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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2004

Commission File No. 0-21417

CAPITAL TITLE GROUP, INC.

(Name of registrant as specified in its charter)

(480) 624-4200

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.001 par value, 21,351,668 shares as of October 27, 2004.

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CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES

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Part 1. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See Notes to Condensed Consolidated Financial Statements

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CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See Notes to Condensed Consolidated Financial Statements

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CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

See Notes to Condensed Consolidated Financial Statements

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CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See Notes to Condensed Consolidated Financial Statements

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CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

Nine Months Ended September 30, 2004 and 2003

(Unaudited)

Note 1 – Interim Financial Information

The accompanying unaudited condensed consolidated financial statements of Capital Title Group, Inc. and Subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of only normal recurring accruals and intercompany eliminations) necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

Critical Accounting Policies

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management of the Company evaluates estimates and assumptions based upon historical experience and various other factors and circumstances. The Company believes its estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.

Management believes that the estimates and assumptions that are most important to the portrayal of the Company’s financial condition and results of operations, in that they require management’s most difficult, subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to the Company. These critical accounting policies relate to impairment of intangible assets and long lived assets, reserves related to title insurance and escrow losses, determination of fair values of fixed maturity bonds and equity securities, and contingencies and litigation. Management believes estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on the Company’s future financial condition or results of operations. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2003.

As a result of acquiring Nationwide Appraisal Services Corporation (“Nationwide”) (See Note 3), the Company now also generates revenue by providing appraisal and valuation services. Appraisal service revenue is recognized as revenue at the time the appraisal report is provided to the customer, and is presented in the financial statement line item entitled, Appraisal service revenue. Additionally, the Company now also generates revenue by providing flood zone determination reports resulting from an acquisition effective July 1, 2004 of Determination Processing Services, Inc., which was subsequently renamed to Nationwide TotalFlood Services, Inc. (See Note 3). This new revenue stream is generally recognized at the time the flood zone determination report is provided to the customer, and is reflected in Other income in the condensed consolidated statements of operation.

Contract services fees is a new expense item for the Company, resulting from the acquired operations of Nationwide. This expense item includes fees paid to third party appraisers and abstractors who conduct valuation services and title searches throughout the United States.

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CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

Nine Months Ended September 30, 2004 and 2003

Stock Option Plan:

The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, and Interpretation of APB No. 25, issued in March 2000, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Financial Accounting Standards Board (“FASB”) Statement No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by FASB Statement No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of FASB Statement No. 123. The following table illustrates the effect on net income of the fair-value-based method if it had been applied to all outstanding and unvested awards in each period.

Pro forma information regarding net income and earnings per share has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions: risk-free interest rate of 3.1% for 2004 and 2.2% for 2003; dividend yields of 1.6% for 2004 and 0% for 2003; volatility factors of the expected market price of the Company’s common stock was 39% for 2004 and 50% for 2003; and a weighted-average expected life of the options of four years for both 2004 and 2003.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.

Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.

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CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

Nine Months Ended September 30, 2004 and 2003

Note 2 – Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing earnings available to stockholders by the weighted-average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or contracts to issue common stock were exercised or converted to stock or resulted in the issuance of stock that then shared in the earnings or loss of the Company. The assumed exercise of outstanding stock options and warrants have been excluded from the calculations of diluted net loss per share as their effect is antidilutive.

The following table sets forth the computation of basic and diluted EPS:

Note 3 – Acquisition

In July 2004, the Company acquired Determination Processing Services, Inc., which was subsequently renamed Nationwide TotalFlood Services, Inc. (“Nationwide TotalFlood”). Under the terms of the acquisition, approved by the Board of Directors for each company, the purchase price was $1.7 million. The purchase price was financed from cash on hand. The operations of Nationwide TotalFlood have been included in the consolidated financial statements of the Company since July 1, 2004, which was the effective date of the transaction.

