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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, 2003

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NO. 1-13990

LANDAMERICA FINANCIAL GROUP, INC.

(Exact name of registrant as specified in its charter)

(804) 267-8000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    X     No ___

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes    X     No ___

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the closing sale price of the registrant’s common stock as reported by the New York Stock Exchange on June 30, 2003, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $883.5 million.

The number of shares of the registrant’s common stock outstanding on March 1, 2004 was 18,953,974.  

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for the 2004 Annual Meeting of Shareholders (to be filed) are incorporated by reference into Part III of this report.

LANDAMERICA FINANCIAL GROUP, INC.

PART I

ITEM 1.

BUSINESS

General Information

Unless the context otherwise requires, “LandAmerica” and the “Company” refer to LandAmerica Financial Group, Inc. and its consolidated subsidiaries on a combined basis.

The Company was incorporated under the laws of the Commonwealth of Virginia on June 24, 1991. The Company is a holding company and operates through its subsidiaries. The Company has its principal executive offices at 101 Gateway Centre Parkway, Richmond, Virginia 23235-5153, and its telephone number is (804) 267-8000.  The Company maintains an internet website at www.landam.com.   

Shareholders of the Company and the public may access the Company’s periodic and current reports (including annual, quarterly and current reports on Form 10-K, Form 10-Q and Form 8-K, respectively, and any amendments to those reports) filed with or furnished to the Securities and Exchange Commission (“SEC”) pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, through the “Investor Information” section of the Company’s website.  The reports are made available on the Company’s website as soon as practicable following the filing of such documents with the SEC.  The information is free of charge and may be reviewed, downloaded and printed from the website at any time.

In addition, the Company’s Corporate Governance Guidelines, Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers and the charters of the Audit Committee, Corporate Governance Committee and the Executive Compensation Committee are available to shareholders and the public through the “Investor Information” section of the Company’s website.  Printed copies of the foregoing are available to any shareholder upon written request to the Secretary of the Company at the address set forth above.

Certain information contained in this Annual Report on Form 10-K includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Among other things, these statements relate to the future financial condition, business plans, operations, opportunities, or prospects of the Company, including any factors which may affect future earnings. These forward-looking statements involve risks and uncertainties that could cause the Company’s actual results, performance or achievements to be materially different from any anticipated results, performance or achievements expressed or implied by such forward-looking statements.  For additional information, see “Forward-Looking and Cautionary Statements” on page 44 of this report.

Overview of the Business

The Company is a national provider of products and services that are used to facilitate the purchase, sale, transfer and financing of residential and commercial real estate. The Company is one of the largest title insurance underwriters in the United States based on title premium revenues. The Company also conducts business in Mexico, Canada, the Caribbean and Latin America.

In addition to the Company’s core business of providing title insurance, the Company provides a range of other services for residential and commercial real estate transactions including title search, examination, document preparation, escrow and closing.  For residential real estate transactions, the Company also provides home inspections.  For commercial real

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estate transactions, the Company also provides property appraisal and valuation, building, site assessments and other due diligence services, survey coordination, construction disbursement, coordination of national multi-state transactions, tax-deferred real property exchanges pursuant to Section 1031 of the Internal Revenue Code and Uniform Commercial Code products insuring personal property.

The Company provides, primarily to mortgage lending customers, specialized services such as real estate tax processing, flood zone certifications, consumer mortgage credit reporting and default management services.

Operating Segments

The Company provides its real estate transaction products and services to a broad based customer group that includes lenders, developers, real estate agents, attorneys and property buyers and sellers.  In 2003, the Company significantly expanded the products and services it offers primarily to the mortgage lending community. As a result, the Company’s principal business operations have been organized under two major operating segments, Title Insurance and Lender Services, and the Company’s remaining nonreportable business segments have been aggregated for reporting purposes under the heading “Corporate and Other.”  Information regarding each of these operating segments is set forth below.

Certain financial information regarding the Company’s operating segments is presented in Note 21 to Consolidated Financial Statements and in Management’s Discussion and Analysis of Financial Condition and Results of Operations. The Company has not previously reported financial and other information on a segment basis.

A.

Title Insurance

Products and Services

Title Insurance.  The Company issues title insurance policies through its various title underwriting subsidiaries.  The Company’s three principal title underwriting subsidiaries are Commonwealth Land Title Insurance Company (“Commonwealth”), Lawyers Title Insurance Corporation (“Lawyers Title”) and Transnation Title Insurance Company (“Transnation”).  The Company also owns four other title insurance underwriters, Commonwealth Land Title Insurance Company of New Jersey, Land Title Insurance Company, Title Insurance Company of America and Transnation Title Insurance Company of New York.  The collective operations of these subsidiaries cover the entire United States (with the exception of Iowa, which does not recognize title insurance) and certain territories of the United States and Canada. In addition, the Company offers international title policy services to United States customers in Mexico, the Caribbean and Latin America.

