge through its Internet website its annual reports on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). The information is free of charge and may be reviewed and downloaded from the website at any time. The public may read any material it has filed with the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E., Washington, D.C. 20549. The Investors section of the Company’s website also includes its corporate governance guidelines and code of ethics.
 
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The risk factors listed in this section and other factors noted herein or incorporated by reference could cause actual results to differ materially from those contained in any forward-looking statements.

The Company’s results of operations and financial condition are susceptible to the changing level of demand for title insurance.

The demand for the Company’s title insurance and other real estate transaction products and services varies over time and from year to year and is dependent upon, among other things, the volume of commercial and residential real estate transactions and mortgage refinancing transactions. The volume of these transactions has historically been influenced by factors such as the state of the overall economy and mortgage interest rates. When mortgage interest rates are increasing or during an economic downturn or recession, real estate activity typically declines and the title insurance industry tends to experience lower revenues and profitability. Both the volume and the average price of residential real estate transactions have recently experienced declines in many parts of the country, and these trends appear likely to continue. Volume is a key factor in the Company’s profitability due to the existence of fixed costs such as personnel and occupancy expenses associated with the support of the issuance of the insurance policy and of general corporate operations. The overall demand for title insurance also depends in part upon the requirement by mortgage lenders and participants in the secondary mortgage market that title insurance policies be obtained on residential and commercial real property.

The Company may experience losses resulting from fraud, defalcation or misconduct.

Fraud, defalcation, regulatory noncompliance and other misconduct by the Company’s agents, approved attorneys and employees are risks inherent in the Company’s business. Agents and approved attorneys typically handle large sums of money in trust pursuant to the closing of real estate transactions and misappropriation of funds by any of these parties could result in large title claims.

Differences between actual claims experience and underwriting and reserving assumptions may adversely affect the Company’s financial results.

The Company’s net income is affected by the extent to which its actual claims experience is consistent with the assumptions used in establishing reserves for claims. Reserves for claims are established based on actuarial estimates of how much the Company will need to pay for reported as well as incurred, but not yet reported claims. In addition, management considers factors such as the Company’s historical claims experience, case reserve estimates on reported claims, large claims and other relevant factors in determining loss provision rates and the aggregate recorded expected liability for claims. Due to the nature of the underlying risks and the high degree of uncertainty associated with the determination of reserves for claims, the Company cannot determine precisely the amounts which it will ultimately pay to settle its claims. Such amounts may vary from the estimated amounts, particularly when those payments may not occur until well into the future. To the extent that actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, the Company could be required to increase reserves. Title claims can often be complex, vary greatly in dollar amounts and are affected by economic and market conditions and may involve uncertainties as to ultimate exposure, and therefore, reserve estimates are subject to variability. In addition, the Company may experience unexpected large losses periodically which require it to increase its title loss reserves. 
 
13

Regulatory scrutiny of the industry and potential changes to RESPA could result in financial losses or otherwise impact the manner the Company conducts business.

The title insurance industry has recently been under regulatory scrutiny in a number of states with respect to pricing practices, possible Real Estate Settlement Procedures Act (“RESPA”) violations and unlawful rebating practices. The regulatory investigations have resulted in settlements and fines for some title insurance underwriters. In 2007, the Government Accountability Office released a report in response to a request from the House of Representatives Committee on Financial Services regarding the title industry. The United States Department of Housing and Urban Development (“HUD”) is responsible for enforcing RESPA. HUD continues to indicate that it would like to make modifications to RESPA and associated regulations which would result in changes to the existing industry regulatory framework that could have a material impact on the Company’s marketing and operations. The Company is periodically involved in litigation arising in the ordinary course of business.

The Company’s non-insurance subsidiaries are also subject to state and federal regulations.

Some of the Company’s other businesses operate within state and federal guidelines. Any changes in the applicable regulatory environment or changes in existing regulations could restrict its existing or future operations. Revenues from the Company’s exchange services segment are closely related to the tax rate on capital gains and other provisions in the Internal Revenue Code. The Company’s revenues in future periods will continue to be subject to these and other factors which are beyond its control. In February 2006, the IRS proposed new regulations which, if adopted, may negatively affect the ability of qualified intermediaries to retain interest earned on exchange funds they are holding. 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. 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.

In addition, the investment management and trust services division is regulated by the North Carolina Commissioner of Banks.

The Company’s insurance subsidiaries are subject to complex government regulations.

The Company’s title insurance businesses are subject to extensive state laws and regulations by state insurance authorities in each state in which they operate. These laws and regulations are primarily intended for the protection of policyholders and consumers. The nature and extent of these laws and regulations typically involve, among other matters, licensing and renewal requirements and trade and marketing practices, including, but not limited to:
 
 
 
·
licensing of insurers and agents;
 
·
approval of premium rates for insurance;
 
·
limitations on types and amounts of investments;
 
·
restrictions on the size of risks that may be insured by a single company;
 
·
deposits of securities for the benefit of policy holders;
 
·
filing of annual and other reports with respect to financial condition;
 
·
approval of policy forms; and
 
·
regulation regarding the use of personal information.
 
 
These laws and regulations are subject to change and may restrict the Company’s ability to implement rate increases or other actions that it may want to take to enhance its operating results or have a negative impact on its ability to generate revenue and earnings.
 
14
 
Competition in the Company’s business affects its revenues.

The title insurance industry is highly competitive. Key factors that affect competition in the title insurance business are quality of service, price within regulatory parameters, expertise, timeliness and the financial strength and size of the insurer. Title companies compete for premiums by choosing various distribution channels which may include company-owned operations and issuing agency relationships with attorneys, lenders, realtors, builders and other settlement service providers. Title insurance underwriters compete for agents on the basis of service and commission levels. Some title insurers currently have greater financial resources, larger distribution networks and more extensive computerized databases of property records and information than the Company. The number and size of competing companies varies in the different geographic areas in which the Company operates. Competition among the providers of title insurance, new entrants to the industry or the acceptance of new alternatives to traditional title products by the marketplace could adversely affect the Company’s operations and financial condition.

The Company’s success relies on its ability to attract and retain key personnel and agents.

Competition for skilled and experienced personnel and agents in the Company’s industry is high. The Company may have difficulty hiring the necessary marketing and management personnel to support any future growth. The loss of any key employee or the failure of any key employee to perform in their current position could prevent the Company from realizing future growth. Also, the Company cannot provide assurance that it will succeed in attracting or retaining new agents. Its results of operations and financial condition could be adversely affected if it is unsuccessful in attracting and retaining agents.

A downgrade or a potential downgrade in one of the Company’s financial strength ratings could result in a loss of business.

The competitive positions of insurance companies rely in part on the independent ratings of their financial strength and claims-paying ability. The Company’s financial strength is subject to continued periodic review by rating agencies. A significant downgrade in the ratings of either of the Company’s policy-issuing subsidiaries could negatively impact its ability to compete for new business and retain existing business and maintain licenses necessary to operate as title insurance companies in various states.

A decline in the performance of the Company’s investments could materially adversely affect net income and cash flows.

Changes in general economic conditions, interest rates, activities in securities markets and other external factors could adversely affect the value of the Company’s investment portfolio and, in turn, the Company’s operating results and financial condition.
 
15

Insurance regulations limit the ability of the Company’s insurance subsidiaries to pay dividends to it.

The Company is an insurance holding company and has no substantial operations of its own. The Company’s ability to pay dividends and meet its obligations is dependent, among other things, on the ability of its subsidiaries to pay dividends or repay funds to it. The Company’s insurance subsidiaries are subject to insurance and other regulations that limit the amount of dividends, loans or advances to it based on the amount of adjusted unassigned surplus and net income and require these subsidiaries to maintain minimum amounts of capital, surplus and reserves. In general, dividends in excess of prescribed limits are deemed “extraordinary” and require prior state insurance regulatory approval.