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CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

Nine Months Ended September 30, 2004 and 2003

The purchase price, and direct transaction costs were allocated to the assets purchased and liabilities assumed, based on their respective fair values at the date of acquisition. However, changes to the estimates of the fair values of Nationwide’s assets acquired and liabilities assumed may be necessary as evaluations of those assets and liabilities are completed and as additional information becomes available. Included in this allocation of the purchase was $2.0 million of goodwill. The following table summarizes the estimated fair values of the allocation of the purchase price and direct acquisition costs to the assets and liabilities acquired at the date of purchase ($ in thousands):

In May 2004, the Company acquired Nationwide Appraisal Services Corporation (“Nationwide”). Under the terms of the acquisition, approved by the Board of Directors for each company, the Company paid $25.0 million in cash at closing, with $3.0 million in deferred cash consideration payable if certain conditions are satisfied after the closing of the transaction. The purchase price was financed from cash on hand, proceeds from the private placement of common stock and warrants to purchase common stock, and a credit facility from a bank totaling $16.0 million (see Note 4). The credit facility includes a loan bearing interest at a fixed rate of 4.75%. The terms of the credit facility required a $6.0 million payment of principal on September 30, 2004. The remaining $10.0 million balance outstanding under the credit facility will be amortized over a five year period with monthly payments of $166,667 plus interest. The operations of Nationwide have been included in the consolidated financial statements of the Company since May 1, 2004, which was the effective date of the transaction.

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The purchase price, and direct transaction costs were allocated to the assets purchased and liabilities assumed, based on their respective fair values at the date of acquisition. However, changes to the estimates of the fair values of Nationwide’s assets acquired and liabilities assumed may be necessary as evaluations of those assets and liabilities are completed and as additional information becomes available. Included in this allocation of the purchase was $23.2 million of goodwill and two other intangible assets; approximately $50,000 for a covenant not to compete agreements with former stockholders of Nationwide, which is amortized over the three-year term of the agreement, and approximately $456,000 was allocated to Nationwide’s backlog of opened orders, which was fully amortized during the quarter. The following table summarizes the estimated fair values of the allocation of the purchase price and direct acquisition costs to the assets and liabilities acquired at the date of purchase ($ in thousands):

Selected unaudited pro forma combined results of operations for the nine month periods ended September 30, 2004 and 2003, assuming the acquisition of Nationwide occurred on January 1, 2003, as follows (in thousands, except per share data):

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CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

Nine Months Ended September 30, 2004 and 2003

Note 4 – Common Stock Offering

In April 2004, the Company completed a private placement of 2,800,000 shares of common stock to select qualified institutional and other investors at a price of $3.60 per share for aggregate gross proceeds of approximately $10.1 million. The Company also granted to the investors warrants to acquire an aggregate of 560,000 shares of common stock of the Company at an exercise price of $4.00 per share, exercisable for a period of five years. In addition, the Company issued warrants to the placement agents to purchase up to 329,252 shares of common stock of the Company at an exercise price of $4.00 per share. The warrants issued to the placement agents had a fair market value of approximately $0.4 million at the completion date of the private placement. The Company utilized the Black-Scholes Model, a commonly used option pricing model, to determine the fair value of these warrants. The net proceeds from the private placement of common stock were $8.7 million and were used to finance a portion of the purchase price for the acquisition of Nationwide on April 30, 2004.

Note 5 – Segment Information

The Company’s two reportable segments are Title and Escrow Services and Lender Services. Reportable segments are determined based on the organizational structure, types of products and services and market differentiation. The acquisition of Nationwide precipitated the establishment of the Lender Services segment based upon these factors.

As a result, segment information is from May 1, 2004, the acquisition date of Nationwide. Summarized financial information concerning the Company’s reportable segments is presented as follows for the three and nine months ended September 30, 2004 (in thousands):

The activities of the reportable segments include:

Title and Escrow Services

This segment consists of wholly-owned title insurance agencies, a title insurance underwriter and parent holding company operations, including issuance and repayment of corporate debt obligations. This segment generates its revenue principally from issuing title insurance policies and providing escrow services for residential and commercial real estate transactions, services which are typically marketed to real estate agents, community banks and regional lenders in selected local markets.

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CAPITAL TITLE GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

Nine Months Ended September 30, 2004 and 2003

Lender Services

This segment encompasses the Company’s bundled services strategy which includes appraisal and valuation services, title insurance and escrow related services and flood zone determination services, which are marketed to regional and national lenders and mortgage brokers. Unlike the Company’s traditional title and escrow services division, this segment conducts its business on a national scope from centralized processing centers. This segment generates its revenue principally from providing appraisal and valuation services, issuing title insurance policies and providing escrow services as well as flood zone determination reports primarily for lenders involved in residential real estate transactions.