In connection with the issuance of title insurance policies, the Company performs title search and examination services and also offers closing protection letters to lenders and owners who purchase title insurance.  The Company also furnishes certificates of title and abstracts of title in some states.

Escrow and Closing Services.  In addition to the issuance of title insurance policies, the Company provides escrow and closing services to a broad-based customer group that includes lenders, developers, real estate agents, attorneys and property buyers and sellers.  In California and a number of western states, it is a general practice, incident to the issuance of title insurance policies, to hold funds and documents in escrow for delivery in real estate transactions upon fulfillment of the conditions to such delivery.  In the mid-western states, Florida and some eastern cities, it is customary for the title company to close the transaction and disburse the sale or loan proceeds.  Fees for such escrow and closing services are generally separate and distinct from premiums paid for title insurance policies and other real estate-related services.

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Commercial Real Estate Services.  To facilitate the coordination and delivery of products and services in commercial real estate transactions, the Company’s Commercial Services division assists customers in handling the more complex nature of commercial transactions. The Company provides, in addition to title insurance and escrow and closing services, a range of specialized services that include  property appraisal and valuation, building, site assessments and other due diligence services, survey coordination, construction disbursement, coordination of national multi-state transactions, tax-deferred real property exchanges pursuant to Section 1031 of the Internal Revenue Code and Uniform Commercial Code products insuring personal property.  The combined capital position of the Company’s three principal title underwriting subsidiaries enables the Company to underwrite large commer cial policies to participate in national multi-state transactions.

Real Estate Transaction Management Services.  Through its LandAmerica OneStop, Inc. subsidiary (“LandAmerica OneStop”) operation, the Company offers to the national and regional mortgage lending community a full range of integrated residential real estate services and the ability to manage the delivery of those services through a centralized source.  LandAmerica OneStop provides these mortgage originators with a single, convenient point of contact through which they may place all of their orders for title insurance and real estate-related services.  The transaction management services of LandAmerica OneStop are provided by LandAmerica OneStop, other subsidiaries of the Company or through joint ventures or strategic alliances with third parties and include the coordination and delivery of title insurance, mortgage credit reporting, flood zone determinations, property appraisal and valuation, property inspections, closing and escrow services, real estate tax payment services and document preparation.

Title Policies

Title insurance policies are insured statements of the condition of title to real property.  Such policies indemnify the insured from losses resulting from certain outstanding liens, encumbrances and other defects in title to real property that appear as matters of public record, and from certain other matters not of public record.  Title insurance is generally accepted as the most efficient means of determining title to, and priority of interests in, real estate in nearly all parts of the United States.  Many of the principal customers of title insurance companies buy insurance for the accuracy and reliability of the title search as well as for the indemnity features of the policy.  The beneficiaries of title insurance policies are generally owners or buyers of real property or parties who make loans using real property as security.  An owner’s policy protects the named insured against title defects, liens and encumbrances existing as of the date of the policy and not specifically excluded or excepted from its provisions, while a lender’s policy, in addition to the foregoing, insures against the invalidity of the lien of the insured mortgage and insures the priority of the lien as stated in the title policy.  

While most other forms of insurance provide for the assumption of risk of loss arising out of unforeseen future events, title insurance serves to protect the policyholder from the risk of loss from events that predate the issuance of the policy.  This distinction underlies the low claims loss experience of title insurers as compared to other insurance underwriters.  Losses generally result either from judgment errors or mistakes made in the title search and examination process or the escrow process or from hidden defects such as fraud, forgery, incapacity or missing heirs. Operating expenses, on the other hand, are higher for title insurance companies than for other companies in the insurance industry.  Most title insurers incur considerable costs relating to the personnel required to process forms, search titles, collect information on specific properties and prepare title insurance commitments and policies.

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Underwriting  

The Company issues title insurance policies on the basis of a title report, which is prepared pursuant to underwriting guidelines prescribed by the Company, after a search of the public records, maps and documents to ascertain the existence of easements, restrictions, rights of way, conditions, encum­brances, liens or other matters affecting the title to, or use of, real property.  In certain instances, a visual inspection of the property is also made.  Title examinations may be made by branch employees, agency personnel or approved attorneys, whose reports are utilized by or rendered to a branch or agent and are the basis for the issuance of policies by the Company.  In the case of difficult or unusual legal or underwriting issues involving potential title risks, the branch office or agent is instructed to consult with a designated supervising office. The Company’s contracts with independent agents require that the agent seek approval of the Company prior to the Company’s assumption of a risk over a stated dollar limit.

The Company owns a number of title plants and in some areas leases or participates with other title insurance companies or agents in the cooperative operation of such plants.  Title plants are compilations of copies of public records, maps and documents that are indexed to specific properties in an area, and they serve to facilitate the preparation of title reports.  In many of the larger markets, the title plant and search procedures have been automated.  To maintain the value of the title plants, the Company continually updates its records by regularly adding current information from the public records and other sources.  In this way, the Company maintains the ability to produce quickly and at a reduced expense a statement of the instruments that constitute the chain of title to a particular property.  