These dividend restrictions could limit the Company’s ability to pay dividends to its shareholders or grow its 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. For further discussion of the regulation of dividend payments and other transactions between affiliates, see “Liquidity and Capital Resources” under Management’s Discussion and Analysis in Item 7 of this report.

The Company may encounter difficulties managing growth or rapid technology changes, which could adversely affect its results.

The Company has historically achieved revenue growth in part through a combination of developing related new products or services and increasing its market share for existing products. A portion of the Company’s growth may be in services or geographic areas with which management is less familiar than with its core business and geographic areas. The expansion of the Company’s business, particularly in new services or geographic areas, or significant changes in technology may subject it to associated risks, such as the diversion of management’s attention, lack of substantial experience in operating such businesses and a change in competitive position resulting from rapid technology changes.

The Company relies upon North Carolina for about 50% of its title insurance premiums.

North Carolina is the largest source of revenue for the title insurance segment and, in 2007, North Carolina-based premiums accounted for approximately 50% of premiums earned by the Company. A decrease in North Carolina business would negatively impact financial results.

Key accounting and information systems are concentrated in a few locations.

The Company’s corporate headquarters, accounting and technology operations are concentrated in North Carolina. These critical business operations are subject to interruption by natural disasters, fire, power shortages and other events beyond the Company’s control. A catastrophic event that results in the destruction or disruption of any of the Company’s critical business operations or systems could severely affect its ability to conduct normal business operations and, as a result, there could be a material and adverse effect on the Company’s business, operating results and financial condition.
 
16

Certain provisions of the Company’s shareholder rights plan may make a takeover of the Company difficult.

The Company has a shareholders rights plan which could discourage transactions involving actual or potential changes of control, including transactions that otherwise could involve payment of a premium over prevailing market prices to the Company’s shareholders for their common shares.

 
None
 
17


The Company owns two adjacent office buildings and property located on the corner of North Columbia and West Rosemary Streets in Chapel Hill, North Carolina, which serve as the Company's corporate headquarters. The main building contains approximately 23,000 square feet and has on-site parking facilities. The Company's principal subsidiary, ITIC, leases office space in 32 locations throughout North Carolina, South Carolina, Michigan and Nebraska. NE-ITIC leases office space in one location in New York. Each of the office facilities occupied by the Company and its subsidiaries are in good condition and adequate for present operations. In November 2005, the Company purchased approximately 7,000 square feet of additional office space in Chapel Hill, North Carolina that was previously leased for ITEC, ITAC, ITIC’s Commercial Services Division and ITIC’s Settlement Services Division.


The Company and its subsidiaries are involved in various 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 results of operations.


No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2007.

EXECUTIVE OFFICERS OF THE COMPANY 

Following is information regarding the executive officers of the Company as of March 14, 2008. Each officer is appointed at the annual meeting of the Board of Directors to serve until the next annual meeting of the Board or until his or her respective successor has been elected and qualified.
 
Name
  
Age
  
Position with Registrant
         
J. Allen Fine
  
73
  
Chief Executive Officer and Chairman of the Board
         
James A. Fine, Jr.
  
45
  
President, Treasurer, Chief Financial Officer, Chief Accounting Officer and Director
         
W. Morris Fine
  
41
  
Executive Vice President, Secretary and Director
 
J. Allen Fine has been Chief Executive Officer and Chairman of the Board of the Company since its incorporation in 1973. Mr. Fine also served as President of the Company until May 1997. Mr. Fine is the father of James A. Fine, Jr., President, Treasurer, Chief Financial Officer, Chief Accounting Officer, and Director of the Company, and W. Morris Fine, Executive Vice President, Secretary and Director of the Company.
 
18

James A. Fine, Jr. was named Vice President of the Company in 1987. In 1997, he was named President and Treasurer and appointed as a Director of the Company. In 2002, he was appointed as Chief Financial Officer and Chief Accounting Officer. He is the son of J. Allen Fine, Chief Executive Officer and Chairman of the Board of the Company, and the brother of W. Morris Fine, Executive Vice President, Secretary and Director of the Company.

W. Morris Fine was named Vice President of the Company in 1992. In 1993, he was named Treasurer of the Company and served in that capacity until 1997. In 1997, he was named Executive Vice President and Secretary of the Company. In 1999, he was appointed as a Director of the Company. W. Morris Fine is the son of J. Allen Fine, Chief Executive Officer and Chairman of the Board of the Company, and the brother of James A. Fine, Jr., President, Treasurer, Chief Financial Officer, Chief Accounting Officer, and Director of the Company.
 
19
 


The high and low sales prices for the Company's common stock, as reported on the NASDAQ National Market System, the dividends paid per common share for each quarter in the last two fiscal years and the approximate number of shareholders of record are set forth under the caption "Common Stock Data" in the 2007 Annual Report to Shareholders and are incorporated by reference in this Form 10-K Annual Report. For a discussion of factors that may limit the Company's ability to pay dividends on its common stock, refer to the subsection of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations entitled "Liquidity and Capital Resources" in the 2007 Annual Report to Shareholders, incorporated by reference in this Form 10-K Annual Report. Additional information required by this item is incorporated by reference in the 2007 Annual Report to Shareholders.
 
The following table provides information about purchases by the Company (and all affiliated purchasers) during the quarter ended December 31, 2007 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:

Issuer Purchases of Equity Securities

Period
  
Total
Number of
Shares
Purchased
  
Average Price
 Paid per Share
  
Total Number of
Shares Purchased as Part of Publicly
Announced Plan
  
Maximum Number of Shares that May Yet Be Purchased Under the Plan
  
Beginning of period
                      
307,345
  
10/01/07 – 10/31/07
    
9,031
 
$
39.12
    
9,031
    
298,314
  
11/01/07 – 11/30/07
    
1,526
    
39.18
    
1,526
    
296,788
  
12/01/07 – 12/31/07
    
61,452
    
38.03
    
61,452
    
235,336
  
Total:
    
72,009
  
$
38.19
    
72,009
   
235,336
  
 
For the quarter ended December 31, 2007, the Company purchased an aggregate of 72,009 shares of the Company’s common stock pursuant to the purchase plan (the “Plan”) that was publicly announced on June 5, 2000. The Board of Directors of the Company approved the purchase of up to an aggregate of 500,000 and 125,000 shares, respectively, of the Company’s common stock pursuant to the Plan. Unless terminated earlier by resolution of the Board of Directors, the Plan will expire when all shares authorized for purchase under the Plan have been purchased. The Company intends to make further purchases under this Plan.
 
20


The selected financial data for the last five fiscal years of the Company and its subsidiaries is set forth under the caption "Financial Highlights" in the 2007 Annual Report to Shareholders and is incorporated by reference in this Form 10-K Annual Report. The information should be read in conjunction with the Consolidated Financial Statements, Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2007 Annual Report to Shareholders, which are incorporated by reference in this Form 10-K Annual Report.


Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2007 Annual Report to Shareholders is incorporated by reference in this Form 10-K Annual Report.


The subsection entitled "Quantitative and Qualitative Disclosures about Market Risk" in Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2007 Annual Report to Shareholders is incorporated by reference in this Form 10-K Annual Report.
 

The financial statements and supplementary data in the 2007 Annual Report to Shareholders are incorporated by reference in this Form 10-K Annual Report.

The financial statements meeting the requirements of Regulation S-X are attached hereto as Schedules I, II, III, IV and V.

The supplementary financial information set forth in the section entitled "Selected Quarterly Financial Data" in Management's Discussion and Analysis of Financial Condition and Results of Operations in the 2007 Annual Report to Shareholders is incorporated by reference in this Form 10-K Annual Report.


None.
 
21


DISCLOSURE CONTROLS AND PROCEDURES

An evaluation was performed by the Company's management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 31, 2007 for the purpose of providing reasonable assurance that the information required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 (the “Act”) (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

INTERNAL CONTROL OVER FINANCIAL REPORTING

(a) Management’s report on internal control over financial reporting.
The Company’s management’s report on internal financial reporting is set forth in the Company’s 2007 Annual Report under the heading “Management’s Report on Internal Control over Financial Reporting” and is incorporated herein by reference.