Note 6 – Supplemental Cash Flow Information

The following supplemental cash flow information is provided with respect to interest and tax payments, as well as certain non-cash activities.

Note 7 – Subsequent Events

In October 2004, the Company announced that CTG Real Estate Information Services, a subsidiary of the Company, had executed a definitive agreement to acquire the assets of Real Estate Appraisal Services, Inc. (“REAS”) from Charter One Bank. REAS is a provider of appraisal and flood determination services for residential and commercial property, primarily in 34 counties in five states including branch offices in Illinois, Michigan, New York and Ohio, and had unaudited revenue of $33.6 million for the year ended December 31, 2003. The purchase price was primarily in the form of discounted fees for future appraisal services to be provided by REAS to the seller for a period of three years.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Result of Operations

The following discussion of the results of the operations and financial condition of the Company should be read in conjunction with our condensed consolidated financial statements and notes thereto included elsewhere in this report. Further, our 2003 Form 10-K should be read in conjunction with the following discussion since it contains important information for evaluating our results of operations and financial condition. Historical results and percentage relationships among accounts are not necessarily an indication of trends in operating results for any future period. In these discussions, most percentages and dollar amounts have been rounded to aid presentation. As a result, all such figures are approximations.

Overview

We are engaged in the business of issuing title insurance policies, performing escrow activities, property appraisals and other related services to residential and commercial customers in the real estate and mortgage lending industries. We have two reporting segments: (1) Title and Escrow Services and (2) Lender Services.

Title and Escrow Services

The Title and Escrow Services segment consists of our wholly-owned title insurance agencies, our title insurance underwriter and our corporate operations consisting of our finance, human resources, legal functions and executive management team and includes issuance and repayment of corporate debt obligations. Through our Title and Escrow Services segment, we provide title insurance, escrow and other title related services including collection and trust services, recordings, reconveyances and trustee’s sales guarantees, all of which are services that are typically marketed to customers in the residential and commercial real estate industry. We actively encourage our sales personnel to develop new business relationships with key referral sources in the market, such as real estate sales agents and brokers, financial institutions, local and regional home builders, real estate developers and attorneys. This segment encompasses 130 offices located in Arizona, California and Nevada, and is often described in the industry as the traditional model of marketing title and escrow services to the real estate industry.

Lender Services

In early 2004, we announced our intent to expand our product and service offerings to more directly compete for regional and national real estate lender and mortgage broker business. We envision providing a full “bundle” of real estate lender services so that we can serve as a “one-stop shop” for lenders associated with residential and commercial real estate transactions. We envision this bundle of lender services to include issuance of title insurance policies, property appraisal and valuation services, flood zone determination services, credit evaluation, and other related settlement services to customers. With our acquisition of Nationwide Appraisal Services Corporation, our Lender Services segment now issues title insurance policies and provides escrow services in 37 states, and provides appraisal and valuation services in all 50 states, both through a centralized processing center that markets its services primarily to regional and national lenders and mortgage brokers. We also added flood zone determination services to our Lender Services product offerings via our acquisition of Determination Processing Services, Inc., subsequently renamed Nationwide TotalFlood Services, Inc., which took place effective July 1, 2004. (See Note 3 of the Notes to Condensed Consolidated Financial Statements for a discussion of these acquisitions).

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses our key performance indicators (revenue, pre-tax earnings and net income) and non-financial performance indicators for our Title and Escrow Services segment (opened orders, closed orders, average revenue per closed order), as well as trends and uncertainties affecting our industry and markets and analyzes our liquidity and capital resources.

Historically, residential real estate activity has been generally slower in the winter, when fewer families move, buy or sell homes, with increased volumes in the spring and summer. Residential refinancing activity is generally more uniform throughout the year, subject to interest rate stability. Demand for our title insurance and related

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services generally tracks these seasonal demand patterns of the residential real estate market, although acquisitions of other title insurance companies and changes in mortgage rates may alter these traditional seasonal demand patterns. We typically report our lowest revenue and earnings in the first quarter, with revenue and earnings increasing into the second quarter and through the third quarter and declining again in the fourth quarter.