Direct and Agency Operations

The Company issues title insurance policies through its direct operations (which include branch offices of its title insurers and wholly owned subsidiary agencies of the Company), or through partially owned or independent title insurance agents.  Where the policy is issued through its direct operations, the search is performed by or at the direction of the Company, and the premium is collected and retained by the Company.  Where the policy is issued through a title insurance agent, the agent generally performs the search (in some areas searches are performed by approved attorneys), examines the title, collects the premium and retains a majority of the premium.  The remainder of the premium is remitted to the Company as compensation for bearing the risk of loss in the event a claim is made under the policy. The percentage of the premium retained by an agent varies from region to region and is sometimes regulated by the states.  The Company is obligated to pay title claims in accordance with the terms of its policies, regardless of whether it issues policies through direct operations or agents. The Company maintains a quality assurance program for its independent agents. See “- Insured Risk on Policies in Force.”

The premium for title insurance is due in full when the real estate transaction is closed. Title insurance premium revenues from direct operations are recognized by the Company upon the closing of the transaction, whereas premium revenues from agency operations are recognized by the Company upon reporting of such premiums.  Premiums from agents are typically remitted to the Company after the closing of the real estate transaction, with the average time between closing and reporting for 2003 being approximately 120 days.  

Insured Risk on Policies in Force  

The amount of the insured risk or “face amount” of insurance under a title insurance policy is generally equal to either the purchase price of the property or the amount of the loan secured by the property.  The insurer is also responsible for the cost of defending the insured title against covered claims.  The insurer’s actual exposure at any time is significantly less than the total face amount of policies in force because the risk on an owner’s policy is often reduced over time as a result of subsequent transfers of the property and the reissuance of title insurance by other title insurance underwriters, and the coverage of a lender’s policy is reduced and eventually

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terminated as a result of payment of the mortgage loan. Because of these factors, the total liability of a title underwriter on outstanding policies cannot be precisely ascertained.

In the ordinary course of business, the Company’s underwriting subsidiaries represent and defend the interests of their insureds, and the Company’s consolidated financial statements provide for estimated losses and loss adjustment expenses arising from claims.  Title insurers are sometimes subject to unusual claims (such as claims of Indian tribes to land formerly inhabited by them), claims from large classes of claimants and other claims arising outside the insurance contract, such as for alleged negligence in search, examination or closing, alleged improper claims handling and alleged bad faith.  The damages alleged in such claims arising outside the insurance contract may exceed the stated liability limits of the policies involved.  While the Company in the ordinary course of its business has been subject from time to time to these types of claims, the Company’s losses to date on such claims have not been significant in number or material in dollar amount to the Company’s financial condition.

Standard & Poors Corporation (“S&P”) has assigned a financial strength rating of “A-” to the title insurance operations of the Company.  According to S&P, an insurer rated “A” has strong financial security characteristics, but is somewhat more likely to be affected by adverse business conditions than are insurers with higher ratings, and the minus (-) rating indicates relative standing within the “A” category.  S&P assigns a ratings outlook along with its letter ratings to indicate its expectations of trends that relate to the financial strength rating for the rated company. The ratings outlook assigned by S&P may be either “positive,” “stable” or “negative.” According to S&P, the ratings outlook for the Company is “stable.”  Fitch, Inc. (“Fitch”) has assigned an “A” rating to the financial strength of the Company.  According to Fitch, an “A” rating is assigned to those companies that possess strong capacity to meet policyholder and contract obligations, where risk factors are moderate and the impact of any adverse business and economic factors is expected to be small.  Fitch also assigns a ratings outlook along with its letter ratings to indicate its expectations of trends that relate to the financial strength rating for the rated company.  The ratings outlook assigned by Fitch may be either “positive,” “stable” or “negative.”  According to Fitch, the ratings outlook for the Company is “stable.”  The S&P and Fitch ratings are not designed for the protection of investors and do not constitute recommendations to buy, sell or hold any security.

The Company places a high priority on maintaining effective quality assurance and claims administration programs.  The Company’s quality assurance program focuses on quality control, claims prevention and product risk assessment for its independent agencies.  The claims administration program focuses on improving liability analysis, prompt, fair and effective handling of claims, early evaluation of settlement or litigation with first and third-party claimants and appropriate use of ADR (Alternative Dispute Resolution) in claims processing.  In addition, to reduce the incidence of agency defalcations, the Company has established due diligence requirements in connection with the appointment of new agents, procedures for renewing existing agents and an Agency Audit Program. The Company continues to refine its systems for maintaining effective quality assurance and claims administration programs.