(b) Attestation report of the registered public accounting firm.
The report of Dixon Hughes PLLC, the Company’s independent registered public accounting firm, on the effectiveness of the Company’s internal control over financial reporting is set forth in the Company’s 2007 Annual Report under the heading “Report of Independent Registered Public Accounting Firm on Internal Control” and is incorporated herein by reference.

(c) During the quarter ended December 31, 2007, there were no changes in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. However, in the process of preparing the Annual Report on Form 10-K, management identified certain issues with respect to the Company’s internal control over financial reporting and has remediated those issues. In particular, management discovered certain understatements in the provision for income taxes in the Company’s financial statements in certain periodic filings. These errors were due to a misclassification of certain taxable municipal bonds that the Company’s custodian had reported as tax-exempt in its tax reports to the Company and were determined to be immaterial to the affected reporting periods. The Company has corrected these errors for all affected periods in its Consolidated Financial Statements for the year ended December 31, 2007. Management has discussed these matters with the Audit Committee of the Company’s Board of Directors and the Company’s auditors, and the Company has made corrective changes to its internal control procedures to improve the effectiveness of its internal control over financial reporting and to reduce the likelihood of similar errors occurring in the future. The Company has implemented a review process of the Company’s custodian statements to ensure investments are categorized appropriately for tax purposes.
 
22


There was no information required to be disclosed in a report on Form 8-K during the fourth quarter of the year that has not been reported.
 
23


 
The information called for by this item is incorporated by reference to the material under the captions “Proposal Requiring Your Vote,” “General Information - Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance - Board of Directors and Committees - The Audit Committee” and “Corporate Governance - Code of Business Conduct and Ethics” in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 21, 2008. Other information with respect to the executive officers of the Company is included at the end of Part I of this Form 10-K Annual Report under the separate caption "Executive Officers of the Company.”
 

The information called for by this item is set forth under the captions “Executive Compensation,” “Compensation of Directors,” “Corporate Governance - Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 21, 2008 and is incorporated by reference in this Form 10-K Annual Report.


The information pertaining to securities ownership of certain beneficial owners and management is set forth under the caption “Stock Ownership of Certain Beneficial Owners and Management” in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 21, 2008 and is incorporated by reference in this Form 10-K Annual Report.

The following table provides information about the Company’s compensation plans under which equity securities are authorized for issuance as of December 31, 2007. The Company does not have any equity compensation plans that have not been approved by its shareholders.

Equity Compensation Plan Information

 
 
 
Plan Category
  
Number of Securities to 
be Issued Upon 
Exercise of 
Outstanding Options,
Warrants and Rights
  
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
  
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
  
Equity compensation plans approved by shareholders
    
60,480
  
$
22.77
    
236,651
  
Equity compensation plans not approved by shareholders
    
-
   
-
    
-
  
Total
    
60,480
 
$
22.77
    
236,651
  

24


The information called for by this item is set forth under the captions “Certain Relationships and Related Transactions” and “Corporate Governance - Independent Directors” set forth in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 21, 2008 and is incorporated by reference in this Form 10-K Annual Report.


The information pertaining to principal accountant fees and services is set forth under the caption “Independent Registered Public Accounting Firm” in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on May 21, 2008 and is incorporated by reference in this Form 10-K Annual Report.
 
25
 

 
(a)(1) Financial Statements.

The following financial statements in the 2007 Annual Report to Shareholders are hereby incorporated by reference in this Form 10-K Annual Report:
 
Consolidated Balance Sheets as of December 31, 2007 and 2006
Consolidated Statements of Income for the Years Ended December 31, 2007, 2006 and 2005
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2007, 2006 and 2005
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2007, 2006 and 2005
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006 and 2005
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm on Internal Control
 
(a)(2) Financial Statement Schedules.

Following is a list of financial statement schedules filed as part of this Form 10-K Annual Report:

Schedule Number
  
Description
     
I
  
Summary of Investments - Other Than Investments in Related Parties
II
  
Condensed Financial Information of Registrant
III
  
Supplementary Insurance Information
IV
  
Reinsurance
V
  
Valuation and Qualifying Accounts
 
All other schedules are omitted, as the required information either is not applicable, is not required, or is presented in the consolidated financial statements or the notes thereto.

(a)(3) Exhibits.
 
The exhibits filed as a part of this report and incorporated herein by reference to other documents are listed in the Index to Exhibits to this Annual Report on Form 10-K.
 
26


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INVESTORS TITLE COMPANY
(Registrant)
   
By:
/s/ J. Allen Fine
 
J. Allen Fine, Chairman and Chief Executive
 
Officer (Principal Executive Officer)

March 17, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 17th day of March, 2008.
 
   /s/ J. Allen Fine
  
/s/ James R. Morton
J. Allen Fine, Chairman of the Board and
  
James R. Morton, Director
Chief Executive Officer
    
(Principal Executive Officer)
    
     
     
   /s/ James A. Fine, Jr.
  
/s/ A. Scott Parker III
James A. Fine, Jr., President, Treasurer and
  
A. Scott Parker III, Director
Director (Principal Financial Officer and
    
Principal Accounting Officer)
    
     
     
   /s/ W. Morris Fine
 
/s/ H. Joe King, Jr.
W. Morris Fine, Executive Vice President,
  
H. Joe King, Jr., Director
Secretary and Director
    
     
     
   /s/ David L. Francis
  
/s/ R. Horace Johnson
David L. Francis, Director
  
R. Horace Johnson, Director
     
     
     
Loren B. Harrell, Jr., Director
    

27


SCHEDULE I

INVESTORS TITLE COMPANY AND SUBSIDIARIES
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
As of December 31, 2007


Type of Investment
  
Cost(1)
  
Market Value
  
Amount at
which shown
in the
Balance Sheet (2)
  
               
Fixed Maturities:
                    
Bonds:
                    
States, municipalities and political subdivisions
  
$
86,072,449
  
$
87,217,601
  
$
87,191,907
  
All other corporate bonds
    
4,208,096
   
4,391,574
   
4,391,574
 
Short-term investments
    
21,157,598
   
21,157,598
   
21,157,598
 
Certificates of deposit
    
64,935
   
64,935
   
64,935
 
Total fixed maturities
    
111,503,078
   
112,831,708
   
112,806,014
 
                     
Equity Securities:
                    
Common Stocks:
                    
Public utilities
    
208,106
   
553,482
   
553,482
 
Banks, trust and insurance companies
    
34,884
   
246,120
   
246,120
 
Industrial, miscellaneous and all other
    
9,776,643
   
13,270,068
   
13,270,068
 
Nonredeemable preferred stocks
    
418,025
   
516,396
   
516,396
 
Total equity securities
    
10,437,658
   
14,586,066
   
14,586,066
 
                     
Other Investments
    
1,634,301
         
1,634,301
 
Total investments per the consolidated balance sheet
  
$
123,575,037
        
$
129,026,381
  

(1)
Fixed maturities are shown at amortized cost and equity securities are shown at original cost.
(2)
Bonds of states, municipalities and political subdivisions are shown at amortized cost for held-to-maturity bonds and fair value for available-for-sale bonds. Equity securities are shown at fair value.