In a typical residential transaction, a title insurance order is received from a realtor, mortgage lender, developer or buyer. When we receive the order, the title search begins and the title order has now been “opened.” Opened orders began increasing during the latter part of the first quarter 2004, and have remained relatively strong throughout the summer, which translated into improved earnings for both second and third quarter compared to first quarter of 2004. Although we anticipate opened order counts to be lower in 2004 compared to 2003 levels, we are experiencing a stronger mix toward residential resale orders, which result in higher revenue per order than refinance orders. During 2004, we have experienced an increase in the average fee per closed order through the nine months ended September 30, 2004, predominately due to an increase in business mix in favor of residential resale rather than mortgage refinance business, which was particularly strong in 2003. With an anticipated decrease in overall order volume, it is imperative that we closely manage staffing levels and other costs to ensure we retain the optimal mix of superior customer service and profitability. We also anticipate opened order counts to decline in the fourth quarter compared to summer levels, consistent with the traditional seasonal demand patterns, as previously discussed.

When comparing the results of our third quarter to second quarter, we continued to experience a relatively favorable real estate environment, despite increases in mortgage interest rates from historic lows in 2003. However, revenue from our title and escrow services segment was lower due to declining order volume. This decline was offset by increased revenue of $6.3 million from our Lender Services segment. We reported net income before taxes of $9.2 million for the third quarter 2004 compared to net income before taxes of $9.3 million for the second quarter 2004.

Net income before taxes of $9.2 million for the third quarter 2004 was lower than the $9.6 million of net income before taxes reported for the third quarter 2003 primarily due to higher costs in 2004 related to data provider contracts, additional rent related to more office locations and interest expense related to increased debt to finance acquisitions. We also reported a decline in net income before taxes to $19.4 million for the nine months ended September 30, 2004 compared to $24.8 million for the same period in the prior year. The operations related to the acquisition of Nationwide Appraisal Services Corporation and DPSI, which comprise the operations of our Lender Services segment, provided an increase in revenue of $23.0 million. The operations of our Lender Services segment are anticipated to traditionally produce higher margins than our Title and Escrow Services segment, however, we experienced integration and higher processing costs in the second quarter that reduced profitability for the nine months ended September 30, 2004, compared to the same period in the prior year.

Our revenue from title insurance, escrow and related services and appraisal and valuation services is primarily from three sources: residential resale, lender/refinance and commercial real estate transactions. We recognize revenue for our title and escrow services we perform when the corresponding real estate transaction closes. We recognize revenue for the appraisal and valuation services when we have completed the service and delivered the associated report or information. Typically, we receive payment for our services at the time the related real estate transaction closes. In some cases, we bill for services provided, principally related to our lending business, and collect the account receivable at a later date.

Critical Accounting Policies

There have been no material changes in our critical accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2003.

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Results of Operations

The following table presents information regarding the Company’s operating revenue:

Operating Revenue

Our revenue, which is reported net of underwriting fees paid to third party title insurance underwriters, increased by $5.6 million or 8% for the three months ended September 30, 2004 compared to the same period ended September 30, 2003. Operating revenue increased by $11.9 million or 6% for the nine months ended September 30, 2004 compared to the same period ended September 30, 2003. The increase is primarily attributable to the additional operations obtained from the acquisitions of Nationwide Appraisal in May 2004 and Nationwide TotalFlood in July 2004. Revenue related to these two newly acquired operations provided $23.0 million for the nine months ended September 30, 2004, $12.1 million of which related to Appraisal Service revenue.

The decrease in opened and closed orders during the nine months ended September 30, 2004 was the result of a decline in residential mortgage refinancings during 2004 compared to the prior year. The increase in average revenue per closed order reflects the increase in business mix in favor of residential resale transactions, which typically garner higher revenue per order.

The significant components of other income include revenue from flood zone determination services, interest income from invested cash balances and fixed maturity bonds, investment dividends and revenue from servicing seller-financed mortgages. Other income increased as a percentage of revenue for the three months ended

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September 30, 2004 to 4.7% from 1.3% compared to the same period in the prior year. The increase was the result of the inclusion of flood zone determination operations, acquired July 1, 2004 and having a larger fixed maturity bond portfolio during the three months ended September 30, 2004 compared to the same period in the prior year. The increase in percentage of revenue coming from Other income held true for the nine months ended September 30, 2004 as well, due to a larger fixed maturity bond portfolio and invested cash balances, and the inclusion of flood determination operations since July 1, 2004. Other income provided 4.1% of revenue for the nine months ended September 30, 2004 compared to 1.7% for the nine months ended September 30, 2003.