Reinsurance and Coinsurance  

The Company distributes large title insurance risks through the mechanisms of reinsurance and coinsurance.  In reinsurance agreements, the reinsurer accepts that part of the risk the primary insurer (the “ceding company” or “ceder”) decides not to retain in consideration for a portion of the premium.  A number of factors may enter into a company’s decision to reinsure, including retention limits imposed by state law, customer demands and the risk retention philosophy of the company.  The ceder, however, remains liable to the insured for the total risk, whether or not the reinsurer meets its obligation.  The Company may reinsure from among its own title insurance subsidiaries or may reinsure with unaffiliated title insurance reinsurers.  When the Company purchases reinsurance on a particular commercial risk from unaffiliated reinsurers, it will generally retain a primary risk of $5.0 million and may participate with such reinsurers on liability amounts in excess of that amount as a secondary risk.

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Reinsurance is generally purchased from unaffiliated reinsurers if the risk on a single transaction is greater than $200.0 million.

Pursuant to a standard reinsurance agreement, the Company’s title insurance subsidiaries reinsure unaffiliated title insurance underwriters for a portion of the liability relating to specific title insurance risks. The Company’s title insurance subsidiaries have entered into numerous reinsurance agreements with other title insurance underwriters on specific transactions. The Company’s exposure on all reinsurance assumed is reduced due to the ceding company’s retention of a substantial amount of primary risk.  In addition, exposure under these agreements generally ceases upon a transfer of the insured properties and, with respect to insured loans, is decreased by reductions in mortgage loan balances.  Because of this, the actual exposure is much less than the total reinsurance the Company has assumed.  The Company provides loss reserves on assumed reinsurance business on a basis consistent with reserves for direct business.  

The Company utilizes coinsurance to enable it to provide coverage in amounts greater than it would be willing or able to undertake individually.  In coinsurance transactions, each individual underwriting company issues a separate policy and assumes a portion of the overall total risk.  Each coinsurer is liable only for the particular portion of the risk it assumes.

The Company’s title insurance subsidiaries enter into reinsurance and coinsurance arrangements with most of the larger participants in the title insurance market and such arrangements are not materially concentrated with any single title insurance company.  Revenues and claims from reinsurance are not material to the Company’s business as a whole.

The Company maintains excess of loss catastrophic insurance through Lloyd’s of London totaling $50.0 million.  The Lloyd’s policy provides fidelity and title loss coverage up to $50.0 million with a $20.0 million deductible for title losses and a lesser deductible for other losses.   The Company has the ability to retain an additional $50.0 million of coverage through Lloyds if needed.

The Company has not paid or recovered any reinsured losses during the three year period ended December 31, 2003.

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Title Insurance Revenues

The table below sets forth, for the years ended December 31, 2003, 2002 and 2001, the approximate title insurance revenues and percentages of the Company’s total revenues for the ten states representing the largest percentages of such revenues and for all other states combined:

Revenues by State

(dollars in thousands)

Sales and Marketing

The Title Insurance Market.  For sales and marketing purposes, the Company generally distinguishes between residential and commercial real estate transactions.  Residential real estate business results from the construction, sale, resale and refinancing of residential properties, while commercial real estate business results from similar activities with respect to properties with a business or commercial use.  The Company has emphasized the development of its residential real estate business over the last decade, while maintaining a leadership position in insuring title to properties in commercial real estate transactions. Although precise data is not available to compare the percentage of total premium revenues of the Company derived from commercial versus residential real estate activities, approximately 91.7% of such revenues in 2003 resulted from policies providing coverage of $1.0 million or less (which tend to be residential) and approximately 8.3% of such revenues resulted from policies providing coverage in excess of $1.0 million (which tend to be commercial).

Residential Transactions.  The Company’s primary source of residential business is from the local real estate community, such as attorneys, real estate brokers and developers, financial institutions, mortgage brokers and independent escrow agents.  The Company serves the residential market through two major distribution channels: direct company owned offices and independent title insurance agents.  Maintenance and expansion of these referral sources is integral to the Company’s marketing strategy for local residential business.  Because most of the Company’s residential business arises from these local relationships, the Company is committed to enhancing its service offerings to these customers, primarily by developing services and products beyond traditional title insurance and closing services that provide a more complete solution to their residential real estate transaction needs.  The coordination of multiple products and services required by a real estate transaction, a service provided by LandAmerica OneStop, is known as “transaction management.”  The Company continues to develop services and products for each channel designed to make the real estate transaction easier for both the Company’s customers and the end consumer.  

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The Company has continued to expand its national affiliated agency relationships that include builders, realtors, lenders and vendor managers.  Often these relationships attract residential transactions on a regional or statewide basis.  The Company believes this type of relationship between the Company and its customers will continue to increase and has dedicated resources to further develop these relationships.