 
SCHEDULE II

INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
AS OF DECEMBER 31, 2007 AND 2006

   
2007
  
2006
  
Assets
              
Cash and cash equivalents
  
$
207,436
  
$
194,391
  
Investments in fixed maturities, available-for-sale
   
17,707,623
   
19,951,713
 
Investments in equity securities, available-for-sale
    
250,950
   
127,750
 
Short-term investments
    
13,122,076
   
1,464,032
 
Investments in affiliated companies
   
63,628,499
   
68,973,229
 
Other investments
    
461,835
   
703,296
 
Other receivables
    
263,518
   
410,018
 
Income taxes receivable
    
1,255,157
   
876,666
 
Accrued interest, dividends, and other assets
    
241,941
   
261,793
 
Property, net
    
3,038,964
   
3,151,099
 
Deferred income taxes, net
    
22,288
   
55,551
 
Total Assets
  
$
100,200,287
  
$
96,169,538
  
               
Liabilities and Stockholders' Equity
Liabilities:
              
Accounts payable and accrued liabilities
  
$
924,447
  
$
893,875
  
Total liabilities
    
924,447
   
893,875
 
 
              
Stockholders' Equity:
              
Class A Junior Participating preferred stock - no par value (shares authorized 100,000; no shares issued)
    
-
   
-
 
Common stock-no par (shares authorized 10,000,000; 2,411,318 and 2,507,325 shares issued and outstanding 2007 and 2006, respectively, excluding 291,676 shares for 2007 and 2006 of common stock held by the Company's subsidiary)
    
1
   
1
 
Retained earnings
    
95,739,827
   
92,134,608
 
Accumulated other comprehensive income
    
3,536,012
   
3,141,054
 
Total stockholders' equity
    
99,275,840
   
95,275,663
 
               
Total Liabilities and Stockholders' Equity
  
$
100,200,287
  
$
96,169,538
  
 

SCHEDULE II

INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

   
2007
  
2006
  
2005
  
Revenues:
                    
Investment income-interest and dividends
  
$
1,146,168
  
$
561,400
  
$
280,145
  
Net realized gain on sales of investments
    
406,623
   
-
   
18,464
 
Rental income
    
736,713
   
735,431
   
553,222
 
Miscellaneous income (loss)
    
81,938
   
(115,883
)
  
70,147
 
Total
    
2,371,442
   
1,180,948
   
921,978
 
Operating Expenses:
                    
Office occupancy and operations
    
345,389
   
345,859
   
295,481
 
Business development
    
64,278
   
69,372
   
51,110
 
Taxes-other than payroll and income
    
138,687
   
79,871
   
90,004
 
Professional fees
    
141,297
   
141,500
   
68,245
 
Other expenses
    
105,873
   
114,240
   
82,211
 
Total
    
795,524
   
750,842
   
587,051
 
                     
Equity in Net Income of Affiliated Cos.
    
7,336,417
   
12,710,328
   
12,984,996
 
Income Before Income Taxes
    
8,912,335
   
13,140,434
   
13,319,923
 
Provision (benefit) for Income Taxes
    
510,000
   
(45,000
)
  
27,000
 
Net Income
 
$
8,402,335
  
$
13,185,434
  
$
13,292,923
  
Basic Earnings per Common Share
  
$
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
  
$
3.35
  
$
5.14
  
$
5.10
  
Weighted Average Shares Outstanding-Diluted
    
2,508,609
   
2,564,216
   
2,607,633
 

See notes to condensed financial statements.

 
SCHEDULE II

INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

   
2007
  
2006
  
2005
  
Operating Activities:
                    
Net income
  
$
8,402,335
  
$
13,185,434
  
$
13,292,923
  
Adjustments to reconcile net income to net cash provided by operating activities:
                    
Equity in net earnings of subsidiaries
   
(7,336,417
)
  
(12,710,328
)
  
(12,984,996
)
Depreciation
    
124,686
   
124,030
   
80,129
 
Amortization, net
    
15,946
   
(820
)
  
(1,391
)
Issuance of common stock in payment of bonuses and fees
    
1,998
   
5,013
   
-
 
Net realized gain on sales of investments
   
(406,623
)
  
-
   
(18,464
)
Provision (benefit) for deferred income taxes
    
5,000
   
(55,000
)
  
33,000
 
(Increase) decrease in receivables
    
146,500
   
(205,760
)
  
33,540
 
(Increase) decrease in income taxes receivable-current
    
(378,491
)
  
356,796
   
890,455
 
(Increase) decrease in other assets
    
19,852
   
(153,593
)
  
(62,488
)
Increase (decrease) in accounts payable and accrued liabilities
    
30,572
   
260,468
   
(290,719
)
Net cash provided by operating activities
    
625,358
   
806,240
   
971,989
 
                     
Investing Activities:
                    
Capital contribution to subsidiaries
    
-
   
(115,000
)
  
(1,178,000
)
Return of capital contributions from subsidiaries
    
-
   
80,000
   
-
 
Dividends received from subsidiaries
    
13,122,720
   
9,446,950
   
7,291,120
 
Purchases of available-for-sale securities
    
(31,721,740
)
  
(21,310,774
)
  
(9,435,060
)
Purchases of short-term securities
    
(11,658,044
)
  
(1,459,550
)
  
-
 
Purchases of and net earnings from other investments
    
(94,737
)
  
-
   
(150,000
)
Proceeds from sales and maturities of available-for-sale securities
    
33,900,000
   
13,600,000
   
6,024,040
 
Proceeds from sales of short-term securities
    
-
   
-
   
1,007,700
 
Proceeds from sales and distributions from other investments
    
742,822
   
216,190
   
68,915
 
Purchases of property
    
(12,551
)
  
(18,151
)
  
(1,251,285
)
Net change in pending trades
    
-
   
-
   
(1,027,929
)
Net cash provided by investing activities
    
4,278,470
   
439,665
   
1,349,501
 
                     
Financing Activities:
                    
Retirement of common stock
    
(4,660,259
)
  
(2,255,735
)
  
(363,765
)
Exercise of options
    
365,284
   
55,272
   
-
  
Dividends paid (net dividends paid to subsidiary of $70,002, $70,401 and $46,717 in 2007, 2006 and 2005, respectively)
    
(595,808
)
  
(606,423
)
  
(410,202
)
Net cash used in financing activities
    
(4,890,783
)
  
(2,806,886
)
  
(773,967
)
           
   
 
Net Increase (Decrease) in Cash and Cash Equivalents
    
13,045
   
(1,560,981
)
  
1,547,523
 
Cash and Cash Equivalents, Beginning of Year
    
194,391
   
1,755,372
   
207,849
 
Cash and Cash Equivalents, End of Year
  
$
207,436
  
$
194,391
  
$
1,755,372
  
                     
Supplemental Disclosures:
                    
Cash Paid During the Year For:
                    
Income taxes (net of refunds)
  
$
889,000
  
$
343,000
  
$
896,000
  
Non 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
)
$
414,945
  
Adjustments 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 condensed financial statements.
 
 
SCHEDULE II

INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1.
The accompanying condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto of Investors Title Company and Subsidiaries.

2.
Cash dividends paid to Investors Title Company by its wholly owned subsidiaries were as follows:

Subsidiaries
  
2007
 
2006
 
2005
 
Investors Title Insurance Company, net*
  
$
10,662,720
  
$
4,976,950
  
$
4,546,120
  
Investors Title Exchange Corporation
    
2,250,000
   
4,125,000
   
2,250,000
 
Investors Title Accomodation Corporation
    
25,000
   
170,000
   
195,000
 
Investors Title Management Services, Inc.
    
-
   
60,000
   
275,000
 
Investors Title Capital Management Corporation
    
60,000
   
-
   
-
 
Investors Title Commercial Agency
    
125,000
   
115,000
   
25,000
 
   
$
13,122,720
  
$
9,446,950
  
$
7,291,120
  

*
Total dividends of $10,732,722, $5,047,351 and $4,592,837 paid to the Parent Company in 2007, 2006 and 2005, respectively, netted with dividends of $70,002, $70,401 and $46,717 received from the Parent in 2007, 2006 and 2005, respectively.