Operating Expenses

The following table presents the components of the Company’s expenses and the percentage they bear to the total revenue for the respective periods:

Overall operating expenses increased $6.0 million or 9.4% and $17.3 million or 10.0% for the three and nine months ended September 30, 2004, respectively compared to the same periods in the prior year. Operating expenses increased as a percentage of revenue to 88.4% and 90.8% for the three month and nine months ended September 30, 2004 compared to 87.0% and 87.4% for the same periods in the prior year, respectively. Operating expenses were higher as a percentage of revenue primarily due to higher costs in 2004 related to data provider contracts and increased rental costs related to expansion of operations into new and existing markets.

Personnel costs are the most significant component of our operating expenses, and consist of salaries and other related expenses, commissions and incentives. Total personnel expenses decreased $0.6 million and increased $2.6 million, or 1.5% and 2.1%, to $43.2 million and $123.8 million for the three and nine months ended September 30, 2004, respectively, compared to the same period in the prior year. Personnel costs were lower for the three months ended September 30, 2004 resulting from a decrease in commissions and incentives due to lower title and escrow revenue compared to the same period in the prior year. Personnel costs were higher for the nine months ended September 30, 2004 resulting from the additional operations acquired as part of our Lender Services segment. Personnel costs were lower, as a percentage of revenue, for the three and nine months ended September 30, 2004 compared to the same periods in the prior year as a result of the mix of revenue coming from the operations of Nationwide which have lower personnel costs due to the use of third party appraisers and abstractors (See Contract service fees below).

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Rent expense increased as a percentage of revenue for the three and nine months ended September 30, 2004 to 5.5% and 5.9% from 5.0% and 5.3%, respectively, for the same periods in the prior year. The increase was the result of additional office space to accommodate further expansion into new and existing markets, and contractual increases in existing leases. Rent expense overall is also higher for the three and nine months ended September 30, 2004 compared to the same periods in the prior year as previously discussed.

Provision for title insurance and escrow losses decreased as a percentage of revenue to 2.0% and 2.2% for the three and nine months ended September 30, 2004, respectively, from 4.2% and 3.8%, respectively, for the same periods in the prior year. This decrease was primarily due to favorable claim experience in both our title and escrow agency operations and insurance underwriting operation. In addition, this percentage will decline as we increase revenue from our appraisal operations, which has no provision for such losses.

Contract service fees is a relatively new line item in our financial statements resulting from the acquisition of Nationwide. This line item relates to fees paid to third party appraisers and abstractors who conduct valuation services and title searches throughout the United States. This expense is variable in relation to the volume of business generated by Nationwide.

Interest expense increased to $0.4 million and $0.9 million for the three and nine months ended September 30, 2004 compared to $0.2 million and $0.7 million, respectively, for the same periods in the prior year. The increase is primarily due to additional debt obtained during 2004 to assist with the financing of the Nationwide Appraisal acquisition.

The significant components of other operating expenses include title plant maintenance and access, supplies, utilities, insurance and allowance for bad debt, depreciation, delivery and professional fees. Other operating expenses increased $0.5 million or 4.1% and $4.8 million or 14.4% to $13.7 million and $38.2 million for the three month and nine months ended September 30, 2004, respectively, compared to $13.1 million and $33.4 million for the same periods in the prior year. The increase in this expense category relates an overall increase in certain expenses in this category, such as telecommunication costs, insurance, depreciation and utilities. Additionally, we experienced an increase in costs related to title plant and other data purchased from third parties, which are typically variable in relation to revenue, but these contractual costs rose in relation to the prior year.

An income tax provision of $3.5 million and $7.6 million was recorded for the three and nine months ended September 30, 2004, respectively, and provided an effective tax rate of 38.0% and 39.3% for the three and nine months ended September 30, 2004, respectively. This compares to an effective tax rate of approximately 39.8% and 39.5%, respectively, for the same periods in the prior year.

Liquidity and Capital Resources