Commercial Transactions.  The Company’s Commercial Services (“CS”) division specializes in coordinating, underwriting and closing complex commercial and multi-property transactions.  The Company has CS offices in strategic metropolitan areas in the United States.  Each office is focused on providing transaction and support services to national and local commercial accounts.  The transaction and support services benefit both our direct offices as well as independent agents who handle substantial commercial transactions.  

In addition, the Company is one of the most strongly capitalized title insurers in the industry, with an aggregate statutory surplus of $502.3 million as of December 31, 2003.  The financial strength of the Company is an important factor in marketing the Company’s commercial title business capabilities, enabling it to underwrite larger title policies and retain higher levels of risk without purchasing reinsurance from a third party.  The Company’s financial strength, as evidenced by the ratings from Standard & Poors and Fitch, is important in competing for commercial title insurance business.  See additional information on the Company’s financial strength ratings in the section entitled “Insured Risk on Policies in Force” above.

Marketing Strategy.  The Company continues its transition from title insurance product delivery to real estate transaction services provider.  This strategy entails becoming more of a single source provider of the multiple products and services involved in real estate transactions.  The Company continues to differentiate itself based on superior service, consistency of products provided to its customers nationwide while providing web enabled services to enhance customer value.  Finally, in 2002 the Company initiated and continues to expand a branding process to identify all operations of the Company under the LandAmerica brand.  

Customers

As of December 31, 2003, no single independent agent was responsible for more than 5% of the Company’s title insurance revenues.  In addition, the Company is not dependent upon any single customer or any single group of customers.  The loss of any independent agent or customer would not have a material adverse effect on the Company.  

Competition

The business of providing real estate transaction services is very competitive. Competition for residential title insurance business is based primarily on price and quality of service. Service quality is based upon a number of factors, including the ability to respond quickly and accurately to customers and technological capabilities (resulting in the delivery of a readily accessible, efficient and reliable product).  With respect to national and regional lenders, service quality includes a large distribution network and the ability to deliver a broad array of real estate services quickly, efficiently and through a single point of contact.  Competition for commercial title business is based primarily on price, service, expertise in complex transactions and the size and financial strength of the insurer.  Title insurance underwriters also compete for agents on the basis of service and commission levels.  For each of these customer groups, the Company has increased its emphasis on service levels and the variety of services and products it provides.

The Company is one of the largest title insurance companies in the United States based on title premium revenues.  Its principal competitors are other major title insurance underwriters and their agency networks.  The Company’s principal competitors during 2003 were Fidelity National Financial, Inc., Old Republic International Corporation, Stewart Information Services,

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Inc. and The First American Corporation.  While there are more than one hundred title insurance underwriting companies licensed in the United States, the top five companies (consisting of the Company and its four principal competitors) accounted for approximately 88.3% of the title insurance market in 2002, the latest date for which information is available, based on public filings made by those companies.  

The Company’s title insurance subsidiaries are subject to regulation by the insurance authorities of the states in which they do business.  See “Regulation.”  Within this regulatory framework, the Company competes with respect to premium rates, coverage, risk evaluation, service and business development.

State regulatory authorities impose underwriting limits on title insurers based primarily on levels of available capital and surplus.  The Company has underwriting limits that are comparable to its four principal competitors.  While such limits may theoretically hinder the Company’s title insurance subsidiaries’ assumption of a particular large underwriting liability, in practice the Company has established its own internal risk limits at levels substantially lower than those allowed by state law.  In addition, the Company may spread the risk of a large underwriting liability over its three principal title underwriting subsidiaries. Therefore, statutory capital-based risk limits are not considered by the Company to be a significant factor in the amount or size of underwriting it may undertake.  

Business Strategy  

The Company’s long term objective is to enhance its position as a premier, national provider and manager of integrated real estate transaction products and services while maximizing its profitability throughout the real estate market cycle.  To accomplish this objective, the Company is pursuing various business strategies designed to broaden its market position and provide the framework to enhance growth and maximize profitability.

Focusing on the Customer.  In November 2003, the Company announced, and in 2004 began implementation of, a customer-focused strategy to increase intimacy with our customers.  In conjunction with that strategy, the Company created leadership positions and teams to support our primary customer groups; agents, direct, commercial and national lenders.  These leaders and teams will be responsible for ensuring consistent service quality and operational excellence by providing common support platforms and structures for the various markets in which the Company operates.

Expanding Title Insurance Related Transaction Products and Services.   Throughout our customer base, there is increased demand for providers of multiple, diverse real estate transaction products and services. In particular, the large national mortgage lenders increasingly expect that necessary services related to the mortgage financing process be available from and billed by a single source. Our strategy is to continue to expand our array of real estate transaction products and services available to lenders and other customers.