 
SCHEDULE III

INVESTORS TITLE COMPANY AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
For the Years Ended December 31, 2007, 2006 and 2005

Segment
  
Deferred Policy Acquisition Cost
  
Future Policy Benefits, Losses, Claims
and Loss Expenses
  
Unearned Premiums
  
Other Policy Claims and Benefits Payable
  
Premium Revenue
  
Net Investment Income
  
Benefits Claims, Losses and Settlement Expenses
  
Amortization of Deferred Policy Acquisition Costs
  
Other Operating Expenses
  
Premiums Written
  
                                           
Year Ended December 31, 2007
                                                              
Title Insurance
    
—
  
$ 
36,975,000
   
—
$
  
406,922
 
$
69,983,989
 
$
3,954,898
 
$
10,134,719
   
—
  
$
58,034,137
   
N/A
  
Exchange Services
    
—
    
—
    
—
    
—
    
—
    
29,501
   
—
    
—
    
1,480,094
   
N/A
  
All Other
    
—
    
—
    
—
    
—
    
—
    
1,212,779
   
—
    
—
    
3,469,002
   
N/A
  
 
    
—
  
$
36,975,000
    
—
  
$
406,922
  
$
69,983,989
  
$
5,197,178
  
$
10,134,719
    
—
  
$
62,983,233
        
                                                               
Year Ended December 31, 2006
                                                              
Title Insurance
    
—
  
$
36,906,000
    
—
  
$
470,468
  
$
70,196,467
  
$
3,688,966
  
$
7,405,211
    
—
  
$
55,557,492
    
N/A
  
Exchange Services
    
—
    
—
    
—
    
—
    
—
    
18,138
   
—
    
—
    
1,346,743
   
N/A
  
All Other
    
—
    
—
    
—
    
—
    
—
    
619,231
   
—
    
—
    
3,022,836
   
N/A
  
 
    
—
  
$
36,906,000
    
—
  
$
470,468
  
$
70,196,467
  
$
4,326,335
  
$
7,405,211
    
—
  
$
59,927,071
        
                                                               
Year Ended December 31, 2005
                                                              
Title Insurance
    
—
  
$
34,857,000
    
—
  
$
442,098
  
$
76,522,266
  
$
2,993,149
  
$
8,164,783
    
—
  
$
57,850,106
    
N/A
  
Exchange Services
    
—
    
—
    
—
    
—
    
—
    
18,463
   
—
    
—
    
907,414
   
N/A
  
All Other
    
—
    
—
    
—
    
—
    
—
    
324,155
   
—
    
—
    
2,358,652
   
N/A
  
 
    
—
  
$
34,857,000
    
—
  
$
442,098
  
$
76,522,266
  
$
3,335,767
  
$
8,164,783
    
—
  
$
61,116,172
        

 
SCHEDULE IV

INVESTORS TITLE COMPANY AND SUBSIDIARIES
REINSURANCE
For the Years Ended December 31, 2007, 2006 and 2005

       
  
Gross
Amount
  
Ceded to
Other
Companies
  
Assumed from
Other
Companies
  
Net
Amount
  
Percentage of
Amount
Assumed to Net
  
                       
YEAR ENDED DECEMBER 31, 2007
                                
Title Insurance
 
$
70,205,350
  
$
264,177
  
$
42,816
  
$
69,983,989
    
0.06
%
                                 
YEAR ENDED DECEMBER 31, 2006
                                
Title Insurance
 
$
70,615,891
  
$
441,582
  
$
22,158
  
$
70,196,467
    
0.03
%
                                 
YEAR ENDED DECEMBER 31, 2005
                                
Title Insurance
 
$
76,817,423
  
$
316,133
  
$
20,976
  
$
76,522,266
    
0.03
%
 
 
SCHEDULE V

INVESTORS TITLE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2007, 2006 and 2005

Description
  
Balance at
Beginning
of Period
  
Additions
Charged to
Costs and Expenses
  
Additions Charged
to Other
Accounts -Describe
  
Deductions- describe*
  
Balance at 
End of Period
  
                       
2007
                                
Premiums Receivable Valuation Provision
  
$
2,128,000
  
$
5,298,809
  
$
-
  
$
(5,256,809
(a)) 
$
2,170,000
  
                                 
Reserves for Claims
  
$
36,906,000
  
$
10,134,719
  
$
-
  
$
(10,065,719
(b))
$
36,975,000
  
                                 
2006
                                
Premiums Receivable Valuation Provision
  
$
2,444,000
  
$
4,927,691
  
$
-
  
$
(5,243,691
(a))
$
2,128,000
  
                                 
Reserves for Claims
  
$
34,857,000
  
$
7,405,211
  
$
-
  
$
(5,356,211
(b))
$
36,906,000
  
                                 
2005
                                
Premiums Receivable Valuation Provision
  
$
2,240,000
  
$
5,399,734
  
$
-
  
$
(5,195,734
(a))
$
2,444,000
  
                                 
Reserves for Claims
  
$
31,842,000
  
$
8,164,783
  
$
-
  
$
(5,149,783
(b))
$
34,857,000
  

(a) Cancelled premiums
(b) Payments of claims, net of recoveries
 
INDEX TO EXHIBITS
 
Exhibit
Number
  
Description
     
3(i)
  
Articles of Incorporation dated January 22, 1973, incorporated by reference to Exhibit 1 to Form 10 dated June 12, 1984
     
3(ii)
  
Bylaws – (amended and restated November 12, 2007), incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated November 12, 2007, File No. 0-11774
     
4
  
Rights Agreement, dated as of November 12, 2002, between Investors Title Company and Central Carolina Bank, a division of National Bank of Commerce, incorporated by reference to Exhibit 1 to Form 8-A filed November 15, 2002
     
10(i)
  
1997 Stock Option and Restricted Stock Plan, incorporated by reference to Exhibit 10(viii) to Form 10-K for the year ended December 31, 1996
     
10(ii)
  
Form of Nonqualified Stock Option Agreement to Non-employee Directors dated May 13, 1997 under the 1997 Stock Option and Restricted Stock Plan, incorporated by reference to Exhibit 10(ix) to Form 10-Q for the quarter ended June 30, 1997
     
10(iii)
  
Form of Nonqualified Stock Option Agreement under 1997 Stock Option and Restricted Stock Plan, incorporated by reference to Exhibit 10(x) to Form 10-K for the year ended December 31, 1997
     
10(iv)
  
Form of Incentive Stock Option Agreement under 1997 Stock Option and Restricted Stock Plan, incorporated by reference to Exhibit 10(xi) to Form 10-K for the year ended December 31, 1997
     
10(v)
  
Form of Amendment to Incentive Stock Option Agreement between Investors Title Company and George Abbitt Snead incorporated by reference to Exhibit 10(xii) to Form 10-Q for the quarter ended June 30, 2000
     
10(vi)
  
2001 Stock Option and Restricted Stock Plan, incorporated by reference to Exhibit 10(xiii) to Form 10-K for the year ended December 31, 2000
     
10(vii)
  
Form of Employment Agreement dated November 17, 2003 with each of J. Allen Fine, James A. Fine, Jr. and W. Morris Fine, incorporated by reference to Exhibit 10(ix) to Form 10-K for the year ended December 31, 2003
     
10(viii)
  
Amended and Restated Employment Agreement dated June 1, 2004 with J. Allen Fine, incorporated by reference to Exhibit 10(x) to Form 10-Q for the quarter ended June 30, 2004
     
10(ix)
  
Form of Amended and Restated Employment Agreement dated June 1, 2004 with each of James A. Fine, Jr. and W. Morris Fine, incorporated by reference to Exhibit 10(xi) to Form 10-Q for the quarter ended June 30, 2004
 
 
10(x)
  
Nonqualified Deferred Compensation Plan dated June 1, 2004, incorporated by reference to Exhibit 10(xii) to Form 10-Q for the quarter ended June 30, 2004
     
10(xi)
  
Nonqualified Supplemental Retirement Benefit Plan dated November 17, 2003, incorporated by reference to Exhibit 10(xiii) to Form 10-Q for the quarter ended June 30, 2004
     
10(xii)
  
Death Benefit Plan Agreement dated April 1, 2004 with J. Allen Fine, incorporated by reference to Exhibit 10(xiv) to Form 10-Q for the quarter ended June 30, 2004
     
10(xiii)
  
Death Benefit Plan Agreement dated May 19, 2004 with James A. Fine, Jr., incorporated by reference to Exhibit 10(xv) to Form 10-Q for the quarter ended June 30, 2004
     