Expanding Distribution Capabilities.  The Company seeks to increase its share of the title insurance market by expanding and enhancing its distribution channels through the hiring and retention of experienced industry professionals with strong local relationships, the opening of new direct offices in markets with the potential for significant transaction volume, acquisitions of title insurance agencies or underwriters and selectively engaging in joint ventures with title insurance agencies in order to strengthen the Company’s presence in particularly attractive markets.  In the case of the acquisition of agencies or small to medium-size underwriters, the Company reviews the agency’s or underwriter’s profitability, location, growth potential in its existing market, claims experience and, in the case of an underwriter, the adequacy of its reserves.

Maintaining Commercial Real Estate Market Strength.  Participation in the commercial real estate market partially offsets some of the cyclicality of the residential real estate market,

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where transaction volumes are more susceptible to changes in interest rates.  The Company maintains its presence in the commercial real estate market primarily due to the financial strength ratings of its underwriting subsidiaries, its strong capital position, the high quality service that it provides and its expertise in handling complex transactions.  In particular, the combined capital position of the Company’s three principal underwriting subsidiaries enables it to underwrite large commercial policies while purchasing less reinsurance, thus increasing profitability.

Reducing Costs and Expenses.  Losses resulting from claims under title insurance policies represent a relatively small part of the Company’s overall costs. However, operating costs, the largest portion of expenses relating to providing title insurance, are relatively high compared to other types of insurers.  The Company continues to implement the concept of service centers, in which its three principal title operating subsidiaries share a single back office processing center in a geographic region while continuing to market from separate storefronts under different operating names.  This concept has reduced the Company’s cost per order in the markets where it is operational.  In addition, the Company has several pilot projects underway to automate title production and workflow in its service centers.  The Company provides escrow support from several centralized locations, thereby increasing service levels and improving efficiency. The Company is also evaluating other opportunities to streamline operations, such as out-sourcing and off-shoring, where a determination is made that the cost\benefit of these initiatives will improve customer service and provide value to the Company’s shareholders.

Using Technology. In 2002, the Company began providing internet-based order processing, status tracking and document delivery to its direct customers through the Residential Connection.  This program was so successful the Company expanded the services and geographic coverage of this initiative during 2003.  Additionally, the Company also introduced the Commercial Connection for certain commercial customers in 2002.  After receiving a positive market reaction for this product, the Company expanded the services and geographic coverage of this initiative in 2003.  The Company also provides TitleWave®, a web-based agent relationship and production management system enabling agents to order and receive a variety of title related products from the Company’s agency production centers in 21 states.  These technology interfaces speed up transactions and create efficiencies for both the Company and its customers.  Also, the Company’s agency service center introduced a paperless remittance process for agents.  The Company continues to identify ways to utilize technology to provide superior customer service and increase the operational efficiency of the Company.

Enhancing Cost Control Flexibility.  The Company manages its personnel expenses to reflect changes in the level of activity in the real estate market.  As a result, the Company’s employee base expands and contracts over time.  In order to manage personnel costs more efficiently throughout the real estate cycle, the Company uses temporary or part time employees where appropriate to staff operations so the Company can respond more rapidly to changes in real estate activity.

Regulation  

The title insurance business is regulated by state regulatory authorities who possess broad powers relating to the granting and revoking of licenses, and the type and amount of investments which the Company’s title insurance subsidiaries may make.  These state authorities also regulate insurance rates, forms of policies, claims handling procedures and the form and content of required annual statements, and have the power to audit and examine the financial and other records of these companies.  Some states require title insurers to own or lease title plants.  A substantial portion of the assets of the Company’s title underwriting subsidiaries consists of their portfolios of investment securities.  Each of these subsidiaries is required by the laws of its state of domicile to maintain assets of a statutorily defined quality and amount.  See “Investment Policies” below. Under state laws, certain levels of capital and surplus must be maintained and certain amounts of portfolio securities must be segregated or deposited with appropriate state officials.  Various state statutes require title insurers to defer a portion of all premiums in a reserve for the protection of policyholders and to segregate investments in a corresponding

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amount. State regulatory policies also restrict the amount of dividends and distributions that title insurance companies may pay to their shareholders without prior regulatory approval.  Generally, all of the title underwriters that meet certain financial thresholds are required to engage independent auditors to audit their statutory basis financial statements which, along with the auditor’s report, must be filed with the state insurance regulators.

The National Association of Insurance Commissioners (the “NAIC”) has adopted model legislation which if enacted by individual states would regulate title insurers and agents nationally and would change certain statutory reporting requirements.  The proposed legislation also would require title insurers to audit agents periodically and require licensed agents to maintain professional liability insurance. A number of states have adopted legislation similar to some of the provisions contained in the NAIC model legislation. The Company cannot predict whether all or any portion of the proposed legislation or any similar legislation will be adopted in any other states. Also, the NAIC has adopted an instruction requiring an annual certification of reserve adequacy by a qualified actuary.  Because all of the states in which the Company’s title insurance subsidiaries are domiciled require adherence to NAIC filing procedures, each such subsidiary, unless it qualifies for an exemption, must file an actuarial opinion with respect to the adequacy of its reserves.

Many state insurance regulatory laws intended primarily for the protection of policyholders contain provisions that require advance approval by state agencies of any change in control of an insurance company or insurance holding company that is domiciled (or, in some cases, doing business) in that state.  Under such current laws, any future transaction that would constitute a change in control of the Company would generally require approval by the state insurance departments of Arizona, California, New Jersey, New York, Pennsylvania, Tennessee, Texas, and Virginia.  Such a requirement could have the effect of delaying or preventing certain transactions affecting the control of the Company or the ownership of the Company’s Common Stock, including transactions that could be advantageous to the shareholders of the Company.  

Cyclicality and Seasonality

The title insurance business is closely related to the overall level of residential and commercial real estate activity, which is generally affected by the relative strength or weakness of the United States economy.  In addition, title insurance volumes fluctuate based on the effect changes in interest rates have on the level of real estate activity.  Periods of increasing interest rates usually have an adverse impact on real estate activity and therefore premium and fee revenues.  In contrast, real estate activity usually increases when interest rates fall. In 2002 and 2003 the Company and the title insurance industry benefited from the lowest interest rates in the last 40 years.

Historically, residential real estate activity has been generally slower in the winter, when fewer families buy or sell homes, with increased volumes in the spring and summer. Residential refinancing activity is generally more uniform throughout the seasons, but is subject to interest rate variability.  The Company typically reports its lowest revenues in the first quarter, with revenues increasing into the second quarter and through the third quarter.  The fourth quarter customarily may be as strong as the third quarter, depending on the level of activity in the commercial real estate market.  However, in 2002 and 2003 the Company’s fourth quarter revenues were stronger than the third quarter due to increased activity in the residential real estate market related to refinance activity.

Environmental Matters

Title insurance policies specifically exclude any liability for environmental risks or contamination.  Policies issued before 1984, while not specifically addressing environmental risks, are not considered to provide any coverage for such matters, and the Company has not experienced and does not expect any significant expenses related to environmental claims.  

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The Company, through its subsidiaries, sometimes acts as a temporary title holder to real estate under a nominee holding agreement and sometimes participates in title holding agreements involving tax-deferred exchanges.  The Company’s customers in such situations generally are financially strong entities from whom it secures indemnification for potential environmental and other claims.  In other situations where the Company might acquire title to real estate, it will generally require that an appropriate environmental assessment be made to evaluate and avoid any potential liability.  

B.

Lender Services

     Products and Services

The Lender Services segment focuses on mortgage lenders as a distinct customer base for certain of the Company’s products and services, including real estate tax payment services, flood zone certifications, consumer mortgage credit reporting and default management services.

Tax Services.  With the acquisition of LERETA Corp. (“LERETA”) on October 1, 2003, the Company began to offer real estate tax processing services to mortgage lenders through LERETA’s nationwide network. This service monitors and reports real estate property tax data needed by mortgage lenders on properties securing loans made by such mortgage lenders. During the lending process, LERETA can advise lenders whether there are any delinquent taxes associated with the property. Where the lender requires an escrow for the payment of taxes by borrowers during the term of the loan, LERETA determines the timing and amount of the tax payment due on the property and interfaces with the loan servicing department of the mortgage lender and the various local taxing authorities to facilitate the timely payment of real property taxes.

Services performed for mortgage lenders vary significantly, as some lenders prefer complete outsourcing of all tax service functions to LERETA while other lenders prefer to perform their own tax service and purchase data from LERETA.  The Company believes that the trend among large lenders recently has been to perform their own tax service. LERETA has developed a series of products to provide these lenders with the data and other tools they need to perform the tax service functions themselves.

Two mortgage lending customers account for approximately 60% of LERETA’s gross revenues.  LERETA competes on the basis of price and service with its three main competitors in the tax service business – The First American Corporation, Fidelity National Financial Corp. and ZC Sterling Insurance Agency, Inc.

Flood Zone Certifications.  Through LERETA, the Company provides mortgage lenders with information regarding whether property that is to be used to secure a loan is located in a special flood hazard area as defined by a federal agency. If the structure is in a special flood hazard area, the borrower is required to purchase flood insurance prior to closing of the transaction. LERETA’s flood service includes an initial flood zone determination report provided to the lender at the origination of the loan and subsequent notifications to the lender during the term of the loan of any changes in a property’s flood zone status brought about by changes in flood insurance rate maps.

Although there are numerous suppliers of flood zone certification services, the largest competitors of LERETA are The First American Corporation, Fidelity National Financial, Inc. and Geotrac Inc.