13
  
Portions of 2007 Annual Report to Shareholders incorporated by reference in this report as set forth in Parts I, II and IV hereof
     
21
  
Subsidiaries of Registrant, incorporated by reference to Exhibit 21 to Form 10-K for the year ended December 31, 2003
     
23
 
Consent of Dixon Hughes PLLC
     
31(i)
  
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31(ii)
  
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32
  
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 EX-13 2 v106766_ex13.htm Unassociated Document
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
  
Low
  
First Quarter
  
$
55.73
  
$
49.13
  
$
48.99
  
$
40.17
  
Second Quarter
  
$
50.58
  
$
47.02
  
$
47.88
  
$
40.02
  
Third Quarter
  
$
50.58
  
$
37.92
  
$
48.99
  
$
42.94
  
Fourth 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 LLC
Citadel 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
  
2003
  
Net premiums written
  
$
69,984
  
$
70,196
  
$
76,522
  
$
71,843
  
$
83,945
  
Revenues
    
84,942
    
84,662
    
87,864
    
79,841
    
90,830
  
Investment income
    
5,197
    
4,326
    
3,336
    
2,753
    
2,692
  
Net 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
  
$
4.38
  
Weighted average shares outstanding—Basic
    
2,479
    
2,528
    
2,560
    
2,497
    
2,504
  
Diluted earnings per common share
 
$
3.35
  
$
5.14
  
$
5.10
  
$
4.09
  
$
4.18
  
Weighted average shares outstanding—Diluted
    
2,509
    
2,564
    
2,608
    
2,621
    
2,624
  
Cash dividends per share
 
$
.24
  
$
.24
  
$
.16
  
$
.15
  
$
.12
  
                                 
At Year End
                                
Assets
  
$
149,642
  
$
143,516
  
$
128,472
  
$
113,187
  
$
100,472
  
Investments in securities
    
129,026
    
121,580
    
95,153
    
93,261
    
79,842
  
Stockholders' equity
    
99,276
    
95,276
    
84,297
    
72,507
    
63,189
  
Book 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
    
172.16
  
Custom Peer Group*
    
100.00
    
146.92
    
166.94
    
214.97
    
208.43
    
148.18
  
NASDAQ 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 Accommodation 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
  
2005
  
Title 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
  
2005
  
Illinois
  
$
1,653,518
  
$
1,115,890
  
$
1,000,273
  
Kentucky
    
2,563,039
    
2,292,194
    
2,115,579
  
Maryland
    
1,167,576
    
1,532,915
    
1,754,867
  
Michigan
    
3,073,006
    
3,488,984
    
4,591,639
  
New York
    
2,412,625
    
2,436,563
    
3,248,635
  
North Carolina
    
34,544,366
    
35,200,769
    
36,269,649
  
Pennsylvania
    
1,512,745
    
1,472,615
    
1,687,410
  
South Carolina
    
7,637,330
    
7,177,871
    
7,011,099
  
Tennessee
    
2,599,686
    
2,466,956
    
2,767,576
  
Virginia
    
6,121,746
    
6,734,698
    
7,740,671
  
West Virginia
    
2,029,885
    
2,132,330
    
2,246,142
  
Other States
    
4,889,828
    
4,564,106
    
6,383,883
  
Direct Premiums
    
70,205,350
    
70,615,891
    
76,817,423
  
Reinsurance Assumed
    
42,816
    
22,158
    
20,976
  
Reinsurance 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
  
2005
  
Title 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
years
  
Operating 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
    
10,978,000
  
Other obligations
    
532,565
    
465,065
    
67,500
    
-
    
-
  
Obligations under executive employment plans and agreements
   
5,496,000
    
-
    
-
    
-
    
5,496,000
  
Total
  
$
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
 
 
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 31
  
                   
Net premiums written
  
$
16,631,626
  
$
19,123,591
  
$
18,242,676
  
$
16,198,574
  
Net income
    
2,874,941
    
4,315,537
    
3,672,069
    
2,322,887
  
Basic earnings per common share
    
1.13
    
1.70
    
1.46
    
.93
  
Diluted 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 maturities
              
Held-to-maturity, at amortized cost (fair value: 2007: $1,078,229; 2006: $1,237,613)
  
$
1,052,535
  
$
1,195,617
  
Available-for-sale, at fair value (amortized cost: 2007: $89,228,010; 2006: $100,979,825)
    
90,530,946
    
101,954,292
  
Equity securities, available-for-sale, at fair value (cost: 2007: $10,437,658; 2006: $8,653,003)
    
14,586,066
    
12,495,923
  
Short-term investments
    
21,222,533
    
4,460,911
  
Other investments
    
1,634,301
    
1,473,303
  
Total investments
    
129,026,381
    
121,580,046
  
               
Cash and cash equivalents (Note 15)
    
3,000,762
    
3,458,432
  
Premium and fees receivable (less allowance for doubtful accounts: 2007: $2,170,000; 2006: $2,128,000)
    
6,900,968
    
6,693,706
  
Accrued interest and dividends
    
1,254,641
    
1,336,790
  
Prepaid expenses and other assets
    
1,276,806
    
1,479,366
  
Property acquired in settlement of claims
    
278,476
    
303,538
  
Property, net (Note 4)
    
5,278,891
    
6,134,304
  
Deferred 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
  
$
36,906,000
  
Accounts payable and accrued liabilities (Note 10)
    
11,236,781
    
10,537,992
  
Commissions and reinsurance payable (Note 5)
    
406,922
    
470,468
  
Current income taxes payable (Note 8)
    
1,747,877
    
326,255
  
Total 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 2,507,325
             
shares issued and outstanding 2007 and 2006, respectively, excluding 291,676 shares
             
for 2007 and 2006, respectively, of common stock held by the Company’s subsidiary)
   
1
    
1
  
Retained earnings
    
95,739,827
    
92,134,608
  
Accumulated other comprehensive income (net unrealized gain on investments,
             
Note 8; net unrealized loss on postretirement benefits, Note 10)
    
3,536,012
    
3,141,054
  
Total 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 income
                    
Premiums written (Note 5)
  
$
70,248,166
  
$
70,638,049
  
$
76,838,399
  
Less-premiums for reinsurance ceded (Note 5)
    
264,177
    
441,582
    
316,133
  
Net premiums written
    
69,983,989
    
70,196,467
    
76,522,266
  
Investment income-interest and dividends (Note 3)
    
5,197,178
    
4,326,335
    
3,335,767
  
Net realized gain on sales of investments (Note 3)
    
921,871
    
551,058
    
119,015
  
Exchange services revenue
    
4,340,062
    
5,980,027
    
4,543,049
  
Other
    
4,499,187
    
3,607,829
    
3,343,781
  
Total Revenues
    
84,942,287
    
84,661,716
    
87,863,878
  
                   
Operating Expenses
                  
Commissions to agents
    
28,424,960
    
26,714,784
    
30,309,405
  
Provision for claims (Note 6)
    
10,134,719
    
7,405,211
    
8,164,783
  
Salaries, employee benefits and payroll taxes (Notes 7 and 10)
    
20,819,094
    
20,036,079
    
19,208,112
  
Office occupancy and operations (Note 9)
    
5,590,827
    
5,599,382
    
5,030,412
  
Business development
    
2,183,853
    
2,247,826
    
2,001,504
  
Filing fees and taxes, other than payroll and income
    
531,777
    
573,395
    
513,153
  
Premium and retaliatory taxes
    
1,496,448
    
1,348,850
    
1,556,529
  
Professional and contract labor fees
    
2,789,878
    
2,659,238
    
1,937,233
  
Other
    
1,146,396
    
747,517
    
559,824
  
Total Operating Expenses
    
73,117,952
    
67,332,282
    
69,280,955
  
Income before Income Taxes
    
11,824,335
    
17,329,434
    
18,582,923
  
Provision 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
  
Total
  
   
Common 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
  
$
72,507,271
  
Net income
                
13,292,923
          
13,292,923
  
Dividends ($.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
          
43,090
  
Stock options exercised
    
163,420
          
2,482,581
          
2,482,581
  
Net unrealized loss on investment
                            
(414,945
)
  