Consumer Mortgage Credit Reporting. Effective August 31, 2003, the Company acquired INFO1 Holding Company, Inc. (“INFO1”), the fourth largest independent mortgage credit reporting provider in the United States.  INFO1 is a nationwide provider of consumer credit reports and income, employment and tax return verifications to lenders engaged in mortgage origination.  INFO1’s technology interfaces with many loan origination systems and permits 24

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hour/7 days a week monitoring and response.  INFO1’s credit information is obtained using technology linked to the three major credit bureaus, Equifax, Experian and Trans Union.  In addition, through INFO1’s Bureau Direct™, a borrower’s erroneous credit information can be updated at each of the three major credit bureaus in 72 hours or less, thereby reducing the necessary paperwork and time required by the borrower and the lender seeking to close a transaction. In February 2004, INFO1 expanded its presence in the western United States through the acquisition of two credit reporting companies in Utah and California.

Default Management.  A subsidiary of the Company, LandAmerica Default Services Company, provides comprehensive default management services to lenders and mortgage servicing operations. These services consist of customized reports, broker price opinions and appraisals, foreclosure, management of properties acquired at foreclosure, bankruptcy services, reconveyance processing and lien release.

C.

Corporate and Other

The Corporate and Other group of business segments include Orange County Bancorp and its wholly-owned subsidiary, Centennial Bank (“Centennial”), LandAmerica Assessment Corporation, Inspectech, Inc. and LandAmerica Valuation Corporation (formerly known as LandAmerica Commercial Appraisal Corporation).  The Company exited the residential appraisal business in 2002.  

Centennial.  On November 30, 2003, the Company acquired Centennial, a California industrial bank, to assist the Company in making its escrow and closing services more profitable and efficient.  Centennial’s primary business is the origination and bulk purchase of commercial real estate loans in the Southern California market.  Deposits are solicited through the internet for both certificates of deposit and passbook savings accounts. As an industrial bank, Centennial does not accept demand deposits, such as checking accounts, that provide for payment to third parties. Centennial does not offer banking services such as credit cards or automated teller machines. The following is a summary of certain information relating to Centennial’s deposits, loans and allowances for loan losses for the last five years.  As noted above, information related to periods prior to November 30, 2003, have not been included in the Company’s financial position and results of operations as the Company acquired the bank effective November 30, 2003.

At December 31, 2003, Centennial held $203.9 million in total deposits. Certificates of deposit and passbook savings accounts represented 60.6% and 39.4%, respectively, of total deposits as of that date.

At December 31, 2003, Centennial had $258.2 million of outstanding loans representing 126.6% of total deposits. The average loan balance outstanding at December 31, 2003 was $.2 million.  Centennial makes loans only on a secured basis, at loan-to-value percentages no greater than 75%. Significantly all of Centennial’s loans are made on a variable rate basis. Loans that Centennial made or acquired during 2003 ranged in amount from $.3 million to $4.3 million.   Centennial’s commercial real estate loans are typically smaller in size and more tailored to fit the customer than those issued by large financial institutions that maintain minimum size requirements of $0.5 million to $1.0 million or more. Centennial’s primary competitors in the California market are local community banks, thrift and loan companies and, to a lesser extent, commercial banks.

The average yield on Centennial’s loan portfolio as of December 31, 2003 was 7.4%. A number of factors are included in the determination of average yield, principal among which are loan fees and closing points amortized to income, prepayment penalties recorded as income, and amortization of discounts on purchased loans. Centennial’s average loan is 25 years in duration.

The following table presents the amounts of Centennial’s outstanding loans, by category, as of the dates indicated.

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The performance of Centennial’s loan portfolio is evaluated on an ongoing basis by its management. Loans are typically classified as non-accrual if they miss three or more contractual payments.   Loans may be returned to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within an acceptable period of time, in accordance with the contractual interest and principal payment terms of interest and principal. While a loan is classified as non-accrual and future collectibility of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to principal outstanding.  When the future collectibility of the recorded loan balance is expected, interest may be recognized on a cash basis. 

The following table sets forth the amount of Centennial’s nonperforming loans as of the dates indicated.

Based on a variety of factors concerning the creditworthiness of its borrowers, the Company determined that Centennial had $.01 million in potential problem loans in existence as of December 31, 2003.

The allowance for loan losses is established through a provision for loan losses.  A loan is charged off against the allowance for loan losses when the Company believes that collectibility of the principal is unlikely.  The allowance is an amount that management believes is adequate to absorb estimable and probable losses on existing loans and contracts. The Company takes into consideration changes in the nature and volume of its portfolio, overall portfolio quality, prior loss experience, review of specific problem loans and contracts, regulatory guidelines and current economic conditions that may affect the borrower’s ability to pay.  Additionally, certain regulatory agencies, as part of their examination process, periodically review the Company’s allowance for loan losses.  These agencies may require adjustments to the allowance based on their judgment regarding information made available to them. See Note 1 to the Consolidated Financial Statements.

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The following table provides certain information with respect to Centennial’s allowance for loan losses, and charge-off and recovery activity, for the periods indicated.