(414,945
)
Balance, December 31, 2005
    
2,549,434
  
$
1
  
$
81,477,022
  
$
2,820,233
  
$
84,297,256
  
Net income
                
13,185,434
          
13,185,434
  
Dividends ($.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
          
21,826
  
Stock options exercised
    
9,340
          
219,342
          
219,342
  
Share-based compensation expense
                
91,209
          
91,209
  
Change in investment accounting method
                
24,378
          
24,378
  
Adjustment 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
  
$
95,275,663
  
Net income
                
8,402,335
          
8,402,335
  
Dividends ($.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
          
1,998
  
Stock options exercised
    
15,390
          
365,284
          
365,284
  
Share-based compensation expense
                
91,669
          
91,669
  
Amortization related to FASB Statement No. 158
                      
11,736
    
11,736
  
Accumulated 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
  
2005
  
Net income
  
$
8,402,335
  
$
13,185,434
  
$
13,292,923
  
Other 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) on
                    
investments arising during the tax year
     551,029     372,836     (172,935 )
Income tax expense related to reclassification adjustment for gains
                    
realized 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
  
$
13,292,923
  
Adjustments to reconcile net income to net cash provided by operating activities:
                    
Depreciation
    
1,183,155
    
1,146,509
    
1,010,366
  
Amortization, net
    
274,944
    
197,972
    
79,525
  
Amortization related to FASB Statement No. 158
    
17,784
    
-
    
-
  
Issuance of common stock in payment of bonuses and fees
    
1,998
    
21,826
    
43,090
  
Share-based compensation expense related to stock options
    
91,669
    
91,209
    
-
  
Provision for losses (benefit) on premiums receivable
    
42,000
    
(316,000
)
  
204,000
  
Net (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
    
8,164,783
  
Benefit 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
    
2,038,303
  
Increase (decrease) in commissions and reinsurance payable
    
(63,546
)
  
28,370
    
(109,564
)
Increase (decrease) in current income taxes payable
    
1,421,622
    
(620,535
)
  
580,622
  
Payments 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
    
36,566,880
  
Proceeds from maturities of held-to-maturity securities
    
149,000
    
461,000
    
562,000
  
Proceeds from sales and maturities of short-term securities
    
312,282
    
4,731,702
    
5,917,750
  
Proceeds from sales and distributions of other investments
    
1,248,317
    
749,331
    
547,743
  
Other investment transactions
    
-
    
(65,622
)
  
-
  
Purchases of property
    
(463,828
)
  
(1,902,619
)
  
(1,897,230
)
Proceeds from disposals of property
    
151,350
    
42,236
    
37,714
  
Other 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
    
2,482,581
  
Dividends 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
  
$
5,537,000
  
Non 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
)
$
414,945
  
Adjustments 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 for
       
all 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
  
Estimated
  
   
Amortized
  
Unrealized
  
Unrealized
  
Fair
  
   
Cost
  
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, 2006
                          
Fixed Maturities-
                          
Held-to-maturity, at amortized cost-
                          
Obligations of states and political subdivisions
  
$
1,195,617
  
$
41,996
  
$
-
  
$
1,237,613
  
Total
  
$
1,195,617
  
$
41,996
  
$
-
  
$
1,237,613
  
Fixed Maturities-
                          
Available-for-sale, at fair value:
                          
Obligations of states and political subdivisions
  
$
95,969,124
  
$
935,898
  
$
170,421
  
$
96,734,601
  
Corporate debt securities
    
5,010,701
    
209,005
    
15
    
5,219,691
  
Total
  
$
100,979,825
  
$
1,144,903
  
$
170,436
  
$
101,954,292
  
Equity Securities, available-for sale, at fair value -
                          
Common stocks and nonredeemable preferred stocks
  
$
8,653,003
  
$
3,953,710
  
$
110,790
  
$
12,495,923
  
Total
  
$
8,653,003
  
$
3,953,710
  
$
110,790
  
$
12,495,923
  
Short-term investments -
                          
Certificates of deposit and other
  
$
4,460,911
  
$
-
  
$
-
  
$
4,460,911
  
Total
  
$
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-Maturity
  
   
Amortized
  
Fair
  
Amortized
  
Fair
  
   
Cost
  
Value
  
Cost
  
Value
  
Due in one year or less
  
$
2,725,203
  
$
2,722,978
  
$
4,998
  
$
5,172
  
Due after one year through five years
    
22,132,336
    
22,690,072
    
12,000
    
12,843
  
Due five years through ten years
    
32,657,994
    
33,310,231
    
740,457
    
757,792
  
Due after ten years
    
31,712,477
    
31,807,665
    
295,080
    
302,422
  
Total
  
$
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
  
2005
  
Fixed maturities
  
$
4,241,522
  
$
3,784,337
  
$
2,714,441
  
Equity securities
    
255,467
    
254,110
    
160,439
  
Invested cash and other short-term investments
    
643,654
    
277,006
    
454,358
  
Miscellaneous interest
    
56,535
    
10,882
    
6,529
  
Investment 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
  
2005
  
Gross realized gains:
                    
Obligations of states and political subdivisions
  
$
23,926
  
$
20,380
  
$
29,130
  
Debt securities of domestic corporations
    
-
    
-
    
18,464
  
Common stocks and nonredeemable preferred stocks
    
900,855
    
611,906
    
261,380
  
Total
    
924,781
    
632,286
    
308,974
  
Gross 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
  
Total
  
   
Fair
  
Unrealized
  
Fair
  
Unrealized
  
Fair
  
Unrealized
  
December 31, 2007
  
Value
  
Losses
  
Value
  
Losses
  
Value
  
Losses
  
Obligations 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, 2006
                                      
Obligations 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
  
2006
  
Land
  
$
1,107,582
  
$
1,107,582
  
Title plant
    
200,000
    
200,000
  
Office buildings and improvements (25 years)
    
3,178,632
    
3,125,077
  
Furniture, fixtures and equipment (3 to 10 years)
    
6,129,659
    
7,285,097
  
Automobiles (3 years)
    
586,297
    
559,265
  
Total
    
11,202,170
    
12,277,021
  
Less 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
  
2005
  
Balance, beginning of year
  
$
36,906,000
  
$
34,857,000
  
$
31,842,000
  
Provisions related to:
                    
Current year
    
9,787,529
    
9,845,776
    
9,816,189
  
Prior years
    
347,190
    
(2,440,565
)
  
(1,651,406
)
Total provision charged to operations
    
10,134,719
    
7,405,211
    
8,164,783
  
Claims 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
  
2005
  
Net income
  
$
8,402,335
  
$
13,185,434
  
$
13,292,923
  
Weighted average common shares outstanding - Basic
    
2,479,321
    
2,527,927
    
2,560,418
  
Incremental shares outstanding assuming
                   
the exercise of dilutive stock options and SARS
    
29,288
    
36,289
    
47,215
  
Weighted average common shares outstanding - Diluted
    
2,508,609
    
2,564,216
    
2,607,633
  
Basic earnings per common share
 
$
3.39
  
$
5.22
  
$
5.19
  
Diluted 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
  
$
16.45
              
Options granted
    
3,000
    
36.79
              
Options exercised
    
(163,420
)
  
14.85
              
Options cancelled/forfeited/expired
    
(4,360
)
  
14.26
              
Outstanding as of December 31, 2005
    
82,001
  
$
20.50
              
SARS granted
    
3,000
    
43.78
              
Options exercised
    
(9,340
)
  
17.21
              
Options cancelled/forfeited/expired
    
(1,610
)
  
22.12
              
Outstanding as of December 31, 2006
    
74,051
  
$
21.82
              
SARS granted
    
3,000
    
49.04
              
Options exercised
    
(15,390
)
  
23.74
              
Options 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-End
  
               
Weighted
  
Weighted
      
Weighted
  
               
Average
  
Average
      
Average
  
           
Number
  
Remaining
  
Exercise
  
Number
  
Exercise
  
Range of Exercise Prices
  
Outstanding
  
Contractual Life
  
Price
  
Exercisable
  
Price
  
$
10.00
  
-
  
$
12.00
    
13,520
    
2.4
  
$
11.32
    
7,940
  
$
11.21
  
 
13.06
 
-
    
15.58
    
7,000
    
3.2
    
14.91
    
4,600
    
14.86
  
 
17.25
  
-
    
19.35
    
2,350
    
4.2
    
19.00
    
850
    
19.20
  
 
20.00
  
-
    
22.75
    
16,260
    
4.2
    
21.08
    
8,580
    
20.68
  
 
25.28
  
-
    
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-End
  
               
Weighted
  
Weighted
      
Weighted
  
               
Average
  
Average
      
Average
  
           
Number
  
Remaining
  
Exercise
  
Number
  
Exercise
  
Range 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
 
   
2007
  
Expected Life in Years
    
5.0
  
Volatility
    
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
  
2005
  
Exercise price equal to market price on date of grant:
                    
Weighted-average market price
  
$
49.04
  
$
43.78
  
$
36.79
  
Weighted-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
  
2005
  
Expected Life in Years
    
5.0
    
5.0
    
10.0
  
Volatility
    
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
  
2005
  
Current:
                    
Federal
  
$
3,489,000
  
$
4,042,000
  
$
5,818,000
  
State
   
237,000
    
334,000
    
281,000
  
Total
    
3,726,000
    
4,376,000
    
6,099,000
  
Deferred 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
  
2006
  
Deferred income tax assets:
              
Recorded reserves for claims, net of statutory premium reserves
  
$
1,209,018
  
$
1,197,635
  
Accrued benefits and retirement services
    
2,359,699
    
2,023,905
  
Reinsurance and commissions payable
    
32,829
    
59,644
  
Allowance for doubtful accounts
    
737,800
    
723,520
  
FASB Statement No. 158
   
31,325
    
21,024
  
Net operating loss carryforward
    
64,000
    
68,000
  
Other
    
221,784
    
248,116
  
Total
    
4,656,455
    
4,341,844
  
Deferred income tax liabilities:
              
Net unrealized gain on investments
    
1,854,147
    
1,635,145
  
Excess of tax over book depreciation
    
(10,125
)
  
51,689
  
Discount accretion on tax-exempt obligations
    
24,515
    
40,398
  
Other
    
162,423
    
84,416
  
Total
    
2,030,960
    
1,811,648
  
Net 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
  
2005
  
Anticipated income tax expense
  
$
4,020,274
  
$
5,892,008
  
$
6,318,194
  
Increase (reduction) related to:
                
State income taxes, net of federal income tax benefit
    
156,420
    
220,400
    
185,460
  
Tax-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
    
193,401
  
Provision 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
    
123,605
  
Reductions 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
  
$
696,828
  
2009
    
476,151
  
2010
    
264,128
  
2011
    
90,731
  
2012
    
55,903
  
Total
  
$
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
  
$
14,366
  
Interest cost on projected benefit obligation
    
14,646
    
14,061
    
13,675
  
Amortization of unrecognized prior service cost
    
20,388
    
20,388
    
20,388
  
Amortization 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
  
2006
  
Accrued postretirement benefit cost at beginning of year
  
$
193,884
  
$
146,873
  
Service cost – benefits earned during the year
    
13,974
    
14,227
  
Interest cost on projected benefit obligation
    
14,646
    
14,061
  
Amortization cost, net
    
17,784
    
18,723
  
Unrecognized prior service cost
    
114,351
    
134,739
  
Unrecognized 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
  
2006
  
Balance at beginning of year
  
$
61,834
  
$
-
  
Components of Accumulated Other Comprehensive Income
              
Unrecognized prior service cost
  
 
(20,388
)
 
-
  
Unrecognized gain
    
50,686
    
-
  
SFAS 158 adoption adjustment
    
-
    
61,834
  
Balance 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
  
2006
  
Discount rate
    
5.75
%
  
5.75
%
Expected return on plan assets
    
N/A
    
N/A
  
Expected 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.   NPPBC
             
      Effect 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
  
Total
  
Operating 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
  

2006
                      
Operating revenues
  
$
71,733,764
  
$
5,980,027
  
$
2,915,065
  
$
(844,533
)
$
79,784,323
  
Investment income
    
3,759,367
    
18,138
    
619,231
    
(70,401
)
  
4,326,335
  
Net realized gain on sales of investments
    
551,058
    
-
    
-
    
-
    
551,058
  
Total revenues
  
$
76,044,189
  
$
5,998,165
  
$
3,534,296
  
$
(914,934
)
$
84,661,716
  
Operating expenses
    
63,667,391
    
1,419,923
    
3,089,501
    
(844,533
)
  
67,332,282
  
Income before taxes
  
$
12,376,798
  
$
4,578,242
  
$
444,795
  
$
(70,401
)
$
17,329,434
  
Assets
  
$
114,599,621
  
$
1,087,383
  
$
27,829,374
  
$
-
  
$
143,516,378
  
                                 
2005
                                
Operating revenues
  
$
78,184,904
  
$
4,543,049
  
$
2,411,446
  
$
(730,303
)
$
84,409,096
  
Investment income
    
3,041,553
    
18,463
    
324,154
    
(48,403
)
  
3,335,767
  
Net realized gain on sales of investments
    
100,550
    
-
    
18,465
    
-
    
119,015
  
Total revenues
  
$
81,327,007
  
$
4,561,512
  
$
2,754,065
  
$
(778,706
)
$
87,863,878
  
Operating expenses
    
66,700,267
    
949,407
    
2,363,270
    
(731,989
)
  
69,280,955
  
Income before taxes
  
$
14,626,740
  
$
3,612,105
  
$
390,795
  
$
(46,717
)
$
18,582,923
  
Assets
  
$
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

36
 
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Board of Directors and Stockholders
Investors Title Company
Chapel Hill, North Carolina
 
We consent to the incorporation by reference in the registration statement No. 333-33903 of Investors Title Company (the “Company”) and Subsidiaries on Form S-8 of our report dated March 17, 2008, with respect to the consolidated financial statements of Investors Title Company and the effectiveness of internal control over financial reporting, which reports appear in Investors Title Company’s 2007 Annual Report on Form 10-K.

Our audits of the consolidated financial statements referred to in our aforementioned report also included the financial statement schedules of the Company, listed in item 15. These financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects, the information set forth herein.

/s/ Dixon Hughes PLLC
 
High Point, North Carolina
March 17, 2008
 
 EX-31.I 5 v106766_ex31i.htm
Exhibit 31(i)
 
Certification

I, J. Allen Fine, certify that:

1.
I have reviewed this annual report on Form 10-K of Investors Title Company;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
 
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:

a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 17, 2008

/s/ J. Allen Fine
  
J. Allen Fine
Chief Executive Officer
 
 
 
 
EX-31.II 6 v106766_ex31ii.htm
Exhibit 31(ii)
 
Certification

I, James A. Fine, Jr., certify that:

1.
I have reviewed this annual report on Form 10-K of Investors Title Company;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:

a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 17, 2008

/s/ James A. Fine, Jr.
 
James A. Fine, Jr.
  
Chief Financial Officer
  
 
 
 
 
 EX-32 7 v106766_ex32.htm
Exhibit 32

Certifications
Pursuant to 18 U.S.C. Section 1350,
As adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report on Form 10-K of Investors Title Company, a North Carolina corporation (the "Company") for the year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company does hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(i)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and

(ii) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ J. Allen Fine
 
J. Allen Fine
 
Chief Executive Officer
   
   
Dated: March 17, 2008
/s/ James A. Fine, Jr
 
James A. Fine, Jr.
 
Chief Financial Officer
 
 
 
 
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